Focus on indemnity: Insurance Claim Time Barred – Clock Started Ticking Immediately

Bann Carraig Ltd v Great Lakes Reinsurance (UK) Plc [2021] NIQB 63

This decision from the High Court of Northern Ireland is a cautionary tale for insureds not to delay too long after an insured peril before filing proceedings, and a reminder for insurers to consider potential limitation defences when faced with old claims.

On 11 August 2013, Bann Carraig’s (the plaintiff) gym was broken into and vandalised.  There was damage to gym property, theft of computer equipment, and resulting interruption to the gym business.   The plaintiff had a combined material damage and business interruption policy with Great Lakes Reinsurance (UK) Plc for the period 17 September 2012 to 16 September 2013.  

Around 6 ½ years after the gym was vandalised, on 12 February 2020, the plaintiff filed proceedings against its insurer. The insurer argued that the claim is time barred as having been filed more than 6 years after the cause of action had accrued.  The plaintiff disputed the accrual date for the business interruption claim and also argued that the insurer’s prior payment had refreshed the limitation period. 

Accrual of Cause of Action – Time Started Running from Date of Damage

In relation to the material damage claim, the Court held that the plaintiff’s claim accrued when the damage happened, and time started running from that date.  Therefore, the plaintiff’s material damage claim was time barred because at filing more than 6 years had passed since the date of the damage. 

The Court explained that there was no condition precedent in the material damage policy requiring that a claim must first be lodged with the insurer as a pre-requisite to the insurer’s liability to the plaintiff.  Rather, the plaintiff’s right to indemnity arose immediately when the damage happened, and the plaintiff was immediately entitled to sue the insurer to enforce that indemnity.

In relation to the business interruption claim, the plaintiff argued that fresh claims accrued on each day in the year following the damage as business losses were suffered.  If that view was correct, the claim would not have been time barred in respect of around 6 months of business losses.  But the Court disagreed and held that the entire business interruption claim was time barred. 

The Court explained that “this is not a case where there is a continuing accrual of a cause of action over the business interruption period. Rather it is one where the cause of action accrues when the business is first interrupted ‘in consequence of loss or destruction of to (sic) property used by You at the Premises for the purpose of the Business.’”  The quantum did not need to have been determined for the cause of action to have already accrued.

The Court cited with approval Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45 and Globe Church Incorporated v Allianz Australia Insurance Ltd [2019] NSWCA 27.

Insurer’s prior payment did not reset ‘limitation clock’

In an effort to save the claim, the plaintiff argued that a prior payment made by the insurer had reset the clock for limitation purposes, and that 6 years had not passed from the date of the insurer’s last payment on 28 February 2014.  The plaintiff relied on article 65(1) of the Limitation (NI) Order 1989 which states that where a right of action has accrued to recover any debt, and the person liable makes a payment in respect of the debt, the right of action is treated as having accrued on the date of payment.

The Court rejected the plaintiff’s argument.  Article 65 only applies to payments in respect of debts.  It does not apply to payments in respect of claims for damages.  It is well-established that an insurance claim is a claim for unliquidated damages.  Article 65 does not apply to such claims and so the insurer’s payment had not reset the limitation clock.  Therefore, the plaintiff’s claim was still time barred.

Comment (Andrew Durrant)

It remains to be seen whether an equivalent case in New Zealand would be time barred under the Limitation Act 2010.  The primary limitation period under New Zealand’s Act runs from “the date of the act or omission on which the claim is based”, which depending on the facts, may not be the same date as when the cause of action accrued.   

As a matter of logic, there is a compelling argument that a claim cannot be based on an act or omission that occurs after the cause of action has already accrued.  Given the overseas decisions that an insured’s cause of action under a material damage policy accrues immediately at the date of loss, the logical inference is that the act or omission (if any) on which the claim is based must have already occurred.

The concept of an ‘act or omission’ does not fit naturally with a claim under a material damage policy which is triggered by an insured peril.  Potentially, a New Zealand court may regard the insured peril itself as the ‘act’ on which the claim is based, that is the act of the vandal in causing damage to the gym or the act of nature causing property damage.  However, the point remains open to argument in New Zealand.

Further, it is also far from clear that the Court’s decision that the payment did not reset the limitation period would be replicated in New Zealand.  The New Zealand statutory provision in respect of payments refreshing the limitation period is slightly different from article 65.  Article 65 only applies to payments in respect of debts.  Whereas, in New Zealand, the equivalent provision applies to payments in respect of a liability to the claimant (s 47 of Limitation Act 2010).

As with so many aspects of the Limitation Act 2010, we will have to wait and see what the courts will decide.  But there are certainly salutary lessons for both insurer and insureds from this decision.  

Andrew Durrant is a Senior Associate at Fee Langstone