Looming constitutional court decision to have major impact on short term insurers

02 May 2006 Grant Henry Simeka TWS Communications

The legality of short term insurers practice of rejecting claims after their contract-stipulated claim window has ended, will be tested by the constitutional court after lower courts have rejected and then upheld the right of insurers to include time bar clauses in their contracts.

Gustav Fichardt, a partner in Webber Wentzel Bowens (WWB) litigation department says the outcome of the case will have a major impact on insurers, especially if the Constitutional Court rules that short term insurers may no longer restrict claimants to a certain time frame to contest rejected claims.

Many short term insurance policies contain time bar clauses that limit the period within which legal action can be instituted by an insured in the event that a claim is rejected by an insurer.

These clauses mean that the insured loses the right to institute legal action after a specified period.

Fichardt says that the current situation arose from the case of Napier versus Barkhuizen, where Barkhuizen had insured his vehicle with Lloyds of London.

The claims procedure clause in the policy stated that if the insurer rejected liability for a claim, the insurer will be released from liability unless summons was issued within 90 days of rejection of the claim.

When Barkhuizen was involved in an accident, he notified his insurer timeously but his claim was rejected. Barkhuizen then served summons on the insurer more than two years later. The insurer relied on the time bar clause in the policy; however the Pretoria High Court upheld Barkhuizens contentions to the effect that the clause was unconstitutional.

However, on appeal the Supreme Court of Appeal Court in Bloemfontein decided that insurers can limit the timeframe within which claimants can issue summons against them.

Fichardt says the final decision now rests with the Constitutional Court that is set to hear argument on the 4th of May 2006.

If the Constitutional Court upholds the appeal, the impact on short term insurers will be momentous finality on a claim will no longer be restricted to what the insurers put in their contracts but is likely to be consistent with the Prescription Act of 1969 that allows people a 3 year timeframe to institute summons against debtors.

Clearly insurers will face greater uncertainty over just when they might receive summons over contested claims in future so may need to account for contingencies in a different way and they might have to re-issue all their policies if their current time bar clauses are found to be unconstitutional.

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