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ROM Reinsurance Management Company, Inc. v. Continental Insurance Company, Inc.

Issue Discussed: Statute of Limitations

Submitted by Elizabeth V. Kniffen, Dennis Anderson

Date Promulgated: March 11, 2014

In the Matter of ROM Reins. Mgt. Co., Inc. v. Continental Ins. Co., Inc., 115 A.D.3d 480, 982 N.Y.S.2d 73 (2014)

Court: New York Supreme Court, Appellate Division

Issue Decided: Under New York law, is the timeliness of a demand for arbitration a matter to be decided by an arbitrator, or by a court?

This matter arose from a reinsurance contract providing that disputes would be resolved through arbitration. The parties did not dispute that the Federal Arbitration Act (“FAA”) applied to the arbitration, but they disagreed about the effect of contract language stating that “the arbitration laws of New York State” shall govern as well. ROM Reinsurance (“ROM”) petitioned for a permanent stay of arbitration, but the Supreme Court denied the petition and granted a cross motion to dismiss the proceeding, based on its conclusion that the statute of limitations issue was one for the arbitrator, and not the court.

The Appellate Division reversed and remanded, and directed the Supreme Court to decide the timeliness question. In its analysis, the appellate court observed that (1) under the FAA, the resolution of a statute of limitations defense is presumptively reserved to the arbitrator; but (2) an exception exists where parties explicitly agree to leave timeliness issues to the court; and (3) under New York law, a party may assert the threshold issue of timeliness of an arbitration proceeding in a court proceeding, even if the arbitration agreement does not include a specific provision allowing a party to do so.

With those rules in mind, the court examined two leading cases from the Court of Appeals of New York. First, in Matter of Smith Barney, Harris Upham & Co. v. Luckie, 85 N.Y.2d 193, 623 N.Y.S.2d 800, 647 N.E.2d 1308 (1995), the high court held that a choice of law provision stating that New York law shall govern both “the agreement and its enforcement” incorporated New York’s rule that threshold statute of limitations questions are for the courts, and not for arbitrators, so as to override the presumption that such determinations are for the arbitrator. Second, in Matter of Diamond Waterproofing Sys., Inc. v. 55 Liberty Owners Corp., 4 N.Y.3d 247, 253, 793 N.Y.S.2d 831, 826 N.E.2d 802 (2005), the court held that an agreement that provided only that arbitration “shall be governed” by the law of New York did not express intent for New York law to govern enforcement. In Diamond Waterproofing, the court reasoned that “in the absence of more critical language concerning enforcement . . . all controversies, including issues of timeliness, are subjects for arbitration.”

The Appellate Division then framed the decision before it as a question of “whether the specific incorporation of ‘the arbitration laws of New York State’ in the instant arbitration clause itself constitutes the needed ‘more critical language concerning enforcement’ within the contemplation of Diamond Waterproofing.”

The court held that the Supreme Court erred in finding that the agreement did not contain “critical language concerning enforcement.” By so doing, the court concluded that the instant arbitration clause did in fact express intent for New York law to govern enforcement, and that under the Smith Barney decision, it therefore incorporated the New York rule that a party may assert the threshold issue of timeliness in a court proceeding, even though the arbitration clause does not expressly say so.

On remand, the Supreme Court sidestepped the timeliness question by concluding that the petitioners had participated in the arbitration process by selecting an arbitrator, and had therefore waived the timeliness argument. In a second appeal, the Appellate Division affirmed, and noted that “[a]lthough petitioners have waived their ability to have the courts determine the statute of limitations issue, the issue may be determined by the arbitrators.” ROM Reinsurance Management Co., Inc. v. Continental Ins. Co., Inc., 128 A.D.3d 570, 8 N.Y.S.3d 569 (2015).