Study Unit 3.1.

Risk
1.Introduction:
 Risk is always related to uncertainty – thus, there is a need to create a degree of certainty.
 Uncertainty underlying the risk = patrimonial or non-patrimonial harm the person can suffer.
 Risk = the possibility of harm.
 Uncertain event = event that is potentially adverse to the insured.
 Risk event = event insured against.
 Objective and subjective possibility of harm:
o Risk must be objectively and subjectively possible.
o Objective – there is a risk if objective uncertainty exists regarding the actual occurrence, the
time of occurrence, and the extent of the harm.
o Subjective – there is risk if both parties to the contract believe that occurrence of harm is in any
way uncertain. (this is the general requirement).
o Actual knowledge is needed of the materialisation of the risk – not knowledge that parties
should/could have acquired.
 The risk-bearer’s control over the risk (fortuitousness):
o Fortuitousness = something happening by chance, outside the control of the parties.
o Fortuitousness is generally not an element of risk.
o A person may insure against harmful consequences of his own, wilful, voluntary conduct.
o BUT, such occurrence need not entirely be outside the control of the insurer.
 Insurer can attempt to avoid/minimise the chance of materialisation of the risk.
 E.g. by persuading insured to follow a balanced diet or exercise regime.
o Distinction is necessary between insurance contracts and other contracts.
 Test: it is an insurance contract if it is an independent performance representing a
substantial part of the contract, assuming the counter-performance is a premium.

2.Description of Risk:
 Parties must reach consensus on full extent of possible harm and probability of it materialising.
 The risk must be identified and described in the contract – insurer’s performance is dependent on it.
 Description usually includes:
o Object of risk:
 Physical object exposed to the peril.
 Object of insurance = interest insured by the contract.
o Peril that can cause the harm:
 Cause or source of potential loss.
 Described by identifying a particular peril/class of perils that may cause harm.
o Circumstances affecting the risk:
 Risk circumstances are contained in the terms describing/limiting a risk.
 Subjective and objective risk circumstances are also considered.
 They are important in the technical sense.
 Subjective risk circumstances = relating to personality/character of insured or others in
contact with the object of risk. E.g. honesty, dishonesty, carelessness.
 Objective risk circumstances = all of the other risk circumstances. E.g. house insured
against fire is made of wood.
 o Qualifications on time and place:
 Time = generally relates to duration of contract. But can include limitations that:
 Insurer is only at risk at certain times.
 Insurer not at risk while insured is acting in a certain manner.
 Place = insurer only liable if risk materialises in or at a specific place.
o Extent of insurer’s performance and liability:
 Risk can be described by limiting the insurer’s liability to perform.
 E.g. amount payable, degree of reinstatement, nature of the loss, amount the insured
must bear himself.
 Limitations and exceptions:
o Methods to determine confines of the risk –
 To limit/delimit, qualify, or define the risk when it is described.
 To create certain exceptions or exclusions from the risk.
o Whether description is a limitation or exception depends on intention of parties.
o Limitation/exception may be expressed or implied.
o Limitation/exception can be combined – thus, clause can be divided into qualification phrase,
and exception phrase.
o Eagle Star v Willey – court approved a test to distinguish between limitation and exception.
 An exception that is general and wide is a limitation.
 An exception that is specific and has exclusions is an exception.
 Further exclusions:
o Insurer can exclude cover in the event of war, riot, disturbance, and political risks.
o BUT, a person can obtain special cover against such an exclusion.
 All risk insurance: inherent vice and wear and tear
o Insurance contracts can cover all risks.
 Insured need not prove occurrence of specific peril or a causal link.
 Insured need only prove loss was caused by a peril that was uncertain.
o All risk clauses do not protect against ALL losses.
o Inherent vice = a latent defect/characteristic in the object of risk itself.
o Wear and tear = breakage, shrinkage, leakage, evaporation, wastage.
o Both of the above are generally excluded – they are inevitable, natural, and bound to happen
and will cause loss, damage, or destruction of the object.
 Contract can cover these losses but must do so expressly.
o Generally, losses caused by insured’s own intentional conduct are also excluded from these
clauses.

3.Alteration and Increase of Risk:

 The risk described can increase or decrease.
 If the change falls outside the scope of cover/alters the risk itself – insurer is not liable.
o E.g. goods insured from theft on particular premises, not covered if stolen from another place.
 If the change alters the identity of the object of risk as described – insurer not liable.
o E.g. if insured’s passenger vehicle is converted into a racing vehicle.
 Insurer’s non liability lies in uncertain event not being able to occur due to change/alteration.
 An increase in risk does not affect insurer’s liability.
o Increase could be result of insured’s own conduct.
 Policies usually contain clauses requiring insured to take reasonable precautions to avoid
loss.
 o Insured not under obligation to inform insurer of increase in risk – but terms may require it.
o Some terms allow insurer to cancel contract upon notice/in absence of notice, or to increase
premium.
o Some terms allow insurer to permit the increase upon receiving notice and giving consent.
o Some terms allow insurer to terminate cover or entire contract if not notified of increase.
o In all the terms – insurer must prove breach by insured, or that change was not notified.

4.Causation:
 Insurer’s duty to perform is conditional on a peril causing a consequence.
 Thus, an insurance claim requires:
o Proof of the peril and the loss.
o Proof of a causal link between the two.
 Causal link may be required for insurer to be liable or to escape liability.
o Possible that numerous causal links are required.
 Test to determine existence of the casual link = the intention of the parties (requires interpretation of
the contract).
 Cargo Africa v Gilbeys Distillers – if no intention is clear, it can be assumed that reference to causation
in the contract was intended prima facie to apply.
 To determine a causal link, the proximate cause test is applied – with two enquiries:
o First: factual causation – ‘but for test’ – whether a link exists between the peril and the loss.
 If link is absent and peril is an included one, there is no claim – the event insured against
has not occurred.
o Second: legal causation – whether there is sufficient close relationship between the peril and
the loss.
 This determines the extent of the insurer’s liability.
 Provisions of the contract, type of contract, and nature of risk insured will be of
assistance.
 Thus, insurer will be liable if the loss for which the claim is bought, is the proximate result of the peril
insured against.
 Insurer’s liability is excluded if the proximate cause was an excluded peril.

Guardrisk v Café Chameleon

 Café Chameleon (CC) suffered substantial loss of income due to the governmental national lockdown following
the Covid-19 outbreak.
 CC had insurance policy with Guardrisk to indemnify it against loss due to business interruption from notifiable
diseases.
 Court held there may be more than one cause giving rise to the claim – proximate cause must be determined.
 Even if loss is not felt as the immediate result of the peril insured against, but occurs after other causes, the
peril remains the proximate cause of the loss, as long as there is no break in the chain of causation.
 Court stated that the real cause is determined by applying good business sense and common sense.
 The outbreak and lockdown are the factual cause.
 To determine legal cause, focus is on the provisions in contract – legal cause followed inevitably from factual.
 The outbreak and government response is the real/proximate cause and it makes common sense.
Ma-Africa Hotels v Santam
 This case followed Café Chameleon.
 Ma-Africa Hotels suffered substantial loss of income due to the governmental national lockdown following the
Covid-19 outbreak.
 It had an insurance policy with Santam to indemnify it against loss due to business interruption from notifiable
diseases.
 Santam held the policy covers insured loss, subject to the terms, not economic hardship due to Covid-19.
 Santam also held the cover is for events local to Ma-Africa, not global events.
 Court held that proximate cause must be determined with focus on the interpretation of the policy.
 Interpretation of contracts evolved towards a practical, common sense approach, giving the words used their
ordinary grammatical meaning, in line with the relevant circumstances and purpose of the contract.
 The insurer is liable if the cause is within the risks covered by the policy.
 Court held that cannot be said that the global events were not contemplated or insured.
 Covid-19 and government response was inseparably part of the same insured peril.

Exclusion and adaptation of proximate cause test:

 Insurer may, with clear and express intention, exclude the proximate cause rule.
 Achieved by extending or limiting the range of consequences insurer will be liable for.
 Exclusion of proximate cause does not exclude principle of causation.
o Causal link is still required between the peril and the loss.
 Proximate cause may also be adapted – that a particular peril must be the sole, independent cause.
Multiple and intervening causes:

 Multiple causes may operate consecutively or concurrently.

 An independent intervening cause (novus actus interveniens) occurs after the original cause and
diminishes the effect of original cause as the factual cause.
o Thus, it severs the causal link.
o It will sever the causal link if it was linked to original cause by change (fortuitously).
 Clash between included and excluded perils (consecutively):
o Occurrence of excluded peril that causes or is followed by an included peril
 If included peril does not sever the causal link – insurer not liable.
o Occurrence of included peril that is followed by an excluded peril
 If excluded peril does not sever the causal link – insurer not liable.
 Lock v Northern Insurance – But, if excluded peril is a direct consequence of the included
peril – insurer is liable.
 Clash between included and excluded perils (concurrently):
o Wayne Tank v Employer’s Liability Insurance – if loss is caused by two perils operating
concurrently, and one is included and the other excluded, insurer not liable.

5.Insured’s Conduct:
 Degree to which insured’s conduct causes or may cause risk to materialise is considered during:
o Determining causal chain.
o Assessing risk and its corresponding premium.
 if insured’s conduct causes loss, and he wants to claim – important question to be asked:
o does the conduct fall in the description of the risk?
o May involve conduct of insured being classified in a degree of fault.
 If the conduct falls in the description of the risk:
o Must consider the lawfulness of the insured’s conduct – and how it affects lawfulness of the
contract.
 A third-party claimant causing the risk to materialise may be barred from deriving a benefit.
 Included in an insured’s conduct, is conduct of persons he is responsible for – e.g. employees.
 The insured’s legal position after causing risk to materialise differs depending on whether the conduct:
 o Was without fault, negligent or intentional, wrongful or unlawful.

Insured’s conduct unaccompanied by fault:

 First: must establish if the conduct is a voluntary act or omission.

 If insured acted while not able to control his actions, there is no conduct that holds legal consequences.
 The insurer is thus liable.
 These acts are included in the risk because insured is not accountable for his actions.
o There is no public policy that excludes this conduct from the risk.
 If a life insured commits suicide, while not sane, insurer is liable – unless excluded in the contract.
Negligent conduct of insured:

 Negligent/gross negligent conduct, or recklessness that is gross negligence, is included in the risk.
o Thus, insurer is liable.
 Rouwkoop Caterers v Incorporated General Insurance – insurer not liable for negligent conduct if
parties expressly stipulated it in the contract. But the provision is interpreted restrictively.
 Provisions in the contract that insured must take reasonable precautions?
o Generally, provision not breached if conduct is negligent – intentional or reckless conduct is
required.
o Roos v SA Eagle Insurance – Recklessness – whether insured subjectively foresaw the possibility
of consequences and failed to take precautions by not caring to avoid the risk.
 The insured’s contributory negligence:
o Cook v Southern Life Association – it is wrong to refer to conduct of insured as ‘contributory
negligence’.
o The insured’s negligence is just seen as a contributory cause to the loss.
o Aarans v Excelsior Benefit Society – insured’s illness was caused by an assault for which he gave
provocation.
 Court held the insured’s negligence cannot bar him from claiming.
 But only possible if his conduct was negligent and not reckless.
Intentional conduct of insured:

 Insurer will not be liable for intentional conduct – unless parties agreed otherwise.
 Nell case – Exceptions: conduct intended to avert a greater danger or save a human life.
o This conduct can be interpreted to not be excluded from liability.
 If including the conduct in liability will render the contract contra bonos mores, the term unenforceable.
 Intent required: reckless conduct accompanied by indirect intent or dolus eventualis.
 Thus, intentional conduct cannot be a proximate cause of the loss.
 If insured attempts to claim for loss by intentional conduct = fraudulent claim.
Unlawful or wrongful conduct of insured:

 If conduct unlawful or wrongful (is a delict or a crime), public policy is considered.

 Insurer not liable – insured cannot take advantage of his own wrong.
 E.g. insured cannot claim if he set fire to his own insured home with a fraudulent intent. It amounts to
arson.
 E.g. insured cannot claim if vehicle is damaged while he drove criminally reckless or negligent.
 Non-liability will vary depending on the time, place, facts, and circumstances.
o E.g. life-insured that is killed while participating in unlawful crime, can claim from insurer to pay
benefits to the insured’s estate or his beneficiaries.
 Insurer can remain liable to a third party despite insured’s unlawful conduct.
 Thus, insurer is not liable unless there are clear policy considerations to the contrary.
Conduct of a third-party claimant:

 Insurer remains liable for loss caused by conduct of a third-party, unless contract provides otherwise.
 Insurer bears onus to prove loss was caused by insured himself and not the third party.
 BUT, principle that one may not take advantage from your own wrong applies here.
 If beneficiary murders life-insured, beneficiary cannot claim, but insurer liable to pay benefits to
insured’s estate.
 Danielz v De Wet –
o Mrs De Wet took out life insurance on her husband on which she was the sole beneficiary.
o She hired persons so assault him which led to his death – she intentionally caused his death.
o Two insurance law principles the court emphasised:
 An insured may not intentionally precipitate the risk insured against and may not claim.
 An insured who intentionally commits criminal act relating to the risk will render himself
unworthy of claiming and court will not permit a claim – based on public policy.
o Mrs De Wet did not have any claim to the policies i.t.o. her half share in the joint estate.
o It is a general principle than an offender is not entitled to derive any benefit from her own
criminal conduct.
o When the consideration is whether the insured’s conduct is so repugnant to the good morals of
the society, public policy comes into play and the answer largely depends on the Court’s value
judgment based on the facts.
o Court held she is not entitled to benefit from the insurance policy.
 Van Niekerk Article – comment on the case
o The two principles of insurance law considered by the court were relevant.
o Mrs De Wet was the beneficiary and not the insured – does that make any difference?
o I.t.o. the first principle – beneficiary should be bound by the principle if the relationship
between beneficiary and insurer may be classed as an insurance contract.
o I.t.o. second principle – public policy definitely applies to Mrs De Wet due to criminal conduct.

6.Insured’s Duty to Avert or Minimise Loss:

 Duty may be from a tacit (intention of parties) term, an implied term, or an express term.
 Loss caused by compliance:
o If insured’s conduct is in compliance with his duty, insurer is liable.
o Q – whether the peril, and not the insured’s subsequent conduct, was the proximate cause of
the loss.
 The loss must be imminent.
o Insured’s intentional but reasonable conduct is seen as part of the peril.
o Insured’s conduct must be reasonable based on the facts and imminence of the peril.
o E.g. insured caused damage to his property with water he used to put out a fire on the property.
 Expenses incurred in compliance:
o Insured can be compensated by insurer for these expenses.
o Insurer’s obligation to compensate for expenses is supplementary to obligation to indemnify
insurer against loss.
 Non-compliance:
o This will entitle insurer to reduce the amount he must pay to insured.
7.Duration:
 Risk can also be described i.t.o. the duration of the contract.
 Insurer’s obligation can endure for:
o Specific period (e.g. a year).
o Determinable period (e.g. duration of building project).
o Indefinite period (e.g. until occurrence of death).
 Usually, the civil mode of computation is used to calculate the period of time.
o From first moment of first day, to first moment of last day.
o First day is included and last day is excluded.
 Contract can indicate that another mode of computation is intended.
 Insurer usually starts bearing risk only some time after conclusion of contract.
 If no date agreed upon, bearing of risk starts on date contract was concluded and became effective.
 If date agreed upon, date only effective if contract has come into being.
o Unless parties intend to cover the insured retrospectively.
 Policy endures for entire period until it ends by agreement, cancellation, payment, or when the risk
itself terminates.
 Contract itself may provide for suspension or termination on occurrence of certain events.
Renewal and revival:

 Specified period contracts usually renewed upon by agreement upon expiry.

 Insured normally has no right of renewal unless provided in for in the contract.
 Each renewal amounts to a new contract – may be on same terms as previous one.
o A fresh duty to disclose then arises.
o Contract may arise without a formality or negotiation.
 Process of renewal may come to an end only by conscious decision of either party.
 A contract that lapsed prematurely may be reinstated (revived) by agreement.
o Revival amounts to a new contract.

8.Burden of Proof:
Incidence:

 An insured who wants to claim bears onus of proving that risk insured against has materialised.
 Willey case – If risk is limited, insured must prove on a balance of probabilities, that the claim falls in
the limitation.
 May mean insured must prove:
o Willey case – Event insured against has occurred as result of the insured peril.
o Sprangers case – Conclusion and existence of the contract.
o That the risk materialised during the currency of the insurance cover.
o That he has locus standi to sue the insurer.
 To prove that a risk was excluded, the insurer bears the onus on a balance of probabilities.
 If there was misrepresentation, breach or fraudulent claim, insurer bears onus.
 A single clause may have both a limitation and an exclusion:
o Insured bears onus of proving the claim falls in the qualification phrase.
o If he proves it successfully, onus is on insurer to prove he is exempt from liability i.t.o. the
exclusion phrase.
Contractual arrangement:
 Parties may agree that burden of proof usually carried by the insurer will be carried by the insured.
 Insurer still bears evidentiary burden to bring the risk within the relevant exclusion.
 Burden placed on insured may not be so onerous to render the contract illusory.