Insurance & Reinsurance
The New South Wales Court of Appeal recently handed down a judgment that considered whether time runs from the date of damage to property insured, or alternatively the date of declinature, under an Industrial Special Risks Insurance Policy (ISR Policy).
In summary, the Court of Appeal held that time runs from the date of damage to the property insured, which in this case meant that the insured's claim was statute barred. The decision was however split 3:2, suggesting that the issue could be ripe for further judicial consideration.
The case of Globe Church Incorporated v Allianz Australia Insurance Ltd concerned alleged property damage to a church in Gateshead, New South Wales. One of the issues in the matter concerned whether the claim was statute barred. The dispute was referred to the Court of Appeal for determination of the following separate questions:
In respect of any of the alleged property damage, which (if any) of the insured's claims accrued at the time of the alleged damage for the purpose of Section 14(1) of the Limitation Act 1969 (NSW) (Limitation Act); and
In light of the answer to that question, which (if any) of the insured's claims in the proceeding were maintainable?
The relevant timeline of the insurance claim for the purpose of the separate questions was:
The alleged property damage occurred between June 2007 and March 2008.
The claim on the ISR Policy was first advanced in 2009.
Liability was declined by the insurers in 2011.
The plaintiff commenced proceedings in late 2016.
Section 14(1) of the Limitation Act provides for a six year limitation period for breach of contract, and the six year period begins to run on the date that the "cause of action first accrues". Accordingly, if the insured's cause of action accrued when the property damage occurred, its claim was statute barred. Conversely, if the cause of action accrued when insurers declined the claim, then the claim was not statute barred.
The insured submitted that a distinction should be made between the promise of an insurer to indemnify and the breach of that promise; and that only when the insurer failed to do what was required of it could a cause of action for damages for breach of contract accrue. As a result, the insured submitted that its claims were not statute barred because the time in which to bring the claims did not begin to run until the insurer breached its obligations to pay by declining liability in 2011.
The insurers said that, absent any contrary terms in the ISR Policy, a cause of action for breach of contract accrued immediately upon the happening of that property damage, at which time the insurers' obligation to indemnify arose and was breached, and hence the claims made under the ISR Policy were statute-barred.
In a joint judgment, Bathurst CJ, Beazley P and Ward JA held that the Policy claims were statute barred. Their Honours held that the cause of action for property damage accrued on the happening of the insured event. It did not matter that the amount payable could not be calculated at the time of the obligation to indemnify. This is consistent with earlier authority.
The joint judgment expressed the need for consistency in the construction of indemnity policies of insurance in Australia and noted that the position as set out by them with respect to contracts of indemnity insurance was consistent with the approach adopted by other intermediate appellate courts and in the United Kingdom, exemplified through cases such as Commonwealth v Vero and Callaghan v Dominion Insurance.
Meagher JA and Leeming JA dissented. Their Honours considered that the insurers’ obligation under the ISR Policy was to indemnify the insured by paying an amount of money ascertained in accordance with the Basis of Settlement provisions in the ISR Policy.
In the absence of express provision, that obligation was to be discharged within a reasonable time. Accordingly, the cause of action accrued for the insured when the insurers failed to indemnify and to pay the insured within a reasonable period of time.
Their Honours considered that the construction contended for by the insurers was not to be supported by the language of the ISR Policy considered in light of its commercial context and purpose.
The Majority Decision supports the traditional legal position, applied in the United Kingdom and endorsed on a number of occasions in Australia, that an insured's cause of action under a first party property policy accrues at the date of the insured event (which is usually the date of the physical loss, destruction or damage to property insured). In Commonwealth v Vero, Yates J observed that:
"At common law a promise of indemnity is a promise to hold the indemnified person harmless against a specified loss or expense. Once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense…Therefore, in the case of property insurance, the general position is that the insured can sue on the contract of insurance as soon as damage to the property occurs because the promise to indemnify is breached at that time."
While that is the traditional legal position, the commercial reality is that complex property damage claims must be properly investigated and assessed before indemnity should (or can) be confirmed, or substantial payments made. The Minority Decision has regard to that commercial reality.
Whilst the long-standing position at common law has been upheld in this case, the 3:2 split on a five court bench of the New South Wales Court of Appeal means that the issue may be subject to further judicial consideration in Australia. For the time being however, insurers and insureds should continue to be mindful that where a claim under a property policy is not finally resolved within the applicable limitation period from the date of the insured event (usually six years), there may be live statute of limitation issues that need to be carefully considered.
  NSWCA 27
  FCA 826
  2 Lloyd's Rep 541