The Supreme Court of Appeal (SCA) has upheld the High Court’s rejection of an attempt to rectify an insurance contract to exclude an infectious and contagious disease (ICD) business interruption (BI) extension.
The case arose from a claim of more than R1 billion instituted against five insurers by the owners of Fourways Mall in Gauteng, Azrapart (Pty) Ltd and Accelerate Property Fund Limited.
In June this year, the High Court in Bloemfontein placed Azrapart under business rescue following an application from creditors Investec and RMB. The Court had previously found that the total amount owed was R2.3bn.
The SCA’s unanimous judgment, delivered on 14 November, restates the established principles governing rectification of written contracts. A party seeking rectification must prove:
- that an agreement was concluded and reduced to writing;
- that the written document does not reflect the true intention of the parties;
- that both parties intended to embody the agreement in writing;
- that a drafting mistake occurred, either through bona fide common error or through an intentional act of the other party; and
- what the actual wording of the true agreement was intended to be.
The onus rests on the party seeking rectification, and this must be shown “in the clearest and most satisfactory manner”.
The parties and their relationship under the policy
In July 2019, Azrapart and Accelerate (the respondents) engaged Marsh (Pty) Ltd, a local affiliate of an international firm of insurance brokers, to secure comprehensive insurance cover for Fourways Mall – the biggest in South Africa. The insurance contract included a clause for cover against ICD.
The following collectively underwrote the risk, with different participation percentages:
- AIG South Africa Limited (first appellant) – 70%
- Old Mutual Insure Limited (second appellant) – 14%
- Bryte Insurance Company Limited (third appellant) – 8%
- Guardrisk Insurance Company Limited (fourth appellant) – 3%
- Insurance Underwriting Managers (Pty) Ltd (IUM) (fifth appellant) – 5%
The outbreak of the Covid-19 pandemic in 2020, and the government’s restrictions aimed at limiting movement and trade, prevented tenants at Fourways Mall from operating. As a result, rental income decreased and the respondents claimed their losses arose from an ICD that had caused business interruption. They submitted claims under the ICD extension in the policy.
The insurers denied liability and raised the defence of rectification, alleging the ICD clause had been included because of a mistake and should be deleted from the policy wording.
High Court’s decision
In May last year, the High Court dismissed the insurers’ rectification plea. It held that the final contract consisted of the placing slip and the final policy wording, both of which included ICD cover. It also concluded that the insurers had not shown a common mistake or that the written policy failed to reflect the parties’ true intention.
The Court granted a declaratory order confirming that the business interruption section of the policy included ICD cover.
Read: Unnoticed changes to documents crucial to BI dispute between mall owners and insurers
In July last year, the High Court granted the appellants leave to appeal to the SCA. On the eve of the hearing of the appeal, the first to fourth appellants concluded a settlement agreement with the respondents and withdrew their appeals. The appeal proceeded only with IUM.
How the dispute over the terms arose
The dispute arose from inconsistencies in the documentation exchanged during the negotiation of the insurance contract.
As is common practice in the insurance industry, the negotiations for this large contract were conducted through a set of “governing rules”, known as POLDRA. These rules are recorded as “drafting instructions”, which entail the agreed base wording for a draft proposal.
Marsh’s new business development manager in South Africa approached AIG, the lead insurer. On 23 July 2019, he sent a quoting slip to AIG’s senior underwriter that included ICD cover under the business interruption extensions. She responded on 5 August 2019 using a different a quoting slip that omitted this coverage. The omission was not highlighted or struck through as required by POLDRA and therefore could not easily be detected unless compared word-for-word to earlier versions. It has not been definitively determined why this quoting slip excluded the ICD cover.
The two quoting slips were used interchangeably during the negotiations, which were conducted mainly through the exchange of emails.
When IUM was invited to participate in carrying a share of the risk on 13 September 2019, reference was made to a quoting slip dated 19 August 2019, which included ICD cover. IUM later received a quoting slip (dated 14 November 2019) excluding the cover, which it did not sign.
The final placing slip of 11 December 2019 and the policy of 12 March 2020 both included the coverage.
IUM’s case for rectification
IUM pleaded that the policy contained contradictory documents, and the ICD clause had been included because of “a bona fide mutual error”. It submitted that the true intention of the parties was reflected in the unsigned quoting slip of 14 November 2019, which excluded ICD cover.
IUM argued that the “final quoting slip” (14 November 2019), which excluded ICD cover; the “quotation, subjectivities and conditions” (sent on 15 November 2019), which was the same document as the final quoting slip; and the final placing slip and the policy – both of which included ICD cover – were contradictory and irreconcilable.
The central issue before the SCA was whether IUM had proved that the insurance contract should be rectified by deleting the ICD clause. This required the Court to determine the common continuing intention of the parties at the time the agreement was reduced to writing.
Lack of objection to ICD cover
The SCA found that the respondents’ intention to include ICD cover had been evident from the start: the initial quotation request of 23 July 2019 included the ICD extension, and IUM was made aware of these “current terms agreed” when invited to participate on 13 September 2019. Despite this, IUM raised no objection or proposed amendments at any point during negotiations, although POLDRA required any deviations from the agreed terms to be expressly highlighted.
Placing slip decisive under POLDRA
Under clause 8 of POLDRA, the signed placing slip sets out the binding contractual terms. IUM was the last to sign this document, which expressly included ICD cover, and it did so without qualification. Because the placing slip governs the final policy wording, the SCA held that it reflected the parties’ intention at the time of contracting. By contrast, the 14 November 2019 quoting slip excluding ICD cover was never signed and therefore could not override the placing slip or show an intention to exclude ICD cover.
Insufficient evidence for rectification
The Court held that IUM failed to prove any of the essential elements required for rectification. There was no evidence that the parties shared a common intention to exclude ICD cover, nor that its inclusion resulted from a mutual drafting mistake. The placing slip and final policy were consistent, and both contained the ICD clause, leaving no discrepancy for rectification to address. IUM also provided no evidence of its own intention when signing the placing slip, nor did it indicate what the rectified wording should have been.
The Court noted that rectification was raised only two years after the claim was submitted, and no concerns about ICD cover had been raised during negotiations, at signing, or on receipt of the final policy. This belated challenge undermined the assertion of a genuine common mistake.
Considering the negotiation history, the POLDRA framework, and the absence of proof of any mutual error, the SCA concluded that IUM had not met the stringent threshold for rectification and dismissed the appeal with costs.
