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Wednesday 22nd of August 2012

STARTING TIME OF STATUTE OF LIMITATIONS

Divided Court Holds That in Demand Cases, Contract Statute of Limitations Starts Not When Demand for Payment Is Made, But When Right to Make the Demand Arises

 
In certain instances a demand may be necessary before a claim in a contract situation can be said to accrue (so as to start the running of the statute of limitations).  CPLR 206(a) is in point on that, providing that when a demand is necessary, time starts “when the right to make the demand is complete”.  The statute lists some exceptions, however, the most notable of which is in CPLR 206(a)(2): that most typical of instances in which a depositor seeks to withdraw money from an ordinary bank account.  There a demand is a pre­requisite. 
In other situations in which a demand may play a role, not listed in the statute and reliably more complicated, the whole case may turn on the “demand” issue, and yet statutory guidance is lacking.  Caselaw must then be looked to.
 
Henceforth to be a leading case on the subject is the Court of Appeals’ most recent decision on point, Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 944 N.Y.S.2d 742 (March 29, 2012), but it’s a 4-3 decision destined to be at best a perplexing guidepost.
In Hahn, the plaintiff insured (P) had a detailed arrangement with the insurer (D) to cover the various potential liabilities arising out of P’s auto parts operations.  The policies fell into four different categories, with premiums part of a complex arrangement, even contemplating some “retrospective” calculations, i.e., calculations based on facts to be acted on and invoiced at a later time. 
 
As described in the dissenting opinion in Hahn, written by Judge Read,
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 ... until [the insurer, D] designated 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. 
To the dissent, a key element in the arrangement was therefore the making of a demand for payment by D.  In the dissenters’ reading, no claim for payment could “accrue” until then and hence the statute of limitations would not start until then.  To them, therefore, the insurer’s claims were timely because brought within six years of its demand. 
 
To the majority, however, in an opinion written by Judge Graffeo, accrual of the claim occurred when the insurer’s right to make the demand was ripe, and not that later time of an actual demand. 
 
The Court relies in large measure on a “consistent line of Appellate Division precedent” holding that the claim accrues, and the statute starts, when the claimant has the legal right to make the demand.  In those appellate division decisions, the statute “was triggered when the party that was owed money had the right to demand payment, not when it actually made the demand”. 
 
The majority stresses that D even acknowledged that it could have billed P “years earlier”.  Hence to uphold D’s position, says the Court, would allow a similarly situated defendant “to extend the statute of limitations indefinitely” merely by withholding a demand. 
 
The dissent’s response is that the arrangements here explicitly contemplated the spacing of calculations of sums due, and that under the majority’s ruling the claim could accrue – and become barred by the statute of limitations – before the insured could even know “whether it owes the insurer any money at all, much less how much”.
 
New York State Bar Association Publication, July 24, 2012.  Editor:  DAVID D. SIEGEL