North America based Clyde & Co lawyers answer important questions in the Reinsurance industry.

CONTENTS

(1) When does the limitation period start to run for insurance contract?

The laws concerning limitation vary from state to state. For New York, the six year limitation period will start to run from the date of accrual of the cause of action. This will be the date on which the insurer denies coverage.

(2) When does the limitation period start to run for reinsurance contracts?

The six year limitation period will run from the date the reinsurer denies coverage.

(3) Can the limitation period be suspended and/or interrupted, and if so, how?

The parties can enter into a tolling agreement, suspending the limitation period.

(4) Can the express terms of the insurance policy and/or reinsurance contract have the effect of altering the start date for the limitation period?

Yes, this is possible, but if this has the effect of reducing the limitation period, it must be reasonable in the particular circumstances of the case.

(1) When does the limitation period start to run for insurance contract?

Actions on insurance contracts are subject to specific limitation periods provided for in provincial limitations and insurance legislation. If the specific limitation provision allows for it, courts in insurance cases have adopted the "discoverability" rule by which time starts to run when the insured knew or ought to have known that loss had occurred. The "discoverability" rule is the applicable rule in the province of Ontario. For most provinces, claims will be barred two years after the applicable period started to run though a consultation of each provincial legislative scheme is essential since limitation period will vary depending on the type of action.

A party is not permitted to delay the commencement of proceedings from the date the claim is fully ripened for some tactical or other reason. A claim is fully ripened when a proceeding would be an appropriate means to seek a remedy when having regard to the nature of the injury, loss or damage. Appropriateness means "legally appropriate" and is assessed on the specific facts of each case.

In other instances, the applicable limitation period will begin to run from a fixed event (i.e. the date of injury/loss), unrelated to the plaintiff's knowledge of a cause of action. The limitation period for a claim relating to a denial of insurance benefits will run from the date that an unequivocal denial of benefits is received by the insured.

(2) When does the limitation period start to run for reinsurance contracts?

As is already the case for insurance contracts, the applicable limitation will begin to run either from a fixed event, such as the date of injury/loss, or at the time the loss is "discovered" by the claimant. For a reinsurance contract, this may be the time at which the insurer is aware that he has a valid claim against his reinsurer. The date at which a valid claim can be made by the insurer to his reinsurer may be provided by the reinsurance treaty binding them.

(3) Can the limitation period be suspended and/or interrupted, and if so, how?

Provincial limitations legislation allows for limitation periods to be suspended or interrupted. Limitation periods are suspended during times at which the claimant is a person under disability, incapable of bringing a claim, or a minor.

Limitation periods can be extended through a waiver by the insurer. However, appraisal proceedings do not suspend the limitation period for bringing an action against the insurer. There is no waiver of any term or condition of the policy due to appraisal of the amount of loss, and the demand for and participation in an appraisal does not obligate an insurer to pay the claim. Parties must accordingly commence an enforcement action within the applicable limitation period to avoid being statute-barred.

(4) Can the express terms of the insurance policy and/or reinsurance contract have the effect of altering the start date for the limitation period?

Provincial legislation allows parties the ability to alter statutory limitation periods by agreement. In Ontario, a term in a contract purporting to vary an otherwise applicable limitation period under the Limitations Act has to comply with s. 22, which allows parties to vary or exclude the otherwise applicable statutory limitation period in business agreements. A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in "clear language" describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods.

In the province of Quebec, however, legislation precludes the parties from drafting tolling agreement or varying terms of insurance contracts in a way that would constitute an anticipated renunciation to the prescription. It is still possible to renounce the benefit of the time elapsed or of prescription already acquired.