Limitation of actions - Postponing the running of time by a condition precedent

(Virk v. Gan Life Holdings plc, forthcoming in [2000] Lloyd’s Rep IR)

The rules affecting the running of time for insurance claims have been considered by the courts on a number of occasions in recent years, and a consistent pattern has now emerged. In the case of any form of insurance other than liability, the six-year limitation period during which proceedings must be commenced against insurers starts to run on the date of the occurrence of the insured peril: this was confirmed by Callaghan v. Dominion Insurance [1997] 2 Lloyd’s Rep 541. The rationale for the rule is that the insurers have agreed to “hold the assured harmless”, so that as soon as the assured has suffered a loss the insurers’ obligation to indemnify the assured comes into play: the absence of immediate indemnification means that the insurers are in breach of contract, and the assured’s action accrues at that point. The rule in liability insurance is that the assured’s action runs as soon as the liability of the assured to a third party has been established and quantified by judgment, arbitration award or binding settlement: this was decided by the House of Lords in Firma C-Trades SA v. Newcastle Protection and Indemnity Association, The Fanti [1990] 2 Lloyd’s Rep 191. The question for the Court of Appeal in Virk v. Gan Life Holdings plc, fully reported in the March 2000 issue of Lloyd’s Rep IR, is whether contractual terms can operate to postpone the running of time.