New York Court Of Appeals Decides That "Saving Statute" Does Not Apply To Related Insurers
December, 2007
New York’s highest court recently issued a decision that New York’s “Saving Statute,” CPLR 205(a), does not allow a related, but different, corporate entity to commence a new action beyond the expiration of the statute of limitations. Reliance Ins. Co. v. Polyvision Corp., 9 N.Y.3d 52 (N.Y. October 11, 2007). This decision settled a previously unresolved issue of New York law.
Reliance Insurance Company of New York (“RNY”) was a subsidiary of Reliance Insurance Company (“RIC”). In anticipation of a school board’s contract to perform curtain wall replacement for several local schools, RNY and RIC each entered into indemnity agreements with a Pennsylvania contractor and its subcontractors. Eventually, however, only RIC issued a performance bond and a labor and material payment bond for the contractor’s performance of a high school construction project. RNY issued similar bonds for the contractor’s performance of an elementary school project.
When the contractor and subcontractor filed for bankruptcy, RIC executed a takeover agreement and assumed responsibility for completing the high school construction project. Prior to filing for bankruptcy, the contractor and subcontractor ordered insulated metal curtain wall panels for the high school from Greensteel, a division of Information Display Technology, Inc. Polyvision Corporation is the successor to Information Display Technology.
The Greensteel panels rusted within months of installation at the high school. Greensteel claimed that the corrosion was due to improper installation and sold RIC replacement panels. The replacement panels also rusted within a short period of time.
RNY then filed suit against Greensteel in New York state court. The trial court eventually dismissed the suit on the grounds that RNY was not the real party in interest. Reliance Ins. Co. of N.Y. v. Information Display Tech., 2 A.D.3d 702 (N.Y. App. Div. 2003). Unfortunately for RIC, the dismissal came after the expiration of the New York statute of limitations.
RIC then filed suit in the federal district court for the Eastern District of New York. Although RIC acknowledged that the applicable statute of limitations expired, RIC argued that it should be given the benefit of CPLR 205(a).
In appropriate circumstances, CPLR 205(a) adds a six-month grace period to the New York statute of limitations. If the statute were held applicable to RIC’s re-filing of RNY’s action in the Eastern District, the action would be timely. Reliance Ins. Co. v. Polyvision Corp., 390 F.Supp.2d 269 (E.D.N.Y. 2005).
While the savings provision was historically applied to real persons, and, following death, the executors of real persons, CPLR 205(a) was never applied to a substitution of related corporate plaintiffs. New York’s CPLR 205(a) provides, in pertinent part: “… If an action is timely commenced and is terminated … the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination….”
In general, a federal court encountering an issue on which the state’s highest court has not ruled is under a duty “to determine state law as it believes the state high court would.” Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure § 4507 (2d ed. 1996). The Eastern District thus concluded that CPLR 205(a) was applicable only when “it is the same person or entity whose rights are sought to be vindicated in both actions.” Reliance, 390 F.Supp.2d at 273. Because RIC was never a party to the original New York state court action, the Eastern District held that RIC could not take advantage of CPLR 205(a) to extend the New York Statute of Limitations. Id.
RIC then appealed to the federal Court of Appeals for the Second Circuit. The Second Circuit determined that the issue was “unresolved, important, and determinative” and certified the question of law back to the highest court in New York, the New York Court of Appeals, for a definitive answer. Reliance Ins. Co. v. Polyvision Corp., 474 F.3d 54, 60 (2d Cir. January 17, 2007).
Upon review of the questions certified before it, the New York Court of Appeals held that CPLR 205(a) does not permit a corporation to re-file an action originally commenced in the name of a different, related corporate entity. Reliance, 9 N.Y.3d at 54. While the Court of Appeals never before precluded the substitution of corporate plaintiffs, the Court determined that: (1) the origin and history of the statute was dependant upon the fact that the same person, or entity acting in that person’s successive capacity, was seeking to enforce the same person’s rights in both actions; (2) RIC is not RNY in a successive capacity; and (3) to allow the substitution of corporations which are merely related would reopen previously dismissed claims to litigation. Id. at 58.
The Court noted that the plain language of the statute benefits “the plaintiff” who prosecuted the initial action. Only if “the plaintiff” dies, and his or her cause of action survives, may the executor or administrator of a deceased plaintiff’s estate commence a new action based on the same occurrence. Id. at 57. According to the Court, “To grant the right conferred by [the statute] to a different party plaintiff, representing in part different interests, would require the placing of a construction upon the section plainly beyond its intent and purpose.” Id. at 57, citing Streeter v. Graham & Norton Co., 263 N.Y. 39 (N.Y. 1933).
Learning Point:
No matter how close the relationship may be between two related carriers, they are still distinct corporate entities under New York law. Due care should be exercised to determine the proper party in interest before filing or answering a suit - - especially where multiple carriers share common legal representation, such as that of a parent company.
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