The Court of Appeal has overturned a High Court judgment on the meaning of an arbitration clause and clarified the meaning of “claim” in a public liability policy.
In William McIlroy (Swindon) Ltd & Rannoch Investments v Quinn Insurance Ltd [2011] EWCA Civ 825, the Court of Appeal had to decide on the meaning of a clause which required disputes about “liability in respect of a claim or the amount to be paid” to be referred to arbitration within nine months of the dispute arising. It was held by the Court that the word “claim” referred to the insured’s claim under the policy and not the third party’s claim against the insured.
This decision overturned the first instance ruling on a preliminary issue (which we reported on here) where the judge held that the claim was time-barred because it had not been brought within nine months of the insurer’s refusal to indemnify the insured, even though the insured was still denying liability as against the third party.
The Court of Appeal said it was trite law that liability under an indemnity policy does not accrue unless and until the existence and amount of the liability to relevant third parties has first been established. This doctrine was established in Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363. In the instant case, time did not start to run until the insured’s liability had been established and damages had been assessed by the courts and so the claim was not time-barred. The arbitration clause did not relate to a dispute as to liability under the policy divorced from a particular claim or cause of action for an indemnity which has matured into a liability under the policy.
The Court of Appeal distinguished Walker v Pennine Insurance Co Ltd [1980] 2 Lloyd’s Rep 156 on the grounds that it related to motor insurance, not public liability, and because it failed to consider the Post Office case. In the context of motor insurance, the Court said the word “claim” could be given a wider meaning encompassing any assertion of a potential future liability on the part of the insurer.
Although this decision goes against the insurer, it is helpful in clarifying the meaning of “claim” and reiterating the Post Office doctrine regarding the point when liability accrues under an indemnity policy.
