OPINION OF THE COURT
The issue on this appeal is whether the six-year statute of limitations applicable to the insurers' breach of contract counterclaims began to run when they possessed the legal right to demand payment from the insured or years later after they issued invoices. Under the terms of the insurance contracts in this case, we conclude that the counterclaims accrued when the insurers had the right to demand payment.
Plaintiff Hahn Automotive Warehouse, Inc., an auto parts distributor with operations in multiple states, secured general liability, automotive liability and workers' compensation policies from defendants American Zurich Insurance Company and Zurich American Insurance Company (collectively, Zurich) for annual coverage periods between September 1992 and September 2003. Zurich also acted as the claims agent for automobile damage claims for which Hahn was self-insured from March 1997 until September 2003. The complex insurance arrangements at issue in this litigation can be broken into four general categories: (1) policies subject to retrospective premium agreements; (2) adjustable deductible policies; (3) deductible policies; and (4) claim services contracts.
Under the first category—encompassing several policies tied to retrospective premium plans—Hahn's initial premiums were based on estimated expenses and losses. Zurich was contractually required to recalculate the premiums owed 18 months after the policies' inception, with annual adjustments based on actual claims experience for as long as open claims remained. If an adjusted premium exceeded the initial premium. Zurich was to invoice Hahn for the difference. But if the recalculation resulted
Similarly, the adjustable deductible policies—the second type of insurance plan used by the parties—involved the payment of an initial premium to be adjusted annually by Zurich based on actual claims experience, beginning 18 months after policy inception. These policies further required Hahn to pay deductible losses and claim expenses on a monthly or quarterly basis for 42 months, after which such losses and expenses were to be billed annually as part of the premium adjustment process.
In the third category, the deductible policies, Zurich was to pay the submitted claims but could then seek payment from Hahn on a monthly basis for the amounts that fell below the applicable deductible together with "allocated loss adjustment expenses" and other fees. These policies also required Zurich to perform an initial adjustment 18 months after policy inception, followed by yearly adjustments. The deductible policies specified that Hahn "shall pay ... [Zurich] within twenty (20) days of its demand."
Finally, the annual claim services contracts, constituting the fourth category, provided that Zurich would undertake claims handling duties for Hahn with respect to automobile physical damage claims in exchange for a fixed fee per claimant. The contracts also required Hahn to pay estimated fees during the terms of the agreements, with a final reconciliation to be performed by Zurich 12 months after the expiration of each agreement.
Although the contractual relationship between Hahn and Zurich commenced in the early 1990s, it was not until an internal audit of Zurich occurred in 2005 that the insurer discovered that it had not billed Hahn for claim deductibles or allocated loss adjustment expenses in connection with 10 years of claims for two deductible policies (category three policies) issued during the September 1995 to September 1996 policy period. After determining the purported amounts owed, Zurich sent Hahn an invoice in April 2005 seeking payment of $1,123,874. Hahn did not pay the bill.
Almost a year later, on March 2, 2006, Zurich sent Hahn an invoice for an additional $751,514, reflecting annual adjustments it contended were due on a variety of policies subject to
In May 2006, Hahn commenced this action against Zurich alleging four causes of action. The first claim requested a declaration that any of Zurich's bills for debts that arose more than six years before the commencement of the action were time-barred by the relevant statute of limitations. The remaining claims sought damages related to Zurich's allegedly improper use of the letter of credit. Zurich counterclaimed for breach of contract based on Hahn's nonpayment of the amounts billed in the April 2005, March 2, 2006 and March 27, 2006 invoices. Both parties moved for summary judgment.
Supreme Court granted Hahn partial summary judgment on the first cause of action, concluding that "the statute of limitations has run as to all claims for which Zurich had the right to demand payment more than six years prior to the commencement of this action" because the claims accrued when "Zurich had the right to demand payment" (30 Misc.3d 1222[A], 2009 NY Slip Op 52789[U], *4 ). Although the court ruled in favor of Zurich on the letter of credit issue, holding that Zurich properly applied the $400,000 to the outstanding bills, the court did not grant Zurich summary judgment dismissing the second through fourth claims.
The Appellate Division, with one Justice dissenting in part, modified, by dismissing the second, third and fourth causes of action, and otherwise affirmed (81 A.D.3d 1331 [4th Dept 2011]).
Zurich argues that all of the amounts billed in the three invoices are timely because the six-year statute of limitations did not begin to run until 2005 and 2006, when Zurich demanded payment and Hahn refused to pay. Hahn counters that the courts below properly concluded that Zurich's counterclaims accrued much earlier, when it possessed the right to demand payment for the various amounts owed, such that any debts that arose before May 2000 (six years prior to the commencement of this action) are untimely.
Under CPLR 213 (2), a claim for breach of contract is governed by a six-year statute of limitations. As a general principle, the statute of limitations begins to run when a cause of action accrues (see CPLR 203 [a]), that is, "when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court" (Aetna Life & Cas. Co. v Nelson, 67 N.Y.2d 169, 175 ). In contract actions, we have recognized that a claim generally accrues at the time of the breach (see Ely-Cruikshank Co. v Bank of Montreal, 81 N.Y.2d 399, 402 ). And, we have explained further that "when the right to final payment is subject to a condition, the obligation to pay arises and the cause of action accrues, only when the condition has been fulfilled" (John J. Kassner & Co. v City of New York, 46 N.Y.2d 544, 550 ).
A consistent line of Appellate Division precedent holds that, where "the claim is for payment of a sum of money allegedly owed pursuant to a contract, the cause of action accrues when the [party making the claim] possesses a legal right to demand payment" (Minskoff Grant Realty & Mgt. Corp. v 211 Mgr. Corp., 71 A.D.3d 843, 845 [2d Dept 2010]; see also Kuo v Wall St. Mtge.
We agree with Hahn and the Appellate Division majority that it is reasonable to apply this accrual principle to the insurance contracts at issue here and therefore conclude that the statute of limitations on Zurich's counterclaims began to run when it acquired the right to demand payment of the various amounts owed under the policies. Zurich acknowledges that it had the right under its contracts to bill Hahn years earlier for many of the sums reflected in the April 2005, March 2, 2006 and March 27, 2006 invoices—in some instances more than a decade earlier—but failed to do so through inadvertence. Hence, the courts below properly determined that any debts for which Zurich had the legal right to demand payment prior to May 2000, i.e., more than six years before the commencement of this action, are time-barred.
Finally, we are unpersuaded by Zurich's assertion that, consistent with John J. Kassner & Co., its counterclaims could not have accrued until it sent the three invoices between April 2005 and March 2006 because its right to payment under the policies was subject to a condition precedent—Zurich's issuance of a demand for payment. Unlike John J. Kassner & Co., where the plaintiff's right to payment was expressly conditioned on an audit by a third party, Zurich cannot point to any contract
Accordingly, the order of the Appellate Division, insofar as appealed from, should be affirmed, with costs, and the certified question answered in the affirmative.
READ, J. (dissenting).
Plaintiff Hahn Automotive Warehouse, Inc. (Hahn) does not contest the amount of the moneys that it
The majority agrees with Hahn, holding that Zurich's claims are time-barred because it "possessed the legal right" under the insurance contracts "to demand payment" from Hahn more than six years before the invoices were actually sent (majority op at 767). But courts have heretofore uniformly concluded (as did the dissenter below) that the statute of limitations for a claim for unpaid premiums calculated on the basis of claims history does not accrue until the insured refuses payment after demand has been made by the insurer. A breach, if any, would only occur when a due date passes without payment being made. To hold otherwise, as the majority does, creates an illogical situation whereby a claim for breach of contract accrues before the insured knows whether it owes the insurer any money at all, much less how much. In other words, the claim for breach accrues before any breach can possibly occur. Accordingly, I respectfully dissent.
Under the policies at issue, Hahn paid premiums to Zurich and, when loss history became known, Zurich adjusted the various amounts owed under the policies to reflect actual losses and costs. In some cases, Hahn would owe additional moneys to Zurich. In others, a refund would be due Hahn. The majority is "unpersuaded by Zurich's assertion that" in light of these contractual arrangements "its counterclaims could not have accrued until it sent the three invoices ... because its right to payment under the policies was subject to a condition precedent—Zurich's issuance of a demand for payment" (majority op at 771).
The source of the majority's skepticism is the absence of "any contract language unambiguously conditioning Zurich's] right to payment on its own demand," and the presence in the contracts of "specific references to the applicable time periods when Zurich was entitled to calculate adjustments and bill Hahn for the amounts owed" (id.). As to the first point, Zurich was
Further, the Retrospective Premium Agreement, for example, explicitly provided that
The majority takes the position, as I understand it, that under this provision, Zurich had "the legal right to demand payment" for losses and expenses as they factored into the adjustment for the year in which the losses were paid and the expenses incurred; therefore, Zurich was foreclosed by the statute of limitations from recovering for such losses or expenses if it waited more than six years before taking them into account.
But the insurance contracts in this case essentially created a running tally of debits and credits, which remained open until such time as all claims or expenses for a particular policy year were resolved—or, in the words of the above-cited provision, until Zurich "designate[d] an adjustment as being final." It was only at this point, when the final amount of a retrospective premium could be calculated, that a claim would accrue under these policies in the absence of a demand for payment (see e.g. 6-35 Holmes' Appleman on Insurance 2d § 35.3 [with respect to retrospective premiums, "(c)ourts hold that any statute of limitations does not begin to run until a final premium may be
Notably, the majority did not cite a single decision to support its position except Travelers Ins. Co. v Jacob C. Mol, Inc. (898 F.Supp. 528, 531 [WD Mich 1995]). But that case addressed when a claim accrued under Michigan law against a corporation's director for unlawfully dissolving the corporation and distributing its assets to shareholders without first paying a corporate debt; specifically, Travelers' retrospective insurance premium. The court held that Travelers' claim accrued on the date the director approved the unlawful distribution, noting that "the
The majority seems troubled at the prospect that an insurer might unduly delay the running of the statute of limitations by failing to perform or bill for adjustments in a timely manner. In this case, Zurich undertook an extensive audit of accounts, which uncovered the previously unbilled losses and expenses accounted for in the three invoices. In addition, Hahn's agent disputed, or at least said that he did not understand, some of the invoices that Zurich forwarded, which held up reconciliation and billing. But as Zurich points out, Hahn does not claim to have been injured by these delays and no longer questions the accuracy of the amounts computed; Hahn was well aware that it owed Zurich money, having been alerted by specific advice from its broker and his periodic reports, which compared paid loss billings to loss runs. For example, for several years these reports showed that Hahn had not been billed for losses under the general liability and automobile liability program for the period 9/30/95 to 9/30/96. As Zurich remarks, a ruling in its favor is unlikely to "encourage parties who are owed money to refrain from sending out bills in the hope of prolonging the statute of limitations."
Finally, the majority cites Town of Brookhaven v MIC Prop. & Cas. Ins. Corp. (245 A.D.2d 365 [2d Dept 1997]) and State of New York v City of Binghamton (72 A.D.2d 870 [3d Dept 1979]) for the proposition that Zurich should not be permitted to prolong the statute of limitations by neglecting to make a demand for payment. But these are both construction cases where services were performed and payment was then due at a particular time, not a contractual relationship like this one, which contemplates ongoing reconciliation of credits and debits until such time as all the claims arising in the year covered by a policy have been resolved, and a final adjustment made.
Order, insofar as appealed from, affirmed, etc.