The short answer is, when the insurer does or fails to do what
is required under the policy, most commonly this will be when the
insurer makes a decision on the availability of indemnity.
The recent decision of NSW Supreme Court Justice Stevenson in
Carillion Construction Ltd v AIG Australia Ltd provides
some guidance on this often asked question.
Barclay Mowlen Constructions Ltd (Barclay) and
American Home Assurance Company (became AIG)
entered into a Contracts Work Insurance Policy (the
Policy) relating to construction of a wharf at the Darwin
East Arm Port.
Barclay made a claim in respect of damage which occurred to the
wharf. AIG denied liability and Barclay commenced proceedings in
1999 which were settled by way of a deed in 2001 (the
The wharf suffered additional structural damage at some point
prior to 11 December 1999 but it was not until June 2005 that
Barclay's rectified the damage. On 26 March 2010 Carillion
Construction Limited (the Plaintiff), as assignee
of Barclay's rights, made a further claim under the Policy to
be indemnified for Barclay's expenditure in respect of that
damage. AIG Australia denied liability on 3 August 2011 for the
Justice Stevenson concluded that later damage claim was in fact
caught and barred by the Deed, but also determined the question of
when time had begun to run for the purpose of the applicable
statute of limitation, which he determined to be that of the
Justice Stevenson examined the competing authorities on the
subject which variously identified time as beginning to run from
the date of the loss or the date on which indemnity was refused. He
accepted that the Plaintiff's cause of action arose upon the
Defendant's denial of liability on 3 August 2011 and that time
began to run from that date due to there being no specific
provision suggesting an alternate limitation within the policy.
His Honour noted the conflicting intermediate appellate
authority on when an insured's cause of action accrued and
rejected earlier authority and academic authors that
"Unless, therefore, there are clear words in the policy
which have a contrary effect, liability under this policy, being a
policy of indemnity insurance, arises immediately [when] loss is
suffered as a result of the happening of the relevant
He said, "This state of the law appears to be born of a
judicial apprehension that, were the accrual of an insured's
cause of action against an insurer to occur only when the insured
had made a claim and the insurer failed to pay (or refused) that
claim, "an insured could postpone the beginning of the
relevant limitation period by delaying giving notice" I
am not sure how well placed such apprehension is. Most indemnity
policies impose on an insured an express obligation to make claims
in a timely manner. If an insured delayed unduly in making a claim,
the insurer may well be able to resist the claim on that basis
(subject, of course, to showing prejudice for the purposes of s 54
of the Insurance Contracts Act 1983 (Cth)).
On the other hand, he said "the conclusion that a cause
of action under an indemnity policy occurs at the time of the peril
may lead to the conclusion that, where an insured does not become
aware of the occurrence of the insured peril until after the expiry
of the applicable limitation period, the cause of action would
arise and become barred before either the insured or the insurer
became aware of it"
He concluded that an insured under an indemnity policy would be
entitled, immediately on the occurrence of the peril, to seek a
declaration of its entitlement to indemnity. But its entitlement to
sue for damages for breach of the promise of indemnity only arises
when the insurer has not done "what was required of it"
under the policy. Unfortunately for the claimant in this case the
limitation period had therefore expired.
Citation: Carillion Construction Ltd v AIG Australia
Ltd  NSWSC 495
Jurisdiction: Supreme Court of New South wales Equity Division
– Commercial List
Before: Justice Stevenson
Judgement Date: 22 April 2016
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Whereas most insurance policies exclude liability arising under contract, insurers can
positively benefit where an insured has limited or excluded its liability under contract.
This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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