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"Prescription" and "Time-barring clauses"

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What does “prescription” and “time-barring clauses” in policies mean?

In the legal sense, the word "prescription" has nothing to do with doctors, chemists or medicines. It deals with the expiry of rights of legal action because of the fact that too much time has gone by since your right to take legal action first arose.

The Prescription Act sets out various periods for different types of legal actions. Generally speaking, however, most rights, including rights under contract agreements, must be enforced by legal action taken within three years from the date the debt arose or details of the debtor become know, and cannot be enforced after that period has gone by.

For example, if you believe that you have a claim against your Broker because you have suffered financial loss arising from his/her negligence or professional misconduct, you cannot sue him/her more than three years afterwards.

There are certain exceptions which may lengthen the period - for example, if s/he admits that s/he owes you the money and asks for time to pay it, then a new period will start to run from the date of that admission but normally three years is the deadline.

Insurance Policies

The period under the Prescription Act would also apply to disputes between an insurer and an insured under a Short-Term Insurance Policy. In fact, policies themselves contain a number of time-barring clauses, some of which stipulate much shorter periods of time than those provided for in the Prescription Act in which to commence legal action against the insurer.

Typical clauses are those which compel the insured to take legal action within ninety days of the rejection of any claims, or within a year of the event giving rise to the claim.

The Ombudsman has an agreement with all insurers who are Members of the office of The Ombudsman for Short Term Insurance that if an insured completes and lodges with the Ombudsman a formal complaint form challenging a rejection, BEFORE any time-barring clause in the policy has run out, then "the clock stops" for the whole period during which the matter is under consideration by this Office, and by this means, even if the Ombudsman cannot eventually make any finding in favour of the insured, the insured's right to challenge the rejection in Court is preserved.

In addition, in the event that the Ombudsman finally determines that he cannot rule in favour of the insured, the insured shall have thirty days or the remaining period of the time-barring provision of the relevant policy, whichever is the longer, within which to institute proceedings against the insurer.

The Constitutional Court recently considered the constitutionality of time-bar clauses in insurance policies.  The Court upheld the validity of such clauses on the facts of a case before it, but did indicate that there may be circumstances in which it would be manifestly unjust and against public policy to uphold such a clause.  It is thus imperative that immediate steps be taken after the rejection of liability in respect of any claim for the decision of the insurer to be challenged through a complaint to the Ombudsman or through the institution of legal proceedings.

HOWEVER, if the Ombudsman only receives the complaint after the time-limit has already expired, the position is that, although the Ombudsman can try to debate the merits of the complaint on an equitable basis, the Ombudsman can never compel the insurer to meet the claim because it has a legal defence available to it, based on the time-barring clauses in the policy. IN THE RESULT, UNLESS  equitable grounds of the complaint are very strong indeed, the Ombudsman sometimes has to tell the Insured that there is no real prospect of being able to persuade the Insurer to alter its attitude.

What to do if a claim is rejected

Against this background, if the claim is rejected and you are satisfied that you may have a valid complaint, EITHER register it with the Ombudsman or consult your Attorney STRAIGHT AWAY. If you try to debate the matter with the insurer, either by letter or by interview, the time-barring clause is still running against you, unless the insurer specifically agrees to waive it and that very seldom happens.