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CLAIMS REJECTIONS
TIME BARRING CLAUSES AND PRESCRIPTION

source: The Ombudsman’s Briefcase | Issue no 2 of 2018

The Ombudsman for Short Term Insurance (OSTI) often receives complaints which are either lodged after the time barring period in an insurance policy has lapsed or complaints that are lodged after the claim has prescribed.

Insurance disputes are subject to two main time limitations:


1. The time barring period stipulated in the insurance policy


Most insurance policies contain a time barring provision, which can be 180 days or 6 months from the date on which a decision is made on a claim by the insurer, within which the policyholder is required, if unhappy with the decision, to institute legal action against the insurer.


Clause 7.4 of the Policyholder Protection Rules stipulates that where a policyholder wishes to dispute the rejection of a claim or the quantum of a claim, the policyholder has 90 days following the insurer’s decision, to make representations to the insurer in respect of such decision. This 90 day period cannot be included in any time barring period under the policy. Remember, the Policyholder Protection Rules apply to personal lines policies only and therefore this 90 day period will not apply to commercial policies. Commercial policies usually contain their own time barring periods, which may differ from policy to policy.


2. Prescription in terms of the Prescription Act


The period of prescription for a debt, other than a judgment debt, a debt owed to the State or a debt based on a negotiable instrument, is 3 years from the date on which the debt becomes due and payable. In the context of an insurance claim, depending on the circumstances, prescription may start running from the date on which the damage occurred or the date on which the claim is rejected. The facts of the particular case would need to be considered in order to determine when prescription starts running.


The Terms of Reference of OSTI determines which matters OSTI has the jurisdiction to consider. The Terms of Reference provides that OSTI may only consider a matter if it is satisfied that: “the complaint has not become prescribed in terms of the Prescription Act, 1969 or any enforceable time bar provisions contained in the Policy, provided that in relation to any enforceable time-bar provisions in the policy the Ombudsman shall have the power to condone non-compliance therewith upon good cause shown, and the provisions of any enactment which provides for the extension of any period contained in such time-bar provision shall be given effect to.”


Thus, OSTI may exercise its jurisdiction to condone non-compliance by a policyholder with the time barring period in an insurance policy, provided that the policyholder can show good cause. If the policyholder is unable to show good cause, then OSTI will not be able to consider the matter.


Time barring clauses are included in the terms and conditions of insurance policies and must also be set out in an insurer’s letter of rejection.

Where a claim has become prescribed in terms of the Prescription Act, OSTI does not have jurisdiction to condone prescription and OSTI would advise policyholders to refer the matter to an alternative forum such as a court of law.


For those policyholders who lodge a complaint with OSTI before the time barring period has lapsed and before the claim has prescribed, not only will OSTI be in a position to assist, but :


  1. the running of the time barring period is suspended whilst the complaint is with this office and for 30 days after OSTI dismisses the complaint or a Ruling been made; and


  2. section 15 of the Financial Services Ombud Schemes Act 37 of 2004 provides that the running of prescription is interrupted until the complaint has either been withdrawn or a finding has been made.


As from 1 October 2018, section 15 of the Financial Services Ombud Schemes Act 37 of 2004 will be replaced by section 216 of the Financial Sector Regulation Act of 2017 which states: “Receipt of a complaint by a financial sector regulator, the Ombud Council or an ombud suspends any applicable time barring terms, whether in terms of an agreement or any law, or the running of prescription in terms of the Prescription Act, 1969 (Act No. 68 of 1969), for the period from the receipt of the complaint until the complaint has either been withdrawn or finally determined.” 


Policyholders are urged to pay particular attention to the time bar provisions contained in their insurance policies.