THE STATUTE OF LIMITATIONS IN CLAIMS UNDER CONTRACTORS ALL RISKS / PRODUCTS LIABILITY / PROFESSIONAL INDEMNITY INSURANCE POLICIES
By Itzick Simon
When is an insurance claim time barred and what is the distinction between own damage and liability claims? Read on about the statute of limitations in Contractors All Risks, Products Liability and Professional Indemnity insurance policies.
The statute of limitations, or prescriptive period, is a legal term which sets the maximum period of time allowed by law to file a claim after the date when the cause of action arises. Israeli law has different prescriptive periods for different types of claims, although the common denominator in all of them is that after the end of the prescriptive period, any claim which is subsequently filed will be automatically dismissed, other than in very exceptional and rare circumstances.
In this article we will address the situation in the case of a claim under a policy covering construction works, both in the case of a claim for own damage, as well as in the case of a liability claim, with specific reference to Products Liability or Professional Indemnity.
The statute of limitations in Contractors All Risks policies and the difference between own damage and liability
The typical Contractors All Risks policy is comprised of three section – Material Damage, Third Party Liability and Employers Liability. Claims under Section A – Material Damage invariably arise from damages to the project works as a result of unforeseen physical damage, such as the collapse of a wall, flooding, fire and the like.
Claims of this type are governed by the provisions of section 31 of the Insurance Contract Act – 1981, which states that the prescriptive period is three years from the date of the occurrence or the date of discovering the loss (the earlier of two).
On the other hand, the prescriptive period for claims under Section B (Third Party Liability) for bodily injury claims is 7 years, rather than 3 for property damage claims. This is also the case under the Employers Liability section, in the case of injury arising from a work accident or occupation disease during the course of working at the construction site.
Since the prescriptive periods are not short and last 3 or 7 years, we often encounter the “long tail” phenomenon of claims being brought after several years and protracted court proceedings, such that the insurance company may still be dealing with the claim many years after the event occurred.
Extension of the statute of limitations in the case of minors
Another important issue that needs to be considered is the extension of the statute of limitations in the case of injuries to minors, who can either be passers-by who are injured in the vicinity of the construction site, or people under the 18 working on the construction site. In such a case, the 7 year prescription period only commences when they reach the age of 18 and so they can bring a claim until they are 25. For example: A situation could arise where a 10 year old child who is injured in the vicinity of a construction site will file a claim up to 15 years after the event.
What are the implications of filing a claim shortly before the expiry of the prescriptive period?
In the case of property damage claims, the insured has to make the claim during the prescriptive period, even on the last day, even though it is unusual to wait until the last minute.
As soon as an insured event occurs, the insured is required to notify the insurer, and enable a loss adjuster appointed by the insurer to investigate the loss. Any delay in providing notification can have an impact on the way the insurer addresses the claim, since such a delay can harm its ability to assess the extent of the damage in real time, make it difficult to ascertain its liability under the policy and may raise questions concerning the credibility of the claimant and their claim.
In the case of late notification of a claim, the insurance company can raise various arguments, predominately relating to the possibility of mitigating the loss or its right to investigate the event, the repair method and other circumstances which it needs to do as soon as possible after the event.
For example: A contractor makes an insurance claim under the material damage section for an event at the construction site which occurred a year earlier, which the contract repaired at a cost of one million Shekels, and subsequently requests indemnity under the policy. The insurance company may well argue that if the contractor would have involved the insurance company in the repair process, it could have been completed at a much lower cost. The large gap between immediate notice and late notice can lead to a major dispute between the insured and their insurers.
Our unequivocal recommendation in the case of such claims is not to rely on the statute of limitations and the perception that there is plenty of time to make the claim. The statute of limitations is not a legal “tool” and relying on it alone can have devastating consequences for the insured.
The statute of limitations in the case of Professional Indemnity or Products Liability claims
Products Liability and Professional Indemnity insurance provides liability cover for bodily injury (such as a tile falling on a passer-by), or for damage arising from defective construction, faulty workmanship and the like.
Similarly to Contractors All Risks insurance, the statute of limitations in these policies is also 3 or 7 years for property damage or bodily injury claims respectively. Nonetheless, the fact that these policies are written on a “claims made basis” in Israel is another parameter that needs to be taken into account.
Under these policy, the statute of limitations is not the only factor. The validity of the cover under a “claims made” policy depends on two accumulative conditions: The policy must be valid on the date of the event and the policy must also be valid on the date when the claim is made (and provided it is brought during the prescriptive period). Given that the preliminary proceedings can prolongate the exposure for many years ahead (the long tail phenomenon), the time factor is all the more relevant.
To conclude,
The statute of limitations is an important parameter that affects the way in which claims in the construction industry are handled, regardless of whether the claim is for own damage (under the Material Damage section of a Contractors All Risks policy) or for third party property damage or bodily injury (such as the Third Party Liability or Employers Liability section of a Contractors All Risks policy, or under a separate Professional Indemnity or Products Liability policy).
Either way, in any case of any doubt surrounding the question of the statute of limitations, it is advisable to contact the insurance agent as soon as possible to obtain professional advice. The nuances that characterise this issue, coupled with ongoing developments in case law and legal precedent, can have dramatic implications on the final outcome.
