Limitation

Historically, there was a tendency in the reinsurance market not to seek to rely on limitation defences. Increasingly, however, reinsurance disputes do involve limitation issues. A recent example is Companhia de Seguros Imperio v. Heath (REBX) Limited.

The dispute arose from reinsurance pools operated by Heaths in the 1970s. Imperio's participation in the pools never exceeded 5 percent, but they were used as a front for up to 100 percent of the pool's involvement in certain risks. The pool was subject to significant long-tail claims, which started developing in the mid 1980s. It emerged that Imperio was having to bear the gross losses, and was unable to recover from the companies for whom it had fronted, due to insolvencies.

Imperio alleged that Heaths had acted inappropriately in putting it forward as fronting security on such a large number of risks. This claim was framed using a number of alternative formulae, including breach of contract, tort and breach of fiduciary duty.

The Judge at first instance, Langley J, dismissed the contract and tort claims, on the basis that the alleged breaches occurred well over six years before the proceedings were issued (in 1995). Imperio's position was not improved by arguing deliberate concealment, because they had been aware of the facts said to give rise to the claims in the mid 1980s. The issue that was appealed was whether the claim for breach of fiduciary duty was similarly statute-barred. Breach of fiduciary duty is an equitable remedy that is not expressly dealt with in the Limitation Act 1980. However, Section 36 of the Act includes wording to the effect that claims for equitable remedies should be subject to corresponding time limits applied by analogy in a like manner to the equivalent common law time limits. The question was whether the claims for breach of fiduciary duty was sufficiently similar to the contract/tort claims for the same time limits to apply.

Both Langley J at first instance and the Court of Appeal (Waller, Clarke and Staughton LJJ) agreed that the claim for breach of fiduciary duty was simply another way of putting exactly the same claim, and that the same limitation period should therefore apply.

This case emphasises the readiness of the Courts to dispose of reinsurance litigation the Limitation Acts, and is a warning that reinsurers should act promptly on becoming aware of difficulties with the operation of pools, underwriting agencies or binding authorities.

For further information, please contact Andrew Symons by e-mail at [email protected] or by telephone on +44 (0)20 7367 3044.