Time’s up: Key considerations for limitation periods in broker negligence claims

Most claims against insurance brokers are brought relatively soon after the loss occurs because of the implied term in an insurance contract that an insurer must pay any sums due within a reasonable time. Therefore, when an insurer doesn’t pay (or partially pays) the claim, the uninsured (or underinsured) policyholder generally looks to blame the broker fairly quickly. Occasionally, however, a prospective claimant doesn't progress a claim promptly and in such circumstances accurately assessing when the cause of action accrues is crucial. 

We were recently instructed to defend a broker in a claim brought against both insurer and broker. We successfully had the claim against the broker struck out on limitation grounds. 

In light of that experience, we decided to examine the key principles of limitation in broker negligence claims and provide a reminder of when limitation may be used as an effective defence to a claim and even as a means of obtaining an early strike out.

The limitation clock in broker claims

The applicable limitation dates in the context of claims against brokers in contract, and in tort, are set out below.

Claims in contract

Whether or not there's a written contract or terms of business agreement (TOBA), if a person or entity has appointed a broker to procure its policy of insurance, a contract will exist between the two. The Supply of Goods and Services Act 1982 implies a duty requiring the broker to exercise skill and care in the performance of its service under the contract. 

Section 5 of the Limitation Act 1980 (LA 1980) provides a claimant with 6 years from the date on which the breach of contract occurred, irrespective of whether any damage is suffered at that point and whether or not the claimant knew there was a breach. 

Claims in tort

The broker will also assume a concurrent duty to in tort to act with reasonable skill and care. Under Section 2 of the LA 1980, a claimant has 6 years from the date it suffered damage or financial loss as a consequence of the breach of duty. In essence, a claimant’s cause of action will accrue when the claimant has acquired fewer and/or less valuable rights than they should have had. That can be difficult to determine for the majority of professions (for example solicitors or accountants). However, for insurance brokers, the position is generally more straightforward to assess. 

For brokers, that is not the insurable event (eg the fire, flood, theft etc.) or when the insurer declines a claim or avoids the policy. Rather, a policyholder’s loss is usually suffered at inception because that is when it entered into a contract which was of less value than what it had engaged the broker to obtain. 

A claimant may be saved in a claim in tort by Section 14A of the LA 1980. Under that provision, a claimant has three years from the date on which it had or ought to have had knowledge of the cause of action. This extension does not apply in claims for breach of contract. 

In a broker context, s14A tends to be difficult for claimants because insurers are subject to an implied duty of care to pay claims within a reasonable period of time (under section 13A of the Insurance Act 2015). The insurer’s decision, and potentially even the imposition of a reservation of rights, tends to highlight the existence of a problem and puts the policyholder on notice that the broker has caused or contributed to the problem with the risk.  

Claims in both contract and tort are subject to the 15-year longstop date pursuant to Section 14B.

Relevant case law

Several key cases have illustrated the principles of limitation in broker negligence claims:

1. Iron Trades Mutual Insurance Co Ltd v JK Buckenham Ltd (1990): This decision concerned a claim against brokers for obtaining reinsurance contracts which proved to be voidable. The judge held that the cause of action in tort accrued on the date the reinsurance contracts were executed and not the later date when the reinsurers sought to avoid them. That is because at the time the policy was executed, it was voidable and not the effective contract it had appointed the broker to obtain.
2. Islander Trucking Ltd v Hogg Robinson & Gardner Mountain (Marine) Ltd (1990): This decision reaffirmed the decision in Iron Trades and confirmed that the date of loss, as against the brokers, was the date the insurance contract incepted and not when it was avoided by the insurer.
3. Knapp v Ecclesiastical Insurance Group Plc (1998): This decision arose from a serious fire which occurred some six months after inception of the policy. Approximately six months later, insurers voided the policy due to various non-disclosures prior to inception of the policy. The claimant issued proceedings against the broker six years after the date of the fire alleging that the failures were the fault of the broker. The broker successfully struck out the claim on the basis that where a broker negligently procured a voidable insurance policy, the cause of action against the broker accrued when the policy incepted, not on the date of the event (ie the fire) or the later avoidance by the insurers.

Continuing duties

It's worth noting that the cases referred to above arise from pre-inception breaches by the policyholder or broker which mean the insurance contract is immediately rendered ineffective. However, brokers will almost always have a continuing duty to their client after inception if a broker negligently handles instructions during the course of the policy period. However, brokers will almost always have a continuing duty to their client after inception. If a broker negligently handles instructions during the course of the policy period. This may occur, for example, when dealing with the notification of a claim on the policy. If the broker’s failure gives the insurer the right to decline a claim, then the cause of action is likely to accrue (and time will begin to run) from when the failure to notify occurred rather than inception of the policy (unless there is some other basis for the declinature). 

Conclusion

Limitation in broker claims is generally relatively straightforward. However, the continuing duties section above shows how important it is to properly assess the basis of the Claimant’s cause of action. Further, Claimants can come into difficulties when they decide to pursue both insurer and broker in the same proceedings. The accrual of the cause of action, and therefore the limitation period, for each claim may well be different. Fully assessing the nuances of the Limitation Act 1980 and relevant case law can provide strong grounds to maintain that a claim has no reasonable prospects of success and potentially, as in the claim we recently handled, the foundation of an early and successful strike out application.

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