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  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.
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 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.
Charity Training: Digital Transformation in the Charity Sector
We would be delighted if you could join us for the second session in our new series of bite-size webinars for charities.
Charity Training: Brand Protection
We would be delighted if you could join us for the first in our new series of bite-size webinars for charities.
The UK’s New Skilled Worker & Intra-Company Visa Routes: a closer look
Taking a closer look at the UK’s new visas to assist UK businesses.
Practicalities in Cladding Claims
Insight into Issues with Cladding Claims
EWS1 Forms - the latest episode
RICS have now published their highly anticipated guidance on when EWS1 forms will be required.
Q&A: Am I insured for COVID-19?
Laura Bushaway writes for Estates Gazette on a recent claim under the “disease clause” of business interruption policy.
The Purpose Podcast: Corporate purpose
Simon Ridpath discusses corporate purpose and the rise of environmental, social and governance (ESG) issues in “The Purpose Podcast”
Client alert: Construction under competition law spotlight
We outline the three investigations which have either recently concluded or are ongoing together with what this means for businesses.
Looking beyond the benefitted land: confirmation that an objector’s wider property may be considered in applications to discharge/modify restrictive covenants
Read our recent case study on applicants who were prevented from developing a new house due to a restrictive covenant covering their land.
Further extension of coronavirus restrictions affecting residential properties: Where are we now?
The extension will be implemented from and including 31 March 2021 by the Coronavirus Act 2020.
Knight Frank Wealth Report: The Global Perspective on Prime Property & Investment
Knight Frank partners joined Charles Russell Speechlys for a virtual panel-led discussion on the Knight Frank Wealth Report
Case Study: One Blackfriars Limited
An informative and positive judgment for administrators selling high-value property in distressed and complex scenarios.
Keeping Up With Construction: Handover at Practical Completion - Practical Pointers
Practical tips for the handover of a successful project.
Charles Russell Speechlys advises on Trident Royalties’ US$28m Placing
Trident Royalties plc is a growth-focused mining royalty and streaming company.
Temporary restrictions on winding-up petitions extended until 30 June 2021
As the restrictions are extended, read what it means for you here.
Steven Carey writes for Building on whether a company can provide expert services in claims for and against the same party
A recent appeal case looked at whether a company can provide expert services in claims for and against the same party.
InvestAfrica: Checking in or Checking out? Financing Africa’s Hotels in 2021
The discussion examined the strategies investors and financial institutions can implement to mitigate the effects of the pandemic.
Charles Russell Speechlys advises Avation plc on £7.5m secondary placing
Headquartered in Singapore, Avation plc manages a fleet of aircraft which it leases to airlines across the world.
To Promote or not to Promote, that is the Option: Top 10 Tips with Promotion Agreements
Providing you with the top ten tips with promotion agreements - what should you know?
Sleep-in workers not entitled to NMW for entire shift
A unanimous ruling by The Supreme Court in the Royal Mencap v Tomlinson-Blake and another case.