McIlroy (Swindon) Ltd & Ors v Rannoch Investments Led & Anor

A contractual time bar in a public liability policy runs from a dispute concerning a matured claim for indemnity. It does not run from an insurer’s earlier refusal of cover before the insured’s liability to a third party has been established and quantified. Liability under an indemnity policy accrues only when that liability and its amount are established by judgment, arbitration award or agreement. The court declined to follow Walker v Pennine Insurance Co Ltd [1980] 2 Lloyd’s Rep 156 insofar as it conflicted with Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363.

A fire occurred during refurbishment works at premises occupied by Mackays Stores Ltd. Claims were brought against McIlroy, Mackay, Cathedral Works Organisation and the contractor, A Lenihan Ltd. Default judgments and damages assessments were entered against Lenihan. After Lenihan entered voluntary winding up, its rights against Quinn Insurance Ltd were vested in the claimants under section 1 of the Third Party (Rights against Insurers) Act 1930.

The claimants brought two conjoined actions against Quinn to recover the assessed damages. Quinn relied on General Condition 16, which required disputes to be referred to arbitration within nine months, failing which the claim was deemed abandoned. Edwards-Stuart J held that the claims were time-barred: [2010] EWHC 2448 (TCC). The appeals concerned whether Quinn’s February 2009 refusal of indemnity triggered the time bar, or whether time began only after Lenihan’s liability had been established and quantified.

1. Appeals allowed. The judgment of Edwards-Stuart J was set aside. The separate issue concerning whether the clause was unusual or onerous did not require determination because success on the time-bar issue disposed of the appeals.
2. Liability under an indemnity policy does not accrue until the existence and amount of the insured’s liability to relevant third parties have been established by judgment, arbitration award or agreement. The court applied Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 and Bradley v Eagle Star Insurance Co Ltd [1989] 1 AC 957. No dispute concerning Quinn’s liability under the public liability cover could therefore arise until the December 2009 and January 2010 assessments of Lenihan’s liability.
3. General Condition 16 referred to a dispute concerning the insured’s claim under the policy, not merely a third party’s claim or a potential future liability. Its reference to a claim being abandoned and becoming irrecoverable reinforced that construction. The clause did not require arbitration within nine months of Quinn’s earlier refusal of cover, when Lenihan had no matured cause of action for an indemnity.
4. Walker v Pennine Insurance Co Ltd [1980] 2 Lloyd’s Rep 156, concerning a differently worded motor policy, was distinguished. To the extent that it treated a potential liability as a claim for this purpose, it was not followed because it did not take account of the principle in Post Office. The observations in West Wake Price & Co v Ching [1956] 2 Lloyd’s Rep 618 were helpful only insofar as they recognised that claim may ordinarily mean assertion of a cause of action.
5. For completeness, an insured could seek a court declaration concerning an insurer’s repudiation or the continuing validity of the policy before an indemnity claim matured. The decision was confined to the public liability cover; other forms of cover might raise a dispute earlier.

The claims were brought within nine months of the relevant assessments and were not abandoned or irrecoverable under General Condition 16.

1. Court of Appeal (Civil Division): allowed both appeals, set aside the judgment below and held that the claims were not time-barred under General Condition 16.
2. Queen’s Bench Division, Technology and Construction Court: Edwards-Stuart J decided the preliminary issue in favour of Quinn and held that the claims were time-barred: [2010] EWHC 2448 (TCC).