16 December, 2017
(1) When does the limitation period start to run for insurance contract?
Australian states and territories have a six-year year limitation period from the date on which the cause of action accrues, ie when the insurance contract is breached. There is one exception, the Northern Territory, where there is a three year limitation period.
In the case of first party loss, Australian courts have historically determined that the cause of action commences as soon as damage to the property occurs because the promise to indemnify is breached at that time (see for example Commonwealth v Vero Insurance Limited [2012] FCA 826). However, in Carillion Construction Ltd v AIG Australia Ltd [2016] NSWSC 495 a distinction was drawn between the insured's entitlement to indemnity (at the time of the loss) and the time when the insured's entitlement to sue for damages arises for breach of contract (when it becomes unreasonable for the insurer not to pay). It is now increasingly likely that Australian courts will determine that time will start to run on limitations, for a first party insurance claim, only when it becomes unreasonable for the insurer not to pay or otherwise when cover is declined. It is then that the contract is breached.
The position in respect of liability insurance is more settled. Time will start to run from the date when the insured's liability is established by judgment, arbitration, award or settlement.
(2) When does the limitation period start to run for reinsurance contracts?
Reinsurance contracts are subject to the same limitation period as for insurance contracts. Time will start to run from the date that the cedent's liability to the insured is established by judgment, award or agreement. Time does not start to run from the date that the cedent pays the insured.
(3) Can the limitation period be suspended and/or interrupted, and if so, how?
It is likely that the limitation period can be interrupted by the (re)insurer acknowledging that it will pay a claim (depending on the facts of the case).
(4) Can the express terms of the insurance policy and/or reinsurance contract have the effect of altering the start date for the limitation period?
Yes, Australian court may give effect to an express stipulation in a policy of insurance or reinsurance which seeks to alter the usual position on the start date for the limitation period. However, if the effect is to shorten the limitation period, there are also statutory provisions which allow a court to override the contractual agreement.
For further information, please contact:
Ian Roberts, Partner, Clyde & Co
ian.roberts@clydeco.com
