The Arbitrability of Statutes of Limitations in Reinsurance Disputes

Whether a particular jurisdiction’s statute of limitations provides a reinsurer with a valid basis to deny payment of a cedent’s claim is sometimes a hotly-contested issue. Where a dispute is litigated in state or federal court, the reinsurer may argue that the relevant limitations period of that jurisdiction relieves the reinsurer of its indemnity obligations for a claim. By contrast, where a reinsurance agreement mandates that the parties resolve their claim-related disputes in arbitration, a cedent may assert that the panel is not bound to apply the statute of limitations law of any particular state, particularly where the agreement contains an “honorable engagement” clause or similar language. Other provisions, such as “governing law” or “choice of law” clauses, may also factor into the applicability of a time-bar defense in arbitration.

But even aside from the merits of a defense founded upon statute of limitations, a threshold question remains: is that an issue left for arbitrators to address or one that must be decided by a court of competent jurisdiction? A relatively recent New York state court decision – Matter of Rom Reinsurance Mgt. Co., Inc., et al. v. Continental Ins. Co., 115 A.D.3d 480 (1st Dep’t 2014) (“Matter of Rom”) – is instructive in this regard. Indeed, despite the fact that the reinsurance agreements involved in that case required the parties to arbitrate claim-related disputes, a New York appellate court construed the operative contract wording as mandating that the reinsurers’ statute of limitations defense be resolved in court, and not before the panel. Although, for the reasons discussed below, the issue was ultimately left for arbitration, the analysis that underlies the Matter of Rom decision is relevant for all reinsurance professionals, whether involved in dispute resolution, claims handling or underwriting.

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Republished with permission by ARIAS – U.S. Quarterly.

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