The Second Circuit Court of Appeals reversed a $34.3 million jury verdict against AIG on fraudulent inducement claims asserted by AXA Versicherung AG, with which AIG entered into certain reinsurance facilities in 1998. AXA alleged it was induced to enter into the facilities by AIG’s misrepresentations that it would treat the facilities as facultative and would cede only a cross-section of the primary layer risks, when AIG did not intend to retain any primary layer risks. AXA brought suit in December 2005, relying on the two-year “discovery” prong of the statute of limitations for fraud claims. The jury found that AXA did not discover, and could not have discovered, facts necessary for it to recognize the alleged fraudulent misrepresentations until December 2003.
The Court of Appeals, in AXA Versicherung AG v. New Hampshire Insurance Co. (Aug. 23, 2010), reversed, holding that AXA failed to prove the claims were timely brought. The court found that AXA was on inquiry notice of the alleged fraud as early as 1998, when it signed wordings that the court found clearly indicated the manner in which AIG intended to operate the facilities. Despite what the court described as the “storm warnings” of these wordings, and other indications of AIG’s intentions from 1998 through 2000, AXA did not bring suit until 2005. Finding the claims time-barred, the court reversed the judgment and remanded with instructions to enter judgment in favor of AIG.