Claims limitation - Does limitation limit exposure?

The concept of limitation, or time-barring a claim, is well-known. Slow but gradual changes are afoot, however, to the potential detriment of policyholders. As the broker advising the policyholder, these changes become relevant as they have a direct impact on the amount of cover that may be best suited to a policyholder.

The law relating to limitation is complex and it evolves constantly. Where there is a claim in tort for damages for personal injury caused by negligence, nuisance or breach of duty, the limitation period is three years. This three-year period commences either from the accrual of the cause of action or the claimant's date of knowledge, whichever is the later.

Where a claimant is a minor or a protected party, limitation does not run until the attainment of the age of 18 years or until the protected party status is removed; as such, claims can be started decades after the accident.

Furthermore, the court has discretion to extend this three-year period if it seems equitable to do so and it may take any relevant factor into account in determining this. Be under no illusion: a court is little swayed by the financial impact of any decision that it may reach in exercising this discretion, even more so in the event of a potential defendant enjoying some form of insurance cover. Recent decisions show that this discretion is being applied in favour of the claimant.

When handling catastrophic injury cases for employers' and public liability insurers in 2008 that arose out of accidents in the 1990s or earlier, the effect of inflation and the tendency of increasing damages awards over the years means that the amount of policy cover can be barely adequate or even inadequate: there is a potentially life-changing financial consequence for the policyholder. The claimant would look to the policyholder to satisfy any part of a court order in excess of the policy limit. Notifying the policyholder in this event is an unpleasant task.

Would a public liability limit of £1m, £2m or £5m be sufficient to cover an adverse catastrophic incident that occurs now but is valued a number of years hence? While an increased employers' or public liability limit will increase the premium payable by a policyholder - a prospect that will not be palatable in the present economic climate - it is essential that policyholders are aware of the risks that they face should a catastrophic incident occur. The cover that they are buying now is to give them protection against claims that may be quantified in the next decade.

Alison Wood, partner, and David Toulmin Van Sittert, solicitor, injury risk group, Beachcroft.