March 8, 2019

Zurich Insurance Plc v Nightscene Ltd: Limitation Issues in Insurance Policy Payments

Judge considers limitation issues following a payment under an insurance policy

The claimant insurer issued an insurance policy in 2006 to the purchaser of a new-build home covering building defects. Prior to that, the developer had entered into an Agreement with the insurer, whereby it had agreed to correct any notified defects. Clause 4.16 of the Agreement provided that "Where [the insurer] pays any sum relating to the Developer's obligations or responsibilities under this Agreement or a Warranty the Developer agrees that it shall reimburse [the insurer] with all of the reasonable associated costs [the insurer] incurs in so doing".

The insurer had also entered into a guarantee with the developer's parent company (the guarantor).

A claim was notified under the insurance policy in 2008 and an interim payment was made in June 2009, then a final payment made in August 2009. The insurer then sought reimbursement from the developer, and when it heard nothing from the developer, it commenced proceedings against the guarantor on 5th June 2015. An issue then arose as to whether the claim was time-barred (6th June 2009 being the relevant date for limitation purposes). The guarantor appealed against a decision that the claim was not time-barred and that appeal has now been dismissed.

May J held as follows:

1) Clause 4.16 gave rise to a stand-alone cause of action and was not dependent on breaches under other parts of the agreement.

2) The obligation to reimburse under clause 4.16 did not arise until the final repair bill was known. On the facts, it made no difference whether the relevant date for limitation purposes was when the insurer learnt of the final amount or the date the insurer notified the developer of it and asked for reimbursement. However, the judge expressed the opinion that no request or demand for reimbursement would have been necessary for time to start running under the clause.

3) The judge also rejected an argument that a claim for breach of clause 4.16 arose once and for all as soon as the first payment was made by the insurer (here, a payment in January 2008, reimbursing the home owner for the costs of an expert's report): "in circumstances where the parties clearly contemplated that [the insurer] would undertake a programme of repairs in respect of defects, in my view time did not start running for a claim against [the developer] until, at the earliest, the works were complete and [the insurer] was in a position to finalise the total costs paid by it in respect of such repairs.

4) In any event, time did not start running for the purposes of the guarantor's liability until the final repair bill was known: "In a case like this, where bills come in over time, the total amount can only be "established and ascertained" when the final bills are in and paid". The wording used in the guarantee had been "now or at any time may be due", and the judge held that these words "serve to underpin the necessity for a final balance to be struck before time started to run".