UK: Arbitration Time Limits and the Third Party (Rights Against Insurers) Act 1930

Last Updated: 28 October 2010
Article by Anthony Menzies and Sascha Foulkes

The claims arose under a liability policy issued by the Defendant insurer, Quinn, to a building and roofing contractor, A Lenihan Ltd ("Lenihan").

Upon two judgments being issued (August and December 2009), Lenihan was found liable to indemnify the Claimant ("WMS") for fire damage sustained to a shop and residential premises in Lewes, East Sussex, in September 2006.

Lenihan had sought indemnity for the claim under its liability policy, but Quinn denied coverage on the grounds of breach of certain policy conditions, and took no part in the defence of the litigation against its insured. Accordingly, the judgment against Lenihan was not satisfied, and it went into voluntary liquidation.

WMS then sought to pursue the claims for recovery directly against Quinn, pursuant to the Third Party (Rights Against Insurers) Act 1930. Quinn mounted a defence based upon contractual time bar. The policy which Quinn had issued to Lenihan contained a requirement that all disputes were to be referred to arbitration within 9 months of a dispute arising. If there was no referral to arbitration within 9 months, the claim was deemed to be abandoned. Quinn argued that the 9 month clock started to tick from the point at which it informed Lenihan that coverage was denied1 . As no proceedings had been commenced within the time stipulated under the policy, WMS's claim was destined to fail. Quinn sought summary judgment to dismiss the case against it.

WMS argued that under a liability policy a right of action only arose against an insurer once the insured's liability to a third party was established. Lenihan's liability had been established by the judgments of August and December 2009, and therefore the 9 month time period had not expired by the time that WMS brought its claim against Quinn.


The following issues were required to be determined:

  • Whether, if properly construed, the arbitration clause still allowed the right to pursue a claim by litigation, or was an exclusive remedy.
  • Alternatively, if the arbitration clause was exclusive and the right to bring a claim in arbitration did expired after 9 months, was the clause unusual and onerous and, Quinn having failed to bring it to Lenihan's attention, resulted in it not being incorporated in the policy.
  • Alternatively, if the arbitration clause was incorporated and the right to pursue litigation was excluded, had the 9 months period expired.
  • Alternatively, if time had expired, could an extension of time be granted for referring the dispute to arbitration.

Taking each point in turn the Court found as follows:

  • The wording of the clause was quite clear, prescribing a mandatory mode of dispute resolution, with a time limit, failing which a claim in respect of that dispute was no longer recoverable. It was intended to provide an exclusive remedy.
  • Just because the clause was unusual did not make it onerous. Lenihan had had the same policy wording for 2 years and had been told specifically by Quinn to read it carefully. In addition, the insurance had been arranged through brokers who would have advised Lenihan on the policy . The clause was incorporated into the policy2.
  • The Post Office3 case established that until the liability of an insured has been established, and the amount of liability ascertained, the insured cannot sue the insurer for a particular sum by way of an indemnity. However, this does not prevent the insured from seeking declaratory relief where it alleges the insurer is in breach of contract. Lenihan considered it was entitled to an indemnity in respect of liability it might incur as a result of the fire at the property in Lewes. When it discovered that Quinn had no intention of granting the indemnity, Lenihan had the right to refer that dispute to arbitration under the clause in the policy. The liability under the policy arose at the latest by the end of February 2009 and any arbitration should have commenced before the end of November 2009. No such dispute was referred to arbitration.
  • The Court was not satisfied that it had jurisdiction under s12 of the Arbitration Action 1996, because the choice of law applicable to the insurance policy was that of Ireland (but even if it had the power it would not grant an extension). It followed that the Court could not determine Quinn's entitlement to relief by way of summary judgment because it could not conclude that the claims were bound to fail before the Irish Courts.

Result: The Claimant's claims in the two action failed and Quinn's summary judgment refused.

Footnotes

1. Quinn initially sent notice of this to Lenihan on 2 July 2008 but allegedly that notice was never received. However the notice was re-sent on 18 February 2009, and it was common ground between the parties that this was the effective date of notice of refusal of cover by Quinn.

2. Although no evidence was submitted in this regard at the hearing.

3. Post Office v Norwich Union [1967] 2 QB 363

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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