Tick, Tick, Tick On The Limitation Period Clock – When Does Time Start Running On An Insurance Claim?

In Ali v Insurance Australia Limited [2022] NSWCA 174, the Court of Appeal found that Mr Ali (the Appellant) was not statute barred from bringing a claim against Insurance Australia Limited (the Respondent) for its denial of a claim on his home and contents insurance policy.

Background facts and decision at first instance

In June 2013, the Appellant took out a home and contents insurance policy with the Respondent.

On 10 October 2013, following a break-in at the Appellant’s home on the previous day, the Appellant made a claim under his home and contents insurance policy.

On 20 May 2014, the Respondent denied the claim.

On 16 October 2019, the Appellant brought proceedings against the Respondent in the District Court alleging that the Respondent’s denial of his claim was a breach of the policy.

The Respondent relied on section 14 of the Limitation Act 1969 (NSW) to argue that the Appellant was time barred from bringing the proceedings outside the 6-year limitation period.

The Respondent claimed that its liability under the policy started when the break-in occurred (9 October 2013), not when the Appellant’s claim was denied (20 May 2014).

The District Court held that the Respondent’s liability arose at the date of the break-in, not when it denied cover. The result was that limitation period for the Appellant’s claim against the Respondent had expired.

The Appellant appealed the decision.

So, what exactly is the limitation period?

A limitation period refers to the timeframe within which someone can commence legal proceedings against an alleged wrongdoer.

Limitation periods serve to ensure that legal disputes are actioned in a timely fashion and to avoid prospective defendants from being indefinitely exposed to the prospect of legal action.

The Limitation Act 1969 (NSW) prescribes the limitation periods that apply to various types of legal disputes that may be brought before the Court.

For alleged breaches of contract, proceedings must be commenced within 6 years of the alleged breach.

Appeal decision

The Supreme Court held that the primary judge erred in his application of section 14 of the Limitation Act 1969 (NSW) and found that the Appellant was not statute barred. In its decision, the Court noted that:

1. As with any written contract, the Court must examine the intention of the parties expressed in the agreement and in doing so, must approach it objectively “by reference to what a reasonable person would have understood the language of the contract to convey” [28].

2. Ambiguity in policy documents is subject to the contra proferentem rule and “any ambiguity in a policy of insurance should be resolved by adopting the construction favourable to the insured” [41].

3. That the policy documents could not “be construed as a contractual promise to indemnify an insured from the time of occurrence of the listed event” [51].

4. The policy’s use of phrase ‘you can make a claim if’ “cannot reasonably be understood as permissive, with the respondent’s liability already having arisen” [52]. Rather, it indicated that an insured would have to meet certain criteria, which on review by the insurer, would be determined as being covered by the policy or declined and, that it was at that point in time, that the Respondent’s liability would arise. 

5. The Court determined that the primary judge erroneously concluded that the policy’s references to “cover” were interchangeable with “indemnity”.

6. The Court found that the policy documents and the information provided to Appellant in respect to making an insurance claim with the Respondent “supports the construction of the PDS for which the applicant contended, that the relevant promise for the purpose of his cause of action was to compensate a claimant for their …The cause of action arose on the respondent’s decision to accept or decline the claim” [74].

 In short, the policy documents indicated that the Respondent’s liability for the contractual breach alleged by the Appellant did not commence at the time of the break-in but at the time the Respondent denied the claim. Therefore, limitation period for the Appellant’s claim did not start running until 20 May 2014 and he was not statue barred when he commenced proceedings on 16 October 2019.

 Implications

The date from which a limitation period runs for a breach of contract claim can turn on the wording used in the contract. Noting the Court ‘s application of the contra proferentem rule, insurers should use unambiguous language to avoid any unfavourable interpretations.

This article was prepared with the assistance of Sherah Knight.

 

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