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HAHN AUTOMOTIVE v. AMERICAN
18 N.Y.3d 765 (2012)
967 N.E.2d 1187
944 N.Y.S.2d 742
2012 NY Slip Op 2344
HAHN AUTOMOTIVE WAREHOUSE, INC., Respondent,
v.
AMERICAN ZURICH INSURANCE COMPANY et al., Appellants.
No. 57.
Court of Appeals of New York.
Argued February 15, 2012.
Decided March 29, 2012.
Chief Judge LIPPMAN and Judges CIPARICK and JONES concur. with Judge GRAFFEO; Judge READ dissents in a separate opinion in which Judges SMITH and PIGOTT concur.
GRAFFEO, J. 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
in a lesser premium than initially paid, Zurich would owe Hahn a refund. Any amounts owed by Hahn were to be paid "within ten (10) days of receipt of [Zurich's] demand" for payment. 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."
1. Zurich previously sent Hahn adjustment invoices for these policies in 1998, 1999 and 2003, but Hahn did not pay them because it did not understand the complex calculations. Zurich voided those bills when it submitted the March 2, 2006 adjustment invoice.
2. In June 2006, Zurich submitted a fourth invoice to Hahn relating to additional adjustments pertaining to policies subject to the category one retrospective premium agreements and category two adjustable deductible polices. This invoice reflected a net refund to Hahn of $262,480, which Zurich refused to credit because Hahn had failed to pay the previous three bills.
3. Because Hahn did not cross-appeal, the Appellate Division's dismissal of the second through fourth claims on Zurich's use of the letter of credit is not before us.
4. Counterclaims are "deemed interposed when the plaintiff filed the main action" (Siegel, NY Prac § 48, at 67 [5th ed]; see also CPLR 203 [d]).
5. We reject Zurich's contention, accepted by the dissent, that we should adopt an accrual-upon-demand rule for the retrospective insurance arrangements at issue. Although the insurance policies and adjustment formulas were complex, Zurich does not dispute that it had the ability to calculate the relevant adjustments and submit invoices years earlier, but failed to do so through its own oversight. In support of an accrual-upon-demand rule, the dissent cites a number of federal district court cases, including Continental Ins. Co. v Coyne Intl. Entertainment Corp. (700 F.Supp.2d 207 [ND NY 2010]), Potomac Ins. Co. of Ill. v Richmond Home Needs Servs., Inc. (2006 WL 2521283, 2006 US Dist LEXIS 62224 [SD NY 2006]) and Liberty Mut. Ins. Co. v Precision Valve Corp. (402 F.Supp.2d 481 [SD NY 2005]). But each of these cases provided little analysis, relying instead on an Appellate Division case that involved neither an insurance agreement nor a sum of money owed by one party to another pursuant to a contract (see Russack v Weinstein, 291 A.D.2d 439 [2d Dept 2002]). Moreover, the dissent's citation to Continental Cas. Co. v Stronghold Ins. Co., Ltd. (77 F.3d 16 [2d Cir 1996]) is misplaced. Continental involved a claim by a reinsured against reinsurers, wherein the Second Circuit held that the reinsured's obligation to give notice to the reinsurers of the underlying claims was a condition precedent to payment, reasoning that such conditions are common in insurance contracts because they "allow[] the insurance company time to investigate and pay the claim" (id. at 20). Here, in contrast, the relevant policies contain no condition precedent and Zurich did not need to give Hahn any time to investigate. Finally, although the case law is sparse, we note that there is precedent contrary to the dissent's accrual-upon-demand rule in the context of retrospective insurance agreements (see Travelers Ins. Co. v Jacob C. Mol, Inc., 898 F.Supp. 528, 531 [WD Mich 1995] ["Travelers argues that the claim could not accrue until it sent its bill for the premium. However, ... Travelers conceded that there is no duty on Travelers to send its retrospective premium notice at any fixed point in the future. Thus, theoretically, Travelers could keep an account open for many years before sending its bill and, under its theory, delay indefinitely the accrual of its claim. This would, of course, put the operation of the statute of limitations under the sole control of Travelers"]).
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