Ario as Liquidator of Reliance Ins. Co. v. Underwriting Members of Lloyd’s of London Syndicates.
(Commonwealth Court of Pennsylvania, June 4, 2010)
In this reinsurance action brought by the Liquidator for payment, the parties to a reinsurance contract filed respective motions for summary judgment as to two issues: whether the Liquidator's action is barred by the statute of limitations; and, if not, whether late notice of the claim relieved the defendants, Lloyd's of London Syndicates of any obligation under the reinsurance contract.
In 1998, Reliance Insurance Company, acting through broker, J & H Marsh & McLennan, Inc. (Marsh), issued a commercial property insurance policy to Consolidated Edison (ConEd). Reliance ceded its liability under the ConEd policy by entering into two facultative reinsurance agreements. One brokerage, AON, placed 20% of the reinsurance coverage with seven Lloyd's of London Syndicates and Marsh placed 80% of the reinsurance coverage with twelve Lloyd's of London Syndicates. As participants in the 80% of reinsurance coverage placed through Marsh, Syndicate 33 agreed to cover 16.6667% and Syndicate 205 agreed to cover 2.5%..
On September 27, 1998, ConEd sustained damage at its Arthur Kill substation in New York as a result of a lightening strike. In 2000, Reliance paid $1.24 million for damage to the property. Thereafter, Reliance promptly sent notice of its claim for indemnity but mistakenly directed it to only AON, which was not the broker responsible for the portion of reinsurance provided by Syndicates 33 and 205 (Syndicates). Notice of the claim against the Syndicates should have been provided to Marsh as the broker responsible for the portion of the coverage provided by each of the two Syndicates.
Thereafter Reliance was placed in liquidation in 2001 and did not identify the billing error on the reinsurance covering the Arthur Kill claim until 2008. After recognizing the mistake, the Liquidator provided notification of the claim. The Syndicates denied the claim as out of time and the Liquidator filed the present action asserting a statute of limitations defense, claiming that the cause of action accrued when the right to indemnification arose upon payment of the underlying claim in 2000 and the six year limitations period applicable in England had expired. The Syndicates further asserted that even if not time barred, the cause of action failed due to late notice of the claim. The Liquidator cross-moved, asserting that the cause of action accrued when the Syndicates denied the claim in 2008 and the action was filed well within Pennsylvania's four year limitations period. The Liquidator further asserted that inasmuch as the reinsurance contract did not specify a time in which notice was required, the eight year delay in providing notice of the claim does not excuse the Syndicates performance under the reinsurance contract.
Under Pennsylvania’s borrowing statute and case law precedent in Griffith v. United Air Lines, Inc. 416 Pa.1(1964) regarding choice of law principles and conflicts analysis, the court determined that the Griffith analysis applied where the parties disagreed as to the substantive cause of the action (i.e., one party contended it was based on indemnity arising when the underlying indemnified obligation was paid, while the other claimed it is a breach of contract arising when the claim for payment under the reinsurance contract was denied).
Thus, after first applying Pennsylvannia’s choice of law rules regarding the relevant contacts, the court applied New York law to determine the elements of the action so as to identify the final event necessary to trigger the statue of limitation. Under this approach the court determined the cause of action asserted by the Liquidator for breach of contract did not accrue until the demand for payment under the policy was made and then denied (i.e., in 2008). The court further concluded that the statutory limitation period that would act to bar the claim would be the four-year limitation period applicable to contract actions in Pennsylvania. However, as the action was filed only months after it accrued, the particular statutory limitations period was irrelevant, as the action was timely filed under either Pennsylvania or New York law. Thus, the Syndicates' motion for summary judgment was denied. The Court also denied Liquidator’s motion finding issues of fact as to prejudice and late notice.
A copy of the decision can be found here
Paul Steck and Jeffrey Kingsley