“A recent decision of the Supreme Court of Appeal, handed down on 13 April 2021, will have a material impact on South Africa’s insurers, requiring them to review their policies,” according to George Herbst, Senior Associate, Insurance Law at Barnard Inc. Attorneys.
The case focused on the rejection of an insurance claim on the basis that a person who is not the policy holder, such as the regular driver (or persons covered under the relevant policy), provided false, incorrect or dishonest information to the insurer.
The insurance contract and claim
- The insurance contract between the parties came into effect in June 2013 and the incident occurred on 1 January 2014.
- The insured motor vehicle sustained damage during a collision with a wall and, at the time, the insured’s employee was the driver.
- The employee was noted as the regular driver on the policy documents.
- The driver informed the managing director of the insured who then lodged a claim with the insurer and advised the insurer to contact the driver for further details relating to the occurrence of the incident.
- The insurer’s assessor made enquiries from the driver to obtain the details of the accident.
- The driver supplied false information about his movements and intoxication, which were relevant to the incident.
- The insurer thereafter repudiated the claim stating that during the claim’s validation process, the driver had furnished the insurer with dishonest and false information.
- In repudiating the claim, the insurer relied on these specific clauses of the policy: “always provide us with true and complete information. This also applies when anyone also acts on your behalf”; “if you, or anyone acting on your behalf submits a claim, or any information or documentation relating to a claim, that is in any way fraudulent, dishonest or inflated, we will reject the entire claim and cancel your policy retrospectively…”.
Magistrate Court decision
On 21 July 2014 the insured issued a summons in the Magistrate’s Court, Pretoria, against the insurer claiming payment of the amount of R75 000, being the fair and reasonable costs required to repair the motor vehicle to its pre-collision condition.
“On 7 November 2017 the learned magistrate handed down judgment dismissing the respondent’s claim with costs. He found, inter alia, that the driver was dishonest and that the information or representations made by him formed part of the claim that was lodged by the insured; the information or representations made by the driver was material; the driver was acting on behalf of the insured when he made the representations and that the insurer was accordingly entitled to avoid (sic) the contract of insurance,” according to the court notes.
Insured’s appeal
The insured successfully appealed to the full bench of the High Court. The reasons of the court were:
- the insurer bears the burden of proof to establish on a balance of probabilities whether the insured made the false statement with the wilful intention to defraud;
- the clauses in the contract relied upon by the insurer had to be strictly interpreted with proper regard to the primary purpose, general nature and object of the insurance contract;
- the driver was not acting on behalf of the insurer and was merely providing information at the request of the insured who was not privy to the finest details of the incident; and,
- the false statements or misrepresentations by the driver were insignificant and immaterial.
The insurer was unhappy with this outcome and appealed to the SCA, but the SCA’s findings did not favour the insurer.
The SCA’s findings
Herbst points out that the Court found that for an insurer to rely on the clause “anyone who acts on your behalf”, they would have to prove that this person was an agent of the insured, within the legal meaning of agency. “The SCA regarded the clause as ambiguous and that the benefit of the ambiguity should go to the insured. Therefore, the court found that the claim should be paid because the insured itself (its director) was not dishonest and considered the regular driver to be a “third party” and witness only.”
According to Herbst, insurers will, no doubt, view the ruling as unnecessarily harsh on the insurer as it may severely diminish an insurer’s ability to reject patently dishonest claims. “We are urging our insurer clients to review and amend their policies to cater for the implications of this ruling. They will now need to include reference to those individuals who will be regarded as agents for the insured, or that anyone who is a person covered in terms of the policy has the same duty as the policy holder.”
Click here to download the SCA Judgement file.
It is not clear whether this case was initially referred to the Short-term Ombud. From a timeline (seven years to conclusion) and cost perspective (Initial claim R75 000 versus all the legal costs) it seems an inordinate waste of time and money. Secondly, this final outcome will make it even harder for insurers to simplify contract wording, and for advisers to explain material conditions in an unambiguous way to clients.
Interesting judgment but in my opinion totally fair. Relying on the findings of an Ombudsman might just have prolonged the whole issue as the case would have gone to court anyway as the insured very evidently is a person that does not entertain nonsense. The judgment of the SCA is actually quite simple and understandable……..
A good interesting article. It is not clear to me that insurers should try to amend their policies. It is probably better if they simply tried to understand what they are insuring. When a corporate takes out insurance it is to protect the corporate. The motor policy is an all risks (sic) [all perils] policy. So the corporate wants to be indemnified against loss or damage to the vehicles from all perils. So if the vehicle is stolen (deliberate intentional act of a thief), it is covered. On the other hand if when completing the claim form, the employee incorrectly fills in the form, according to the view of the industry, the loss or damage is not covered. It is also important to understand human nature. If by providing the correct information the employee will loose his or her employment, the employee is unlikely to provide the correct information. If the corporate has taken out cover to cover the loss or damage to the vehicle why should the corporate not be covered despite the conduct of their employees; it is covered if a thief steals the vehicle. It is even worse. The incorrect information may be totally immaterial but the insurer is of the view it can still repudiate the claim. Maybe the solution is for corporate insureds to make their position clearer. They want cover on an all perils basis (including taking human nature of their employees into consideration) against loss or damage to their vehicles. Insurers which do not what the business of corporates on this basis should say so, and exit the corporate market.