CA-2024-002563 - [2025] EWCA Civ 932

The Law

It is trite law that the cause of action under an insurance policy accrues on the happening of the event insured against. In Callaghan & Anr v Dominion Insurance Co. Limited & Ors [1997] 2 Lloyds Rep 541, Sir Peter Webster said:

“It seems to me that the best way to define an indemnity insurance is that it is an agreement by the insurer to confer on the insured a contractual right which, prima facie, comes into existence immediately when loss is suffered by the happening of an event insured against, to be put by the insurer into the same position in which the insured would have been had the event not occurred, but in no better position.”

Many insurance policies are in respect of property damage. In those cases, the cause of action will accrue on the happening of the fire or flood, or whatever the insured event may be. Thus, in Kelly v Norwich Union Fire Insurance Limited [1990] 1 WLR 139, there had been a burst pipe before the inception of the policy, which subsequently resulted in heave and property damage during the period of the policy. The Court of Appeal rejected the claim on the basis that the word “event” in the policy was a reference to the event which brought about liability, and that was the leak prior to the inception of the policy, not the subsequent damage.

Bingham LJ (as he then was) at page 148 of the report, gave five reasons for concluding that the insured’s right to indemnity was dependent upon his showing that the specified event in question occurred during the term of the policy. One of those reasons was that, if asked, the insured would have said that he had insured against “fire, explosion, lightening, earthquake, storm, flood” not “loss or damage caused by fire, explosion, lightening, earthquake, storm, flood…” He said that this was a case where “the colloquial response accurately reflects the legal reality.”

A more recent example of this line of cases is Griffiths v Liberty Syndicate 4472 [2020] EWHC 9480 (TCC); [2020] Lloyd’s Law Reports 312. Under the terms of the policy in question, HHJ Pelling KC, sitting as a High Court Judge, rejected the submission that, under the terms of the policy, the cause of action did not accrue until the cost of carrying out the repair work was incurred by the claimant. The cause of action accrued when a loss was caused by the event insured against, which in that case was the manifestation of the defect. Points were also made in the judgment in Griffiths about how, if the opposite construction were right and it was only on actual expenditure that the cause of action accrued, it would allow the claimant to control when time started to run: Legal Services Commission v Henthorn [2012] 1 WLR 1173. It would also defeat the purpose of the insurance in a situation where the work was too expensive for the claimant to carry out at all, which would see the insurer avoiding liability altogether: Manchikalapati v Zurich Insurance PLC [2019] EWCA Civ 2163; [2020] Lloyd’s Rep. IR 77.

In the absence of wording to the contrary, this then is the standard approach: that a claim arises under an insurance policy as soon as the event which directly results in the loss has occurred, and not when the loss is manifested (as confirmed by Colinvaux & Merkin’s Insurance Contract Law at C-0236). But as this commentary makes clear, everything turns on the precise words of the policy. There is no principle that prohibits the parties from agreeing that the relevant event is either the incurring by the insured of a liability to pay, or the actual expenditure of monies that the insured would otherwise not have had to have paid.

In British Credit Trust Holdings v UK Insurance Limited [2003] EWHC 2404 (Comm); [2004] 1 All ER) Comm) 444, the assured financed hire purchase agreements to the purchasers of motor cars. The losses sustained by the assured in respect of their non-prime lending was insured with the defendants. As customers defaulted on their hire purchase commitments, so claims continued to arise and were notified to the insurers on a monthly basis.

Clause 5 of the policy made plain that no legal action could be brought against the insurer unless it was commenced within one year after any loss incurred in respect of the hire purchase agreement. Morison J found that time did not start to run under clause 5(n) on the date of termination of the hire purchase agreement: that was merely a trigger for potential recoverable loss. Instead, he found that time could not start to run against the insured unless it knew whether there was a loss at all, and identified what that loss was in order to recover it under the policy.

Other authorities were cited to us on different points and I address those in the relevant sections of the judgment below.