Limitation For First Party Damage Runs From Date Of Fire Even Where Insurer Had Option To Reinstate

In Mode Management Ltd and another v AXA Insurance UK plc [2025] EWHC 2035 (Comm), the Commercial Court granted AXA's application for summary judgment based on a limitation defence in circumstances where proceedings were commenced more than 6 years after the fire.

The claimants raised a number of different arguments as to why the claim was in time, all of which were unsuccessful. Our analysis below focuses on the court's analysis of the 'hold harmless' principle, recently examined by the Court of Appeal in Sky v Riverstone [2024] EWCA Civ 1567, and its application to the claimants' claim for specific performance of the insurer's secondary liability to put a policyholder back in its pre-loss position.

The other arguments put forward by the claimants were: (i) an argument that AXA's avoidance of the Policy and/or its refusal to pay the claim was a breach of AXA's obligation not to unreasonably reject a claim, and therefore a breach of Section 138D(2) FSMA 2000, and (ii) a claim under section 83 of the Fire Prevention (Metropolis) Act 1774, which was in any event dependent on the claim for specific performance.

None of these arguments were ultimately successful, and the claimants were not able to circumvent the limitation issues inherent to their claims.

BACKGROUND

The claim arose out of a fire in February 2018, which damaged two industrial units owned by a Mr Tregunno. Mr Tregunno was the sole director of Mode Management Limited (Mode), who was the sole policyholder on a Property Investor's Protection Plan Insurance policy (the Policy) provided by AXA.

AXA purported to avoid the Policy ab initio, following the discovery of a number of matters during investigation of the fire which it said evidenced misrepresentation and non-disclosures prior to Policy inception. Mr Tregunno and Mode challenged this decision to avoid the Policy and this was a live issue at the time of the summary judgment application, although it was not determined at that hearing.

Mr Tregunno and Mode issued a Claim Form on 26 September 2024, more than six years after the date of the fire. AXA brought an application for summary judgment on the basis that the claim was therefore statute barred under section 5 of the Limitation Act 1980, and that in any event Mr Tregunno could have no claim given he was not named on the Policy.

It was accepted that Mode's common law claim for damages for breach of contract was time-barred.

In order to get around that fact, Mode's primary claim was for specific performance of AXA's obligation to put Mode back in the position it would have been in had the fire not occurred. Mode referred to the decision of the Court of Appeal in Sky which had recently clarified that an insurer's primary obligation is to hold the insured harmless against the occurrence of insured damage. It is only once that primary obligation has been breached (i.e. once insured damage occurs) that a secondary obligation arises, which is for an insurer to pay damages for breach of the primary obligation.

Mode accepted that AXA's secondary obligation arose on 7 February 2018, when the insured damage occurred, and that therefore Mode's claim for common law damages was statute-barred. However, this Policy contained a provision allowing AXA to elect whether to indemnify by payment or whether to itself reinstate insured property. Mode referred to the decision of the High Court in Callaghan v Dominion Insurance [1997] 2 Lloyd's Rep 541 which it said indicated that where a policy allowed an Insurer to make such an election, that in effect created two separate liabilities between which the Insurer could choose. Mode's position was that AXA, having purported to avoid the Policy, had not elected between those two options. Because Mode contended that the Policy had not been properly avoided by AXA, it argued that AXA was still capable of either providing an indemnity or putting Mode into its pre-loss position by reinstating insured property. Its claim was for specific performance of AXA's separate liability to reinstate insured property.

In its defence AXA argued that the starting point was the 'hold harmless' principle, which it considered was "central to the construction of the Policy". Because the common law damages claim was accepted to be statute-barred, the primary liability of AXA could not be the subject of specific performance, and therefore it was not possible to order specific performance. In any event there was no prospect of specific performance being granted where damages were plainly an adequate remedy (it being an insurance policy).

DECISION

The court was clear that the existence of a time-barred common law damages claim did not in itself bar a claim in equity for specific performance, and further that (importantly) there was no authority for the proposition that specific performance could never be available in respect of an indemnity policy. It is interesting that the court has not shut the door on arguments of this nature being run in future insurance claims.

However, the court found that the reference to two separate liabilities where an Insurer has been given the option to choose how to indemnify an Insured, as referred to in Callaghan,was not intended to create "a separate route to liability" and that even where an insurer has a choice regarding how to satisfy its liability under the policy, it is still liable to indemnify "in one way or another, immediately the loss occurs". The fact that the Policy contained such options "does not give rise to a fresh contract which is capable of enforcement". The court agreed also that damages are an adequate remedy in insurance policies. Therefore the fact that the Insurer may have the option to reinstate does not change the accrual of the cause of action for limitation purposes.

COMMENT

This decision is a useful reminder that the starting point for the interpretation of an insurance contract is the 'hold harmless' principle confirmed in the recent decision in Sky, which provides that as soon as insured damage occurs, an insurer has breached its primary obligation to prevent insured damage from occurring, and so the secondary obligation (to put the insured back in the position it would have been in had that insured damage not occurred) arises. It is prudent to assume that limitation will run from that time for first party claims.

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