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Republic Insurance Co. v. Banco De Seguros Del Estado

Issue Discussed: Statute of Limitations

Submitted by Elizabeth V. Kniffen, Dennis Anderson

Date Promulgated: July 26, 2013

Republic Ins. Co. v. Banco De Seguros Del Estado, No. 10 C 5039, 2013 WL 3874027 (N.D. Ill. July 26, 2013)

Court: United States District Court for the Northern District of Illinois

Issue Decided: How does a statute of limitations apply to claims based on billings under an open account system?

In Republic Ins. Co. v. Banco De Seguros Del Estado the U.S. District Court for the Northern District of Illinois had to decide how to apply a limitations period in the context of payments under a retrocessional agreement between the plaintiff insurance company (“Republic”) and two defendant reinsurers, Banco De Seguros Del Estado (“Banco”) and Group Des Assurances Nationales (“GAN”) (collectively, “Defendants”).

This many-layered dispute arose from a 1972 syndication agreement between Republic and a non-party reinsurer that authorized the reinsurer to issue reinsurance policies in Republic’s name and procure retrocessional coverage for them. From the syndication agreement, a complex set of retrocessional agreements developed, including quota share contracts designated as “London Market Excess” and referred to by the parties as “the LMX Contracts.” Banco participated in the LMX contracts for account years 1977 through 1980, and GAN participated for account years 1979 and 1980.

Republic did not bill payments allegedly due under the 1980 LMX Contracts until 2003 and 2004. Defendants refused to pay, and Republic filed suit on August 11, 2010. Defendants contended that some or all of Republic’s claims were time barred, and Republic contended that none were time barred. But before reaching the statute of limitations arguments, the court had to decide whether New York law or English law should apply. After a painstaking analysis of choice-of-law principles (which was conducted under Illinois law), the court concluded that English law – including a six-year statute of limitations – applied.

Next, the court had to determine which accounting principles to apply. Republic argued that the parties operated under an open account system, and that its claims against Defendants therefore did not accrue until Defendants denied coverage, which is to say they denied that they owed the amounts billed to them in 2003 and 2004. But Defendants asserted that the parties operated on an “account stated” basis. Pointing to payment timelines in the LMX Contract, which included semi-annual billing periods ending in June and December of each year, and payment due dates based on those periods, they argued that Republic’s claims against them accrued 180 days after the end of each billing period. Thus, Defendants argued, Republic’s claims had accrued in the early 1980s, and were barred by the statute of limitations long before Republic filed suit in 2010.

The court concluded, based on the parties’ course of dealings, that they had operated on an open-account basis. The court then applied the six-year limitations period from the time the amounts due on the 1980 LMX Contract were billed. Those billings occurred on October 13, 2003, January 28, 2004, June 1, 2004, and September 28, 2004. The court concluded that all claims based on the first three billings were time-barred, because Republic filed suit more than six years later, on August 11, 2010. But claims based on the September 28, 2004 billing, and on all billings thereafter, were not time barred.