Time limits on claims under insurance policies: the latest guidance from the NSW Court of Appeal

The New South Wales Court of Appeal in a close 3-2 decision has decided that the time limit in which to sue an insurer for a failure to indemnify for property damage starts when the property damage occurs, not when the insurer rejects the claim, unless the policy provides otherwise.[1]

The dissenting judges considered that this outcome flouts commercial common sense.

Insolvency practitioners need to prioritise identifying the date on which the company suffered the underlying loss or damage when assessing insurance claims upon their appointment – the limitation period may expire earlier than previously thought.

Background

Between June 2007 and March 2008, floods damaged Globe Church’s property. In 2009, the church lodged a claim under its policy with Allianz and Ansvar (insurers). The claim was denied in 2011 but the church did not commence the proceedings against the insurers until 2016.

The insurers argued the claim was out of time under legislation in New South Wales governing time limits on starting legal actions.[2] Given the importance of the issue, the trial judge referred the issue straight to the Court of Appeal.

Result

On 26 February 2019, the Court of Appeal held (3-2) that the time limit to bring proceedings against an insurer under an indemnity policy for a failure to indemnify for losses as a result of property damage generally starts from when the insured event occurs. The exception is where the insurance policy states that the insured must lodge a claim with the insurer before any obligation to indemnify arises.[3] Given that the insurance policy in this case did not have such a clause, the church’s claim was therefore time-barred, despite proceedings being commenced within six years of the insurers rejecting the claim.

Outlook

It follows from the Court’s decision that an insurer’s liability to indemnify arises on the damage occurring, which is obviously before a claim is lodged, before the amount payable is known, and may be well before the insured has discovered they could make a claim. Insolvency practitioners should carefully and promptly investigate a company’s insurance arrangements and possible claims – proceedings may need to be commenced even before the insurer has assessed, let alone denied, the claim.

Further developments are likely and we will provide an update if the judgment is appealed to the High Court.