Quinn case ends legal claim uncertainty

The High Court has decided legal claims must be brought within 6 years from the point an insurer declines liability, following the case of WM Swindon Limited v Quinn insurance Limited.

Under the Limitation Act 1980, legal claims must generally be brought within 6 years after judgement or settlement establishes that the insured is legally liable, though it has been unclear if the period of time also runs from the point an insurer declines indemnity.

Lenihan Limited building company was insured by Quinn for public liability and other risks. In 2006, Lenihan started a fire at premises it was repairing through alleged negligence. It sought indemnity for the legal claims it expected to face, but in February 2009 Lenihan was informed that Quinn was declining indemnity.

Various companies affected by the fire sued Lenihan, and they obtained quantified judgments against it in January 2010. Lenihan went into liquidation the following month, and its rights under the Quinn policy were transferred to the claimants under the Third Parties (Rights against Insurers) Act 1930.

Lenihan's policy contained a provision whereby any dispute as to Quinn’s liability in respect of a legal claim had to be referred to arbitration within 9 months of the dispute arising and, if not referred to arbitration within that period, the legal claim was deemed to have been abandoned.

The claimants argued that the period of limitation should apply from January 2010, when Lenihan became liable to the claimants in a quantified sum.

The court rejected that argument and upheld Quinn’s submission that, where an insurer informs an insured that it will not be granting indemnity in respect of a potential claim and where that refusal to indemnify is unjustified, the period of limitation starts to run.

Jonathan Corman, partner at Browne Jacobson, said: "The question of limitation was particularly acute in this case, where the policy contained a very short limitation period. However, the issue may arise generally.

"It is not unusual for insurers, who have declined indemnity and closed their files, to be faced many years later with claimants who have taken an inordinate time to obtain judgment against the insured but who are now seeking to challenge the decision to decline indemnity. This recent case shows that any such challenge – if more than six years after the original declinature – would be statute-barred."