Tolling Agreement Basics and Strategic Legal Uses

Key Takeaways

• A tolling agreement pauses the statute of limitations to allow more time for dispute resolution or negotiation.
• These agreements can benefit both plaintiffs and defendants by avoiding unnecessary litigation and promoting settlement.
• Tolling agreements must be entered into before the statute of limitations expires.
• They can limit liability to certain parties and claims, which means they may not protect or apply to non-signatory parties.
• A well-drafted tolling agreement should include clear terms such as duration, scope, and dispute resolution methods.
• Tolling is commonly used in business litigation, professional liability cases, and partnership disputes.

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.

When Should a Tolling Agreement Be Used?

Tolling agreements are particularly valuable in situations where parties need additional time to evaluate claims, negotiate settlements, or gather evidence. Common scenarios where a tolling agreement might be used include:

• Ongoing settlement discussions: If parties are actively negotiating, a tolling agreement avoids the need to file a lawsuit prematurely just to preserve the statute of limitations.
• Pending investigations: When facts or evidence are still being gathered, such as in corporate fraud or product liability matters.
• Insurance-related claims: When an insurance carrier needs more time to determine coverage or resolve the claim.
• Pre-litigation evaluation: When legal counsel needs to assess the merits of a case, including damages or liability.

Tolling agreements are most effective when signed before the statute of limitations expires. Once the time limit lapses, it typically cannot be revived without consequences.

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.

Key Clauses to Include in a Tolling Agreement

For a tolling agreement to be effective and enforceable, it should contain specific provisions:

1. Identification of the parties – Clearly list all parties to the agreement.
2. Claims covered – Define which claims or causes of action are being tolled.
3. Duration – Specify the time period during which the statute of limitations is suspended.
4. Scope of tolling – Indicate whether the tolling applies to lawsuits, administrative claims, or arbitration.
5. Termination clause – State how the agreement can be ended or extended.
6. Non-waiver of defenses – Affirm that entering into the agreement does not admit liability or waive any defenses.
7. Governing law – Include which state’s law will apply to interpret the agreement.

Well-drafted agreements reduce ambiguity and protect both parties from unexpected consequences later.

Risks and Limitations of Tolling Agreements

While tolling agreements offer many benefits, they are not without potential downsides:

• Partial coverage: Tolling agreements generally apply only to signatory parties. If a claim involves multiple defendants and not all sign the agreement, the statute of limitations may continue to run for the non-signatories​.
• Ambiguity in scope: If the agreement does not clearly define what claims are being tolled, disputes can arise over whether certain actions are still time-barred.
• Negotiation leverage: One party might use the tolling period to delay without any intent to settle, effectively wasting the other party’s time and resources.
• Waiver of claims: If a claim is inadvertently omitted from the agreement, it might be forfeited when the tolling period ends.

To mitigate these risks, parties should consult legal counsel and draft the agreement precisely.

Tolling Agreements vs. Litigation: Strategic Comparison

Tolling agreements can be a strategic alternative to immediately filing a lawsuit. Here’s how they compare:

When used properly, tolling agreements allow both sides to maintain leverage while working toward a resolution outside the courtroom.

Common Uses of Tolling Agreements in Business and Litigation

Tolling agreements are versatile tools used across a variety of legal contexts, including:

• Business disputes: Involving contract breaches, partnership dissolutions, or fraud allegations.
• Professional liability: Allowing professionals (e.g., lawyers, architects, doctors) and their insurers to assess potential claims.
• Employment law: Used in disputes over wrongful termination, wage claims, or discrimination cases.
• Securities law: In regulatory investigations or shareholder disputes.
• Product liability: When evaluating the extent of damages or potential settlements.

By postponing litigation, tolling agreements create space for more thoughtful resolution and risk management.

Frequently Asked Questions

1. What is a tolling agreement in simple terms?
   A tolling agreement is a contract between parties that pauses the statute of limitations for filing a legal claim, usually to allow more time for negotiation or investigation.
2. Can a tolling agreement be verbal?
   While it’s possible, tolling agreements should always be in writing to ensure clarity, enforceability, and protection for all parties involved.
3. Who benefits more from a tolling agreement—the plaintiff or the defendant?
   Both parties can benefit: the plaintiff preserves their right to sue, and the defendant gains time to negotiate or investigate without the immediate threat of litigation.
4. Does a tolling agreement apply to all claims?
   Only to those explicitly covered in the agreement. Any claims or parties not mentioned are not protected unless separately addressed.
5. Is a tolling agreement enforceable in all states?
   Most states recognize and enforce tolling agreements, but requirements and limitations can vary. Legal guidance is recommended for drafting state-specific agreements.

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