Prescription vs Time-Bar Clauses: When Delay Defeats An Insurance Claim

When an insured party waits too long to enforce a claim, time itself can become a complete defence. In South African insurance law, two separate but related principles may prevent an insured from recovering – prescription and time-bar clauses. While both deal with the lapse of time, they arise from different sources and operate independently.

Prescription: "The Statutory Limitation"

Prescription is governed by the Prescription Act 68 of 1969. It extinguishes a debt after the prescribed period has passed – usually three years, unless legislation provides otherwise. Once a debt has prescribed, the legal obligation to pay it no longer exists, and the debtor (such as an insurer) may raise prescription as a complete defence.

The prescription period begins when the creditor first becomes aware, or should reasonably have become aware, of the facts giving rise to the debt. In insurance matters, this is often the date on which the claim arises or is repudiated.

Time-bar Clauses: "The Contractual Limitation"

A time-bar clause, by contrast, is a contractual condition within the policy itself. It stipulates that the insured must institute legal proceedings within a specific period after the insurer has rejected the claim – typically, in some instances, subject to an initial 90 days from date of repudiation for internal appeal and/or review and then within six (180 days) months. Failure to do so means the insured loses the contractual right to enforce the claim, even if the statutory prescription period has not yet expired.

Take note that the time bar period is suspended once the claim is lodged with the Short Terms Insurance Ombud ("OSTI") and will re-commences 30 days after the outcome from OSTI.

How the two interact

Although these mechanisms operate separately, they can overlap. A claim may be both time-barred under the policy and prescribed under statute. The insurer is entitled to rely on either defence, or both, to resist payment. Courts have consistently upheld valid time-bar clauses, recognising the commercial need for finality in insurance matters.

Conclusion

Insured parties must act promptly after a claim is repudiated. Delays can be fatal, not only because of the statutory limits imposed by the Prescription Act, but also because of stricter time limits in the policy itself. Understanding the difference between these two forms of limitation, and managing timelines carefully, can prevent a valid claim from expiring before it begins.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.