BILL OF RIGHTS PREVAILS OVER INSURANCE POLICY – BY FRANCOIS TERBLANCHE & SIMLA RAMDAYAL

The High Court recently held a contractual limitation on the period during which an insured can sue his insurer to be invalid.  The relevant clause in the insurance policy provided that the insured could only sue the insurer under the policy within 90 days after the date on which the insurer repudiated liability under the policy. The High Court held that limitation to be unconstitutional and therefore void.
 
The insurer argued that parties are free to contract as they wish and that it is a fundamental principle of law that contracts which have been freely entered into must be given effect to. The insured argued that limiting its ability to sue the insurer under the policy to a period of 90 days after the insurer repudiated liability under the policy, violated its constitutional right of access to the courts.
 
The court agreed with the insured. The court based its decision on section 34 of the Constitution, which grants a constitutional right of access to the courts.  This section provides that “Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public hearing before a court or, where appropriate, another independent and impartial tribunal or forum.”
 
The court held that the limitation of 90 days imposed on the insured was a material limitation of his right of access to the courts. The court further held that that right could only be limited by agreement to the extent to which that limitation would be reasonable and justifiable under the Bill of Rights.  It concluded that the defendant (the insurer) bore the onus of proof to show that that limitation was reasonable and justifiable, and that it had failed to do so.  It accordingly held that the limitation clause was invalid.
 
The case is important for at least 2 reasons.  Firstly, it illustrates that commercial contracts may now have to be measured against the Bill of Rights.   Secondly, it poses somewhat of a dilemma for the insurance industry.  Insurers will either have to show that the time limitations in their policies are reasonable and justifiable if they seek to rely on them or they will have to decide how to address their existing time limitation clauses.  If insurers decide simply to leave their existing time limitation clauses in place, they run the risk that those clauses could taint the entire policy, unless the offending clause can be severed from the rest of the policy.  One would assume that insurers will have to re-visit their claims handling procedures and exposure analysis following this judgment.
 
Francois Terblanche & Simla Ramdayal, Bowman Gilfillan