William McIlroy Swindon Ltd & Anor v Quinn Insurance Ltd

An arbitration clause requiring disputes about an insurer’s liability to be referred within a specified period may provide an exclusive remedy, including where the dispute concerns policy coverage rather than the amount of an indemnity. A dispute arises when the insured becomes aware that the insurer refuses indemnity, even though the insured’s third-party liability has not yet been established. The insured may seek declaratory relief at that stage. A commercial insurance term is not necessarily onerous merely because it is unusual or inconvenient. Under section 12 of the Arbitration Act 1996, contractual time bars may be extended only within the statutory limits. The court has no general discretion to extend time on grounds of fairness.

The claimants sought to enforce rights under the Third Parties (Rights Against Insurers) Act 1930 following judgments against their former contractor, A Lenihan Ltd, which had entered voluntary liquidation. Quinn Insurance Ltd refused indemnity under a public liability policy, relying principally on policy conditions concerning reasonable precautions and material information.

The policy required disputes about the insurer’s liability to be referred to arbitration within nine months of the dispute arising, failing which the claim was deemed abandoned. The preliminary issues concerned the clause’s exclusivity, incorporation, the date on which the dispute arose, possible extension of time under the Arbitration Act 1996, and the effect of ICOB requirements.

1. Exclusive arbitration remedy. General Condition 16 used mandatory language and provided that a claim not referred within nine months was abandoned and irrecoverable. Properly construed, it prescribed an exclusive mode of dispute resolution rather than an optional alternative to litigation (paras [29]-[32]).
2. Incorporation. The clause was incorporated. Lenihan had possessed the policy wording for almost two years before renewal, had repeatedly been advised to read it carefully, and had insurance brokers who could be expected to advise on its terms. Although the clause was unusual, arbitration and a nine-month time limit were not, in the circumstances of this commercial insurance, unduly onerous (paras [37]-[50]).
3. When the dispute arose. The rule that an insured cannot sue for payment of a particular indemnity until third-party liability and quantum have been established did not prevent an insured seeking a declaration about coverage. Once Quinn notified Lenihan that it would not indemnify it, a dispute arose concerning Quinn’s liability under the policy. That dispute could be referred to arbitration before the third-party liability had been determined (paras [60]-[80]).
4. The dispute arose no later than the end of February 2009. The arbitration period therefore expired by the end of November 2009. The claimants, standing in Lenihan’s shoes under the 1930 Act, could not avoid the policy time bar by relying on the later vesting of Lenihan’s rights (paras [80]-[82], [95]).
5. Extension of time. The court doubted its jurisdiction under section 12 because the policy appeared governed by Irish law and the arbitration seat appeared to be Ireland. If it had jurisdiction, it would nevertheless refuse an extension. Section 12(3) did not permit a general fairness-based discretion, and neither statutory ground was satisfied. Quinn’s conduct had not caused or contributed to Lenihan’s failure to identify and comply with the time bar (paras [83]-[104]).
6. ICOB. Quinn was not required to warn Lenihan separately of the time bar. Paragraph 7.3.5 concerned assistance in making a claim and did not require advice about commencing arbitration after indemnity had been refused. Reliance on the time bar was not unreasonable under paragraph 2.5.3 (paras [96]-[111]). Quinn’s summary judgment application was dismissed because the possible Irish extension application had not been determined (paras [112]-[113]).