Time-bar clauses do exactly what they sound like: they restrict the timeframes in which rights can be enforced. This can be a problem because signing contracts which contain these clauses means that an insured may be giving up some of their rights under their insurance policy.
What are they?
Usually time-bar clauses read something like this:
“The Contractor will not have any right to make any claim against the Principal and releases the Principal from any claim arising out of the Contract unless the Contractor gives to the Principal a written notice not later than seven (7) days after the circumstances on which the claim is based, stating that it intends to make a claim.”
Basically, if the contractor doesn’t notify their principal of an event that could result in a claim against the principal within a certain number of days after the event, the insured can’t claim indemnity from the principal for that claim.
Time bars are common in contracts, especially construction and works contracts. Courts are rarely willing to interfere with explicit time-bars unless there’s a compelling reason to do so.
Time-bar clauses are dangerous to insureds because they interfere with their (and their insurer’s) ability to recover from other contracting parties (and their insurers). This means that if a claim becomes time-barred, an insurer could deny the insured’s claim for indemnity if the policy contains a contractual liability exclusion.
Why is this?
By their nature, time-bar clauses impose additional liability on an insured if they don’t claim before the expiry of the time-bar. To protect against this, insureds should always seek to have any contract containing time-bar clause designated by their insurer.
Compromise and settlement conditions in insurance policies can also be invoked by the insurer: after all, giving up your ability to claim is a very final manner of settling things, and if the insured signs a contract with a time-bar clause, they’re automatically agreeing to settle the claims – and not in their favour – without the insurer’s consent.
Waiver of subrogation clauses – where the insurer agrees not to claim against the other party to a contract – offer some protection. However, they are often given only in favour of joint insureds or other named insureds, which is not something we recommend. Waiver of subrogation clauses that apply to the other party as a principal are a safer bet, but even then exposures remain due to contractual liability exclusions and compromise and settlement clauses.
How to deal with them
A combination of contractual liability and a good waiver of subrogation clause is a better, but still not ideal, situation.
The upshot is that insureds should always seek insurers’ consent to time-barred clauses so the insurer can’t deny a claim. Seeking forgiveness over permission is definitely not a sound approach with insurance policies.
If the other party won’t remove the time-bar clause entirely, at the very least include a proportionate liability clause and try to ensure that the time-bar clause only applies to claims made after the time-bar period e.g., if the time-bar period is 6 months, claims made after that period should not be time-barred if they are not reported.
It’s a complicated area – so when in doubt, seek legal advice. We’re always happy to help.
Author: Lydia Carstensen
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