Statutory Limitation Periods For Premium Claims

The recent decision in Heath Lambert Limited v Sociedad de Corretaje de Seguros [2004] Lloyd's Rep IR 905 is of particular significance to the marine reinsurance market. It raises important questions on the limitation periods for premium claims, and may also have wider implications for the operation of S.53 of the Marine Insurance Act 1906.

English law has almost since its origins recognised the need to protect the defendant against a stale claim. There are two basic reasons for imposing a statutory limitation period. First, with the passing of time, evidence and witnesses become increasingly unreliable. Secondly, although this is admittedly less of a problem in the modern computer age, the defendant cannot be expected to retain his files on all matters indefinitely.

STATUTORY LIMITATION PERIODS

The Limitation Act 1980, section 5, lays down a six year limitation period for bringing an action for breach of contract, time running from the date of the breach. Actions by and against reinsurers must thus be brought within six years from the date of the act complained of. In the case of a dispute concerning placement, it is to be borne in mind that the renewal of a reinsurance contract amounts to the making of a fresh contract even though the renewed terms are much as before. If, therefore, a reinsurance agreement is entered into for the years 1996 to 1998, and is renewed for the years 1999 to 2001 during which period claims arise, the reinsurers are free to deny liability or allege breach of contract under the renewal and it is not open to the reinsured to rely on a time-bar by asserting that the wrongful act originally occurred in 1996 and was merely repeated on renewal in 1999. It is of course open to the parties to a reinsurance agreement to vary the limitation period, either by agreeing a shorter period at the outset or, following a dispute arising, by entering into a standstill agreement which postpones the running of time while settlement negotiations take place.

THE HEATH LAMBERT CASE

As is well known, as far as marine insurance and reinsurance is concerned, it is the duty of the placing brokers to pay the premium to the underwriters, and it is irrelevant to this rule whether or not the brokers have been put in funds by their clients. The rule dates back to the early nineteenth century, and has been codified in section 53 of the Marine Insurance Act 1906. The rule has its basis in the curious fiction that the premium has been paid...