Pictured above: Jonathan Corman
Insurers won a major victory in the courts this week when the
High Court decided claims must be brought within 6 years from when
an insurer declines liability.
Most jurisdictions set a time period after which claims cannot
be brought. Under the Limitation Act 1980 claims must generally be
brought within 6 years after it has been established either by a
judgement or settlement that the insured is legally liable.
What has been unclear to date is whether the period of time also
starts to run from the time an insurer declines indemnity. Now the
case of WM Swindon Limited v Quinn Insurance Limited has clarified
the position.
A building company named Lenihan Limited was insured by Quinn
for public liability and other risks. In 2006, Lenihan negligently
started a fire at premises it was repairing. It sought indemnity
for the claims which it expected to face, but in February 2009
Lenihan was informed that Quinn was declining indemnity.
Various companies affected by the fire sued Lenihan, and they
obtained quantified judgments against it in January 2010. Lenihan
went into liquidation the following month, and its rights under the
Quinn policy were transferred to the claimants under the Third
Parties (Rights against Insurers) Act 1930.
Unfortunately for the claimants, Lenihan's policy contained a
provision whereby any dispute as to Quinn's liability in respect of
a claim had to be referred to arbitration within nine months of the
dispute arising and, if not referred to arbitration within that
period, the claim, was deemed to have been abandoned.
The claimants argued that the period of limitation should apply
from January 2010, when Lenihan become liable to the claimants in a
quantified sum.
The court rejected that argument and upheld Quinn's submission
that, where an insurer informs an insured that it will not be
granting indemnity in respect of a potential claim and where that
refusal to indemnify is unjustified the period of limitation
accordingly starts to run.
Jonathan Corman, a Partner at Browne Jacobson, said:
"The question of limitation was particularly acute in this case,
where the policy contained a very short limitation period. However,
the issue may arise generally. It is not unusual for insurers, who
have declined indemnity and closed their files, to be faced many
years later with claimants who have taken an inordinate time to
obtain judgment against the insured but who are now seeking to
challenge the decision to decline indemnity. This recent case shows
that any such challenge - if more than six years after the original
declinature - would be statute-barred."
For more information about Browne Jacobson, please visit their
website here: www.brownejacobson.co.uk