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William McIlroy Swindon Ltd & Ors v Quinn Insurance Ltd, Court of Appeal, 18 July 2011

28 July 2011
The issues

Public liability insurance – motor insurance – meaning of “claim”.

The facts

In September 2006 a fire broke out in shop premises in the High Street in Lewes. It spread to neighbouring property. At the time of the fire works were being carried out in the shop under a contract between Mackays Stores Ltd and Cathedral Works Organisation (Chichester) Ltd. Cathedral subcontracted the works in part to A Lenihan Ltd. Lenihan carried on business in a small way as a roofing and building contractor. The allegation was that the fire was caused by one of Lenihan’s employees using a blowtorch in a negligent way whilst paint stripping.

Lenihan were insured under a public liability policy issued by Quinn. Lenihan notified Quinn when the fire took place. Lenihan told Quinn that their workmen were not using hot works on the day of the fire and accordingly Quinn closed their file. They later reopened the file after a letter of claim was received by Lenihan, sent by an occupier, Rannoch. Quinn refused to provide an indemnity to Lenihan, relying on general condition 16.

General condition 16 read:

“Any dispute between the insured and the company on our liability in respect of a claim or the amount to be paid shall, in default of agreement, be referred within nine months of the dispute arising to an arbitrator and the decision of the arbitrator shall be final and binding on both parties.

If the dispute has not been referred to arbitration within the aforesaid nine month period, then the claim shall be deemed as having been abandoned and not recoverable thereafter.”

Rannoch and other occupiers brought a claim against Mackay, Cathedral, Lenihan and another associated company to Mackay, McIlroy. Quinn was kept informed of the progress of the litigation but took no part in it.

In November 2009 all of the claims in the main action, other than the claim against Lenihan, was settled at mediation. Subsequently, damages were awarded against Lenihan in the sum of £600,000 plus costs (in December 2009). Later still, Rannoch’s claim against Lenihan was assessed in the total sum of £792,542 inclusive of interest and costs (in January 2010). Lenihan did not satisfy the Judgments. In February 2010 voluntary winding up resolution was passed and Lenihan’s rights against Quinn were vested in the various Claimants pursuant to Section 1 of the Third Party (Rights Against Insurers) Act 1930. An action was brought by the Judgment debtors against Quinn. Quinn argued that in accordance with the policy, Lenihan should have instituted arbitration proceedings within 9 months of February 2009 when Quinn’s refusal of indemnity was first communicated to Lenihan. The question of whether Quinn were entitled to rely on this condition was tried as a preliminary issue, when the Judge found in favour of Quinn.

The Claimants Appealed to the Court of Appeal.

The decision

The main issue arising on the Appeal was whether or not Quinn’s refusal of indemnity on February 2009 amounted to a dispute which triggered the time-bar clause or whether their refusal in December 2009 to provide an indemnity in relation to the Judgments awarded against them amounted to a further dispute, which also triggered a right to arbitrate. If the latter was the case, Quinn accepted that the claims were brought in time.

It was trite law that liability under an indemnity policy did not accrue unless and until the existence and amount of the liability to relevant third parties had first been established, whether by a Judgment or an arbitration award or by an agreement (Post Office v Norwich Union Fire Insurance Society Ltd [1967] and Bradley v Eagle Star Insurance Co Ltd [1989]).

It followed that no dispute could have arisen between Lenihan and Quinn under the public liability section of the policy, whether in respect of the claim or the amount to be paid, unless and until Lenihan’s liability to the Claimants had been established by the Judgments on the assessments of damages in December 2009 and January 2010 respectively. It followed therefore that the Judge was wrong to hold that Lenihan’s rights under the policy had been extinguished by that time by the operation of general condition 16.

It was important to define the meaning of “claim” as used in general condition 16. It was clear that “claim” referred to the insured’s claim under the policy, rather than the third party’s claim. This was apparent from the sanction, namely that the claim was thereafter deemed to have been abandoned. Moreover, the insured could not refer a third party claim against the insured to arbitration. The arbitration clause could only therefore be referring to a claim under the policy. The position might be different in a motor policy. If an insured’s car was damaged in a collision, the insured was commonly spoken of as making a “claim” on his policy, assuming it to be comprehensive. If in the collision a third party’s car was also damaged, the insured’s claim might possibly be regarded as an encompassing request for cover for any third party claims that might be made. In such circumstances, the word claim might be given a wide meaning as encompassing an assertion of a potential future liability on the part of the insurer.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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