CPLR 206(a) new York interpretation
The salient principles of New York law are succinctly set forth in Continental Casualty Company v. Stronghold Insurance Company, Ltd., 77 F.3d 16 (2d Cir. 1996), as follows.
A reinsurance policy is an express contract to indemnify the cedant against loss due to payment on an underlying insurance claim covered by the reinsurance. Id. at 19.
In general, a claim for indemnification accrues when the indemnitee actually suffers the loss by paying the underlying obligation. Id.
"An express contract for indemnity, however, remains a contract.
Hence the parties are free, within the limits of public policy, to agree upon conditions precedent to suit." Id. "Common conditions include filing proofs of claim and allowing the insurance company time to investigate and pay the claim." Id.
Thus the rule has evolved in insurance cases that the cause of action accrues "when the loss insured against becomes due and payable" under the policy. Id.
In Continental Casualty, where the policy established that loss covered under the policy must be reported to the reinsurer "as soon as practicable," the court concluded that the insurer's cause of action for payment did not arise until notice of loss was provided to the reinsurer and the reinsurer was afforded a reasonable time in which to decide whether and how much it would pay.
The court in Continental Casualty further ruled that New York's Civil Practice Law and Rule 206(a) did not alter its conclusion as to when the cause of action accrued.
Rule 206(a) states that [HN16] "where a demand is necessary to entitle a person to commence an action, the time within which the action must be commenced shall be computed from the time when the right to make the demand is complete." N.Y. Civ. Prac. L. & R. 206(a).
The court concluded that this rule does not apply when the demand is an essential element of the cause of action.
The court explained:
New York courts do not instinctively apply CPLR 206(a) in every case where a demand is a predicate to suit. Rather, they distinguish between substantive demands and procedural demands. This distinction derives from earlier statutes, which CPLR 206(a) merely rephrased, and which expressly applied only "where a right exists, but demand is necessary to entitle a person to maintain an action."
Thus, where a demand is an essential element of the plaintiff's cause of action, as in bailment cases, see e.g., Ganley v. Troy City Nat'l Bank, 98 N.Y. 487, 493-96 (1885), and replevin cases involving good faith purchasers of stolen art, see e.g., Solomon R. Guggenheim Found. v. Lubell, 77 N.Y.2d 311, 319, 569 N.E.2d 426, 430, 567 N.Y.S.2d 623 (1991), CPLR 206(a) does not apply.
Similarly, here a "demand," in the form of notice to the reinsurers of actual loss on the underlying insurance policies, is an essential element of Continental's indemnity claims. As we have made clear, Continental had no right to indemnity under the policies until it satisfied this provision. And, the reinsurers were not in "breach" of their contract to indemnify until they rejected the demand (or until a reasonable time for paying the losses elapsed). Accordingly, CPLR 206(a) does not apply. Id. at 21.