Republic Ins. Co. v. Banco de Seguros del Estado et al.

Issue Discussed: Statute of Limitations

Submitted by Daniel J. Neppl

Date Promulgated: July 26, 2013

Issues Decided: Whether a retrocedent may recover from a retrocessionaire on “account stated” and “open account” theories and, if so, whether they are time-barred

Summary

A federal district court held that a retrocedent could not recover billings from a retrocessionaire on an account stated theory where the retrocessionaire did not confirm or other otherwise accept the statements as valid. In addition, although the court determined that the retrocedent could maintain a claim for open account, it held that the claim was barred by the applicable statute of limitations.

Background

Republic Insurance Company entered into an agreement with the Pan Atlantic Group, which allowed Pan Atlantic to issue reinsurance contracts in Republic’s name and to procure retrocessional coverage for any reinsurance issued. Pan Atlantic procured retrocessional protection effective 1977-1980 covering reinsurance contracts it had issued on behalf of Republic (and others) during that time period. The retrocessional contract provided, among other things, that the retrocedent was obligated to provide the retrocessionaires with semi-annual statements of account and that the retrocessionaires must confirm the statements within thirty days and pay the balances within sixty days of confirmation. Until 1993, transactions involving the retrocessional business, including issuance of the semi-annual accounts, flowed through a reinsurance intermediary retained by Pan Atlantic. Republic and Pan Atlantic were engaged in litigation with each other, which was resolved in 1995 and resulted in Republic assuming Pan Atlantic’s responsibility to manage the retrocessional accounts. No semi-annual statements, however, were issued until 2003. Even after the retrocedent began issuing semi-annual statements, the retrocessionaires did not confirm or object to the validity of the statements. The retrocedent brought suit against its retrocessionaires in 2010 to recover amounts due under the billings issued starting in 2003 covering the period starting in 1993 and continuing thereafter. The retrocedent asserted claims for account stated and open account, which it contended entitled it to payment. The retrocessionaires contended that the retrocedent could not assert a claim for account stated because it had never confirmed the validity of the statements and that the claim for open account was time-barred.

Analysis

Applying English law, the court first addressed whether the retrocedent could maintain a claim for account stated. According to the court, an “account stated” under English law including “items on both sides and the parties have agreed that there shall be a set off and only the balance payable.” 2013 U.S. Dist. LEXIS at *22 (quoting P.T. O’Neill & J.W. Woloniecki, Law of Reinsurance in England & Bermuda, § 13-108 (3d ed. 1998)). The court stated that “the balance must be agreed and there must be items on both sides.” Id. Because the retrocessionaires had not “confirm[ed] or otherwise accept[ed] the statement[s] as valid,” the court concluded that the retrocedent could not maintain a claim for account stated. The court then turned to whether the retrocedent could maintain a claim for open account. Notwithstanding the fact it concluded the retrocedent could not maintain a claim for account stated, the court nevertheless determined that the retrocedent could maintain a claim for open account. It did so because the retrocessionaires had “made no objections until after a demand for payment was made.” 2013 U.S. Dist. LEXIS at *25. Even though the court concluded that the retrocedent could maintain a claim for open account, the court held that the claim was time-barred. The court determined that the claim for open account accrued ninety days after the end of each semi-annual period because the reinsurance contract provided that the retrocessionaires were obligated to confirm the statements within thirty days after the end of each semi-annual period and pay the balances within sixty days of confirmation. The reinsurance billings, however, were not submitted to the retrocessionaires until more than six-years after the claim accrued. And because the statute of limitations under English law is six years, the court held that the retrocedent’s claim was time-barred.