When does time begin to run when an insurer refuses indemnity under a third party liability policy?

William McIlroy Swindon Ltd, Rannoch Investments Ltd v Quinn Insurance Ltd
[2011] EWCA Civ 825

Quinn Insurance Limited (“the Insurer”) provided public liability insurance to one of the Claimants’ sub-contractors (“the Policyholder”). The Policyholder was sued by the Claimants in relation to a fire which occurred in 2006, and the Insurer refused indemnity under the public liability cover in February 2009 alleging that the Policyholder had been in breach of certain policy conditions.

The Claimants’ claim against the Policyholder was successful, and damages were assessed by the Court at two separate hearings, on 11th December 2009 and 13th January 2010. The Policyholder failed to satisfy the judgement obtained by the Claimants, and went into liquidation shortly afterwards. The Claimants then issued proceedings against the Insurer, under the Third Parties (Rights Against Insurers) Act 1930 (“the 1930 Act”), in April 2010.

The Insurer defended the 1930 Act claim on the basis that there was a clause within the policy which required a dispute about liability under the policy to be referred to an arbitrator within 9 months of the dispute arising. The Insurer said that such a dispute arose when it refused indemnity in February 2009, and that the Claimants’ 1930 Act claim was therefore time-barred. The judge at first instance, hearing the matter as a preliminary issue, found in favour of the Insurer.

On appeal the Claimants succeeded in arguing that the 9 month time limit did not begin to run until the Policyholder’s liability had been established and quantified. The Court of Appeal followed Post Office v Norwich Union Fire Insurance Society Limited [1967] 2 Q.B in finding that an insurer’s liability under an indemnity policy does not accrue unless and until the existence and amount of the Policyholder’s own liability has first been established.

In this case the arbitration clause therefore did not operate to bar the Policyholder’s claim, since quantum was not established until December 2009 / January 2010 and the Claimant’s 1930 Act claim, which was issued in April 2010, was therefore brought within the nine month period required by the policy.