Divergent Approaches – When Does Time Begin To Run Under A Claims Made Insurance Policy?
In the modern professional indemnity insurance landscape, most policies are written on a “claims made” basis (Claims Made Insurance Policy). However, even today the Malaysian jurisprudence relating to the limitation period for an Insured to initiate a suit against an Insurer for the latter’s refusal to indemnify the former under a Claims Made Insurance Policy is seemingly unclear. While Section 6(1)(a) of the Limitation Act 1953 is clear that a 6-year limitation applies from the date of accrual of the cause of action, the issue of when the cause of action in specific forms of professional indemnity insurance policies accrues is far from settled.
Claims Made Insurance Policies
Subject to the wording of individual policies, the operation of a Claims Made Insurance Policy may be generally summarised as follows:
i.A Claims Made Insurance Policy is a sub-category of indemnity policies.
ii.A Claims Made Insurance Policy means a policy providing coverage that is triggered when a claim and/or potential claim (i.e. a notice of demand) is made against the Insured during the policy period, regardless of when the wrongful act and/or omission that gave rise to the claim occurred.
iii.The Insured is to notify the Insurer of the claim and/or potential claim during the policy period (Notification).
iv.Such Notification to the Insurer is deemed to be a claim made during the currency of the policy should a formal claim be initiated at a later date (regardless of the policy period).
When considering Claims Made Insurance Policies, there are 3 key dates to bear in mind:
(a) The Date of Notification.
(b) The date liability is established and quantified against the Insured (Date of Liability).
(c) The date of repudiation of the insurance policy by the Insurer (Date of Repudiation).
Normally, the Insurer’s repudiation of the policy refers to the Insurer’s decision not to indemnify the Insured. The justification commonly cited in support of such decisions is that the underlying claim against the Insured is not covered by the policy in question.
The Date Of Repudiation Approach
In the Court of Appeal case of KL Chan & Associates v Allianz General Insurance (M) Berhad , it was held that time began to run from the date of repudiation of the insurance policy by the Insurer (the Date of Repudiation Approach). It is important to note the disputed insurance policy here was, in fact, a Claims Made Insurance Policy. However, the Court of Appeal did not provide its written grounds of judgment other than to reverse the decision of the High Court.
The Court of Appeal’s finding was in line with the decisions of the High Court in such cases such as Tan Boon Yen & Ors v Mayban General Assurance Bhd [2003] 5 MLJ 315 and Ayob bin Salleh v AmGeneral Insurance Bhd & Anor [2015] 11 MLJ 30 where it was held that for purposes of limitation period, time runs from the Date of Repudiation. The reasoning given was that the Date of Repudiation was the relevant date when the policy was breached by the Insurer.
The Date Of Loss Approach
In 2020, the High Court in Su Hock Guan v AXA Affin General Insurance Malaysia Bhd [2020] MLJU 1798 departed from the Date of Repudiation Approach. The court commented that:
[24] … the cause of action in an indemnity insurance policy, unless the contract otherwise provides, necessarily accrues from the date of the loss event and not from the date of repudiation of liability by the insurer.
Su Hock Guan represents a turning point in the judicial approach to the date of accrual in indemnity insurance policies. The following year, in Shiva Kumar Day v Allianz Life Insurance Malaysia Bhd & Anor [2021] MLJU 823 the High Court approved the judgment of Su Hock Guan. The court held:
[37] While the High Court decisions in the Tan Boon Yen and Ayob Salleh [Date of Repudiation Approach] cases are entitled to the highest respect, however, I am of the view that the decision of one High Court does not bind another. I find myself in accord with the views expressed in the Mohd Sultan Dastagir and Su Hock Guan [Date of Loss Approach] cases as being more persuasive in the jurisprudence on an indemnity insurance policy.
However, it may be worth noting that neither High Court in the cases of Shiva Kumar Day and Su Hock Guan had referred to the Court of Appeal decision in KL Chan & Associates (supra).
Analysis
A reasonable observer may suggest that Shiva Kumar Day and Su Hock Guan were decided in per curiam and the Court of Appeal’s decision in KL Chan & Associates should have been binding upon the High Court in both instances, thus, applying the principle of stare decisis, the Date of Repudiation Approach would prevail.
However, given the recent judgment of the Federal Court in Tetuan Wan Shahrizal, Hari & Co v Public Prosecutor [2023] MLJU 415, suggestions of this nature do not seem tenable:
[17] Obviously therefore, a decision that is delivered without the written grounds does not establish any principle or rule of law on which the decision is founded. The decision is therefore devoid of any ratio decidendi (rationale for the decision). It has no value as precedent.
[19] Thus, where there are no grounds written, there is no point or principle of law that can officially be decided or settled by the ruling of a competent court. The correct position of the law is that an unwritten decision of a higher court, whether sitting in its original or appellate jurisdiction, binds the parties to the action but is not authority for any principle or rule of law and does not bind the lower courts.
Considering that the KL Chan & Associates decision lacks a written grounds of judgment, it cannot form a compelling basis to question the decisions handed down in Shiva Kumar Day and Su Hock Guan. This may well be the case even though the High Court cases were not dealing specifically with Claims Made Insurance Policies, especially if one were to take into account the unequivocally expressed ratios in both High Court judgments.
The Date of Loss in the context of a Claims Made Insurance policy is not immediately apparent from the decisions of Shiva Kumar Day and Su Hock Guan. However, on the premise that the losses would not be suffered or crystallised until liability is established and quantified on the Date of Liability, it would follow that in the context of a Claims Made Insurance Policy, the Date of Liability would effectively be regarded as the Date of Loss. In such an instance, the time for an Insured to bring an action against its Insurer would begin to run from the Date of Liability.
Conclusion
It is unfortunate that the only Court of Appeal case that had deliberated on Claims Made Insurance Policies arguably does not serve as binding precedent today. As such, the current judicial approach seems to favour the Date of Loss Approach. However, the decision of one High Court does not bind another, which means that this area of law may be subject to further jurisprudential developments. In the interim, an Insured under a Claims Made Insurance Policy ought to act with promptitude from the earlier of Date of Liability or the Date of Repudiation to best preserve its right against its Insurer.
20 June 2023