A fraud claim asserted by the New York Superintendent of Insurance against a tire company was barred by the applicable California statute of limitations, since the “discovery rule” did not operate to save the claim. The plaintiff superintendent, in his capacity as rehabilitator of Frontier Insurance Company, alleged that Frontier entered into a reinsurance agreement with Automotive Services Insurance Limited in 1999. ASIL was a captive insurance agency set up by the president of the defendant tire company, Ramona Tire. Under this agreement, ASIL agreed to reinsure Frontier for insurance proceeds paid out by Frontier on policies for a group of independent tire dealers, including Ramona. The superintendent alleged that Ramona defrauded Frontier by purposefully undercapitalizing and underfunding ASIL so as to make it unable to comply with its contractual obligations to Frontier. A suit was filed in 2007. In its motion for summary judgment, Ramona argued that Frontier was on notice of ASIL’s undercapitalization from the moment it began negotiations on the reinsurance agreement. For example, Frontier investigated ASIL’s capitalization prior to approving the workers compensation program in which Ramona participated. This was held sufficient to trigger the discovery rule and run the three-year statute of limitations beginning in at least 2000. Accordingly, the fraud claims were time-barred. Mills v. Ramona Tire, Inc., Case No. 07-52 (USDC S.D. Cal. May 22, 2009).
This post written by Brian Perryman.