Statutory Prescription vs Time Bar Period in Short Term Insurance Policies: Which One Prevails?

Insurance law is governed by two separate but related principles that may prevent an insured from recovering a claim from their insurer, namely, Statutory Prescription and Time Bar Clause.

Statutory prescription is a stipulated period by the Prescription Act (No. 68 of 1969) of when debts must be instituted. It extinguishes a debt after the prescribed period has passed which is usually three years, unless provided otherwise.

On the other hand, a time-bar clause in a short-term insurance policy is a contractual obligation within the policy itself. It stipulates the period of when an insured must institute legal proceedings after a claim has been rejected. A clause of this nature ultimately prevents an insured from instituting legal action if summons is not served on the insurance company within the time period set out in the clause. The stipulated period in the clause overrides statutory prescription.

Over the years, our courts have consistently adjudicated on whether time bar periods imposed in insurance policies do not infringe on one’s right of access to courts, as per Section 34 of the Constitution (Act No. 108 of 1996).

In the matter of Barkhuizen v Napier (CCT72/05) ZACC 5; 2007 SA 323 (CC); 2007 (7) BCLR 691 (CC) (4 April 2007) where the Constitutional Court (the CC) adjudicated over an appeal concerning the constitutionality of a time limitation clause in a short-term insurance policy. The applicant in this matter contended that the clause violated his right to approach a court for redress.

The court of first instance (Pretoria High Court) dismissed the insurer’s special plea on the basis that the clause was inconsistent with the provisions of the Constitution. This decision was reversed by the Supreme Court of Appeal (SCA) on the basis that Section 34 of the Constitution does not prohibit time limitation clauses. In addition, it held that there was no evidence that the applicant did not freely and voluntarily conclude the insurance contract. It concluded that the time limitation clause did not therefore violate the provisions of the Constitution.

The decision of the SCA was taken to the CC for further adjudication on the approach to constitutional challenges to contractual terms. The CC held that the proper approach to matters of this nature is to determine whether the time limitation clause is contrary to public policy as evidenced by constitutional values, in particular those found in the Bill of Rights. Therefore, the question the CC had to answer was whether the clause was contrary to public policy and whether it gives the applicant an adequate and fair opportunity to seek the assistance of the court.

It ultimately found that the limitation period he was given of 90 days was not unfair or inadequate. The CC also took issue with the absence of any evidence that the contract was not freely concluded between the parties with equal bargaining power or that the applicant was not aware of the Clause. The appeal was accordingly dismissed as the applicant failed to provide any reasons for non-compliance with the clause.

The decision in this judgment therefore emphasises the importance of adhering to the time period stipulated in the insurance contract should you wish to seek further redress regarding a repudiated claim. It further highlights the importance of furnishing reasons for non-compliance with the time period as per the clause, instead of simply alleging that it violates public policy without any evidence thereof.

The content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Kindly contact us on info@cklaw.co.za or 021 556 9864 to speak to one of our attorneys.