Defending the Right of Business Parties to Contract for a Reasonable Limitation of the Period Within Which a Suit May be Brought
This case raised essentially the same issue recently decided by the Massachusetts SJC in Creative Playthings Franchising Corp. v. Reiser, 463 Mass. 758 (2012), which NELF also briefed. The issue is the extent to which parties to a contract are free under the common law to determine the time within which litigation may be brought on claims arising under the contract. Here the issue has been certified to the Rhode Island Supreme Court by the U.S. Court of Appeals for the First Circuit, which phrased the question as follows:“ Under Rhode Island law, may an insurance policy providing uninsured/underinsured motorist coverage limit the period for suit against the insurer to less than the ten-year statutory period…?”
The case arose out of injuries suffered by the insured, LaFlam, in an automobile accident while she was driving a car insured under a policy issued to her employer by American States Insurance Company (ASIC). The policy indemnified insureds like LaFlam from injuries caused by negligent underinsured motorists; it also contains a contractual limitation of action period of three years, displacing the statutory ten-year period. More than three years after the accident, LaFlam’s attorney sent ASIC a letter asserting a claim under the policy. Believing the claim to be unenforceable because of the contractual limitations period, ASIC brought a declaratory judgment action in the Rhode Island Federal District Court seeking a declaration that LaFlam’s claim was time-barred under the policy. The district court granted ASIC’s motion for judgment on the pleadings, and LaFlam appealed to the First Circuit which, as noted, referred the limitations question to the Rhode Island Supreme Court.
In the course of arguing her case to the Court of Appeals, LaFlam took the position that parties to a contract may not validly agree to shorten the statutory limitations period unless a statute expressly authorizes them to do so for the given type of contract. NELF filed an amicus brief in the case supporting ASIC and pointing out that for more than a century and a half the courts of Rhode Island have upheld as valid contractual agreements that reasonably shorten the statutory limitations period, a position from which the Rhode Island Supreme Court has never deviated. In addition to tracing some of the history of this ubiquitous and ancient Anglo-American common law right, NELF also argued that no statutory authorization is required to enable parties to agree freely in their contracts to a reasonable time limit for bringing suit on the agreement. In particular, NELF rebutted LaFlam’s use of one section of the Rhode Island UCC, which she claims was an example of the legislature granting the right to shorten the limitations period. NELF also asked the Court to take the opportunity offered by the case to announce the precise common law rule, never previously formulated though implicit in some form in its earlier decisions.
Unfortunately, in its July 2013 decision, the Court resolved the insurance coverage questions before it, tacitly acknowledging the validity of agreements to shorten the limitations period, but without clarifying the principles governing such agreements in Rhode Island.
This case raised essentially the same issue recently decided by the Massachusetts SJC in Creative Playthings Franchising Corp. v. Reiser, 463 Mass. 758 (2012), which NELF also briefed. The issue is the extent to which parties to a contract are free under the common law to determine the time within which litigation may be brought on claims arising under the contract. Here the issue has been certified to the Rhode Island Supreme Court by the U.S. Court of Appeals for the First Circuit, which phrased the question as follows:“ Under Rhode Island law, may an insurance policy providing uninsured/underinsured motorist coverage limit the period for suit against the insurer to less than the ten-year statutory period…?”
The case arose out of injuries suffered by the insured, LaFlam, in an automobile accident while she was driving a car insured under a policy issued to her employer by American States Insurance Company (ASIC). The policy indemnified insureds like LaFlam from injuries caused by negligent underinsured motorists; it also contains a contractual limitation of action period of three years, displacing the statutory ten-year period. More than three years after the accident, LaFlam’s attorney sent ASIC a letter asserting a claim under the policy. Believing the claim to be unenforceable because of the contractual limitations period, ASIC brought a declaratory judgment action in the Rhode Island Federal District Court seeking a declaration that LaFlam’s claim was time-barred under the policy. The district court granted ASIC’s motion for judgment on the pleadings, and LaFlam appealed to the First Circuit which, as noted, referred the limitations question to the Rhode Island Supreme Court.
In the course of arguing her case to the Court of Appeals, LaFlam took the position that parties to a contract may not validly agree to shorten the statutory limitations period unless a statute expressly authorizes them to do so for the given type of contract. NELF filed an amicus brief in the case supporting ASIC and pointing out that for more than a century and a half the courts of Rhode Island have upheld as valid contractual agreements that reasonably shorten the statutory limitations period, a position from which the Rhode Island Supreme Court has never deviated. In addition to tracing some of the history of this ubiquitous and ancient Anglo-American common law right, NELF also argued that no statutory authorization is required to enable parties to agree freely in their contracts to a reasonable time limit for bringing suit on the agreement. In particular, NELF rebutted LaFlam’s use of one section of the Rhode Island UCC, which she claims was an example of the legislature granting the right to shorten the limitations period. NELF also asked the Court to take the opportunity offered by the case to announce the precise common law rule, never previously formulated though implicit in some form in its earlier decisions.
Unfortunately, in its July 2013 decision, the Court resolved the insurance coverage questions before it, tacitly acknowledging the validity of agreements to shorten the limitations period, but without clarifying the principles governing such agreements in Rhode Island.
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