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Ario v. Underwriting Members of Lloyd's of London Syndicates 33

June 4, 2010



AND NOW, this 16th day of June, 2010, IT IS HEREBY ORDERED that the above-captioned single-judge opinion filed June 4, 2010, shall be designated OPINION rather than MEMORANDUM OPINION and it shall be reported.



In this action by the Liquidator for payment pursuant to a contract of reinsurance, the parties have filed cross-motions for summary judgment raising two issues: (1) whether the Liquidator's action is barred by the statute of limitations; and, if not, (2) whether late notice of the claim relieved the defendants, Lloyd's of London Syndicates 33 and 205 (Syndicates) of any obligation under the reinsurance contract.*fn1

In 1998, Reliance Insurance Company, acting through the New York office of broker, J&H Marsh & McLennan, Inc. (Marsh), issued a commercial property insurance policy to Consolidated Edison (ConEd). Reliance promptly 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%.*fn2

Lloyd's of London operates as an insurance marketplace where separate Syndicates funded by individuals (known as "names") and by corporate entities (known as "corporates"), collectively "members," who may be located anywhere in the world, acting through managing agents, agree to insure certain risks. In placing the 80% portion of the reinsurance coverage, Marsh's New York office, acting as broker for Reliance, submitted to Marsh's London office the "reinsurance slip" containing the relevant information on the terms and conditions of coverage requested. Marsh's London office submitted the slips to the managing agents acting on behalf of various Syndicates and eventually forwarded to the New York office the cover note identifying the Syndicates willing to provide coverage, the terms thereof and the percentage of each Syndicate's participation.*fn3 The cover note states the premium for coverage as well as the policy limits, deductibles and insurable values in United States dollars. The Lloyd's underwriters agreed to classify the reinsurance as "U.S. Reinsurance" thereby bringing the reinsurance coverage within the ambit of the Lloyd's American Trust Funds under the supervision of the New York Insurance Department.*fn4

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 $1,237,795.17 for damage to the Arthur Kill property. Thereafter, Reliance promptly sent notice of its claim for indemnity but directed it mistakenly 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.

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. After the Syndicates filed an answer with new matter, asserting a statute of limitations defense, they filed the present motion for summary judgment, asserting 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 assert that even if not time barred, the cause of action fails due to grossly 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 asserts 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.

Summary judgment may be granted where there is no genuine issue of material fact in dispute and the moving party is entitled to judgment as a matter of law. Swords v. Harleysville Ins. Co., 584 Pa. 382, 390, 883 A.2d 562, 566 (2005); Moyer v. Rubright, 651 A.2d 1139, 1141 (Pa. Super. 1994). Here, there exists no dispute that the submitted claim is covered under the policy, that the Liquidator provided notice of the claim to the defendant Syndicates approximately eight years after payment to the original insured on the underlying claim and that the Liquidator filed the instant lawsuit within months of the Syndicates refusal to pay under the reinsurance contract. As to whether the action is time barred under the statute of limitations, the crux of the matter turns on when the cause of action accrued. If this occurred when Reliance paid on the underlying claim in 2000, the action is too late under any possibly applicable statute of limitations, and if the date of denial in 2008 triggered the limitations period, the action is timely under any applicable statute. When the cause of action accrued and, thus, whether it is barred is purely a question of law that may be decided on summary judgment. However, whether the delay in providing Syndicates with notice of the claim excuses their performance under the contract is a fact-dependant question.

Statute of Limitations

In their briefs, the parties agree that the applicable statutory limitations period must be determined under Pennsylvania's borrowing statute, which provides that, "the period of limitations applicable to a claim accruing outside this Commonwealth shall be either that provided or prescribed by the law of the place where the claim accrued or by the law of this Commonwealth, whichever first bars the claim." 42 Pa. C.S. § 5521(b). The parties disagree as to where the cause of action arose and what occurrence triggered the limitations period.

In a confounding analysis, the Syndicates begin their argument with the assertion that:

When Defendants rejected Plaintiff's claim for indemnity through its representatives physically located in England, Plaintiff's cause of action accrued in England. It is undisputed here that "the final significant event" essential to Plaintiff's breach of contract claim (the denial by Defendants of Plaintiff's request for reinsurance), the place in which the reinsurance agreement was made between the insurance intermediaries and Defendants, and all other events relevant to this matter occurred in England.

Syndicates' Brief at 15. Having apparently accepted the premise, also asserted by the Liquidator, that the action accrued when payment of reinsurance was denied, the Syndicates then nevertheless point to four British cases as support for the different assertion that the cause of action accrued in 2000 when Reliance paid ConEd. The Syndicates conclude that inasmuch as the Liquidator filed the instant suit more than six years after the payment to ConEd, British law first bars the suit and is, therefore, applicable under the borrowing statute.*fn5

In its argument, the Liquidator applies the borrowing statute to a choice between the statute of limitations in Pennsylvania, the forum state, or that applicable in New York, the state where according to the Liquidator the cause of action accrued, and concludes that Pennsylvania's four year limitation period applies, that being shorter than New York's six year limitation. The Liquidator contends that the cause of action accrued when the Syndicates breached the reinsurance contract by refusing to make payment and it accrued in New York, where the injury, i.e., the economic harm from non-payment, was felt. In his reply brief, the Liquidator, disagreeing with the Syndicates' premise that the cause of action is one for indemnification, contends that given that reinsurance is simply a contractual agreement to insure a primary insurer and given that Section 534 of the Insurance Department Act of 1921, 40 P.S. § 221.34, operates to make reinsurance an asset of an insolvent cedant's estate, any attributes reinsurance may share with indemnification are much diminished if not lost entirely. Plaintiff's Reply Brief at 6-7. In addition, each party, pointing out that the statute of limitations is a procedural provision, disagrees with what it characterizes as the other party's analysis of the jurisdictional contacts and interests in support of their respective contentions as to where the cause of action arose.

In Pennsylvania, the law of the forum governs the time in which a cause of action must be commenced. Unisys Finance Corp. v. U.S. Vision, Inc., 630 A.2d 55, 58 (Pa. Super. 1993); Gwaltney v. Stone, 564 A.2d 498, 502 (Pa. Super. 1989). The borrowing statute, known as the Uniform Statute of Limitations on Foreign Claims Act, 42 Pa. C.S. § 5521, establishes the time in which an action accruing out-of-state will be time barred. Thus, the statute provides a very particular rule for resolving conflicting limitations periods. However, for resolution of substantive conflicts we must turn to the analysis prescribed under Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964).

Under Griffith, the choice of law determination looks to the law of the jurisdiction with the most significant relationship to the occurrence and the parties, placing importance on analysis of the policies underlying the conflicting laws and the relationship of the particular contacts to those policies.*fn6 Id. at 15, 203 A.2d at 802. Proper application of the analysis depends not on a mere counting of contacts with the respective jurisdictions; the contacts must be measured on a qualitative rather than a quantitative scale. Caputo v. Allstate Ins. Co., 495 A.2d 959, 961 (Pa. Super. 1985).

As aptly described by our Superior Court, "Substantive law is the portion of the law which creates the rights and duties of the parties to a judicial proceeding whereas procedural law is the set of rules which prescribe the steps by which the parties may have their respective rights and duties judicially enforced." Wilson v. Transport Ins. Co., 889 A.2d 563, 571 (Pa. Super. 2005) [quoting Ferraro v. McCarthy-Pascuzzo, 777 A.2d 1128, 1137 (Pa. Super. 2001)]. Here the parties raise an issue of substantive law. At root, they disagree as to what the cause of action is -- one for indemnity arising when the underlying indemnified obligation was paid or one ...

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