South African insurers can take heart from the Hong Kong High Court’s judgment to uphold an insurers’ reliance both on a time limit clause and a forfeiture clause in a commercial insurance policy.
The time limit clause provided that the insurer was not liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage, unless the claim was the subject of pending action or arbitration.
The forfeiture clause provided that all benefit under the policy is forfeited if any claim is made and rejected, and no action is sued within three months of a rejection, or within three months after the arbitrator’s award.
Arbitration had been commenced within three months of the date of the rejection notice, but the arbitration notice was invalid because it did not engage the matters agreed by the parties for determination by the arbitrators.
Because the insurer rejected the claim in whole, no dispute had arisen as to the amount to be paid under the policy. In the circumstances, no arbitration was possible and the insurers were entitled to rely on the forfeiture clause.
The insured should have instituted court action in twelve months both to interrupt the time limit provision and to stall the operation of the forfeiture clause. There was no reason why the insured could not have done so.
The suggestion that the insurer had acted deviously in delaying dealing with the claim, and that there was an implied term that the claim should have been rejected or accepted within a reasonable time period was rejected by the court.
Both parties were commercial parties and the policy contained no markedly unusual or obscure language or conditions. The insured was legally represented from fairly early on in the claim and the insured could easily have acted to protect itself.
Time-bar and forfeiture clauses have been upheld by South African courts. But in the case of personal lines policies a more consumer-based approach will be adopted if the policyholder has limited means to protect their rights.