In January 2006, the new Dutch insurance law came into effect. Even though the stipulations contained in it are relatively recent, the Dutch government is already contemplating a new article on the period of limitation. In July 2008, a legislative proposal concerning the procedures for extrajudicial settlement of personal injury and untimely death claims was submitted to the House of Representatives. This proposal is now under debate in the Senate, and it is expected to pass in the near future.
Surprisingly, this proposal contains a revision of the stipulation concerning the period of limitation under liability insurance:
1. A right of action to obtain payment from an insurer becomes time-barred by the passage of three years after commencement of the day following that on which the person entitled to the payment became aware that it had become payable. Nevertheless in the event of insurance against liability the right of action will not become time-barred until six months have elapsed after the claim against which the insurance provides cover has been instituted within the applicable time limit of the period of limitation.
2. The period of limitation will be interrupted by a written statement, asserting entitlement to payment. A new period of limitation will commence on the day following that on which the insurer either admits the claim or unambiguously states by registered letter, stating the above consequence, that it is rejecting the claim, and which also unequivocally states the consequence given in paragraph 3.
3. If the insurer rejects the claim the right of action becomes time-barred by the passage of six months.
The previous insurance law contained no stipulations on time limits for claims against insurers. As a result, the general five-year time limit applied, but non-compulsorily. It was typical for an insurance policy to restrict time limits, and claims against an insurer would become time-barred six or 12 months after the insurer definitively rejected the claim, depending on the policy. Under the current law, these policy clauses are no longer applicable: a claim against the insurer “becomes time-barred by the passage of three years after commencement of the day following that on which the person entitled to the payment became aware that it had become payable.” The limitation period can be interrupted by a written statement asserting entitlement to payment. Subsequently, a new limitation period will commence on the day following that on which the insurer either admits the claim, in which case the new limitation period will be an additional three years, or the insurer rejects the claim by registered letter, in which case the new limitation period will be just six months.
According to the Dutch legislature, however, the short limitation period after an insurer rejects a claim is not appropriate for liability insurance. In many cases, an insurer will reject a claim without even looking into the merits of the case. When this happens, the aggrieved party or the insured contacts the insurer again, and often the parties will start negotiations after the rejection by the insurer. These negotiations tend to take longer than six months. An insurer will likely need more time to sort out what has happened, who is liable, and if there is coverage. But in the meantime, negotiations will often take place between the insurer and the aggrieved party. It is the insured’s obligation, though, to act within the limitation period - despite the fact that the timeframe is easily forgotten or may not even be known to the insured. Consequently, the legislature has suggested changing the stipulations regarding liability insurances only.
In the revised article, the six-month period is removed from the first paragraph, and a new paragraph is added:
4. In the event of insurance against liability the period of liability will contrary to paragraph 2, first sentence, be interrupted by any negotiation between the insurer and the person entitled to payment or the aggrieved party. In such case contrary to paragraph 2, second sentence and paragraph 3 a new period of limitation will start after commencement of the day, following on which the insurer either admits the claim, or unambiguously states by registered letter to the person or party with whom or which the insurer is negotiating and, if this is another, the person entitled to payment that it breaks off the negotiations.
This new paragraph will give interrupting force to any form of negotiation between the insurer and the aggrieved party or policy beneficiary. As long as the parties are negotiating, the claim will not become time-barred. Negotiations result in a “life-interruption,” whereas an interruption as stated in paragraph 2 only results in the commencement of a new period of limitation (i.e., three years). According to the legislature, this new article addresses the difficulties described above. It is also consistent with day-to-day practice.
As long as the negotiations continue to take place, an insurer will have to take into account that the counterparty will reserve its right to performance. The new article is also consistent with the Motor Vehicles Liability Insurance Act (WAM). The WAM already acknowledges the interrupting force of negotiations between the insurer and the aggrieved party. What qualifies as “negotiations” under WAM has been the subject of numerous disputes. Therefore, it is likely that case law pertaining to WAM will act as a guideline for addressing the question of whether a liability insurer is taking part in negotiations. According to the case law, only an unambiguous and absolute rejection from the insurer will give the aggrieved party cause to start proceedings, in which case there is no question of negotiations. In all other cases, little is needed to qualify as negotiations. Simply correspondence exchanged between the insurer and the insured or aggrieved party is sufficient.
If an insurer unambiguously states by registered letter that it is breaking off negotiations a new limitation period of three years will commence. This is different from all other types of insurance coverage in paragraph 3, which states that when an insurer rejects a claim the shorter limitation period of six months applies. Breaking off negotiations, of course, does not automatically mean that the insurer rejects the claim; however, this will most likely be the result.
Even though the legislature doubtless has put a great deal of thought into revision of art. 7:942 Dutch Civil Code, it is unclear what regime is applicable when the insurer refrains from any communication. The limitation period can only be interrupted by negotiations, but what if there are no negotiations? What limitation period applies, and how can this be interrupted? According to paragraph 1, the right of action to obtain payment from an insurer becomes time-barred by the passage of three years after commencement of the day following that on which the person entitled to the payment became aware that it had become payable. This period cannot be interrupted in the way described in paragraph 2. However, the limitation period can be interrupted by a written demand for payment according to art. 3:317 Dutch Civil Code. The question is whether an aggrieved party or an insured will be aware of the limitation period and the possibility of this kind of interruption. Some insurers prefer also to consider any interruption as a life-interruption in cases of liability insurance, as mentioned in art. 3:317 Dutch Civil Code. As a result, only aggrieved parties or insureds who have not made the effort to send the notice of liability within three years can be confronted with the time bar.
Insurers will obviously have to be aware of the revision of art. 7:942 Dutch Civil Code. If a liability insurer rejects a claim, it will have to refrain from any action which may qualify as a deed of negotiation. Otherwise, an insurer may be surprised years later with a request for payment. Just to be on the safe side it is recommended that insurers always expressly state by registered letter that its action cannot qualify as a deed of negotiation and if it does qualify as a deed of negotiation, the negotiations are broken off by receipt of that letter.