Insurance: Negligence - Court of Appeal ruling on when cause of action accrues against a broker

The Plaintiffs' home contents policy renewed on 12th April 1990. On 16th October 1990, a fire seriously damaged the Plaintiffs' property and its contents. The insurers refused to pay the claim and, on 4th April 1991, avoided the policy for material non-disclosure of various matters (for example, that the Plaintiffs were running a business from the property).

On 16th October 1996, the Plaintiffs issued proceedings against the insurers, and against their brokers for failing to obtain valid cover.

The Defendant brokers applied to strike out the Plaintiffs' claim on the grounds that it was time barred. For the purposes of the application, the allegations against the Defendant brokers were assumed to be true.

The application came before a Judge who held that the Plaintiffs' claim against the brokers was not time barred; the Defendant brokers appealed to the Court of Appeal.

Held:

The Plaintiffs' claim was time barred.

Under the Limitation Act 1980, the limitation period for claims in tort is six years from the date on which the cause of action accrued.

In tort, the cause of action accrues when the Plaintiff first sustains damage.

In the present case, the Plaintiffs argued that they did not suffer damage until 4th April 1991, when the insurers avoided the policy. Until the insurers elected to avoid the policy, the cover was valid. Accordingly, the Plaintiffs maintained that, before that date, they had not suffered any loss by reason of the alleged negligence of the brokers. Alternatively, the Plaintiffs contended that no damage was suffered until 16th October 1990 when the fire occurred.

The Defendant brokers claimed that the Plaintiffs first suffered damage when the policy was renewed, on 12th April 1990, as from that date, the policy was worthless. As the proceedings were issued on 16th October 1996, over six years after the cause of action accrued, the action was time barred.

The Court of Appeal held that a cause of action accrued and damage was suffered once a Plaintiff had acted upon the Defendant's advice to his detriment and failed to obtain that to which he was entitled; at that date, the Plaintiff was less well off than he would have been if the Defendant had not been negligent.

In the present case, the Plaintiffs suffered loss as at the date of the renewal (12th April 1990). They paid the premium without receiving in return a binding contract of insurance. Whether the insurers later avoided the policy, and with what consequences, went only to the quantification of the loss and not to the identification of the moment when the Plaintiffs suffered loss and a cause of action accrued.

Accordingly, the claim against the Defendant brokers was time barred and the appeal was therefore allowed.

Note:

• The general rule therefore is that a claim in tort against a broker will accrue at the inception of the policy.
• The Court of Appeal approved two earlier first instance decisions on the same issue: Iron Trades Mutual -v- Buckenham (1990); Islander Trucking -v- Hogg Robinson (1990).
• It appears the Plaintiffs were unable to rely upon the Latent Damage Act 1986, which gives a Plaintiff an alternative three year limitation period from the date on which the loss could have been discovered with reasonable diligence. This was presumably because the three year period was triggered by the avoidance of the policy on 4th April 1991.
• In general terms, where insurers have purported to avoid a policy, the insured's claim against insurers for breach of contract accrues at the date of the loss (Callaghan -v- Dominion Insurance Company Limited & Others (1997). (Knapp & Another -v- Ecclesiastical Insurance Group plc & Another, CA: Judgment 30th October 1997).