                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-11-2005

Colonial Assurance v. Mercantile Gen
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-1106




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                                                     NOT PRECEDENTIAL

                 IN THE UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                           ____________________

                                   NO. 04-1106
                              ____________________

                    COLONIAL ASSURANCE, IN LIQUIDATION;
                             LOUIS MAZZELLA,

                                                  Appellants

                                          v.


                THE MERCANTILE AND GENERAL REINSURANCE
                             COMPANY, LTD.

                   _______________________________________

                   On Appeal From the United States District Court
                      For the Eastern District of Pennsylvania
                                (D.C. No. 03-cv-01818)
                      District Judge: Honorable Anita B. Brody
                   ______________________________________

                    Submitted Under Third Circuit LAR 34.1(a)
                                 April 18, 2005
              Before: ROTH, FUENTES and BECKER, Circuit Judges.

                                (Filed: May 11, 2005)

                            ________________________

                                    OPINION
                            ________________________

BECKER, Circuit Judge.

      Colonial Assurance and Louis Mazzella appeal from an order of the District Court
granting the motion of defendant Mercantile & General Reinsurance Company (“M&G”)

to dismiss the complaint on statute of limitations grounds. The statute of limitations can

constitute a Rule 12(b)(6) defense “when the time alleged in the statement of a claim

shows that the cause of action has not been brought within the statute of limitations.”

Hanna v. United States Veterans Admin. Hosp., 514 F.2d 1092, 1094 (3d Cir. 1975).

That is the case here. The factual and procedural background is extremely involved, but

since we write only for the parties, who are familiar with it, we do not set it forth here and

limit our discussion to our ratio decidendi. For the reasons that follow, we affirm.

                              I. The Unjust Enrichment Claim

       Colonial argues that it has a cause of action against M&G for unjust enrichment,

and that this cause of action is not time-barred. Under Pennsylvania law, an unjust

enrichment claim has a four-year statute of limitations, which “begin[s] to accrue as of

the date on which the relationship between the parties is terminated.” Cole v. Lawrence,

701 A.2d 987, 989 (Pa. Super. Ct. 1997). In accordance with Cole, we hold that the

relationship between M&G and Colonial was terminated when M&G refused to pay

claims and sought declaratory judgment that the contract was void, i.e., in 1982. See

Brandeis v. Charter Mut. Ben. Ass’n, 27 A.2d 425, 427 (Pa. Super. Ct. 1942) (holding

that insured’s right to a refund of premiums accrued when insurer denied coverage, and

was therefore time-barred).

       Colonial submits that “[t]he contract was not terminated when M&G filed its



                                              2
lawsuit but when it ultimately prevailed,” and that the cause of action did not accrue until

1993. It provides no citation or argument for this theory, which is contrary to the

teachings of Cole and Brandeis. We therefore hold that this action accrued in 1982 and

expired in 1986, as the District Court found.

                          II. The Commonwealth-Party Argument

       Colonial has attempted to evade the foregoing by arguing that no statute of

limitations runs against the Insurance Commissioner in her capacity as statutory liquidator

of an insurance company. Therefore, it contends, no statute ran from the time liquidation

proceedings began in 1984 until the assignment of claims in 2002. Thus, it asserts that all

of its claims—including the unjust enrichment claim, a breach of contract claim (with a

four-year statute of limitations, 42 Pa. C.S.A. § 5525), and a tortious interferences with

contract claim (two years, 42 Pa. C.S.A. § 5524(3))—are still viable. We disagree.

       Pennsylvania follows a “long-standing rule that . . . statutes [of limitations] do not

apply to the Commonwealth unless the statute specifically so provides.” Commonwealth

Dep’t of Transp. v. J.W. Bishop & Co., Inc., 439 A.2d 101, 101 (Pa. 1981). However, the

statute applicable to insurance liquidation provides:

       (b) The liquidator may, upon or after an order for liquidation, within two
       years or such additional time as applicable law may permit, institute an
       action or proceeding on behalf of the estate of the insurer upon any cause of
       action against which the period of limitation fixed by applicable law has not
       expired at the time of the filing of the petition upon which such order is
       entered. Where, by any agreement, a period of limitation is fixed for
       instituting a suit or proceeding upon any claim, or for filing any claim,
       proof of claim, proof of loss, demand, notice, or the like, or where in any

                                                3
         proceeding, judicial or otherwise, a period of limitation is fixed, either in
         the proceeding or by applicable law, for taking any action, filing any claim
         or pleading, or doing any act, and where in any such case the period had not
         expired at the date of the filing of the petition, the liquidator may, for the
         benefit of the estate, take any such action or do any such act, required of or
         permitted to the insurer, within a period of one hundred and eighty days
         subsequent to the entry of an order for liquidation, or within such further
         period as is shown to the satisfaction of the court not to be unfairly
         prejudicial to the other party.

40 Pa. C.S.A. § 221.26(b) (emphasis added).

         While this language may be less than pellucid, it is clear enough that the intent of

the statute is to provide a two-year statute of limitations in the first emphasized phrase,

and that the second is intended only to provide an extension of time to file pleadings in an

already pending case (or to extend the time to sue under an agreement fixing a time to

file).

         The District Court focused on the two-year limitations period of section 221.26(b),

and assumed that it simply added two years to the statute of limitations of any claim that

was unexpired at the time of the liquidation order.1 As the liquidation order was entered

in March 1984, section 221.26(b) delayed the running of the statute until March 1986; as

no statute involved more than a four-year period, all of Colonial’s claims had expired by

March 1990 at the very latest. A Pennsylvania court has specifically held that section

221.26(b) is a statute of limitations applicable to the Insurance Commissioner in her

   1
    This reading may be overly generous to Colonial; the statute may instead mean that the
liquidator gets the longer of two years or the time remaining on the original limitations
period, rather than both periods combined. At all events, the difference does not affect the
outcome in this case.

                                               4
capacity as statutory liquidator, Koken v. Balaban & Balaban, 720 A.2d 823 (Pa.

Commw. Ct. 1998), thus belying Colonial’s argument that no statute of limitations runs

against the liquidator. Balaban & Balaban also makes clear that Pennsylvania courts view

section 221.26(b) as granting the liquidator a two-year statute of limitations, not an

indefinite time limited only by “prejudice.”

         In sum, Colonial’s argument that no statute of limitations runs against the

Insurance Commissioner as liquidator is unsupported by any citation to any case. It is

refuted by the language of the Pennsylvania statute that specifically creates a statute of

limitations running against the liquidator, and by a Pennsylvania case interpreting that

statute. Therefore, the District Court was right to reject this claim.

                               III. The Recovery of the Premiums

         Finally, Colonial argues that, even if the rest of its claims are time-barred, it can

still maintain an action to recover the premiums that it paid to M&G to purchase the

reinsurance that M&G disclaimed. The argument is based on the general rule that, when a

reinsurer rescinds a reinsurance treaty, it must refund any premiums that it accepted for

risks that it will not cover. Curiale v. AIG Multi-Line Syndicate, 613 N.Y.S. 2d 360, 361

(N.Y. App. Div. 1994). Under Pennsylvania law, anyone “responsible for payment of a

premium” must pay any unpaid premium due to an insurer at the time the insurer is

declared insolvent. 40 Pa. C.S.A. § 221.35(a).2 As M&G had an obligation to pay back

  2
      Section 221.35 provides, in relevant part:
         (a) An insured, agent, broker, premium finance company or any other

                                                5
the premiums it had accepted, Colonial claims that, under section 221.35, that obligation

came due when Colonial entered insolvency. Section 221.35 has no specific statute of

limitations; therefore, nullum tempus occurrit regi, and the claims are not time-barred.

       This theory was not raised in the decision appealed from, but only in Colonial’s

motion to reconsider before the District Court, the denial of which Colonial has not

appealed. At all events, Colonial’s argument is patently without merit..

       First, section 221.35 is clearly intended to apply to those who owe premiums, not

those who owe refunds. By its terms, it applies to an “insured, agent, broker, premium

finance company,” or other person responsible for the initial payment of premiums—not


       person responsible for the payment of a premium shall be obligated to pay
       any unpaid premium for the full policy term due the insurer at the time of
       the declaration of insolvency whether earned or unearned as shown on the
       records of the insurer. The liquidator shall also have the right to recover
       from such person any part of an unearned premium that represents
       commission of such person. . . .
       (b) Upon satisfactory evidence of a violation of this section, the Insurance
       Commissioner may, in his discretion, pursue any one or more of the
       following courses of action:
       (1) Suspend or revoke or refuse to renew the licenses of such offending
       party or parties.
       (2) Impose a penalty of not more than one thousand dollars ($1,000) for
       each and every act in violation of this section by said party or parties.
       Before the Insurance Commissioner shall take any action as above set forth,
       he shall give written notice to the person, company, association, or
       exchange accused of violating the law, stating specifically the nature of the
       alleged violation, and fixing a time and place, at least ten days thereafter,
       when a hearing of the matter shall be held. After such hearing, or upon
       failure of the accused to appear at such hearing, the Insurance
       Commissioner shall impose such of the above penalties as he deems
       advisable.
40 Pa. C.S.A. § 221.35.

                                             6
to a reinsurer who is responsible for repayment of rescission damages. The fact that M&G

had an obligation to refund Colonial’s premiums does not mean that it was a “person

responsible for payment of a premium” under section 221.35(a); it is simply an

unfortunate linguistic coincidence.

       Second, Colonial provides no reason that the statute of limitations in section

221.26(b) would not apply to return-of-premium claims under 221.35. Colonial believes

that the Insurance Commissioner, as a “Commonwealth party,” is almost completely

immune from all statutes of limitation. In fact, as 221.26(b) specifically creates a statute

of limitations running against the Commissioner as statutory liquidator, we find it more

reasonable to conclude that that limitations period covers all of the estate’s claims,

including those under section 221.35.

       Finally, the remedy for violation of section 221.35 does not seem to be a suit to

recover the premiums, but rather a fine or suspension of the license of a broker who

violates the section. 40 Pa. C.S.A. § 221.35(b). We doubt that the Commissioner could

assign these remedies to a private party. In any case, to pursue the 221.35(b) remedies, the

Commissioner would have had to give notice and hearing of the alleged violation of the

law, which she has never done.

       We are left wholly unconvinced by Colonial’s argument that its attempt to recover

the premiums is not limited by any statute of limitations. Section 221.35 does not apply to

reinsurers like M&G, does not provide a damages cause of action, and is in any case



                                              7
limited by the 221.26 statute of limitations. Thus, Colonial’s premium-recovery claim,

like the rest of its claims, expired in 1990 at the very latest, and Colonial’s suit is too late

by at least thirteen years.

       The judgment of the District Court will be affirmed.




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