Focus on compensation: Prescribed insurance claim deadline – The clock started ticking immediately

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

This decision by the High Court of Northern Ireland is a warning that policyholders should not delay too long after an insured risk before initiating proceedings, and a reminder for insurers to consider possible defenses of limitation when faced with old claims.

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

Approximately 6½ years after the vandalism of the gymnasium, on February 12, 2020, the plaintiff brought an action against her insurer. The insurer argued that the claim is statute barred because it was filed more than 6 years after the cause of action arose. The plaintiff challenges the accrual date of the business interruption claim and also argues that the insurer’s prepayment refreshed the statute of limitations.

Accumulation of cause of action – Time started to run from date of damage

With regard to the claim for property damage, the Court considered that the plaintiff’s claim arose when the damage occurred and that time began to run from that date. Therefore, plaintiff’s property damage action was statute-barred because at the time of filing, more than 6 years had elapsed from the date of the damage.

The Court explained that there was no condition precedent in the property damage insurance policy requiring that a claim be first filed with the insurer as a condition precedent to the insurer’s liability to the applicant. Rather, the plaintiff’s right to compensation arose immediately when the damage occurred, and the plaintiff was immediately entitled to sue the insurer to enforce that compensation.

With respect to the business interruption claim, the plaintiff argued that new claims accrued each day in the year following the damage as business losses were incurred. If this view were correct, the claim would not have been barred for approximately 6 months of business losses. But the court disagreed and ruled that the entire business interruption claim was statute-barred.

The Court explained that “this is not a case where there is a continuing accumulation of a cause of action during the business interruption period. Rather, it is a case where the cause of action arises when the business is first interrupted “as a result of the loss or destruction of (sic) property used by you on the premises at business purposes.’ It was not necessary that the amount be determined for the cause of action to have already accrued.

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

Previous insurer payment did not reset limit clock

In an effort to salvage the claim, the plaintiff argued that a previous payment made by the insurer had reset the clock for statute of limitations and that 6 years had not elapsed since the date of the last payment from the insurer on 28 February 2014. The claimant relied on section 65(1) of the Limitation (NI) Order 1989 which provides that where a right of action has arisen to recover a debt and the responsible person makes a payment for the debt, the right of action is considered to have accrued on the date of payment.

The Court rejected the plaintiff’s argument. Article 65 applies only to payments relating to debts. It does not apply to payments relating to receivables damage. It is well established that an insurance claim is a claim for unliquidated damages. Article 65 does not apply to these claims and the insurer’s payment therefore did not reset the limitation period. Accordingly, the plaintiff’s action was still statute-barred.

Commentary (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 statute of limitations under New Zealand law 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 that the cause of action arose.

Logically, 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. In view of foreign rulings that an insured’s cause of action under a property damage policy arises immediately on 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 a ‘act or omission” does not naturally fall within the framework of a loss under a material damage policy triggered by an insured loss. Potentially, a New Zealand court may regard the insured risk itself as the “act’ on which the claim is based, i.e. the act of the vandal causing damage to the gymnasium or the act of nature causing property damage. However, the point remains open for discussion in New Zealand.

Further, it is also far from clear that the Court’s ruling that payment did not reset the statute of limitations would be replicated in New Zealand. The New Zealand statutory provision relating to payments which refresh the statute of limitations is slightly different from section 65. Section 65 only applies to payments relating to debts. Whereas in New Zealand the equivalent provision applies to payments relating to a responsibility to the applicant (section 47 of the Limitation Act 2010).

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

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