New Jersey Law

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The Date Of Settlement, Not The Date On The Settlement Agreement, Triggers Limitations Period For Subsequent Declaratory Judgment Action For Contribution

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On January 3, 2020, the New Jersey Appellate Division issued an unpublished opinion in ACE American Insurance Company v. Everest National Insurance Company, et al., A-2939- 18T1, addressing the question of whether an insurer’s cause of action for indemnification and defense costs from other insurers accrues when a settlement agreement is placed on the record before the trial judge in the underlying matter, upon reducing that agreement to writing, or upon filing of a stipulation of dismissal formally terminating the litigation.

The underlying personal injury matter involved bodily injuries allegedly suffered at a school construction site, wherein an employee of Thomas Lindstrom Steel & Co., Inc. (“Lindstrom”) alleged injuries caused by an employee of the general contractor, D’Andrea Construction Co. (“D’Andrea”). ACE American Insurance Company (“ACE”) issued a commercial general liability policy to D’Andrea, who was also an additional insured under an auto policy issued by Penn National Insurance (“Penn”). Lindstrom was insured under a commercial excess policy issued by Everest and a commercial auto policy issued by a carrier not involved in the appeal.

On the eve of trial, the underlying personal injury action settled for $5.8M with ACE agreeing to pay $1.75M and preserving its ability to pursue claims against other insurers, and on January 23, 2012, the settlement was entered onto the record before the trial judge. Subsequently, the settlement was reduced to a formal settlement agreement and release that was executed on March 28, 2012, and a stipulation of dismissal was subsequently filed on April 20, 2012. Then, on March 12, 2018, ACE filed a declaratory judgment against Penn, Everest, and other insurers, seeking reimbursement of the settlement payment and defense costs incurred in representing D’Andrea in the underlying action. Defendants moved for summary judgment on the basis that the six-year statute of limitations barred ACE’s action.

The Appellate Division noted that the statute of limitations begins to run when the cause of action accrues, meaning the date on which the right to file suit arose. A cause of action for indemnification generally accrues when the indemnitee becomes responsible to pay a claim, which can be established by a court judgment or a binding settlement. Critically, the court noted that “a formal written settlement agreement and release is not required to effectuate a binding settlement.”

Here, ACE’s cause of action for indemnification and reimbursement of defense costs was held to have accrued no later than January 23, 2012, the date on which the settlement agreement was read into the record before the trial judge and ACE “became legally obligated to pay damages in the underlying personal injury action.” Therefore, the trial court’s grant of summary judgment on the basis of the statute of limitations was held to have been correctly decided.

This case reinforces an easily overlooked reality in the process of settling claims: a settlement is considered final not when a formal settlement agreement is fully executed, but rather when the agreement is first recorded and made binding. While it is intuitive to look to the settlement agreement contained in a claim file in determining when the limitations period begins 2 to run on a subsequent contribution action, in cases where a settlement was placed on the record before it was formalized in writing, the date on the executed agreement may not be the operative date. For that reason, in claims where a future contribution action is contemplated, claims professionals should be sure to clearly mark their files as to the date when the settlement first became binding in order to avoid this unfortunate outcome.

CATEGORIES: Insurance Law

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