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Tick tock: when the limitation clock does not stop

  • Market Insight 15 June 2021 15 June 2021
  • UK & Europe

  • Insurance & Reinsurance

In a first instance decision*, the Court has carefully examined whether the limitation period stops running at the point of liquidation of a company and having concluded it did not, went on to find that the application before it to join two additional parties as defendants was now time barred even though the action against the original defendant had been started in time. This decision is likely to be relevant to any insurer who is the target of a claim made under The Third Parties (Rights against Insurers) Act 2010 as the Court decided that the rights under the insurance policy were outside the policyholder’s insolvency and distinguished the case on its facts from the law settled under FSCS v Larnell**.

Mr Ashraf started proceedings in the Burnley County Court on 6 February 2020 alleging defective installation of cavity wall insulation (CWI) at his home on 8 February 2014; the company which installed the CWI, Heatwave Energy Solutions Limited (“Heatwave”) had commenced its winding up on 4 March 2019 and been placed into compulsory liquidation. Absent any other argument, the claim had been started just inside the limitation period and this was not in dispute. Mr Ashraf brought the proceedings against the insurer in place at the date of the installation rather than Heatwave. In November 2020 he applied to the Court to join Heatwave’s later insurers. At this point, because he was by then otherwise out of time, Mr Ashraf claimed that time had stopped running for the purposes of limitation in March 2019 when Heatwave was ordered to be wound up. On this basis, just over 5 years of a 6 year period would have accrued by the time the claim was brought. The limitation period would remain suspended until Heatwave’s liquidation was concluded at which point time would start running again.

Mr Ashraf’s application failed because the prospective defendant insurers were able to show that:

(1) the considerations and so the application of the case law was different when the position on limitation was being considered under The Third Parties (Rights against Insurers) Act 2010 and not the earlier Third Parties (Rights against Insurers) Act 1930. The earlier act applied to insolvencies starting before 1 August 2016 (and so did not catch Heatwave); and

(2) even if they had been wrong with the consequence that the 1930 and 2010 Acts were not distinguishable, the claim itself was being brought outside Heatwave’s liquidation and so all the arguments in favour of pausing time by virtue of the Insolvency Rules or otherwise could not apply as Heatwave was not a named party and there were no funds in the liquidation to support a direct claim in any event.

If the Court had accepted Mr Ashraf’s argument, time would only have started running again for the purposes of limitation upon the conclusion of the winding up (which was effective in November 2020) and the claim would be subject to an overall 7 and a half year limitation period expiring in October 2021 (given there was nearly a year left of the 6 year period to run). The implications of this would have been even more stark if the period between the start of the insolvency and its conclusion, as is often the case, had been much longer with the potential for the limitation period to amount to a period of time in excess of 15 years; the long stop for limitation laid down by statute.

The 2010 Act is a powerful piece of legislation designed to simplify the route (both in time and costs) when the claim is in fact directed at an insurance policy and so a potential fund which is not available to the insolvent company’s creditors generally; the application of the Act and all the benefits which flow from it cannot be ignored just because it produced, as here, an outcome on limitation which is unhelpful to a claiming party who had left it very late in the day to start litigation.

Claimants and their advisers generally take a more relaxed approach to cases which are otherwise on the brink of limitation when they are instructed if the proposed defendant is already insolvent and many do not ask for limitation standstill agreements when they are confident the insolvent event occurred while the claim was not statute barred. That assessment may still be right in some instances but it would be dangerous to assume that going forwards this will always be the case. An application for permission to appeal may follow to the High Court but for the present time, this is a first instance decision and whilst it is not binding we would expect it to be followed.  

If you would be interested in finding out more about whether any of the claims on your books may be impacted by this decision, we would be delighted to advise you. Please do not hesitate to contact the authors of this article as detailed below for further information.

*Mr Mohammed Ashraf v HDI Global Specialty SE (before Deputy District Judge Ikram in the County Court at Burnley)

** Financial Services Compensation Scheme Ltd v Larnell (Insurances) Limited (in liquidation) [2006] QB 808


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