Time is ticking – or has the clock gone back to zero?

Limitation periods for old insurance claims

Inicio Ltd v Tower Insurance Ltd [2020] NZHC 90

This recent High Court decision examines the effect of an acknowledgement of liability on the limitation period applying to an insurance claim.

Background

A house owned by Inicio was damaged beyond economic repair in the February 2011 earthquakes. Tower insured the house for replacement, which it estimated would cost $321,797.  Inicio wished to replace the house with two new units on the same site, and Tower agreed to contribute the cost of replacing the house towards that of rebuilding the new units. The construction contract was signed in September 2012 and the units were completed in April 2013.

In 2015, Tower issued a public statement concerning the limitation period for claims arising out of the Canterbury earthquakes. Its interpretation was that the six-year limitation period began from the time a claim was “settled or rejected” rather than from the “original incident”.

In August 2017, Inicio alleged that its claim had not been settled in full by Tower because replacement of the house would have cost more than what Tower had assessed. Tower subsequently obtained a further estimate for replicating some additional features of the house omitted from the original estimate.  Based on this, on 2 February 2018, Tower formally offered Inicio a further $55,030 in settlement of its claim, advising:  “Based on the legal advice we have received, this represents the extent of Tower’s outstanding liability with your claim”.  Inicio did not accept, and Tower withdrew its offer on 28 March 2018.  

Inicio commenced proceedings against Tower on 9 April 2019, alleging that Tower had breached the policy by undervaluing its insurance claim.  Inicio sought to recover the unpaid balance of what it alleged was the full replacement value of the house.  These proceedings were filed well over six years after both the 2011 earthquake and the date of the construction contract.

Tower applied for summary judgment, arguing that Inicio’s claims were time-barred because the limitation period for the making of a claim expired, in this case, six years after the signing of the construction contract.

When does time start running?

Both parties accepted that Inicio’s claims were subject to a six-year limitation period running from “the date of the act or omission on which the claim was based”. However, what was disputed was when the time began to run.

The High Court noted that the orthodox approach for property insurance claims is that the limitation period runs from the date that the loss occurs. In this case, 22 February 2011, when the earthquake damaged the house.  However, Tower proceeded on the basis (more favourable to Inicio) that time ran from the date it was alleged to have breached the policy, which was when the construction contract was signed.

The Court agreed that time began to run, at the latest, when the construction contract was signed.  This was when the amount Tower agreed to pay under the policy was effectively fixed.  If there was a breach of contract, this was when it occurred.  The signing of the construction contract was more than six years before the proceeding was filed, so Inicio’s claim would ordinarily have been out of time.

However, Tower failed in its summary judgment application.  Inicio argued, and the Court accepted, that Tower’s letter in 2018 was an acknowledgement of liability.  This was sufficient to trigger a fresh six-year limitation period for Inicio’s claim, under section 47 of the Limitation Act 2010.  This section provides that where there is an acknowledgement of liability in writing, or a (part) payment by a defendant, the claimant is deemed to have a fresh claim on the day after the date of which the acknowledgement was given. In effect, this is an extension of the limitation period.

What constitutes an acknowledgement of liability?

Given the lack of New Zealand judicial discussion of section 47, the Judge drew upon the approach used in the United Kingdom for guidance as to what constituted an acknowledgement.

The Court rejected Tower’s arguments, including that the letter was an offer to settle a disputed claim for damages rather than an acknowledgement of liability.  The Court held that it did not matter for the purposes of section 47 whether the amount offered by Tower was an acknowledgement of liability for that amount, or any lesser amount; all that is required to trigger section 47 is an acknowledgment of writing of “a liability to … the claimant”.  

Accordingly, the Judge held that Tower’s letter dated 2 February 2018 was an acknowledgement of liability for the purpose of section 47 of the Limitation Act.  Inicio’s claim based on breach of policy was not time-barred and as Tower had not satisfied the Judge that none of Inicio’s causes of actions could succeed, Tower’s application for summary judgment was dismissed.

Comment - Cecily Brick

Whether an offer of the type made by Tower in this case truly gives rise to a fresh limitation period under section 47 will be considered again by the High Court if a full trial proceeds. However, the prospect that an offer to settle issues arising from an earthquake claim could re-start the limitation period applying to a claim for property damage nine years ago will be a disconcerting prospect for insurers.  Until there is more certainty around the application of the acknowledgement of liability provisions in the Limitation Act to insurance disputes, insurers need to take care to avoid acknowledging liability for claims they consider time-barred.   

Cecily Brick is a Partner at Fee Langstone