In the past year the insurance industry has faced many challenges. These include loadshedding, more extreme weather claims, an increase in vehicle theft and motor accidents, and continued business interruption claims from the aftermath of Covid-19, the 2021 KwaZulu-Natal floods and the July riots. Because of the constant power surge claims, many insurers have had to include exclusions for electricity grid failures in their policies. Indications are that these risks are likely to impact the industry in 2023.
With increased claims comes increased litigation. It is important for insurers, when rejecting claims or embarking on litigation, to ensure that not only are they clear on the legal principles, but that they have adequate evidence to support the defenses raised. Here are some notable insurance cases dealt with by the courts in 2022.
Motshwane v iWyze Valuables Insurance – Misrepresentation and material non-disclosure
One of the essential elements of an insurance contract is that the insured has a duty to disclose information material to an insurer's assessment of the risk in providing cover and the terms to set. The test of materiality is an objective one ie, whether a reasonably prudent person would regard the non-disclosure as material. This duty stems from the common law and is codified in section 53 of the Short-term Insurance Act, 1998.
In the case of Motshwane v iWyze Valuables Insurance, the insured had a motor insurance policy for his vehicle with Old Mutual Insure (OMI). He was involved in an accident which resulted in the vehicle being a complete write-off. A claim was registered and paid out by OMI and the policy was terminated as cover was no longer required. Shortly afterwards, the insured bought a new vehicle on which OMI refused to quote based on the loss ratio. The insured subsequently took cover with iWyze. He was then involved in another accident with his new motor vehicle which was declared to be damaged beyond economic repair. iWyze rejected the claim and voided the policy on the basis that the insured had failed to disclose that OMI had refused to quote him for cover of the new car.
The insured sued. The court was required to consider two questions. The first was whether the questions posed to the insured relating to his claims history at the time of purchasing the new cover were clear enough to justify the conclusion that the insured's answers constituted material non-disclosure, The second question was whether the loss ratio issue was one pertaining to actual risk and therefore material to disclose.
In dealing with the first issue, the court looked at the following questions in the questionnaire:
“… have you or anyone you intend covering been informed by an insurance broker or an administrator or Insurance company that your insurance was (1) cancelled or you should (2) seek alternative insurance or (3) you have been refused renewal of insurance …have these ever happened to you?”
The insured answered 'Yes' to the first question and 'No' to the second and third. On question 2, the court found that this could have two different meanings. One would be that a broker or insurer, during the existence of a policy, advises a client to seek alternative cover. The other meaning, which was attributed by iWyze on OMI’s refusal to quote, was that such refusal has the consequence that the plaintiff had to seek alternate cover. The court concluded the second meaning was that OMI's refusal to provide a quote meant that the plaintiff would by default have to seek alternative cover. However, the plaintiff’s previous insurer had not given him that express advice. It simply refused to quote, as did another insurer with whom the plaintiff had no prior dealings.
The court found that the question which iWyze should have posed, if it wanted to rely on the real reason for rejecting the plaintiff’s claim, would have been something like: “has any insurance company, whether a company who had previously provided cover to you or not, ever refused to furnish a quotation to you for this vehicle?". If the plaintiff answered no, that answer would have been false and would clearly have amounted to a material non-disclosure on his part. However, upon considering the rejection letter, the court found that iWyze did not rely on this issue of advice to seek alternate insurance cover, only on the issue of refusal.
The plaintiff, in his evidence, also stressed that he was not seeking to renew an existing policy or ensure the continuation of a policy by changing insurers. He wanted to take out a new policy, for a vehicle he had never owned before. The court agreed that the issue of refusal in the insurance questionnaire referred to renewal only and not to new cover or insurance for a new item, so the relevance of the question did not arise. The court concluded that the questions asked were so ambiguous that the plaintiff could not be faulted for having omitted to disclose the previous insurer's refusal to furnish him with a quotation.
In relation to the second question, it was found that the previous insurer's loss ratio, on which iWyze had sought to rely as a basis for rejecting the claim, was not a relevant factor in determining whether its policy was required to respond or not. The court said the fact that another insurance company had assessed that the loss ratio between the premiums it collected and the loss paid out was too high had nothing to do with the actual risk to be assumed. It was purely a business decision peculiar to that insurer and was not related to the transfer of risk to any other insurer.
Comment: Material non-disclosure entitles the insurer to avoid the policy from inception or renewal and return the premiums paid. Insurers must, however, ensure that before avoiding a claim for material non-disclosure, the questions at proposal or renewal stage in relation to underwriting the risk are direct, clear, and unambiguous.
Ioannides N.O and Others v Western National Insurance Company – Misrepresentation and material non-disclosure
The insured sought a declaratory order to be indemnified by the insurer, Western National, for loss it had suffered as a result of a fire at the insured's premises. The insurers rejected the claim on the basis that the insured had failed to disclose a prior incident of water damage at the insured premises in 2018, when it was found that the insured had fraudulently submitted claims and was indemnified by two different insurers for the same loss.
In rejecting the claim, Western National cited a clause in the policy's terms and conditions which entitled it to void the insurance contract in the event of non-disclosure of a material moral risk causing or inducing inaccurate underwriting.
The court reiterated the test for materiality set out in section 53 of the Short-term Insurance Act. The onus is on the insurer to prove materiality and that the misrepresentation and non-disclosure induced the contract. The court agreed with Western National that prior conduct which fraudulently causes two different insurers to pay out one claim is a material moral risk.
The case further illustrates that the risk factor encompasses many things, including ethical aspects. Effectively, moral risk may be considered material enough to hinder access to claims.
Govender v Guardrisk Insurance Company Limited – Reasonable precautions
On the evening of 22 February 2019, Mr Govender and his mother were driving along William Nicol Road in Fourways in inclement weather when he lost control of his vehicle, a Ferrari California, and collided with a lamp pole. The vehicle was damaged beyond repair. Guardrisk, the insurer, rejected the claim on the basis that Govender had failed to take all reasonable precautions to prevent loss as required by the policy. It based its view on the premise that Govender had been traveling at an excessive speed (determined by Guardrisk's expert to be 135km per hour) in inclement weather and had been reckless.
The question before the court was whether, in the prevailing weather conditions, Govender had been driving at such an excessive speed that it rendered him reckless, which triggered the reasonable precautions clause.
Govender's evidence was that it had only started raining heavily when they were already on their way home and that he was driving at 80km per hour (he initially told the assessor that he was driving at 100km p/h), with his windscreen wipers and emergency lights on. The expert appointed by the insurer was unable to calculate accurately the speed at which Govender was driving using the vehicle's black box (peculiar to Ferraris), to which he did not have access. Instead, he used the tensile strength of the vehicle's material, a European Union standard measurement, and did not examine any part of the vehicle to reach his conclusion of 135km p/h. Guardrisk decided not to call its expert at the trial.
An expert appointed by Govender testified that, because of the weather conditions, it was impossible to ascertain that Govender had been driving at a speed exceeding 80km per hour. On the evidence, it was found that the likely cause of the accident was hydro or aquaplaning (when the vehicle's tyres lose contact with the road surface because of water).
Quoting the decision in Santam Limited v CC Designing, the court held that, to rely on the reasonable precautions clause, it was not enough that the insured was negligent, the insured must have acted recklessly. On the facts of the present case, there was no evidence to suggest that despite the inclement weather, Govender knew or foresaw that the road conditions could cause him to lose control of the vehicle.
Qhibi v MiWay Insurance Limited – Time bar clauses
South African law requires a summons to be served on a debtor within three years of the date of the cause of action. This legislated period can be amended in an insurance contract in the form of a time bar clause, which requires that an action must be instituted with a certain period of the insurer denying liability for loss. The effect of a time bar clause is that it extinguishes claims under a policy at a time before prescription has been completed.
In this case, the plaintiff’s motor vehicle, a Toyota Fortuner, which was insured with MiWay, was damaged in a collision. The accident occurred on 24 August 2016 and the insured submitted a claim to MiWay on the same day. On 2 September 2016 MiWay rejected the claim on the basis that the insured had been dishonest in the submission of his claim. The insured was informed that he had 90 days from 2 September 2016 to challenge the rejection and a further 180 days to serve summons in terms of the time bar clause in the policy. The insured was informed that, if he failed to do so, he would forfeit his right to challenge the insurer's decision to reject the claim.
The insured took no action until 6 November 2016, when summons was served on MiWay. MiWay raised a special plea on the grounds that the challenge to the rejection fell outside the time periods stipulated in the time-bar clause of the insurance contract. The insured challenged the validity of the time-bar clause, arguing that its enforcement would be unfair and unreasonable.
The court upheld the special plea of the time-bar. It held that unless the enforcement of the terms of a contact were unreasonable and unfair, parties who entered freely and voluntarily into contracts ought to be bound by their terms and conditions.
Comment: The shortening of the time periods has been declared constitutional and not against public policy, depending on the facts and circumstances of each case, based on the principles of reasonableness and fairness (see for instance Barkhuizen v Napier). Insurers must ensure when seeking to rely on the time bar clause that the time limits set out in the clause comply with the provisions of the Policyholder Protection Rules.
Legend Motors (Pty) Ltd v Oakhurst Insurance Company Ltd – Insurable Interest
In this case, the plaintiff, Legend Motors, sued Oakhurst Insurance for rejecting its claim for a loss caused by fire to the insured vehicle. The matter was dealt with on an interlocutory basis in the form of an exception raised by the plaintiff that Oakhurst's plea did not set out a valid defence.
Oakhurst Insurance argued that Legend Motors was not the named insured party in the policy, which reflected another entity, Monolite CC, a close corporation with a different registration number. In terms of the insurance agreement, the plaintiff was not the actual insured and the vehicle in question was not the plaintiff's property. Accordingly, the plaintiff did not have an insurable interest.
The court agreed with Oakhurst Insurance that on the evidence the plaintiff had no insurable interest in the vehicle, given the different registration dates and names of the two entities and Oakhurst's argument that the plaintiff was not the actual owner of the vehicle.
The court found that Oakhurst's plea constituted a valid defence and dismissed the plaintiff's exception with costs.
Comment: It is established South African law that, for an insured to successfully claim under an insurance contract, it must have an insurable interest in the asset insured. The interest does not need to exist at the time that the insurance contract is entered into, but it must exist at the time that the risk materialises.
Black Spear Holdings (Pty) Ltd v Insurance Company Limited & Another – Interpretation of contracts
This case dealt with the interpretation of a clause in an insurance contract concluded between the insured and the insurer in relation to the reinstatement of the damaged property. The insured had an all-risks policy for loss or damage to underground mining equipment. As a result of a flood at the mine, the equipment was destroyed and the workings (of the mine from which minerals are extracted) were rendered inaccessible.
The contractual clause in question read as follows:
"in the event that the insured property is totally lost or destroyed, the amount payable shall be the cost of removing the damaged property (limited to the removal costs of 15% of the claim) less the value of the remains plus the cost of replacing or reinstating on the same site, property of equal performance capacity and age but not superior to or more extensive than the insured item in so far as is practicable".
The question before the court was whether the indemnity payable must take into account the costs of removing the equipment from the underground site. The court held that the clause cannot be read to imply that costs of removal must always be considered. The striving of business sense must prevail. The court concluded that a reasonable valuer would not factor in the costs of removal in the compensation award.
