Home owner warranty claims: when does the clock start ticking?

A claim against a home warranty insurer has been dismissed by the TCC on the basis that the property owners’ claim was not brought within the required time and was therefore statute barred under section 5 of the Limitation Act 1980.

The TCC’s decision in Griffiths v Liberty Syndicate 4472 [2020] EWHC 948 (TCC) reiterates the position that the period during which a claim must be brought commences when an insured loss is suffered as the result of the occurrence of an insured event, unless there is express wording to the contrary in the home warranty policy. 

The background

In 2007, a former factory was converted into 225 apartments. The common parts comprised an atrium with a glass roof and a rooftop outdoor space with a running track and barbeque area.

Mr and Mrs Griffiths were long term leaseholders of one of the apartments in the development and alleged that the common parts were defective in two respects: (1) open louvres in the atrium let in rainwater which caused structural damage, and (2) a membrane surrounding the atrium had been cut in the course of construction allowing water ingress.

The Griffiths, along with other leaseholders within the development, were insured under a housing insurance policy underwritten by Liberty. The policy provided for defects and structural insurance, covering the period from May 2009 to May 2018.

It was accepted by the parties that the developer and Liberty had been notified of the atrium defect by the management company on behalf of the Griffiths and other leaseholders in March 2010, and that Liberty rejected the claim in June 2011. Liberty argued that the roof defect was also discovered in or before March 2010, a fact that was not disputed by the Griffiths.

The dates on which the defects were discovered is relevant as section 5 of the Limitation Act 1980 states that a claim based on a contract, such as in this case, must be brought within six years of the date on which “the cause of action accrued”.

Despite both defects being discovered in or around March 2010, the Griffiths and others commenced proceedings on 4 January 2019, nearly 9 years after discovery of the defects. It was agreed by the parties that if liability under the policy had accrued before 5 January 2013, six years before the proceedings commenced, the claim would be statute barred pursuant to section 5 of the Limitation Act 1980.

The parties’ positions

The Griffiths argued that they notified Liberty of the defects during the period that the defects and structural insurance cover was in place, but the terms of the indemnity in the policy did not trigger an entitlement under the policy unless and until the Griffiths had incurred the costs of rectifying the defects. Therefore, as Liberty’s liability to indemnify under the policy did not arise until the Griffiths had incurred rectification costs, time had not started to run for limitation purposes. The specific date on which the Griffiths incurred the cost of rectifying the defects is not stated in the judgment, but presumably it was after 5 January 2013 and within six years of the commencement of the proceedings.

Liberty, on the other hand, argued that the defects were discovered in or before March 2010 and this was when the limitation countdown commenced. Accordingly, the Griffiths had brought their claim outside the six year statutory limitation period and were out of time.

The decision

The Court rejected the Griffiths’ arguments that liability only accrued under the policy when costs were incurred in rectifying defects.

The Court held that:

• To achieve what the Griffiths contended, clear words to that effect would be required in the policy.  In the absence of clear words to the contrary, liability immediately arises under a policy of indemnity insurance, such as in this case, when an insured loss is suffered as the result of the occurrence of an insured event. Although the insurer has the option as to how to return the insured to its pre-loss position, this does not prevent or delay the insurer from being liable to immediately indemnify the loss.  
• If the Griffiths’ proposition was accepted, it would result in the insured party always being able to control the date at which time starts to run. Clear words are required before a party is considered to have control over when time starts to run against it, as this is such an unlikely provision for the other party to have agreed. 
• Interpretation of a policy in this way would defeat the purpose of the policy, as rectification works may never be carried out where it was too expensive to do so, such that the insured would never incur a liability under the policy.

Impact of the decision

The Court’s decision in this case is not surprising. To have accepted the Griffiths’ contention that the clock starts ticking only when a party incurs costs in rectifying a defect has the potential to see insurers avoid liability for rectification altogether where property owners cannot afford to rectify the works. It would have the potential to defeat the purpose of home warranty insurance, particularly where the cost of rectification is likely to be expensive and unaffordable without the benefit of a payment under the insurance policy.

However, it is a reminder that such insurance claims must be brought within six years of the loss being suffered.  A claim will not be in time simply because it is made within the 10 year time period covered by the policy.

This article was originally published on 26 May 2020 and updated in July 2020.