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 very quickly looks to blame the broker. Occasionally, however, a prospective claimant does not progress his, her or its claim promptly and in such circumstances accurately calculating when the cause of action accrues against the broker 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.

We examine the key principles of limitation in broker negligence claims and a reminder of when limitation may effectively be used as a defence, or 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 is a written 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. 

Pursuant to Section 5 of the Limitation Act 1980 (LA 1980), a claimant has six 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 duty to its policyholder client 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 claims for professional negligence this can often be difficult to assess but 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. 

For claims brought against brokers, the position is generally clearer. It is not when the insurer declines a claim or avoids the policy. Rather, a policyholder’s loss is usually suffered at the point of policy inception, because that is when it entered into a contract which was of less value than the policy the broker ought to have obtained. Unlike other professions, the limitation date for a broker is therefore generally very clear; you simply need to obtain a copy of the relevant policy. 

A claimant may be saved in a claim in tort by Section 14A, under which 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, the knowledge extension tends to be difficult for claimants because insurers are subject to an implied duty 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 consistently illustrated the principles of limitation in broker negligence claims:

1. Iron Trades Mutual Insurance Co Ltd v JK Buckenham Ltd: Concerned a claim against brokers for obtaining reinsurance contracts which proved to be voidable. Kenneth Rokison QC held that the cause of action in tort accrued from the date the reinsurance contracts were executed and not when the reinsurers sought to avoid them.
2. Islander Trucking Ltd v Hogg Robinson & Gardner Mountain (Marine) Ltd: Reaffirmed the decision in Iron Trades and confirmed that the date of loss, as against the brokers, was the date the insurance contracts were entered into and not when they were avoided by the insurer.
3. Knapp v Ecclesiastical Insurance Group Plc: The court confirmed 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 avoidance by the insurers

Conclusion

Claimants need to carefully consider limitation when looking to pursue their insurer and their broker at the same time because the accrual of the cause of action, and therefore the limitation period, for each claim is 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, the necessary foundation for an early strike out application.

Continuing duties

What happens when the broker is deemed to have a continuing duty to its client after the date it has placed the risk and procured a policy?

Importantly, where a claimant relies on such a duty and brings a claim beyond the six-year period, it is clear brokers owe their clients a positive duty after placing the risk, particularly duties relating to advising on renewal. There is scope for a claimant to argue that the continuing duty alters the limitation date for the purpose of bringing proceedings. In any event, the nature and extent of that duty will be judged on its facts and in consideration of all the circumstances. This is an issue to remain live to when faced with broker claims. 

Discretion, exceptions & extensions

The limitation dates are not necessarily set in stone. There are some instances which might alter the applicable limitation date which includes where the broker has acted fraudulently or concealed its breach of duty:

• Section 32(1): Where (a) the action is based upon the fraud of the defendant; or (b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant, the period of limitation shall not begin to run until the plaintiff has discovered the fraud or concealment or could with reasonable diligence have discovered it.
• Section 32(2): For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

We have not explored fraud and concealment in detail here. However, where limitation appears available as a defence, the above are matters to remain live to and where fraud and/or concealment are not alleged, for any strike out, it is worth stating the same and that the above provisions do not apply. Even if these issues are not raised, it would be sensible to state that in a defence when raising limitation, or in any application to strike-out a claim on the basis of limitation.

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