Euro Pools specialised in the installation and outfitting of swimming pools. It made a claim under its professional indemnity insurance, provided by RSA, in relation to mitigation works it had carried out. In Euro Pools PLC (in Administration) v Royal and Sun Alliance Insurance PLC, the Commercial Court was required to consider a number of issues, including whether the claims had been validly notified to insurers, but the main point of interest was whether the claim for mitigation costs was time-barred.
Euro Pools’ policy contained a mitigation of loss clause providing that “The Company will indemnify the Insured against costs and expenses necessarily incurred in respect of any action taken to mitigate a loss or potential loss that would otherwise be the subject of a claim under this Insurance. The…Insured…will be obliged to give prior written notice to the Company during the Period of Insurance of the intention to take action that will incur such costs and expenses”.
Under English law, a claim under a contract must be brought within six years of the date of accrual of the cause of action. RSA’s case was that any claims for mitigation expenses incurred more than six years before the legal proceedings were issued were time-barred. It submitted that whilst a cause of action under a liability insurance policy does not accrue until the amount of the liability to the third party is established, the mitigation of loss clause was a first party financial loss which was suffered when the expense was incurred. Euro Pools argued that limitation ran from the date of the breach and that RSA could not be in breach of its obligation to reimburse Euro Pools for the costs and expenses it had incurred unless and until it had been told the total amount of those costs and expenses (which it never was).
In finding in favour of RSA, Moulder J held that, while there is no authority directly on the point, the mitigation of loss clause was a first party financial loss. The general principle that the insurer agrees to ‘hold the insured harmless’ against a specified loss or expense and, once the loss is suffered or the expense incurred, the insurer is in breach of contract for having failed to do so, applies. Accordingly the right to an indemnity (and the cause of action) arises immediately the expense is incurred to mitigate a loss or potential loss. In reaching her decision the judge rejected Euro Pools’ argument that in order for the cause of action to accrue (and time to start running), the insurer needed to have knowledge of the exact amount being claimed. Notwithstanding this general principle, the fact that under the terms of the policy Euro Pools was required to notify RSA of its intention to incur costs and expenses meant that there was no legal or practical reason why the cause of action could not arise from the date on which the relevant expenses were incurred.