Opinion
2006/5800.
Decided June 2, 2009.
Defendants, American Zurich Insurance Company, Inc. and Zurich American Insurance Company, Inc., move pursuant to CPLR 3212 for an order granting summary judgment: (1) with respect to plaintiff's first cause of action, entering a judgment declaring that plaintiff is obligated to defendants for the amounts set forth on the invoices dated April 29, 2005, March 2, 2006, and March 27, 2006 and further declaring that the statute of limitations does not bar defendants' claims; (2) dismissing the second, third, and fourth causes of action; (3) establishing liability on plaintiff's part for each of the nineteen counterclaims in the second verified amended answer with counterclaims, with interest; and (4) dismissing all of the affirmative defenses in plaintiff's reply to defendants' counterclaims.
Plaintiff, Hahn Automotive Warehouse, Inc., cross moves for an order: (1) granting partial summary judgment pursuant to CPLR 3212(e) on the first cause of action for a declaration that the statute of limitations bars any claim by defendants seeking to collect amounts that could have been billed to Hahn more than six years prior to commencement of this action; and (2) granting partial summary judgment on Hahn's third affirmative defense raised in response to the counterclaims.
Plaintiff's complaint, filed on May 19, 2006, states four causes of action: (1) first cause of action seeking a declaratory judgment, and alleging that Zurich agreed to provide coverage and administer claims on plaintiff's behalf, that the right to payment arose at the time Zurich provided the services or paid amounts on plaintiff's behalf, and that Zurich's claims for the amounts set forth on the invoices paid or performed more than six years ago are barred by the statute of limitations; (2) second cause of action for breach of contract, alleging Zurich agreed to provide insurance coverage, that plaintiff obtained a Letter of Credit in Zurich's favor in partial consideration, that Zurich agreed not to draw down on the Letter of Credit unless authorized by Hahn, and that nevertheless, Zurich drew down on the Letter of Credit without authorization; (3) third cause of action for conversion, alleging Zurich improperly converted $400,000 of plaintiff's funds when it drew down the letter of credit, and that Zurich had agreed not to draw down without plaintiff's authorization; and (4) fourth cause of action for unjust enrichment, alleging Zurich has held and continues to hold money wrongfully obtained from plaintiff through a Letter of Credit, thus leading Zurich to become unjustly enriched.
Zurich's Second Verified Amended Answer with Counterclaims alleging nineteen counterclaims: (1) first counterclaim, alleging plaintiff failed to reimburse Zurich $1,015,570.92 pursuant to a Deductible Agreement entered into in conjunction with "New York Business Auto Policy" No. XXXXXXXX32-03 evidenced by invoice dated April 29, 2005; (2) second counterclaim, alleging plaintiff failed to reimburse Zurich $108,303.35 pursuant to "Deductible Agreement" entered into in conjunction with a policy of Commercial General Liability Insurance No. XXXXXXXX31-04 evidenced by an invoice dated April 29, 2005; (3) third counterclaim, alleging that plaintiff failed to reimburse Zurich pursuant to a "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with the issuance of a Workers' Compensation and Employers' Liability Insurance Policy No. XXXXXX42-01, evidenced by an "Adjustment Invoice" dated March 2, 2006 in the amount of $37,490.00 for the period September 20, 1995 to September 30, 1996; (4) fourth counterclaim, alleging plaintiff failed to reimburse pursuant to "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with Workers' Compensation and Employers' Liability Insurance Policy Nos. XXXXXXX96-01 and XXXXXXX42-00, evidenced by an "Adjustment Invoice" dated March 2, 2006 in the amount of $297,226.00 for the period from September 30, 1994 to September 30, 1995; (5) fifth counterclaim, alleging plaintiff failed to reimburse pursuant to a "Retrospective Premium Agreement" and "Premium Payment Agreement" entered into in conjunction with a Workers' Compensation and Employers' Liability Insurance Policy Nos. XXXXXXXX31-01 and XXXXXXX00-01, evidenced by an "Adjustment Invoice" dated March 2, 2006 in the amount of $105,913.00 for the period from September 30, 1993 to September 30, 1994; (6) sixth counterclaim, alleging plaintiff failed to reimburse pursuant to a "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with a Workers' Compensation and Employers; Liability Insurance policy No. XXXXXXX96-00, evidenced by an "Adjustment Invoice" dated March 2, 2006 in the amount of $262,541.00 for the period from September 30, 1993 to September 30, 1994; (7) seventh counterclaim, alleging plaintiff failed to reimburse pursuant to a "Retrospective Premium Agreement" entered into in conjunction with the issuance of policy Nos. XXXXXXX32-00 ("Business Auto Policy", XXXXXXXX31-00 (Commercial General Liability), and XXXXXXX00-00 (Workers' Compensation and Employers' Liability Insurance), evidenced by an "Adjustment Invoice" dated March 2, 2006 in the amount of $34,009.00 for the period from September 30, 1992 to September 30, 1993; (8) eighth counterclaim, alleging plaintiff failed to reimburse pursuant to a "Deductible Agreement" entered into in conjunction with a Workers' Compensation and Employers' Liability Insurance policy No. XXXXXXX96-08, evidenced by an "Adjustment Invoice" dated June 2, 2006 in the amount of $15,000.00 for the period from September 30, 2001 to September 30, 2002; (9) ninth counterclaim, alleging plaintiff failed to reimburse pursuant to a "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with a Workers' Compensation and Employers' Liability Insurance policy No. XXXXXXXX96-02, evidenced by an "Adjustment Invoice" dated June 2, 2006 in the amount of $2,090.00 for the period from September 30, 1995 to September 30, 1996; (10) tenth cause of action, alleging plaintiff failed to reimburse pursuant to a "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with a Workers' Compensation and Employers' Liability Insurance policy No. XXXXXXX96-01, evidenced by an "Adjustment Invoice" dated June 2, 2006 in the amount of $370.00 for the period from September 30, 1994 to September 30, 1995; (11) eleventh counterclaim, alleging plaintiff failed to reimburse pursuant to a "Workers' Compensation Deductible and Premium Payment Agreement" entered into in conjunction with a Workers' Compensation and Employers' Liability Insurance policy No. XXXXXXX96-00, evidenced by an "Adjustment Invoice" dated June 2, 2006 in the amount of $50,124.00 for the period from September 30, 1993 to September 30, 1994; (12) twelfth counterclaim, alleging the parties entered into a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" to be used for claim or loss payments and to pay Zurich the charges and fees set forth in the "Claim Services Contract", evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $9,241.04 for the period from March 1, 1997 to March 1, 1998; (13) thirteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $5,301.16 for the period from March 1, 1998 to September 30, 1998; (14) fourteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $10,679.56 for the period from September 30, 1998 to September 30, 1999; (15) fifteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $12,110.32 for the period from September 30, 1999 to September 30, 2000; (16) sixteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $4,527.40 for the period from September 30, 2000 to September 30, 2001; (17) seventeenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $24,487.89 for the period from September 30, 2001 to September 30, 2002; (18) eighteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $5,268.34 for the period from September 30, 2002 to September 30, 2003; and (19) nineteenth counterclaim, alleging plaintiff entered in a "Claim Services Contract" wherein plaintiff agreed to fund a "Loss Fund Account" as described above, evidenced by an invoice sent to plaintiff on March 27, 2006 in the amount of $14,335.00 for the period from September 30, 2002 to September 30, 2003.
In reply to the counterclaims, plaintiff sets forth the following affirmative defenses: failure to state a cause of action; failure to mitigate; statute of limitations; laches; waiver and/or estoppel; failure to provide goods and services in breach of parties' agreement; and statute of frauds.
This action arises out of various insurance coverages and claims administration services provided to Hahn by Zurich from 1992 through 1996. Zurich also provided claims administration services whereby it paid claims and administered Hahn's automotive physical damage claims from 1997 through 2003. The dispute herein centers upon invoices sent to Hahn by Zurich in 2005 and 2006 wherein Hahn sought more than two million dollars allegedly due under these arrangements. Hahn commenced this action on May 19, 2006, seeking a declaration that certain amounts claimed by Zurich against Hahn are barred by the statute of limitations because Zurich was entitled to bill Hahn for the amounts sought long ago. Zurich's counterclaims, set forth above, seek to collect the full amount allegedly owed under these arrangements.
Years after the inception of many of the policies, Zurich discovered that it had failed to seek reimbursement from Hahn on many claims paid out. On April 29, 2005, Zurich invoices Hahn $1,123,871.27 for amounts purportedly owed by Hahn under the 1995-1996 automotive and general liability policies. It is alleged that Zurich had failed to properly set the policies up in its billing system.
As to several "adjustable" policies covering 1992 through 1995, Zurich also provided various forms of insurance coverage and was entitled to adjust the amounts owed based upon actual and expected losses. Zurich attempted to perform the required adjustment beginning in 1998, again in 1999, and again in 2003. Hahn's insurance broker determined that the adjustments were not understandable and requested an explanation. In response, it is alleged that Zurich also admitted it did not understand the adjustments. See Affidavit of M. Schrayer, ¶ 28. The evidence before the court highlights that Zurich's inability to make the proper calculations resulted from internal problems in making proper calculations. See Plaintiff's Exhibit L, Deposition Ex. 10; Exhibit M, Deposition Ex. 13. Zurich was still trying to calculate the adjustments through 2005. See Plaintiff's Exhibit O, Deposition Ex. 17. On March 2, 2006, Zurich invoiced Hahn for an additional $751,514, consisting primarily of loss billings and premium adjustments for the adjustable policies issued for 1992 through 1995 policy years.
Zurich also did not bill Hahn under claims administration contracts covering the period 1997 through 2003 until 2006. Again, the allegation is that the contracts were not set up properly in Zurich's billing system, an error discovered by Zurich in 2006. See Plaintiff's Exhibit P, Deposition Ex. 20. On March 27, 2006, Zurich sent Hahn an invoice for $71,615.71 for claims services provided under claims services contracts from 1997 through 2003.
Hahn obtained a $400,000 Letter of Credit in Zurich's favor through Fleet bank. Hahn protested Zurich's intentions to draw down on the Letter of Credit to pay the April 2005 invoice, discussed supra. Zurich seized the Letter of Credit on February 24, 2006. As noted above, on March 2, 2006, Zurich rendered the March 2006 invoice seeking over $750,000 in additional charges for policies related to the 1992 to 1995 time period. On March 27, 2006, a Zurich representative stated to Hahn that the Letter of Credit had been used to pay the retrospective adjustment. On April 3, 2006, Hahn wrote to Zurich, protesting the use of the Letter of Credit, as well as protesting the use of the fund to pay the amounts sought in the March 2006 invoice.
First Cause of Action
Plaintiff's first cause of action seeks a declaration that defendants' right to payment arose at the time Zurich provided the services or paid amounts on plaintiff's behalf, and that Zurich's claims for the amounts set forth on the invoices paid or performed more than six years ago are barred by the statute of limitations. Zurich's claims are set forth in the nineteen counterclaims contained in the Second Amended Answer and fall within one of four categories: "Retrospective Premium Agreements," "Adjustable Deductible Policies," "Deductible Policies," and "Claim Services Contracts." Zurich contends that the claims it asserts, requiring calculation and a demand for payment, accrue only when the demand is made and payment is refused. Consequently, Zurich concludes that its claims are timely.
Discerning the accrual date of each of the counterclaims is essential. Generally a cause of action on a contract accrues when the extent of damages is ascertainable, see Blue Cross of Western New York, Inc. v. BOCES of Orleans-Niagara Counties, 187 AD2d 933 (4th Dept. 1992), and "when all 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 NY2d 169, 175 (1986), citing 1 Weinstein-Korn-Miller, New York Civ. Prac. ¶ 201.02, at 2-9. A breach occurs "when the plaintiff possesses a legal right to demand payment.'" Kingsley Arms, Inc. v. Copake-Taconic Hills Cent. Sch. Dist. , 9 AD3d 696 , 698 (3d Dept. 2004), quoting Albany Specialties v. Shenendehowa Cent. Sch. Dist., 307 AD2d 514, 516 (3d Dept. 2003). Thus, the inquiry is not when Zurich demanded payment, "but when the insurance company first had the opportunity" to demand payment as of right. Aetna, 67 NY2d at 175.
The statute of limitations on a claim cannot be avoided by failing to enforce rights and failing to make a demand which a party has a right to make. See Town of Brookhaven v. MIC Property and Casualty Ins. Corp., 245 AD2d 365, 365 (2d Dept. 1997); Chesapeake Ins. Co., Ltd v. IOA Ltd., 1994 WL 854658, at *1 (Sup. Ct. NY Co. 1994) ("Respondent could have submitted the requisite statements at the end of each management period and demanded payment under the terms of the contract. The fact that it chose not to do so cannot now be used by it to toll the statute of limitations").
For the policies at issue herein, 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. The statute of limitations began to run when the claims accrued and Zurich had the right to demand payment, i.e., when the policies, as set forth below, required Zurich to provide billings to Hahn.
Retrospective Premium Agreements
For the period from September 30, 1992 to September 30, 1993, Zurich issued three types of policies to plaintiff: Business Auto, General Liability, and Workers' Compensation. See Defendants' Exhibits H-J. Each of these policies was made subject to a Retrospective Premium Agreement. See Defendants' Exhibit K. Likewise, Retrospective Premium Agreements were in place for certain coverages applicable to the period from September 30, 1993 through September 30, 1994 on policies for General Liability and Workers' Compensation.
A Retrospective Premium Agreement is a policy whereby the insured's premium is determined at its inception based upon estimated exposures and losses. See Affidavit of J. Routon dated January 23, 2009 at ¶ 8. "Eighteen months after the policy's inception, and annually thereafter, the premium is re-calculated based on audited exposers and actual claims experience. If the re-calculated premium exceeds the estimated amount, the policy holder is required to pay additional premium." Id. The Retrospective Premium Agreement describes when payment is due:
2. Annual Policy Period Premium Computation Option. Based upon the selection of the Annual Policy Period Option in the Information Pages, the Company shall compute and the Insured shall pay to the Company within ten (10) days of receipt of its demand therefore, Earned Retrospective Premium based upon Incurred Losses valued as if a date six (6) months after the expiration of each such period, as soon as practicable after such valuation. Additional Earned Retrospective Premium Adjustments shall be computed by the Company based upon Incurred Losses valued annually thereafter as soon as practicable after such valuation dates, payable within ten (10) days of receipt of its demand therefore, until such time as the company shall designate an adjustment as being final.
3. Cumulative Policy Period Premium Computation Option. Based upon the selection of the Cumulative Policy Period Option in the Information Pages, the Company shall compute and the Insured shall pay to the Company within ten (10) days of receipt of its demand therefore, Earned Retrospective Premium based upon Incurred Losses valued as if a date six (6) months after the expiration of each such period, as soon as practicable after such valuation. Additional Cumulative Earned Retrospective Premium Adjustments shall be computed by the Company based upon Incurred Losses valued annually thereafter as soon as practicable after such valuation dates, payable within ten (10) days of receipt of its demand therefore, until such time as the company shall designate an adjustment as being final.
Defendants' Exhibit K, at 11-12. Thus, the adjustments were to be made on an annual basis, beginning at a date six months after the policy expiration, or within ten days of receipt of a demand for payment after an "Incurred Loss." The first adjustment on these policies was, consequently, to be made as of March 31, 1994 for the purpose of re-calculating the Retrospective Premium based upon an audit of plaintiff's payroll and claims history.
The parties also entered into a "Premium Payment Plan," outlining the manner in which premiums were to be paid. See Defendants' Exhibit L. The Premium Payment Plan provided for the creation of a Loss Fund, an amount deposited by plaintiff with defendants to operate as an escrow fund from which Zurich could pay claims until the losses were billed to plaintiff. Moreover, the Premium Payment Plan required plaintiff to deposit with Zurich an irrevocable Letter of Credit, which will be discussed in greater length infra. The quarterly paid loss billings were to continue until the third retrospective premium adjustment, and then the quarterly billings would cease, and plaintiff would be billed for changes to the Retrospective Premiums at each annual adjustment, based upon paid losses plus reserves.
The principles of contract interpretation are well settled. "The best evidence of what parties to a written agreement intend is what they say in their writing.'" Greenfield v. Philles Records, 98 NY2d 562, 569 (2002), quoting Slamow v. Del Col, 79 NY2d 1016, 1018 (1992). "Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Id.
A familiar and eminently sensible proposition of law is that, when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing ( see, e.g., Mercury Bay Boating Club v. San Diego Yacht Club, 76 NY2d 256, 269-270, 557 N.Y.S.2d 851, 557 N.E.2d 87; Judnick Realty Corp. v. 32 W. 32nd St. Corp., 61 NY2d 819, 822, 473 N.Y.S.2d 954, 462 N.E.2d 131; Long Is. R.R. Co. v. Northville Indus. Corp., 41 NY2d 455, 393 N.Y.S.2d 925, 362 N.E.2d 558; Oxford Commercial Corp. v. Landau, 12 NY2d 362, 365, 239 N.Y.S.2d 865, 190 N.E.2d 230). That rule imparts "stability to commercial transactions by safeguarding against fraudulent claims, perjury, death of witnesses * * * infirmity of memory * * * [and] the fear that the jury will improperly evaluate the extrinsic evidence." (Fisch, New York Evidence § 42, at 22 [2d ed].) Such considerations are all the more compelling . . . where commercial certainty is a paramount concern.
W.W.W. Associates, Inc. v. Giancontieri, 77 NY2d 157, 162 (1990). See also, Lee v. Tetra Tech, Inc., 14 Misc 3d 1235(A), *5 (Sup. Ct. Monroe Co. 2007). "Whether a contract is ambiguous is a question of law and extrinsic evidence may not be considered unless the document itself is ambiguous." South Rose Associates, LLC v. International Business Machines Corp., 4 NY3d 272, 277-78 (2005). These principles apply equally to contracts of insurance. See McGrail v. Equit. Life Assurance Soc. of U.S., 292 NY 419, 424 (1944).
The Retrospective Premium Agreement, Exhibit K to defendants' moving papers, provides that the premium will be calculated annually "as soon as practicable" after the valuation of the Incurred Losses and "payable within ten (10) days of receipt of its demand." Defendants' Exhibit K, at 11-12. The language is unambiguous and makes apparent the defect in defendants' argument: Zurich did not make the annual adjustments as required, and their failure to do so was not intentional. It was an oversight due to an internal error. See Affidavit of J. Routon dated January 23, 2009, ¶ 2 ("Zurich was reviewing all of its deductible programs and general ledger to determine whether there were any discrepancies. During the course of that work, it had been discovered that Hahn had never been billed for claim deductibles and expenses for general liability and automobile liability policies issued for the period from September 30, 1995 to September 30, 1996"). While Zurich contends that its insurance services to Hahn would not be complete for years after the expiration of the individual contracts, Zurich's argument in this regard ignores the fact that Zurich failed to bill Hahn as specifically required by the language of the agreements. Due to internal billing issues Zurich failed to bill Hahn as required under the agreements. The evidence before the court does not establish that Zurich's late invoices sought to collect monies due as a result claims arising against Hahn after the expiration of the relevant policies.
In the limited instances where adjustment invoices were sent earlier (in 1998, 1999, and 2003), the invoices were not paid because plaintiff could not understand them. Thus, even if defendants' demand requirement argument was lent credence by the court (which it is not), under that theory, the 1998, 1999, and 2003 invoices would start the statute of limitations running, at least with respect to the amounts in those invoices. Even under defendants' theory, the 1998 and 1999 claims would be time barred.
Contrary to defendants' suggestion, a demand is not required to trigger the application of the payment provision of the Retrospective Premium Agreement. Rather, the Retrospective Premium Agreement, using the word "shall," required the computation annually. Zurich failed to do that, and likewise failed to compute the amount due "as soon as practicable after" the valuation dates. Consequently, all premiums relating to Retrospective Premium Agreements that could have been billed more than six years prior to the commencement of this action are barred by the statute of limitations.
Adjustable Deductible Policies
For workers' compensation coverage in certain states, a certain "adjustable deductible" policy was issued for the 9/30/93 to 9/30/94 policy year. This policy was subject to a "Workers' Compensation Deductible and Premium Agreement." See Defendants' Exhibits R-U. Pursuant to that agreement, plaintiff was responsible for all deductible losses, including losses paid, as well as reserves established by Zurich. Zurich was to provide Hahn with paid loss billings on a monthly basis for the first eighteen months and then quarterly. For the first forty-two months after inception, plaintiff would be billed for paid losses, plus claim expenses, for which plaintiff was responsible. After the forty-second month after inception, the quarterly paid loss billings would cease and then would be adjusted annually. Defendants acknowledge that adjustments under this policy were to take place annually. See Affidavit of J. Routon dated January 23, 2009, at ¶ 21. This is evidenced by the WC Deductible Spreadsheet, wherein it states:
ADJUSTMENT FOR DEDUCTIBLE PREMIUM:
Annually Beginning With Losses Valued As Of 18 Months From Inception Date
LOC AMOUNT SCHEDULES ADJUSTMENTS:
Annually Beginning With Losses Valued As Of 18 Months From Inception Date
LOSS FUND AMOUNT SCHEDULED ADJUSTMENTS:
Annually Beginning With Losses Valued As Of # Months From Inception Date42
Defendants' Exhibit U, at 2.
This policy was renewed for 9/30/94-9/30/95 and 9/30/95-9/30/96. The agreement for 9/30/95-9/30/96 differed in that it provided for monthly paid loss billings, which would cease sixty-six months after inception. Thereafter, the Loss Fund converted to equal deductible loss revenues. Adjustments were to be annual beginning with losses valued as of 18 months from inception date. The Loss Fund amount scheduled adjustment would occur annually beginning with losses valued as of sixty-six months from the inception date. Similar language to that quoted above is found in the 9/30/95-9/30/96 agreement at Defendants' Exhibit DD.
Akin to the discussion with respect to Retrospective Premium Agreements, supra, the language of the agreement does not explicitly condition plaintiff's obligation to pay on Zurich sending a bill. Rather, the agreements contemplate annual adjustments, and those annual adjustments were not completed by Zurich in this case due to internal errors. See Routon Deposition Transcript, at 31, 179, 189, 215, 259.As discussed supra, Zurich's right to payment was not conditioned upon a demand. Again, claims on adjustable deductible policies that could have been billed prior to May 2000, the date this action was commenced, are barred by the statute of limitations
Evidence before the court reveals that Zurich attempted to provide invoices in 1998, 1999, or 2003, but those invoices were not paid because Hahn's broker contacted Zurich, indicating that the adjustments were not understandable. Hahn's refusal to pay the invoices at the time they were provided did not extend the accrual date for the statute of limitations.
Deductible Policies
For the policy year 9/30/95 through 9/30/96, Zurich issued policies for business auto and general liability coverage. These two policies were subject to a Deductible Agreement, consisting of three documents: the Agreement, the Information Pages, and the Specifications. The Deductible Agreement provided that Hahn was responsible for payment of the deductible amount, $250,000, per occurrence or accident, as well as for payment of allocated loss adjustment expenses and the Company Variable Fee Factor (14% of losses combines with allocated loss adjustment expenses). At the inception of the policy, Hahn was required to deposit $65,000 into a Loss Fund, as well as provide a Letter of Credit in the amount of $190,000. The agreement provided for an initial adjustment eighteen months after inception and then at yearly intervals.
As to calculations to be made by Zurich, the Commercial General Liability Coverage Form states:
5. Premium Audit
a. We will compute all premiums for this Coverage Part in accordance with our rules and rates.
b. Premium shown in this Coverage Part as advance premium is a deposit premium only. At the close of each audit period we will compute the earned premium for that period. Audit premiums are due and payable on notice to the first Named Insured. . . .
Defendants' Exhibit FF, Commercial General Liability Coverage Form at 9. Likewise, using similar language the New York Changes endorsement for Premium Audit states:
. . . At the close of each audit period we will compute the earned premium for that period. An audit to determine the final premium due or to be refunded will be completed within 180 days after the expiration date of the policy and may not be waived. . . .
Id., New York Changes-Premium Audit.
A Deductible Agreement was also in effect for the 9/30/01-9/30/02 policy year. This policy stated that Hahn was responsible for the first $250,000 of coverage arising out of each accident or occupational disease per employee. The policy also required Hahn to pay losses up to the deductible amount, along with various State assessments and an unallocated Loss Adjustment Expense of 12% applied to paid losses and paid allocated loss adjustment expenses. The agreement provided for the establishment of an escrow fund in the amount of $35,000 and an initial Letter of Credit in the amount of $550,000. This policy states:
E. Final Premium
The premium shown in the Information Page, schedules, and endorsements is an estimate. The final premium will be determined after this policy ends by using the actual, not the estimated, premium basis and the proper classifications and rates that lawfully apply to the business and work covered by this policy. If the final premium is more than the premium you paid to us, you must pay us the balance. If it is less, we will refund the balance to you. The final premium will not be less than the highest minimum premium for the classifications covered by this policy . . .
G. Audit
You will let us examine and audit all your records that relate to this policy. These records include ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records, and programs for storing and retrieving data. We may conduct the audits during regular business hours during the policy period and within three years after the policy period ends. Information developed by audit will be used to determine final premium. Insurance rate service organizations have the same rights we have under this provision. . . .
Defendants' Exhibit JJ, Workers Compensation and Employers Liability Insurance Policy, at 5. The Deductible Agreement states:
Paid Loss Billings
Within thirty (30) days after the close of the calendar month following the effective date of the Policies and each subsequent calendar month, We shall bill You for the following in accordance with the Deductible Amount(s) stated above:
(a) Paid Losses within the Deductible Amounts and Paid ALAE paid during the month times and LCF; plus
(b) WC Paid Losses within the Deductible Amounts times applicable state LBA; less
(c) Recoveries within the Deductible Amounts credited during the month . . .
Commencing 66 months after policy inception, the Paid Loss billings will be replaced by Incurred Loss billings on a monthly basis. We shall initially bill You for:
(a) Incurred Losses within the Deductible Amounts plus Incurred ALAE times the LCF; plus
(b) WC Incurred Losses within the Deductible Amount times the applicable state LBA; less
(c) Recoveries within the Deductible Amounts credited during the month; less
(d) All loss billing payments received; less
(e) Amounts held in the Escrow Fund.
Defendants' Exhibit KK, Specifications to Deductible Agreement, at 4. The Specifications further state:
Escrow Fund
Initial Escrow Fund amount is $35,000 due on or before the Program effective date.
Scheduled adjustment of the Escrow Fund will be computed semiannually and at a minimum annually after the effective date and annually thereafter . . .
The Escrow Fund amount will be reviewed at least annually but We may adjust the Escrow Fund at any time the required balance is greater than the stated minimum.
Id. at 5.
The adjustable deductible policies at issue herein contemplate regular intervals to "true up" the accounts. The sole exception, the Deductible Policy, Defendants' Exhibit JJ Workers Compensation and Employers Liability Insurance Policy, at 5, states, "The final premium will be determined after this policy ends. . . ." If a specific time period is not provided, a reasonable time for performance is allowed. See, e.g., Whitney v. Perry, 208 AD2d 1025, 1026 (3d Dept. 1994); Luxemburg v. Hotel and Restaurant Emp. and Bartenders Intern. Union, 91 Misc 2d 930, 934 (Sup.Ct. NY Co. 1977). The court determines that waiting beyond the applicable statute of limitations period was not reasonable. Likewise, claims not made within the applicable statute of limitations period after Zurich was required to "true up" the accounts are also barred.
To the extent Zurich claims its right to payment was conditioned upon making a demand, that claim is rejected by the court, as discussed supra.
It is upon these policies, set forth in the first and second counterclaims, that Zurich seeks a total of $1,123,874.32, $846,416.76 of which could have been billed to Hahn prior to May 2000.
Claim Services Contracts
Beginning March 1, 1997, Hahn and Zurich entered into a series of contracts for services to be rendered by Zurich to Hahn in connection with automobile physical damage claims. Agreements were entered for the following periods: 9/30/97 — 9/30/98, 9/30/98 — 9/30/99, 9/30/99 — 9/30/00, 9/30/00 — 9/30/01, 9/30/01 — 9/30/02, and 9/30/02 — 9/30/03. See Defendants' Exhibits LL, MM, NN, OO, PP, and QQ. These agreements are the subject of the twelfth through eighteenth counterclaims. The contracts provided that Zurich would perform claims handling duties and receive a fixed fee per claimant from Hahn. The agreements had provisions for the payment of estimated fees during the terms of the agreements, with a final reconciliation twelve months after the expiration of each agreement. See Affidavit of J. Routon dated January 23, 2009 at ¶ 33. The claim services contracts provided for the establishment of a Loss Fund Account. The Loss Fund Account was to be a regular demand deposit account established by Zurich, with funds made available by Hahn for deposit into the Loss Fund Account. Zurich was to use the fund to pay losses until reimbursed by Hahn. Then, Zurich would bill Hahn on a quarterly basis for the amounts needed to maintain the Loss Fund Account. Hahn's payment was then due within thirty days of receipt of the invoice from Zurich. See Affidavit of J. Routon dated February 27, 2009, at ¶ 5.
The evidence before the court indicates that $32,894.83 of the total $71,615.71 on claim service contracts sought by Hahn could have been billed by Hahn prior to May 2000 but were not due to internal error. Recovery of $32,894.83 on the claim service contracts claims is consequently barred by the statute of limitations.
Letter of Credit
Zurich contends that by February 2006 it held a $400,000 irrevocable Letter of Credit, allegedly intended to secure all of Hahn's obligations. Indeed, as noted supra, the various agreements entered into by the parties regarding retrospective premiums and deductible arrangements required Hahn to supply a Letter of Credit. The Letter of Credit was issued on July 13, 2001 and had an expiration date of August 1, 2002. However, pursuant to its terms, it was to be automatically extended one year at a time unless the bank notified Zurich that it would not be renewed:
It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for one year from the expiry date thereof, or any future expiration date, unless sixty days prior to any expiration date we shall notify the Beneficiary at the above referenced address by Registered Mail or Courier that we elect not to consider this Letter of Credit renewed for any such additional period.
Defendants' Exhibit DDD, at 2. Neither party disputes that the Letter of Credit was in effect in February of 2006.
It is alleged that the Letter of Credit requirements existed for the entire time Zurich wrote Hahn's insurance program. Hahn contends that its authorization was required for Zurich to draw down on the Letter of Credit and that Zurich could not apply the proceeds from the Letter of Credit to any debt of Hahn the recovery of which would be barred in a civil action by the statute of limitations. The Letter of Credit states, in relevant part:
We hereby undertake to promptly honor your sight draft(s) drawn on us, indicate our Letter of Credit No. XXX-XXXXXXX-XXXXXX for all or any part of this Credit if presented at our office specified in Paragraph one on or before the expiration date hereof or any automatically extended expiry date.
Except as stated herein, this undertaking is not subject to any condition or qualification. Our obligation under this Letter of Credit shall be our individual obligation, in no way contingent upon reimbursement with respect thereto, or upon our ability to perfect any lien, security interest or any other reimbursement.
Id.
Hahn's contention that the Letter of Credit could be drawn upon only with its consent is without merit. Nothing in the Letter of Credit makes such a requirement and, in fact, the Letter of Credit specifically states: "Except as stated herein, this undertaking is not subject to any condition or qualification." Hahn's approval of any draw upon the Letter of Credit was not stated as a condition in the Letter of Credit.
With respect to Letters of Credit, the Court of Appeals has stated:
The purpose of a letter of credit is to substitute for, and therefore support, an engagement to pay money. Letters of credit are used in various ways in modern business practice, but when used in the traditional manner to finance a sale of goods, the credit subsumes a separate agreement by a buyer to pay money to a seller . . . By issuing a letter of credit, the issuer undertakes an obligation to pay the beneficiary, or his transferee if the letter is negotiable, from the account of its customer. Thus, a commercial letter of credit transaction involves three separate contractual relationships and undertakings: first, the underlying contract for the purchase and sale of goods between customer . . . and the beneficiary . . .; second, the agreement between the issuer . . ., customarily a bank but frequently some other institution for person, and its customer . . . in which the issuer typically agrees to issue the letter of credit in return for its customer's promise to reimburse it for any payments made under the credit plus a commission; and third, the letter of credit itself which is an engagement by the bank or other issuer that it will honor drafts or other demands for payment presented by the beneficiary or a transferee beneficiary upon compliance with the terms and conditions specified in the credit.
First Commercial Bank v. Gotham Originals, Inc., 64 NY2d 287, 294 (1985). See also, Banco Nacional de Mexico, S.A. v. Societe Generale , 34 AD3d 124 , 128 (1st Dept. 2006); Mennen v. J.P. Morgan Chase Co., Inc., 229 AD2d 237, 240 (4th Dept. 1997). The Court of Appeals further stated:
The fundamental principle governing these transactions is the doctrine of independent contracts. It provides that the issuing bank's obligation to honor drafts drawn on a letter of credit by the beneficiary is separate and independent from any obligation of its customer to the beneficiary under the sale of goods contract and separate as well as from any obligation of the issuer to its customer under their agreement.
First Commercial Bank,, 64 NY2d at 294. "In other words, the letter of credit' prong of any commercial transaction concerns the documents themselves and is not dependent on the resolution of disputes or questions of fact concerning the underlying transaction." Banco Nacional, 34 AD3d at 128. As a result, "based upon the doctrine of independent contract, [Fleet's] obligation to honor [Zurich's] presentation to [Fleet] is dependent only on the validity of the presentation. . . ." Id. at 129.
Based upon the doctrine of independent contracts, Fleet was justified and legally required to pay the $400,000 to Zurich upon proper presentment under the Letter of Credit, and Zurich was likewise justified in keeping the $400,000.
Moreover, "[t]he statute of limitations may not be invoked and used to enforce the return of moneys paid in good faith to discharge a debt honestly due." Kelly Asphalt Block Co. v. Brooklyn Alcatraz Asphalt Co., 190 A.D. 750, 751 (2d Dept. 1920). See also, In re South Shore Co-Operative Assoc., Inc., 103 F.2d 336, 338 (2d Cir. 1982)("Nor is the appellants' position bettered by the fact that they paid a debt against which the statute of limitations might have been pleaded"). Here, the letter of credit was drawn upon based upon the amounts owed to Zurich, and the court notes that Hahn does not dispute that amounts were owed. Rather, Hahn disputes responsibility for making payments on many of the invoiced items due to the statute of limitations. Based upon the case law cited above, irrespective of whether the statute of limitations applies herein, Zurich was entitled to draw upon the Letter of Credit and use it to satisfy any portion of the outstanding debt.
SO ORDERED.