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

• Decision Date: 22 August 2012
• Docket Number: NO. 2010-CV-795,2010-CV-795
• Parties: Surge Resources, Inc. v. Liberty Mutual Insurance Co. and Liberty Mutual Insurance Co.
• Court: New Hampshire Superior Court

Surge Resources, Inc.
v.
Liberty Mutual Insurance Co. and Liberty Mutual Insurance Co.

NO. 2010-CV-795

The State of New Hampshire MERRIMACK, SS SUPERIOR COURT

Dated: August 22, 2012

ORDER

The Plaintiff, Surge Resources, Inc. ("Surge"), brought this action against Liberty Mutual Group, Inc. and Liberty Mutual Insurance Company (collectively "Liberty"), alleging that it overpaid Liberty for workers compensation premiums in the amount of roughly $418,000.00. Liberty filed counterclaims alleging that Surge underpaid premiums from 2001 through 2008 by $2,163,773.oo. Surge has obtained summary judgment against Liberty on its counterclaims on the grounds that they are barred by the statute of limitations. However, Liberty now moves for partial summary judgment, alleging that its claim of underpayment is viable to the extent Surge seeks damages against it, under the doctrine of recoupment. Surge objects, and cross moves, alleging that under the circumstances of this case, recoupment is not available to Liberty. Because the Court finds that genuine issues of material fact exist, both motions for partial summary judgment are DENIED.

I

Surge is an employee-leasing company that supplies employees to businesses. Liberty provided workers' compensation to Surge from 2001 to 2010. Workers' compen-

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sation premiums were based primarily on the remuneration of employees in their various job classifications. At the inception of the parties' relationship, Surge provided an estimated remuneration to Liberty for each job and paid an "estimated premium." At the conclusion of the policy period, Liberty adjusted the premium based upon an audit of Surge's books and records. The policies at issue allowed Liberty to audit Surge's records any time up to three years after the policy period ended.

Effective January 1, 2010, Liberty lost the contract to provide assigned risk workers' compensation coverage in New Hampshire. Thereafter, Surge contends that it began the process of reconciliation and learned that it had overpaid Liberty for policies with an inception of October 1, 2006, October 1, 2007, and October 1, 2008. Surge claims that between October 1, 2006 and October 1, 2009, it overpaid Liberty by approximately $418,220.00. Surge brought suit against Liberty on November 4, 2010.

On February 1, 2011, Liberty filed its "answer and counterclaim," alleging that Surge had disputed the result of an audit conducted in 2002, and that in accordance with applicable law, the dispute was referred to the National Council on Compensation Insurance ("NCCI") for resolution. Liberty further claims that the dispute "largely concerned the appropriate expense modification to be applied to the policies" and that the dispute "affected all subsequent policies." Defendant's Answer, Counterclaims, Setoff & Recoup., ¶ 9. Liberty also claims:

10. While this dispute was pending, Surge made estimated premium payments based upon its own calculations of what it believed it was due. Even putting aside the dispute regarding the experience modification, Surge's calculations were often inconsistent with Liberty Mutual's calculations.
11. As a result of the foregoing, the parties agreed that Surge would continue to make estimated payments until the dispute was re-

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solved and a full reconciliation of all policy years could be completed.
12. On January 14, 2010, Liberty Mutual received notice that NCCI had ruled upon the parties' dispute regarding experience modifications. Apparently, NCCI had resolved this dispute years ago but Liberty Mutual never received notice of that decision.

Id. at ¶¶ 10-12. Liberty's setoff and recoupment counterclaims sought reimbursement in the amount of $2.1 million.

On May 23, 2012, the Court granted Surge's Motion for Summary Judgment on the ground that the statute of limitations barred certain counterclaims. The Court held, "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." Surge Resources Inc. v. Liberty Mutual Ins. Co., Merrimack County Court, 10-CV-795, at 7 (May 23, 2012) (Order, McNamara, J.). Following the Court's decision, Liberty filed a motion for limited reconsideration. In its motion for limited reconsideration, Liberty argued, for the first time, that its counterclaims were not subject to the statute of limitations because they constituted "recoupment." Liberty argued that because the $2.1 million in overpayments arose out of the same transaction as Surge's claims, Liberty is entitled to recoup those funds. Surge objected and argued that the $2.1 million did not arise out of the same transaction or occurrence; instead, each policy year constituted a new, separate transaction. On July 20, 2012, Liberty requested that the Court consider the recoupment issue in conjunction with the parties' pending motions for summary judgment. The Court granted Liberty's request.

II

First, the distinction between set-off and recoupment is important because these

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are two interrelated theories that Liberty asserts. "Setoff is the process by which two contracting parties reduce mutual debts and credits to arrive at a net balance." Liquidation of Home Ins. Co., 158 N.H. 677, 680 (2009). "Setoff allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding the absurdity of making A pay B when B owes A." Id. (quotation omitted). Importantly, setoff only refers to a counterclaim seeking to reduce debts arising from transactions or contracts separate from the transactions or contracts alleged by the plaintiff in his writ. U.S.A., Inc. v. G.R.G. Engineering, S.E., 9 F.3d 996, 998 (1st Cir. 1993).

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