Why limitation?
It makes perfect sense to have a time limit on suing people – it’s unfair to sit on a claim for years and do nothing. The general rule is that a claim is barred if it is brought more than six years after the wrong it is based on. There are many cases where such a simple limitation rule is inadequate such as where the wrong is hidden (leaky buildings); or where the victim may be unable to complain (cases of sexual violence); and in those cases special rules apply. The most obvious example of the law of limitation not working in Christchurch is the fact that almost six years after the first earthquake there are an estimated 25,000 insurance claims still unresolved and there is no agreement about when claims will be barred.
Many homeowners remain either unaware or confused about the effect of limitation. Others are concerned that they may be left without a remedy for their claims for earthquake damage. These concerns are real as the six year limitation period may remove the right to take insurers and/or EQC to Court. While Court should always be a last resort, the possibility of taking a dispute to Court is an important check on behaviour of all parties including insurance companies. The ultimate test of whether something is permitted is “what would a Judge say?”
Limitation encourages people to make claims promptly, gives some finality, and avoids the unfairness of trials when the evidence is old and unreliable. However where there is a valid reason for the delay it can act very harshly indeed. The difference between having a claim and not having a claim can be one day’s delay in filing proceedings.
Tick-tock
The critical question is “when does the clock start ticking?” Unfortunately the law is not entirely clear on this in respect of insurance claims. This is complicated by a change in the wording of the law between the September 2010 and February 2011 quakes. Under the Limitation Act 1950, it was settled that the date of breach in insurance was the moment of loss. The obligation of an insurer to reinstate arises immediately – which meant time ran from the moment of each earthquake which caused the damage.
Under the amended wording in the Limitation Act 2010, time runs from “the date of the act or omission on which the claim is based”. Depending on interpretation, this means that limitation could run from:
• The moment of loss; or
• The time the insured lodged a claim in respect of the loss; or
• When the breach was discoverable; or
• The moment that the insurer failed in its obligation to the insured.
As the legislation is less than six years old, we do not yet know how the Court will interpret the section. It could be that the Court will find that the “act or omission on which the claim is based” is the refusal of the insurer to meet a claim, or when the delay becomes unreasonable. However because of the catastrophic consequences of getting it wrong, a cautious approach is best and we should presume that time still runs from the moment of loss.
If this is the case then there is a risk of the Courts being inundated with claims in August and September this year. This is something that insurers, EQC, and the Government are aware of and would like to avoid. Both EQC and the Insurance Council have tried to reassure homeowners in statements about their view of the law – but there are risks in relying on such general statements.
What they say
EQC has said that it considers that time runs from when it declines or settles a claim. However the view is carefully couched and EQC also says that the limitation legislation is “technical” and that this is EQC’s “general view” which is not legal advice. The risk is that when someone actually sues that EQC will take a different stance. It is very unlikely that in Court EQC will be held to such general statements.
The Insurance Council has said that its members will not raise limitation in any case that is filed before 4 September 2017. Such a global statement is somewhat unusual. It is possible to waive limitation – however here it is a representative entity and not the insurers themselves who have made such a statement, and it is general rather than relating to specific claims. It is not entirely clear that the members of the Insurance Council will be legally bound by that statement – although it is highly unlikely that they would fail to honour it.
Importantly not every insurer is a member of the Insurance Council (though the main insurers all are). So anyone insured by a less well known insurer should check their position.
What we say
The fact is that the position in respect of limitation is another earthquake mess. There are a number of options to resolve this short of the trouble and expense of litigation. Most obviously an insured person should seek a clear and specific written statement from EQC and/or their insurer that they will waive limitation (either entirely, or until a fixed date).
This amounts to a waiver of the right to raise limitation as a defence.
An obvious alternative would be for Parliament to intervene. While no one wants to give more slack to insurance companies, limitation could play into their hands either now or in September 2017. In homeowner insurance cases there is a strong argument that limitation should only be able to be raised where there is fault on the part of the homeowner, and real prejudice to the insurer as a result of the delay. This is not how the law works now and only Parliament can change that.
If none of this works and there is real uncertainly about whether a claim will be barred by limitation then careful thought should be given to filing proceedings. Even then it is important to balance the risks and possible benefits against the alternatives. However if a claim has not been settled and the insurer or EQC is sitting on the fence about how it will treat limitation then the time may be right to file proceedings in Court.
If in doubt…
Limitation is technical, and can be confusing; however getting it wrong can be disastrous. Not every situation will be the same. There are still several months before the first possible “cut-off” date of 4 September 2016 so there is no immediate panic – but equally don’t leave it until the very last moment. If there is any doubt it is important to take a cautious approach, get legal advice and take the steps that are best for you.
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