In the realm of insurance subrogation, understanding the interplay between arbitration proceedings and statutes of limitations is crucial. A common query arises: Does initiating arbitration toll the statute of limitations? This question becomes particularly pertinent when a subrogated carrier files for arbitration, but the arbitration is dismissed for jurisdictional reasons—such as lack of coverage on the tortfeasor—and the underlying tort statute of limitations has expired. In such scenarios, is the subrogated carrier left without recourse? As with most subrogation questions, the answer truly depends on the state(s) involved. However, to mitigate this risk, it is prudent to file a subrogation lawsuit simultaneously with the arbitration and seek to stay the suit until the arbitration concludes.
Arbitration and Statutes of Limitations: A Complex Relationship
Arbitration has become a favored forum for resolving disputes due to its efficiency and confidentiality. However, the application of statutes of limitations within arbitration is not uniform across jurisdictions. If an arbitration agreement does not speak to the underlying statute of limitations, does the statute of limitations apply to the right of one of the parties to file for arbitration? Some courts have held that statutes of limitations do not apply to arbitration proceedings unless explicitly stated in the contract. For instance, in Skidmore, Owings & Merrill v. Connecticut General Life Insurance Co., the court found that “arbitration is not a common-law action,” and thus, “the institution of arbitration proceedings is not the bringing of an action under any statute of limitations.”[1] The court in Skidmore held that filing a claim in arbitration did not constitute an “action” as that term was used in the applicable statute of limitations. The court found that “[a]rbitration is not a common-law action” so “the institution of arbitration proceedings is not the bringing of an action under any statute of limitations.” As a result, despite a defective-design claim allegedly expiring four years prior to an arbitration demand, the court refused to enjoin the arbitration proceeding, which proceeded forward.
Conversely, certain states have enacted statutes addressing this issue, and Williston on Contracts states:
Absent any agreement to the contrary, the statute of limitations for civil actions, by its plain terms, does not apply to an arbitration proceeding. Arbitration is not the bringing of an action under the statutes of limitation, and parties are generally free to structure their arbitration agreements as they see fit.[2]
In the Maryland case of Park Plus, Inc. v. Palisades of Towson, LLC, the Maryland Supreme Court held that “when the contract is silent on the issue, a petition to compel arbitration . . . is not subject to a defense under CJ § 5-101 [statute of limitations].”[3]
Jurisdictional Dismissals and Their Implications
A critical concern arises when arbitration is dismissed on jurisdictional grounds, such as the absence of coverage on the tortfeasor, and the statute of limitations for the underlying tort claim has expired. In such cases, the subrogated carrier may find itself without a viable path to recovery. This underscores the importance of understanding how different jurisdictions handle the tolling of statutes of limitations in arbitration contexts.
Case Law Across Various Jurisdictions
Michigan: In Legacy Custom Builders, Inc. v. Rogers, the Michigan Court of Appeals addressed whether filing for arbitration tolls the statute of limitations.[4] The court held that initiating arbitration does not toll the statute of limitations for filing a civil action unless the parties have expressly agreed otherwise. This decision emphasizes the necessity for parties to clearly define the impact of arbitration on limitation periods in their negotiations and dealings.
Ohio: The case of Nationwide Mutual Fire Ins. Co. v. Delacruz dealt with an insurer’s subrogation claim following an arbitration award.[5] The Ohio Court of Appeals concluded that the statute of limitations was not tolled during arbitration proceedings. Consequently, the insurer’s subsequent civil action was time-barred, highlighting the risks associated with relying solely on arbitration without considering the statute of limitations.
South Carolina: In Nowlin v. General Telephone Co., the South Carolina Supreme Court examined whether arbitration proceedings toll the statute of limitations for related court actions.[6] The court determined that arbitration does not toll the statute of limitations unless there is a specific agreement between the parties. This ruling reinforces the need for explicit contractual provisions regarding the tolling effect of arbitration.
Florida: The case of Haskins v. City of Ft. Lauderdale involved a dispute over whether the statute of limitations was tolled during mandatory pre-suit mediation and arbitration.[7] The Florida District Court of Appeal held that such pre-suit procedures did not toll the statute of limitations, thereby barring the subsequent lawsuit. This case illustrates the potential pitfalls of not filing a protective lawsuit while engaging in alternative dispute resolution mechanisms.
Pennsylvania: Under 37 Pa. Code § 171.24, Pennsylvania law provides that the initiation of arbitration proceedings does not toll the statute of limitations for filing a related court action unless the arbitration agreement explicitly states otherwise.[8] This statutory provision underscores the importance of contractual clarity regarding the interplay between arbitration and limitation periods.
Majority and Minority View on Whether Statutes of Limitations Apply to Arbitration
Majority View: The majority of states considering this issue have ruled that in the absence of a specific statutory directive, the general statute of limitations does not apply to arbitration.[9]
Minority View. The minority rule is that the statute of limitations does apply to arbitration proceedings.[10] The Florida Supreme Court interpreted the issue differently from appellate courts had previously. In considering whether an arbitration constituted a “civil action or proceeding” under the statute of limitations, Florida simply refers to Black’s Law Dictionary which defines a “civil action” as “[a]n action brought to enforce, redress, or protect a private or civil right; a noncriminal litigation.”[11] Florida also defines a “proceeding” as “[a]ny procedural means for seeking redress from a tribunal or agency.” Florida is, therefore, in the minority in holding that an arbitration is a form of tribunal defined as “[a] court or other adjudicatory body.”[12] The Phillips case also says that “In addition, an arbitrator would fall under the definition of an adjudicator, which Black’s Law Dictionary defines as ‘[a] person whose job is to render binding decisions.”’[13] The statute of limitations in Phillips used the phrase “civil action or proceeding” and said that while a civil action may be limited to court cases, the court stated that a “proceeding is clearly broader in scope and necessarily includes arbitrations.
Michigan is also in the minority by stating that the statute of limitations does not apply to arbitration proceedings because the statute used the term “action.”[14] The Michigan Supreme Court held that an arbitration panel does not exceed its authority by applying the applicable statute of limitations to the arbitration.
STATE STATUTES
Some states, such as Georgia, New York, and Washington, have passed laws that require the application of the statute of limitations to arbitration proceedings.[15]
Georgia. Section 9-9-5(a) reads as follows:
If a claim sought to be arbitrated would be barred by limitation of time had the claim sought to be arbitrated been asserted in court, a party may apply to the court to stay arbitration or to vacate the award, as provided in this part. The court has discretion in deciding whether to apply the bar. A party waives the right to raise limitation of time as a bar to arbitration in an application to stay arbitration by that party’s participation in the arbitration.[16]
New York. Section 7502(b) reads as follows:
If, at the time that a demand for arbitration was made or a notice of intention to arbitrate was served, the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state, a party may assert the limitation as a bar to the arbitration on an application to the court ….[17]
Washington. Section 7.04A.090 of Washington’s Uniform Arbitration Act reads, in part, as follows:
(3) A claim sought to be arbitrated is subject to the same limitations of time for the commencement of actions as if the claim had been asserted in a court.[18]
In 2010, prior to passing this statute, the Washington Supreme Court had ruled to the contrary—stating that an arbitration is not an “action” subject to the state statutes of limitations.[19] But in 2015, the Washington legislature amended Section 7.04A.090 to add subsection (3) above.[20]
Best Practices for Subrogated Carriers
Given the varied approaches across jurisdictions, subrogated carriers should adopt proactive strategies to safeguard their recovery rights:
- Simultaneous Filing: File a subrogation lawsuit concurrently with the arbitration proceeding. This dual approach ensures that if arbitration is dismissed or does not yield a favorable outcome, the lawsuit remains viable.
- Stay of Proceedings: Seek a stay of the court proceedings pending the outcome of arbitration. This tactic preserves the lawsuit while allowing arbitration to proceed, thereby maintaining the carrier’s legal position.
- Contractual Clarity: Ensure that arbitration agreements explicitly address the application of statutes of limitations. Clear contractual language can prevent disputes over whether arbitration tolls the statute of limitations.
- Jurisdictional Awareness: Be cognizant of the specific laws and judicial interpretations in the relevant jurisdiction. Understanding local legal nuances can inform strategic decisions regarding arbitration and litigation.
The Role of Experienced Subrogation Counsel
Navigating the complexities of arbitration and statutes of limitations necessitates specialized legal expertise. Engaging experienced subrogation counsel, such as Matthiesen, Wickert & Lehrer, S.C. (MWL), can provide invaluable guidance. MWL’s national presence and deep understanding of subrogation law across all 50 states position them to effectively manage concurrent arbitration and litigation strategies, thereby safeguarding carriers’ recovery rights.
Conclusion
The question of whether filing arbitration tolls the statute of limitations is intricate and jurisdiction-dependent. Subrogated carriers must be vigilant in adopting strategies that protect their interests, including simultaneous filing of arbitration and lawsuits, seeking stays of court proceedings, and ensuring contractual clarity. Partnering with knowledgeable subrogation counsel like MWL can further enhance carriers’ ability to navigate these legal complexities and maximize recovery outcomes.
[1] Skidmore, Owings & Merrill v. Connecticut General Life Ins. Co., 464 A.2d 83 (Conn. Super. 1963).
[2] § 79:115. Statute Of Limitations Applicable To Arbitration Agreements, 31 Williston on Contracts § 79:115 (4th ed.).
[3] Park Plus, Inc. v. Palisades of Towson, LLC, 72 A.3d 309 (Md. 2022).
[4] Legacy Custom Builders, Inc. v. Rogers, 8 N.W.3d 207 (Mich. App. 2023).
[5] Nationwide Mutual Fire Ins. Co. v. Delacruz, 2010 WL 5108965 (Ohio App. 2010).
[6] Nowlin v. General Telephone Co., 444 S.E.2d 508 (S.C. 1994).
[7] Haskins v. City of Ft. Lauderdale, 898 So.2d 1120 (Fla. App. 2005).
[8] 37 Pa. Code § 171.24.
[9] Egan Jones Ratings Co. v. Pruette, 2017 WL 4883155 (E.D. Pa. 2017), aff’d, 765 F. App’x 659 (3d Cir. 2019); Carpenter v. Pomerantz, 634 N.E.2d 587 (Mass. App. 1994) ; Har-Mar, Inc. v. Thorsen & Thorshov, Inc., 218 N.W.2d 751 (Minn. 1974) (looks at both the statutory and common-law meaning of the term “action” and decides the statute of limitations was not intended to bar arbitration of a fee dispute solely because such claim would be barred if filed in state court; In re Cameron, 91 N.C. App. 164, 370 S.E.2d 704 (1988) (an SOL applies only to an ‘action,’ which is a “judicial proceeding.” An arbitration is neither an “action” or a “judicial proceeding,” Instead it is a non-judicial, out-of-court proceeding which makes an action or judicial proceeding unnecessary.); Moore v. Ominicare, Inc., 118 P.3d 141 (Idaho 2005); Mac Long Homes, LLC v. Olvera Constr., LLC, 2024 WL 2010456 (Miss. App. 2024)(concurring opinion); Skidmore, Owings & Merrill v. Connecticut General Life Insurance Co., 197 A.2d 837 (Conn. Super. 1963); Lewiston Firefighters Ass’n v. City of Lewiston, 354 A.2d 154 (Me. 1976); NCR Corp. v. CVS Liquor Control, Inc., 874 F. Supp. 168 (S.D. Ohio 1993); Manhattan Loft, LLC v. Mercury Liquors, Inc., 173 Cal. App. 4th 1040 (Cal. App. 2009).
[10] Raymond James Financial Services, Inc. v. Phillips, 126 So.3d 186 (Fla. 2013).
[11] Black’s Law Dictionary 34 (9th ed. 2009).
[12] Phillips, supra.
[13] Id.
[14] Nielsen v. Barnett, 485 N.W.2d 666 (Mich. 1992).
[15] Georgia (Ga. Code Ann. § 9-9-5 (2016)); New York (N.Y. C.P.L.R. § 7502); Washington (Wash Rev. Code § 7.04A.090(3)(2016)).
[16] Ga. Code Ann. § 9-9-5(a).
[17] N.Y.C.P.L.R.§ 7502(b).
[18] Wash. Code Ann. § 7.04a.090(3).
[19] Broom v. Morgan Stanley DW Inc., 236 P.3d 182 (Wash. 2010).
[20] 2013 Wash. Legis. Serv. Ch. 92 (H.B. 1065).
