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Chapter 8 Legal issues relating to reinsurance 8/19

E Limitation

Typically, all civil legal systems fix a period beyond which a claim against another may not be pursued.
This period is generally referred to as the limitation period and, where proceedings have not been
commenced within that period, the claim is said to be time-barred.
Under English law, the limitation period relating to contracts, including reinsurance contracts, is to be
found at s.5 of the Limitation Act 1980, ‘an action founded on simple contract shall not be brought after
the expiration of six years from the date on which the cause of action accrued’.
The limitation period does not operate automatically to bar claims six years after the date of accrual.
Limitation period does
Time-bar is a defence available at the discretion of the reinsurer, not the court. The cause of action itself not automatically bar
is not extinguished rather it becomes unenforceable if the defence is made out. In other words, it is the claims six years after
date of accrual
remedy not the right that is barred, reflecting the public policy principle that the law does not recognise
stale claims.
The limitation period runs from the date when a cause of action accrues which, in this context, is when
the reinsured’s liability is ascertained by agreement, award or by judgment (Halvanon Ins. v. Companhia
de Seguros do Estado de São Paulo (1995)). For the avoidance of doubt, the date of discharge of that
liability to the original insured is irrelevant. So, if no claim form (formerly, writ) is issued or arbitration
proceedings commenced within six years of that date, the debtor will be able to deny liability for the
debt on the basis that it is time-barred.
In the Halvanon case, the reinsured issued a claim form which detailed sums owed by reinsurers and
attempted to produce evidence that such monies had fallen due within six years of the commencement
of the proceedings on the premise that the cause of action did not accrue until presentation of the
account.
Steyn, LJ, disagreed:
In the absence of special clauses … the cause of action arises when the underlying liability is ascertained
by agreement, by award or by judgment. It is not postponed until the rendering of an account.

The limitation period may be amended by agreement. In the reinsurance contract, the parties may agree Reference copy for CII Face to Face Training
Limitation period may
that the cause of action accrues from a date other than that stipulated by the Limitation Act (for be amended by
instance, if later, the date of delivery of periodic accounts). It is clear, however, that a reinsured cannot agreement
extend the limitation period by failing to submit accounts to its reinsurer.
Additionally, rather than commencing proceedings – if, for example, settlement negotiations are well
advanced – the parties may enter into a Standstill Agreement or, in the USA, a Tolling Agreement. Such
an agreement has the effect of suspending the running of time from a specified date, and is usually on
terms that defences that have arisen (for example, time-bar) are preserved.

Be aware
The limitation period may also be extended by written acknowledgement and part payment. Chapter

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