Surge Res., Inc. v. Liberty Mut. Ins. Co.

Richard B. McNamara

ORDER

The Plaintiff, Surge Resources, Inc. ("Surge"), brings this action against Liberty Mutual Group, Inc. and Liberty Mutual Insurance Company (collectively "Liberty"), alleging that it overpaid Liberty for worker's compensation premiums in the amount of roughly $418,000. Liberty has filed counterclaims alleging that Surge underpaid premiums from 2001 through 2010 by $2,163,773. Surge has moved for summary judgment against Liberty on its counterclaims on the grounds that they are barred by the statute of limitations. Because Liberty claimed that the discovery rule tolling provision of the statue of limitations applied, the Court held an evidentiary on April 25 and 26, 2012. For the reasons stated in this Order, the Court finds that the discovery rule exception to the statute of limitations contained in RSA 508:4, I is not available to Liberty, and Surge's Motion for Summary Judgment is GRANTED.

I

Surge is an employee leasing company that supplies employees to businesses. Liberty provided worker's compensation to certain employees from 2001 through 2010 because Surge was assigned to Liberty as an assigned risk. The premiums for worker's compensation coverage were based primarily upon the remuneration of employees and their various job classifications. As a leasing company, the amount of Surge's premiums depended upon the work the leased employees did at a number of different companies.

This case involves claims between the parties that go back to 2003. At the inception of a policy period, Surge provided an estimated remuneration for each job and paid an estimated premium. At the conclusion of the policy period, the premium would be adjusted based upon a comprehensive audit of Surge's books and records. If a dispute arose between the parties, the National Council on Compensation Insurance, Inc. ("NCCI"), settled the dispute. NCCI's rules provide that if a bona fide dispute exists between the parties, then the carrier "may not proceed with collection actions."

Early on in the parties' relationship, a dispute arose over the so-called "experience rating component" of the worker's compensation policy. The experience rating component is more commonly referred to as the "experience modification rating" or "mod." This component in the rate is based upon the employer's claims experience and is relevant to the amount of the premium to be paid. For 2001 and 2002 the parties disputed the "mod factor" that should be applied for many, but not all, of the companies for which Surge supplied labor. The parties submitted the dispute to NCCI. NCCI ruled in Liberty's favor on February 25, 2003, specifically finding that the mod factor to be applied was 1.10 from September 1, 2001 through December 21, 2001, and 1.40 from January 1, 2002 through the applicable policy period expiration.

NCCI's February 25, 2003 letter notifying the parties of its decision was addressed to Mr. Jay E. Prinzlau, Esq., Surge's General Counsel, and was copied to Sally Codyer, an underwriter at Liberty Mutual. However, both parties have no recollection of receiving it. The communications between the parties show that in the months leading up to this letter, Liberty communicated directly with NCCI about the modification. Emails between NCCI and Sally Codyer from early 2003 were introduced at the hearing demonstrating that Liberty was attempting to determine what position NCCI would take on the dispute, so that the billing could be resolved.

On February 19, 2003, Sally Codyer sent an e-mail to Michelle Baker at NCCI stating, "Any word? We're meeting with George at 9:00 tomorrow." Ms. Baker responded on March 13, 2003, stating:

Yes the mods are correct. Note that there are several small policies in the states of CT, VT, RI and ME on the worksheet that have very little premium. These policies and units are written in Surge's name. When researching these policies I have found that DCA's policy and coverage provider page indicates a client policy but there is no client names [sic] or endorsement on them. Since these policies do not have an endorsement or client name, they remain with the leasing company and on the worksheet.

At the April hearing, witnesses for Surge claimed that this communication indicates that "all parties" knew that NCCI had ruled in Liberty's favor. However, the Court does not credit this testimony. Mr. Prinzlau of Surge wrote to Liberty on July 2, 2003, once again asserting that the mod factor to be applied by Liberty was incorrect. Prinzlau wrote:

Surge Resources, Inc. asserts that Liberty Mutual has applied an incorrect experience modification of 1.10 and 1.4. Surge maintains that the correct experience modifier rate is 1.0. Surge's position regarding the promulgation application of experience modifiers is no doubt well known to their company. We communicated in writing with you our detail regarding this position on February 21, 2002.

If Surge knew that the NCCI had ruled against it, Mr. Prinzlau would not have sent this letter. Through the following years, Surge continued to make estimated payments inconsistent with the mod factor that NCCI chose, apparently assuming that the mod factor was still in dispute. If both parties had known that NCCI had ruled in Lib- erty's favor, Surge would not have continued to take a position inconsistent with the ruling.

Liberty is subject to the NCCI performance standards, which provide that once an insured has followed the bona fide dispute procedures and paid the assessed premium, the insured is deemed to be in compliance and cannot be sued until and unless the insured is out of compliance. Liberty's representatives testified convincingly that they were not aware of the 2003 letter informing them of NCCI's ruling until 2010, after discovery began in this case. The Court finds that the 2003 letter never came to Liberty's attention until litigation was instituted against it in 2010.

II

In its Motion, Surge makes several arguments. First, it argues that Liberty knew that the dispute was resolved as a result of the March 13, 2003 e-mail. Second, it argues that the entire dispute is irrelevant to a significant number of policies because those policies had a premium value of less than $5,500 and were, therefore, not subject to a mod factor. For those policies, Surge maintains that Liberty could have calculated the modifier and collected the premium at any time after the audit. Finally, it argues that even if Liberty was not aware of the 2003 ruling until 2010, Liberty cannot rely on the discovery rule because Liberty was not reasonably diligent in discovering the fact that NCCI had ruled in its favor.

First, as stated above, the Court finds that neither Liberty nor Surge had actual knowledge of NCCI's ruling until 2010. The March 13, 2003 e-mail is insufficient to confer knowledge upon Liberty. Furthermore, Surge's conduct in continuing to dispute the mod factor demonstrates that it was unaware of the ruling.

The Court finds determination of the second issue—whether several policies were subject to the mod factor—irrelevant because even if the policies were subject to the mod factor, Liberty's failure to follow up with the NCCI from 2003 until 2010 cannot constitute "reasonable diligence."

III

The parties agree, in the first instance, that the limitations period is governed by RSA 508:4, I. Under RSA 508:4, I:

[A]ll personal actions. . . may be brought only within 3 years of the act or omission complained of, except that when the injury and its causal relationship to the act or omission were not discovered and could not reasonably have been discovered at the time of the act or omission, the action shall be commenced within 3 years of the time the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the injury and its causal relationship to the act or omission complained of.

In the present case, Liberty concedes that it has not brought its counterclaims within three years of the "act or omission complained of." Thus, the burden shifts to Liberty to prove the applicability of the discovery rule. See Keller v. Marvin Lumber & Cedar Co., 152 N.H. 813, 825 (2005); see also Perez v. Pike Indus., Inc., 153 N.H. 158, 160 (2005).

"Under the discovery rule exception, the statute of limitations does not accrue until: (1) the plaintiff knows or reasonably should have known of the injury; and (2) the plaintiff knows or reasonably should have known of the causal connection between the injury and the alleged conduct of the defendant." Kelleher, 152 N.H. at 824. "Whether a plaintiff has exercised reasonable diligence in discovering the causal connection between an injury and a defendant's alleged act or omission is a question of fact." Id. at 825. A plaintiff will only be entitled to tolling of the statute of limitations under the discovery rule where he "did not have, and could not have had with due diligence, the in- formation essential to bring the suit." Portsmouth Country Club v. Town of Greenland, 152 N.H. 617, 624 (2005). "A party attempting to invoke th[e] doctrine will be held to a duty of reasonable inquiry." Id.

Federal law concerning post-conviction habeas relief is instructive on the standards of reasonable inquiry and due diligence to be applied in the present case. Under the Anti-Terrorism and Effective Death Penalty Act, 28 U.S.C. § 2244 (d) ("AEDPA), a prisoner has one year to file a writ of habeas corpus in federal court following his conviction. The statute of limitations under the AEDPA does not begin running until all state post-conviction relief has been completed. Id.

In LaCava v. Kyler, a prisoner filed a habeas petition more than one year after his last request for post-conviction relief was denied by the Pennsylvania Supreme Court. 398 F.3d 271, 273 (3d Cir. 2005). The prisoner argued that although he filed his petition more than one year after his denial of post-conviction relief, he was entitled to equitable tolling because he did not receive timely notice of the state court's denial. Id. at 274. The Third Circuit disagreed and held that even assuming the prisoner did not receive adequate notice of the state court's decision, the prisoner was not entitled to equitable tolling because he did not exercise the requisite due diligence by allowing more than twenty-one months to elapse from the filing of his petition for post-conviction relief until the time he checked on its status. Id. at 277.

The present case is procedurally similar to LaCava. Here, Liberty knew that the information essential to bringing its counterclaims was within the NCCI's possession. Furthermore, the information was easily accessible. However, Liberty took no action to determine NCCI's ruling for the seven years between when it initially contacted NCCI for information about the dispute in 2003, and when it was sued by Surge in 2010. The fact that NCCI failed to notify Liberty of its decision does not toll the statute of limitations period because Liberty was not reasonably diligent in ascertaining the information. See LaCava, 398 F.3d at 277. Because Liberty failed to make any "reasonable inquiry," it cannot satisfy its burden of proving that the statute of limitations was equitably tolled under the discovery rule. See Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96 (1990) (declining to extend equitable tolling "where the claimant fail[s] to exercise due diligence in preserving his legal rights."); see also Portsmouth Country Club, 152 N.H. at 624.

Nor is the Court persuaded that Liberty's claims are not subject to the statute of limitations merely because they are in the nature of "counterclaims." Generally, counterclaims, including claims for set-off and recoupment, constitute "actions" under RSA 508:4, I, and are subject to the three year statute of limitations. See Zurback Steel Corp. v. Edgcomb, 120 N.H. 42, 45 (1980). Here, Liberty's counterclaims are for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Liberty had the right to file each of these claims affirmatively, without regard to Surge's plea of assumpsit. As such, they are subject to the three year limitations period under RSA 509:4, I. See id.

Based on the foregoing, the Court finds that the three-year statute of limitations bars all of Liberty's claims that are based upon policies in force between September 21, 2003 and October 1, 2006. It follows that Surge's Motion for Summary Judgment is GRANTED. The Requests for Findings of Fact and Rulings of Law consistent with the Order are GRANTED and those inconsistent with this Order are DENIED. Harrington v. Town of Warner, 152 N.H. 71, 85-86 (2005).

SO ORDERED.

_________________________

Richard B. McNamara,

Presiding Justice