When does the limitation period to claim on a policy of insurance commence? The short answer is 'when the insurer does, or fails to do, what is required under the policy'.  Most commonly this will be when the insurer makes a decision on the availability of indemnity.

The recent decision of NSW Supreme Court Justice Stevenson in  Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495 provides some guidance on this often asked question.

Barclay Mowlen Constructions Ltd (Barclay) and American Home Assurance Company (became AIG) entered into a Contracts Work Insurance Policy (the Policy) relating to construction of a wharf at the Darwin East Arm Port.

Barclay made a claim in respect of damage which occurred to the wharf. AIG denied liability and Barclay commenced proceedings in 1999 which were settled by way of a deed in 2001 (the Deed).

The wharf suffered additional structural damage at some point prior to 11 December 1999 but it was not until June 2005 that Barclay’s rectified the damage. On 26 March 2010 Carillion Construction Limited (the Plaintiff), as assignee of Barclay’s rights, made a further claim under the Policy to be indemnified for Barclay’s expenditure in respect of that damage. AIG Australia denied liability on 3 August 2011 for the later claim.

Justice Stevenson concluded that later damage claim was in fact caught and barred by the Deed, but also determined the question of when time had begun to run for the purpose of the applicable statute of limitation, which he determined to be that of the Northern Territory.

Justice Stevenson examined the competing authorities on the subject which variously identified time as beginning to run from the date of the loss or the date on which indemnity was refused.  He accepted that the Plaintiff’s cause of action arose upon the Defendant’s denial of liability on 3 August 2011 and that time began to run from that date due to there being no specific provision suggesting an alternate limitation within the policy.

His Honour noted the conflicting intermediate appellate authority on when an insured’s cause of action accrued and rejected earlier authority and academic authors that

“Unless, therefore, there are clear words in the policy which have a contrary effect, liability under this policy, being a policy of indemnity insurance, arises immediately [when] loss is suffered as a result of the happening of the relevant event”.

He said:

“This state of the law appears to be born of a judicial apprehension that, were the accrual of an insured’s cause of action against an insurer to occur only when the insured had made a claim and the insurer failed to pay (or refused) that claim, 'an insured could postpone the beginning of the relevant limitation period by delaying giving notice'.   

I am not sure how well placed such apprehension is. Most indemnity policies impose on an insured an express obligation to make claims in a timely manner. If an insured delayed unduly in making a claim, the insurer may well be able to resist the claim on that basis (subject, of course, to showing prejudice for the purposes of Section 54 of the Insurance Contracts Act 1983 (Cth)).

On the other hand, he said:

“the conclusion that a cause of action under an indemnity policy occurs at the time of the peril may lead to the conclusion that, where an insured does not become aware of the occurrence of the insured peril until after the expiry of the applicable limitation period, the cause of action would arise and become barred before either the insured or the insurer became aware of it”

He concluded that an insured under an indemnity policy would be entitled, immediately on the occurrence of the peril, to seek a declaration of its entitlement to indemnity. But its entitlement to sue for damages for breach of the promise of indemnity only arises when the insurer has not done “what was required of it” under the policy. Unfortunately for the claimant in this case the limitation period had therefore expired.

If you have a query relating to any of the information in this piece, or you would like to speak with somebody in Holman Webb's Insurance team with respect to a matter of your own, please don't hesitate to get in touch today.

• Citation: Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495
• Jurisdiction: Supreme Court of New South wales Equity Division – Commercial List
• Before: Justice Stevenson
• Judgement Date: 22 April 2016