March 29 (Reuters) - An insurance company cannot collect
more than $1.2 million it is owed by an auto parts supplier
because it waited too long to send the bill, a 4-3 New York Court of Appeals ruled on Thursday.
Affirming a lower court decision, the majority held that
American Zurich Insurance Company's claims against Hahn
Automotive Warehouse in Rochester were barred by New York's
six-year statute of limitations for breach of contract. The
company had argued that the clock began ticking when it sent
bills in 2005 and 2006 for money owed from as far back as 1995.
"The statute of limitations...was triggered when (Zurich) had
the right to demand payment, not when it actually made the
demand," Judge Victoria Graffeo wrote for the court. "To hold
otherwise would allow Zurich to extend the statute of
limitations indefinitely by simply failing to make a demand" for
Chief Judge Jonathan Lippman and Judges Carmen Ciparick and
Theodore Jones concurred.
Hahn purchased general and automotive liability and workers'
compensation insurance from Zurich for annual periods between
1992 and 2003. Some of the policies required Zurich to
periodically recalculate premiums and either bill for any money
owed or refund the balance.
During a 2005 audit, Zurich discovered that it had failed to
bill Hahn for various adjustments totaling about $1.9 million,
and that it owed Hahn about $260,000 in refunds. Zurich sent
Hahn three invoices in 2005 and 2006, but Hahn refused to pay.
In 2006, Hahn filed suit, seeking a declaration that Zurich's
demand for payment was time-barred.
The insurance company counterclaimed for breach of contract.
State Supreme Court Justice Kenneth Fisher granted Hahn
summary judgment on the statute of limitations claim.
Last year, a split panel of the Appellate Division, Fourth Department affirmed that part of the decision, but modified by
permitting Zurich to draw $400,000 from a line of credit opened
The Court of Appeals on Thursday upheld the Fourth
"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," Graffeo wrote.
In dissent, Judge Susan Read, joined by Judges Eugene Pigott
and Robert Smith, said that because Zurich was required to
periodically recalculate premiums and bill Hahn for the
difference, the statute of limitations did not accrue until Hahn
knew how much it owed and refused to pay.
"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," Read wrote.
State and federal courts have come down on different sides of
the issue, said Michael Wolford, who represented Hahn.
While Thursday's ruling adheres to a long line of state
court precedent, he said, several federal courts have held that
the statute of limitations begins to accrue only when an insurer
makes a demand for payment.
Zurich's attorney, Michael Willett of Damon Morey, did not
return a call seeking comment.
The case is Hahn Automotive Warehouse, Inc. v. American
Zurich Insurance Company and Zurich American Insurance Company,
New York State Court of Appeals, No. 57.
For Hahn: Michael Wolford of the Wolford Law Firm
For Zurich: Michael Willett of Damon Morey
(Reporting by Dan Wiessner)
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