Tolling Agreement Definition: Everything You Need to Know

The tolling agreement definition is when a potential plaintiff and potential defendant make a formal agreement to extend the statutory limitations time period.3 min read

The tolling agreement definition is when a potential plaintiff and potential defendant make a formal agreement to extend the statutory limitations time period on the plaintiff's claim, typically so that parties will have more time to settle their dispute without going to court. By definition, a tolling agreement considers the current or future possibility of litigating a claim. Usually tolling agreements themselves reference current or future claims going to court.

What Is the Purpose of a Tolling Agreement?

The intention behind a tolling agreement is to avoid losing a right due to a statute of limitations. The agreement's terms may be negotiated by the involved parties, typically through their attorneys. In the end, the parties entering the agreement both agree to waive the statute of limitations up until a predetermined condition or for some predetermined time period.

Therefore, if a party requests that you sign a tolling agreement, notify your insurance company right away, even if no actual claim has been filed. If you fail to report the situation, you could risk your coverage both for a particular claim and for all claims arising from your previous acts.

The majority of professional liability policies, such as those generated from underwriters for the ASCE program, include prior awareness clauses. These clauses limit the qualifying coverage stated in the insurance agreement to claims resulting from acts, omissions, or errors that, before the effective start date of coverage, the insured party did not know or could not have reasonably expected might result in a claim. To put it simply, if you are aware that specific acts, omissions, and errors might give rise to a claim before the effective state date of coverage, there will not be any coverage for any claim that thereafter arises from these acts, omissions, or errors.

Therefore, if you have been asked to sign a tolling agreement, you will be considered to have been aware of acts, omissions, and errors that could give rise to a claim. In other words, if you have been asked to sign a tolling agreement before the coverage period in which the associated claim is initially made, and you do not report it to your insurance company, you will not be covered for the claim.

Benefits of Tolling Agreements

If you report the situation, your insurance company may be able to assist you in navigating the situation in a way that avoids litigation, or at the very least, puts you in the best position to defend yourself should any litigation arise in the future.

A tolling agreement clearly benefits the potential plaintiff. In normal situations, a personal injury tort claim, the collection of a debt, or a breach of contract claim would be limited by the statute of limitations. Oftentimes, the plaintiff has sufficient facts to meet the basic requirements necessary to plead their case before the suit can continue, but bringing the components together before the statute of limitations expires can be a race against time. Extending the period during which a claim may be filed, the plaintiff maintains the right to sue when the right might have been lost otherwise.

It might not seem immediately apparent why a potential defendant may choose to enter a tolling agreement, but there may be important benefits for the defendant as well. Tolling agreements may arise during settlement negotiations. If the defendant has always decided that they would rather settle than defend against litigation, they might be willing to extend the statute of limitations period to allow time for negotiations to be completed. If not, the plaintiff might need to file suit just to preserve their right.

A tolling agreement may also create a mutually beneficial situation by way of establishing certainty about when a suit may be filed. For various reasons, the timeline regarding a plaintiff's right to sue may be ambiguous, even considering the statute of limitations.

Creating a tolling agreement grants both parties the chance to redefine the limits of the statute of limitations period, with an extension of time given in exchange for an agreement to not sue after a specific condition or date. With such certainty, both parties will be more easily able to assess their positions and conduct meaningful negotiations.

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