A U.S. Appeals Court vacated a $34.4 million judgment against American International Group filed by AXA, citing the French company's failure to file the suit in time under the statute of limitations.

The court noted that AXA executives should have seen a problem before signing the contract.

In the suit, AXA Versicherung AG v. American International Group Inc. (08-2521-cv), AXA sued AIG in 2005 over two reinsurance facilities, claiming AIG fraudulently induced AXA into believing it was taking only a portion of risk when in fact AIG was assigning all of the risk to the reinsurer.

On Monday, a three-judge panel for the U.S. Court of Appeals for the Second Circuit in New York agreed that a jury found AIG committed fraud. However, the court said AXA failed to file its claim of fraud in the required amount of time under New York law.

The court said AXA's "duty of inquiry arose as early as 1998 and, in any event, no later than September 2000."

Under the law, a claim of fraud must be filed within six years from the commission of the fraud or within two years from the date that the fraud is discovered "or could reasonably have been discovered, whichever is later."

The court ruled that on several occasions "AXA was confronted with a clear 'storm warning'" that something was amiss in the contracts and that it was being defrauded.

In its 10-page ruling, the court said "the 1998 wordings' language that went to the heart of AXA's factual allegations constituted a storm warning, which AXA was blind to only because it failed to fully read the wordings that it signed, and AXA's claims are time-barred as a result."

The court added that "we do not believe that a reasonable reinsurer like AXA can continue to turn a blind eye to repeated circumstances indicating that it may be a victim of fraud."

The court ordered that the District Court enter a judgment in favor of AIG.

Representatives at both AXA and AIG declined to comment.

The decision should help AIG in its efforts to pay back what it owes to the U.S. government, which lent the company billions as it sought to stay afloat through the economic crisis.

Recently, the company paid the New York Federal Reserve $3.95 billion on the line of credit it was extended.

Discussing the company's second-quarter performance in recorded comments, Robert Benmosche, AIG's chief executive officer, said the company's effort to repay the government, which owns 80 percent of the company, "remains immense, but we are starting to see the light at the end of the tunnel."

AIG said the New York Fed borrowing stands at $20.5 billion, plus accrued interest fees of $6 billion.