There have been significant recent developments in the law of limitation. The door has now been opened for negligence (and other) claims to be brought way outside the six-year primary limitation period, due to the Court of Appeal's novel approach to section 32 of the Limitation Act 1980.
Section 32 provides that: where any fact relevant to the claimant's right of action has been deliberately concealed from him by the defendant, the period of limitation shall not begin to run until the claimant has discovered the concealment, or could with reasonable diligence have discovered it.
For the purposes of the section above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time, amounts to deliberate concealment of the facts involved in that breach of duty.
Until now, section 32 required some element of unconscionable behaviour, such as where a professional, having knowingly committed a breach of duty, covered it up. The Court of Appeal's decisions in Brocklesby vs Armitage & Guest and Cave vs Robinson Jarvis and Rolf have driven a coach and horses through this view. Now “deliberate” equates to “intentional”, so that any intentional act amounting to a breach of duty is regarded as a deliberate commission of a breach of duty. If the negligent act (however innocent and unknowing) is committed in circumstances where it is unlikely to be discovered, that is a deliberate concealment. Thus, if a tax barrister gives what he believes is correct tax advice in 1989 and eight years later his client discovers it may be wrong, the claim will no longer be time-barred (see Liverpool Roman Catholic Arch Diocese Trustees Incorporated vs Goldberg). This surprising view of section 32 remains the law until reversed by the House of Lords or parliament.
The implications for insurers
Clearly, life without a finite limitation period has significant implications for professionals and for directors' and officers' (D&O) and errors' and omissions' (E&O) insurers.
A six-year file-destruction programme may be too short. A six-year run-off cover may not be adequate for a dissolving firm. Continuing partnerships should consider whether their current policy limit is adequate (particularly if their risk profile has improved over the years) and in terms of the retroactive extent of the policy (does it contain a “not before” clause?). No professional wishes to spend his retirement funds fighting and settling litigation. There may therefore be a need for portable run-off cover that protects the professional, his or her spouse and their heirs, as opposed to the firm in which he formerly practised. A similar consideration applies to executive and non-executive directors.
In addition, since individual professional employees have now been held to owe a personal duty of care to clients – such that they may be personally liable where their employer has insufficient funds to meet a claim (Merrett vs Babb) – they too may wish to have a portable professional indemnity (PI) policy covering their long-tail risk.
There is no sound antidote to this new limitation issue. Professionals may wish to review their engagement letters to include a clause to the effect that any claim must be brought within six years of the engagement. However, having regard to the reasonableness test of the Unfair Contract Terms Act 1977, there is no guarantee it would work and there may be statutory or regulatory restrictions preventing a professional from relying on such clauses.
Underwriters face an increase in incidence of long-tail claims and the prospect of more notifications of circumstances. Underwriters may wish to consider whether their IBNR reserves are adequate and whether to purchase run-off cover for some claims so that they can close their books. On the upside, risk raises opportunity and these changes may create a market for portable long-tail PI and D&O policies. Certainly, brokers will need to draw their clients' attention to these limitation issues when advising on PI, D&O and E&O cover.
The ramifications of these new cases are only just beginning to become clear. Although there are no easy solutions, professionals, underwriters and brokers should be alive to the increased risks. It is hoped that the old position will be reinstated by the House of Lords.