There is no common law duty on the insured to give notification of a claim to the insurer in a certain way but virtually all insurance contracts do impose on the insured a duty to give the insurer notice of the occurrence of loss1.
In most circumstances, the policy will contain a clause that requires notice of the loss to be given 'immediately'2, 'forthwith3, 'as soon as possible'4, or within a specified period of time5. These clauses are usually inserted in the insurance contract as conditions or as material terms in favour of the insurer.
Failure to fulfil them constitutes a breach of contract and absolves the insurer from liability. This is irrespective of whether or not the insurer has suffered any loss or prejudice as a result6.
"The speed in reporting the occurrence is clearly of the essence. It is also clear that a condition providing for speedy reporting of an occurrence that might give rise to a claim for indemnity is a material condition, and that the important question to be decided in any case similar to the present is whether that condition had been breached. If it has, then the questions of prejudice to the Insurer by reason of the late notification are irrelevant. The Insurer does not have to prove prejudice, but merely the breach." 7
Notification clauses usually create a strict obligation i.e. the absence of fault on the part of the insured is no excuse for breach of the condition8. Generally, it is not necessary for the insured to prove proper notice; however an insurer wishing to deny liability on that basis must plead and prove the absence of proper notification as a defence9.
While notice provisions relating to claims do not ordinarily suspend the rights and obligations under the contract of insurance, they may be construed as material terms of the contract and a breach thereof entitles the insurer to summary cancellation10.
The onus is on the insurer to establish that the term is material, that it was breached and that the breach entitles the insurer to decline to make payment11. Where the breach is material the courts have enforced it, even if it may be capricious or unreasonable12.
The purpose of a notice clause is to enable the insurer to test the genuineness of the claim within a reasonably short time of the occurrence of the loss and to ensure that immediate steps are taken to mitigate the consequences of the loss13. Notification is also relevant to reserving, renewing and solvency.
"The insurer wants notice as soon as possible to enable him to test the genuineness of the claim before the trail becomes cold"14. "The purpose of a provision for notice and proofs of loss is to allow the Insurer to form an intelligent estimate of its rights and liabilities; to afford it an opportunity for investigation; and to prevent fraud and imposition upon it."15 Those reasons have been adopted by the South African courts16.
In Resisto Dairy the policy required that "notice shall be given in writing to the company as soon as possible after the occurrence of any accident or loss or damage and in the event of any claim." The court held that such notice had not been given where the accident which occurred on 17 October 1959 was notified only on 6 January 1960. In Rossouw NO the insured was required to give notice "as soon as possible" of any event that might give rise to a claim for indemnity. The court held that the term "as soon as possible" had to be construed as meaning "as soon as is reasonably practicable in all the circumstances".
Insurance contracts often contain time-bar clauses or contractual prescription clauses which extinguish claims under the policy at a time before statutory prescription has been completed. Most commonly the clause provides that an action must be instituted within a certain period after the insurer has denied liability for a loss alternatively that the insurer is not liable for loss or damage after the expiration of a certain period of the loss unless the claim is the subject of pending litigation or arbitration.
What was then the highest court of the land, the Appellate Division, decided that if the insured's inability to comply with the insurer's request for information is due to the insurer's untoward delay in requesting that information, the time clause is not suspended as a result but the insured must issue summons to preserve its claim17 and non-compliance by the insured with the time-bar requiring an institution of action within a specified period after the insurer's repudiation of liability is not excused by the fact that the insurer has repudiated liability on the ground of the insured's alleged breach of an affirmative warranty18.
Where appropriate in the circumstances, however, an insurer may be held to have waived compliance by the insured with the contractual time limit19 or be estopped from asserting those rights.
The use of and successful reliance on breach of notification clauses and contractual time clauses will be coloured by the judgment of the Constitutional Court in Barkhuizen v Napier N.O.20.
This was a challenge to a time-bar clause requiring institution of an action within 90 days of rejection of an insurance claim, failing which the right would be forfeited. The insured won in the trial court, lost in the Supreme Court of Appeal and ultimately lost in the Constitutional Court.
The majority judgement held that the clause itself is not objectively unreasonable, and went on to enquire whether, if a provision is reasonable, it should be enforced where there are circumstances which prevented compliance with the time limitation clause.
The judgment does not put an end to the challenge to time-bar clauses, contractual prescription periods or notification clauses, whether they are found in insurance policies or in any other contract where the relevant periods are in themselves unreasonable.
The court gave the example of a time-bar period of 24 hours being manifestly unreasonable. Even where the relevant clause is not in itself unreasonable, a challenge may be possible on the basis that there is good reason why there was a failure to comply with the clause or evidence, among others, that there was an unequal bargaining position between the parties, that the clause was not drawn to the insured's attention, or because of the party's socio-economic situation, awareness of rights, access to professional advice, educational or geographical circumstances, he or she was not able to take action timeously.
The court left open the question whether impossibility of performance and the requirement of good faith could excuse non-compliance. Indications are that a forceful challenge could be raised against the enforcement of such clauses on the appropriate facts. In these circumstances any party that intends to rely on any form of time limitation provisions, will need to consider:
- whether the clauses need amendment, having regard to the
time periods allowed and whether they are objectively
unreasonable;
- the rationale for the relevant time period, taking into
account the identity of the contracting party, its
sophistication, financial resources, ability to obtain legal
advice and geographical location;
- the justifiability of the time limitation period in the
context of the contract;
- whether a legitimate purpose is served by the specific
limitation period;
- whether there is any merit in making time-bars
reciprocal;
- the interests of each party which is sought to be
protected;
- whether the limitation should include a provisio allowing
for an indulgence to be granted where good cause exists for
failure to comply with the limitation period.
What the majority judgment does is presage in the appropriate factual context:
- further challenges in respect of time-bar clauses
- challenges, by analogy, of the time periods in
notification clauses
- challenges to contractual prescription periods.
Challenges to time-bar and notification clauses will also be facilitated by the provisions of the Consumer Protection Bill including those sections dealing with unfair, unreasonable or unjust contract terms. Time-bar periods for personal lines policies are already ameliorated by policyholder protection rules21. And the ombudsman for insurance (a voluntary scheme to which most insurers are subject) will seldom enforce a personal lines time-bar clause without evidence of loss or prejudice to the insurer.
Looking ahead insurers can no longer be assured that the common law position on notification and time-bar clauses will on the appropriate facts, come to the assistance of the insurer. Insurers do need to look at their wordings and if necessary amend both the content and format of notification and time-bar clauses in the light of the Barkhuizen judgment and the proposals contained in the Consumer Protection Bill.
Footnotes
1. MFB Reinecke, Schalk Van der Merwe, JP van Niekerk, Peter Havenga General Principles of Insurance Law at 234 para 317
2. Hean v General Accident, Fire, & Life Assurance Corporation 1931 NPD 215
3. Sleight Home Farms v National Farmers Union Mutual Insurance Society 1967 (1) SA 13 (R)
4. Collen v AA Mutual Insurance Association LTD 1954 (3) SA 625 (E), Resisto Dairy v Auto Protection Insurance 1963 (1) SA 632
5. DM Davis Gordon and Gets on The South African Law of Insurance 4th edition at 299
6. see fn 1 at 235
7. See Rossouw NO v Federated Employers Insurance Company Limited 1978 (1) PH A 17 (C)
8. see fn 1
9. ibid at 236
10. Resisto Dairy v Auto Protection Insurance Company Limited 1963 (1) SA 632 (A) at 644 D – H, Pereira v Marine & Trade Insurance Company Limited 1975 (4) SA 745 (A) at 752 C – E and Napier NO v Van Schalkwyk 2004 (3) SA 425 (W) at 436 G - H
11. See Resisto Dairy supra at 644 H – 645 D and Pereira supra at 752 G – 753 B
12. See Napier NO supra at 435 F and Sleight Home Farms v National Farmers Union Mutual Insurance Society Limited 1967 (1) SA 13 (R) at 18 A – 19 C
13. See MacGillivary on Insurance Law, 10th Edition at paragraphs 19 - 34
14. See Stoneham v Ocean Ry & General Accident Insurance Company (1887) 19 QBD 237 at 240
15. See Kaplan v Guardian Life Insurance Company 231 F Supp 874 at 878 (WD) MO, (1964)
16. See Norris v Legal & General Assurance Society ANO 1962 (4) SA 673 (C) at 745 D – E, Rossouw NO supra and On-Time Printers CC v Allianz Insurance Company (unreported) WLD October 2001
17. Union National South British Insurance Co Limited v Padayachee 1985 (1) SA 551 (A)
18. See Venter v Certain Underwriting Agents of Lloyds of London 1994 (4) SA 657 (W)
19. See Ledingham v Commercial Union Insurance Co of SA Limited 1993 (2) SA 760 (C)
20. See Barkhuizen v Napier N.O. 2007 (5) SA 323 (CC). Napier was the Lloyd's syndicate representative in South Africa
21. Policyholder Protection Rules (Short-Term Insurance) 2004 Rule 7.4(a)
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.
