Just what the doctor ordered… Prescription in insurance
The term “prescription” is typically associated with a written order, by a doctor or other medical professional, for the preparation and administration of a medicine or other treatment. A different interpretation is applicable to the financial services industry. The Ombudsman for Short-Term Insurance (OSTI) provides this useful definition: “The word ‘prescription’ 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 law that outlines the periods within which you must take legal action before your right to do so elapses is called the Prescription Act 68 of 1969, with subsequent amendments.
The Act holds, for example, that a creditor has no legal right to sue you for a debt that is more than three years old. There are exceptions to every law and the Prescriptions Act is no different. So, for example, if you acknowledge a debt a new period of prescription would run from the date of your acknowledgement... “The law of prescription applies to disputes you might have with your insurer about your short-term insurance policy too,” says Yusuf Boda, Legal Manager at Legal & Tax. But there are a number of pitfalls you need to be aware of.
Prescription in the short-term insurance environment
Short-term insurance policies make use of a concept known as time-barring to “tighten up” the standard three-year prescription period. “Policies contain a number of time-barring clauses, some of which stipulate much shorter periods of time than those provided for in the Act,” observes the OSTI. “Typical clauses compel the insured [your client] 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 legal route to insurance dispute resolution is extremely costly and most short-term policyholders prefer less expensive options. “You don’t have to head straight for the courts,” says Boda. “Most of the country’s major insurers subject themselves to the OSTI, which should still be your first port of call for a complaint about an insurer.” Unfortunately non-legal routes to resolve insurance disputes – namely the insurer’s internal resolution processes or the Ombudsman – take months to exhaust.
Given the time-barring pressures, how should your client go about resolving their insurance disputes without losing the right to sue the insurer at a later stage? The good news is that the Ombudsman has an agreement with those insurers that are members of the OSTI that if an insured completes and lodges a formal complaint challenging a rejection with the Ombudsman before the time-barring clause in the policy has run out, the clock stops for the whole period during which the matter is under consideration by the Office. If the Ombudsman cannot resolve the case in favour of your client, the right to challenge the rejection in Court is preserved. Once the OSTI decision is handed down your client has the greater of 30 days or to the date of the initial time-barring deadline to institute legal proceedings.
Time-barring “beats” the Constitution
At first glance time-barring clauses seem to fly in the face of the consumer protection frenzy sweeping South African financial services laws. You should note, however, that the Constitutional Court has already considered the constitutionality of time-bar clauses in insurance policies. The OSTI explains: “The Court has 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.”
But be warned! In the event the OSTI receives the complaint after the time-limit has 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 clause! You have to remember that the Ombudsman scheme is a voluntary scheme and the various local insurers participate in the scheme on this basis… If they have a 100% winnable case to take to court – and they will if your client delays for too long prior to lodging the complaint – it will be very difficult to force them to concede.
The OSTI gives the following advice: If [your client’s] claim is rejected and you are satisfied that you may have a valid complaint then either register it with the Ombudsman or consult your attorney immediately… 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!”
Editor’s thoughts: We’ve often wondered at the lengthy time periods allowed for complaint resolution in the financial services space. Against the backdrop of instant written communication by facsimile or email it seems bizarre to allow 15 or 30-day periods for insurer responses to queries… Have any of your clients run into time-barring difficulties with their insurers? Please add your comment below, or send it to [email protected]
