Time-barring and prescription of insurance claims - what you need to know

It is important that insureds and insurers understand how prescription and time-bar clauses operate, both in short-term and long-term insurance matters. This article examines time-bar and prescription and provides practical guidance on how to successfully raise (or avoid) time-bar and prescription defences.

The importance of getting it right

Prescription is a well-known, but not always an easily understood, concept. It is one of the first considerations that runs through a lawyer's mind when faced with legal process and it can have disastrous or very fortunate consequences for a litigant, depending on which side of the legal process one is on.

Put simply, prescription allows a debtor's liability to a creditor to be extinguished after the lapse of a certain amount of time. The Prescription Act 68 of 1969 ("the Act") regulates prescription.

Prescription aside, time-bar clauses are a common feature of insurance contracts. They invariably provide a contractually agreed time within which an insured must institute action against an insurer. The amount of time varies between insurance contracts.

It is important that insureds and insurers alike understand how prescription and time-bar clauses operate, both in short-term and long-term insurance matters. This will avoid insureds' claims from being met with defences of time-bar and prescription, and allow insurers to successfully raise time-bar and prescription defences where appropriate.

The general rule on prescription

In line with section 11 of the Act, insurance debts prescribe after three years. Section 12(1) of the Act confirms that this period will start to run as soon as the debt is due. This raises the question: when is a debt due for purposes of an insurance contract? Is it when the insured event occurs (eg the date of a car accident) or when the insurer rejects the claim, or neither?

Impact of the Policyholder Protection Rules on prescription and time-bar clauses

The long-term and short-term Policyholder Protection Rules (PPRs), which were promulgated under the Long-term Insurance Act 52 of 1998 and the Short-term Insurance Act 53 of 1998, respectively, impact issues of prescription and time-bar clauses.  

The short-term PPRs only find application to insurance contracts where the insured is a natural person, or a legal entity with an asset value or annual turnover not exceeding the prescribed threshold which is currently R2 million. The long-term PPRs apply to all long-term policies.

Rule 17 of both the short-term PPRs and the long-term PPRs provides for claims management in an insurance context. More specifically:

• Rule 17.6.3(b) states that if an insurer gives notice to the insured repudiating or disputing a claim or its quantum, the notice must inform the insured that it may, within a period of not less than 90 days of receiving the notice, make representations to the insurer in respect of the decision;
• Rule 17.6.8 states that any time-bar clause for the institution of legal action may not include the period in Rule 17.6.3(b) in the calculation of the time-bar period, and must allow a period of not less than six months after the expiry of the period in Rule 17.6.3(b) for the institution of legal action; and
• Rule 17.6.10 states that, for the purpose of section 12(1) of the Act, a debt is due only after the expiry of the period in Rule 17.6.3(b).

It is evident from the wording of Rule 17 that it applies only to claims which are either repudiated or disputed by the insurer.

Practical effect

Long-term insurance

If a long-term insurance contract does not include a time-bar clause, prescription of a repudiated/disputed claim will only start to run after the expiry of the period in Rule 17.6.3(b) during which the insured can make representations, which must not be less than 90 days. This was confirmed in Muller v Sanlam (1162/2015) [2016] ZASCA 149, even though that case dealt with earlier versions of the long-term PPRs.

If a long-term insurance contract includes a time-bar clause, the period referred to in it (say, 12 months) will only start running after the expiry of the period in Rule 17.6.3(b). Notwithstanding the time-bar clause, the minimum period to be afforded to an insured to institute legal action from the expiry of the period in Rule 17.6.3(b) is six months.

Short-term insurance

If the short-term insurance contract does not include a time-bar clause and:

• The short-term PPRs apply, prescription of a repudiated/disputed claim will start to run after the expiry of the period in Rule 17.6.3(b), which must not be less than 90 days; and
• The short-term PPRs do not apply, prescription will start from the date the debt is due, which must be determined according to standard prescription principles.

If the short-term insurance contract includes a time-bar clause and:

• The short-term PPRs apply, the period of the time-bar clause will only start running after the expiry of the period in Rule 17.6.3(b). The minimum period to be afforded to an insured to institute legal action from the expiry of the period in Rule 17.6.3(b) is six months; and
• The short-term PPRs do not apply, the time-bar period must be strictly observed.

Final remarks

It is clear that prescription and time-bar clauses, although familiar concepts, sometimes require more consideration than one would think. Although the Act and the insurance contract are the starting points in an insurance context, it must be remembered that the PPRs may also be of import, if they are applicable.