Professional Documents
Culture Documents
South African Insuarance Law Textbook
South African Insuarance Law Textbook
Insurance Law
South African
Insurance Law
MFB Reinecke
BA LLB (Pret)
JP van Niekerk
PM Nienaber
South Africa
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Preface
compact one, of the recently published second edition of Lawsa Volume 12 (Parts 1
First, Lawsa, although nominally a second edition in the Lawsa series, constitutes
an expanded rewrite rather than a mere update of the first edition. It is a new work
with additional material, new subject matter, new approaches and also changes in
authorship. The changes in Lawsa are similarly reflected in South African Insurance
Law.
Secondly, South African Insurance Law is a reduced but not necessarily an abridged
version of Lawsa. Some specialist chapters in Lawsa, for example the chapter on
marine insurance and the section on insurance tax law, have been omitted in order
to accommodate the current work in a single volume. The section on the supervision
of insurance business has been omitted since this area of the law is currently in a state
of statutory flux. The Lawsa section on dispute resolution has been conflated in this
South African Insurance Law must thus be seen as a companion piece to Lawsa with
numerous cross-references to the Lawsa edition, especially where the latter deals with
a particular topic in greater detail. It must also be seen as a companion piece to Life
Insurance in South Africa by two of the authors of the current work, to which numerous
references are made and the format of which has been replicated in this work.
Two previous contributors to the previous edition of Lawsa, Professors SWJ
(Schalk) van der Merwe and Peter Havenga have not contributed to the latest edition
of Lawsa and hence to this edition. Professor Schalk van der Merwe, to the memory
of whom this work is dedicated, has sadly passed away before work on the latest
administration made it difficult for him to find the time to contribute to it. On the
the field of insurance law as a former Ombudsman for Long-term Insurance, has
world in South Africa are imminent. Key issues underpinning proposed changes to
the two Insurance Acts in respect of which the Financial Services Board have issued
discussion papers are currently under legislative consideration and readers should
therefore be alert to the possibility that such changes when introduced as new law
Certain acronyms, all well-known to the industry, are used throughout the work.
The two Insurance Acts, the Long-term Insurance Act and the Short-term Insurance
Act, are referred to as the LTIA and the STIA, the Financial Services Board is
referred to as the FSB, and the Financial Advisory and Intermediary Services Act, 37
For the sake of brevity, we use the masculine form throughout this work which, in
the nature of things and meaning no disrespect either way, must be taken to embrace
MFB Reinecke
JP van Niekerk
PM Nienaber
November 2013
vi
Contents
Page
Preface.................................................................................................................................... v
Chapter 1:
Chapter 2:
Chapter 3:
Chapter 4:
Chapter 5:
Chapter 6:
Chapter 7:
Chapter 8:
Chapter 9:
Page
Chapter 19: Rights and duties of parties under a third-party contract ....................423
Chapter 21: Transfer of rights and duties from an insurance contract ....................455
reinsurance .................................................................................................489
Bibliography .......................................................................................................................571
Index ...................................................................................................................................615
viii
contracts1
Incidence of risk
paragraphs
1.1 Modern life is fraught with risks of all kinds that may upon materialisation cause
1.1–1.5
not only patrimonial but also non-patrimonial or sentimental loss.
1.2 Broadly the term “risk” denotes the chance that an uncertain event or peril may
occur. However, there is only risk for insurance purposes if the person allegedly at
risk desires to avoid that risk and has an interest in the non-occurrence of the peril in
question. Risk is the possibility of harm, 2 while a peril is the cause of the eventual
harm. Insurance is not concerned with the possibility of obtaining a benefit, with
1.3 The uncertainty characterising risk may pertain to the actual occurrence of the
peril, the exact time of its occurrence, or the extent of its undesirable consequences:
1.4 The existence of risk creates insecurity. 4 There are various means by which one
Managing risk
1.5 Persons exposed to risk may wish or be compelled to take measures to protect
________________________
1 For a more detailed exposition, see Lawsa Vol 12 Part 1 pars 1–15.
2 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384D. For more on risk, see 13.1–
13.23.
3 Bear in mind, though, that the risk of the possibility of obtaining a benefit not materialising is, again, a negative
risk.
4 Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) 127; Sydmore Engineering Works (Pty) Ltd v Fidelity
Guards (Pty) Ltd 1972 (1) SA 478 (W) 480.
1.6 The most obvious way of managing a risk is to take direct precautionary measures
materials) or at least to reduce the probability of its occurrence (eg, driving only
outside of rush hours on quiet roads, using a safety belt). And once the risk does
experience shows that the probability that such preventive or mitigating measures will
be sufficiently successful, either at all or in the long run, is too small to create any
meaningful security. Accordingly, indirect measures are called for to provide the
1.8 One such indirect measure is to build up a savings fund out of own resources that
may be drawn upon to offset any harmful consequences of risks that materialise. The
shortcomings of a dedicated savings fund are obvious: a loss may occur so soon after
the establishment of the fund that insufficient capital has been accumulated to
neutralise the loss financially; or the risk may never materialise so that ultimately the
1.9 The savings-fund method may be effective and economically viable provided the
holder of the fund first has an interest in a sufficiently large number of objects which
are all exposed to the same or substantially similar risks, and secondly can calculate
those objects with some accuracy. This type of precaution against risks is sometimes
structured programme is most often resorted to by large commercial entities and may
even entail the employment of a separate entity – often a captive insurer7 – within the
1.10 A real sense of security may be obtained only if a person is to a significant extent
transferring the risk of harm fully or partly to a third party. There are several vehicles
1.11 Many contracts either expressly or, more usually, impliedly, make provision for
the transference of risk. One prominent example of this is the passing of risk from
seller to buyer in terms of a contract of sale. In other instances specific provision may
be made in a contract for a party to shoulder a risk to which the other party is
exposed and to provide the latter directly with the means of countering the
consequences of the materialisation of that risk, for instance by paying the latter a
sum of money or paying such a sum on his behalf, or by replacing or repairing a lost
________________________
6 Technically self-insurance involves the decision not to transfer risks to a third party (ie, not to insure the risks),
but to retain them under a self-insurance programme of one kind or another
(there is accordingly a difference between mere risk retention and self-insurance) and self-
insurance is therefore not “insurance” and does not constitute “insurance business” in the usual
sense of the word: Jerry Understanding Insurance Law par 12[c]. Self-insurance should also be
distinguished from not-for-profit or mutual insurance even if the latter, in one sense, is self-
insurance by a group of persons or entities exposed to risk. For mutual insurance, see further
1.31–1.36.
7 Often a captive insurer is a subsidiary company that exists solely to bear the risks of its holding company and
those of other subsidiaries in the same group.
1.12 However, these methods of risk transference are applicable in special circum-
stances only and it is further not always possible to persuade a third party to bear a
risk. The only satisfactory method of dealing with risk appears to be to spread it
among a number of persons who are potential victims and who can and will each
contribute towards the costs of neutralising any eventual loss. This is where insurance
becomes relevant.
paragraphs
Idea of insurance
1.6–1.16
1.13 One of the economically most satisfactory general methods of creating financial
security in the face of risk is that of transferring and spreading the risk among a
number of persons all exposed to the same risk8 and all of whom are therefore
1.14 Suppose 1 000 persons each owns a motor vehicle worth R5 000. Together these
involved in an accident and became a total loss, its owner would suffer a serious loss.
However, if each of the owners contributed R5 towards a common fund, the lost
vehicle could be replaced with minimal expense for its owner. This type of
precautionary measure has decided advantages. The greater part of the risk to which
each owner is exposed is shifted from that person to others; it is relatively easy to
in exchange for the security provided by this measure; it is applicable to a wide variety
loss – when, say, 100 of the vehicles are lost at the same time – and is therefore
relatively small.
transference of the risks of a community of exposed persons to a third party and for
the risks then to be spread by the latter over that community. Thus, it has been said
that by its nature insurance involves the taking over by a third party, such as an
in amount, and not of one great overwhelming risk, and that experience has seldom
shown the entire collapse of the risk transferee from all the risks materialising at the
same time. 10
________________________
8 On this so-called “community of exposed persons” or “risk community”, see Van der Merwe
Juridiese Versekeringsbegrip 165–177; Van der Merwe 1970 CILSA 149 155–156.
10 Natal Marine Assurance and Trust Co (Trustees of) v Wood (1867) 5 Searle 291 295. In one of the earliest
descriptions of insurance in the English language, that in the preamble to the Act
concerning Matters of Assurance amongst Merchants, 1601 (43 Eliz c 12), it was explained that
by means of “Policies of Assurance it cometh to pass upon the Loss or perishing of any Ship,
there followeth not the undoing of any Man, but the Loss lighteth rather easily upon many than
heavily upon few, and rather upon them that adventure not than those that do adventure”.
11 Of course, risk need not be spread either by an insurer or among a community of similarly
exposed persons. So, a person exposed to risk may, without any transference being involved,
spread the risk himself, eg when the seller of goods to be carried by sea, divides the goods into
different consignments which are shipped on different ships. An insurer may further underwrite
only a portion of the risk, with the rest of the risk being co-insured by other insurers or even by
the insured himself, or the insurer may transfer the risk or part of the risk it had taken over to
( continued)
it then compensates those members who have fallen victim to the perils in question.
contract that is voluntary concluded between the parties, or one that is statutorily
imposed on them.
1.18 In terms of the contract, the insurer agrees to take over the risk to which the
insured is exposed13 and the insured in turn pays or agrees to pay a premium. 14 The amount of the premium is
determined in the light of the nature and extent of the
the legal sense of the word. 16 Contrarily, of course, not all contracts that involve the
transfer of risk are insurance contracts. For one, the transference of risk under an
insurance contract is not incidental but the main aim of the contract. 17
1.19 Although there may be some kind of silent understanding between the parties
to an insurance contract that the insurer will spread the risk transferred to it over a
therefore, it may be thought that there is insurance – at least at common law – if one
party, called an insurer, has contractually taken over a risk from another party, the
insured, irrespective of whether or not the insurer concludes any other insurance
therefore, the insurer’s undertaking results in a profit or makes economic sense given
the premium that it charged the insured for taking over the risk. Before statutory
regulation of and control over the insurance industry commenced in the nineteenth
assumed risks, or portions of risks, on an occasional, part-time and very often highly
________________________
insurers in the local short-term corporate insurance market include co-insurance contracts,
layered insurance programmes and reinsurance: see Santam Ltd and Emerald Insurance Co Ltd,
unreported (CT), noted in (2010) 13 Juta’s Insurance L Bul 97. As to reinsurance, see further
23.67–23.79.
13 In an economic sense, the insurer’s obligation in terms of an insurance contract is to bear the insured’s risk; in a
legal sense, its obligation is (the conditional one of) paying an ascertained or
ascertainable sum of money (or its equivalent) on the occurrence of a particular (uncertain)
event: see further Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk
15 Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3 EDC 271
287; Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) 755G.
16 Many statutory compensation schemes do employ the notion of risk spreading (ie, the technique of insurance;
insurance in the economic sense), but without resorting to any contractual
relationship or any relationship involving an insurance contract in the usual sense of the word to
facilitate it.
18 But see Lawsa Vol 12 Part 1 par 117 for the contrary argument.
19 The same could be said of risk sharing: see Man Truck and Bus (SA) (Pty) Ltd v Dorbyl Ltd t/a Dorbyl
Transport Products and Busaf 2004 (5) SA 226 (SCA), noted in (2004) 7 Juta’s Insurance L Bul 141.
1.21 Nevertheless, the idea that an insurance contract is a mechanism to transfer and
thus to facilitate the spreading of risk informs our system of legal supervision of the
insurance business and to conclude insurance contracts in terms of which risks are
transferred to it. This implies that insurance contracts can be concluded only with
paragraphs
those who make it their business to take over and who therefore, in order to do so 1.16–1.25
economically, distribute risks. Moreover, it provides a moral if not a legal basis for
state interference in the affairs of registered insurers in order to protect the insured
1.22 In Lake v Reinsurance Corporation Ltd22 the court defined an insurance contract as
“[a] contract between an insurer (or assurer) and an insured (or assured), whereby
the insurer undertakes in return for the payment of a price or premium to render to
1.23 Although this definition is, ostensibly in an attempt to cover all forms of
insurance, 24 rather vague, not suitable for all purposes, 25 and arguably not in all respects correct, 26 it may serve
as a point of departure, to be refined at a later stage. 27
1.24 The law of insurance may be considered to consist of two distinguishable, but
certainly not mutually exclusive, elements, the one mainly part of public law, the
insurance business, often as part of a broader financial services industry. Also within
the realm of public insurance law, or at least the public law side of commercial law,
________________________
21 They had little if any scientific basis for calculating the (rate, if any, of) premiums they charged for taking over
risks, that is, if they ever did do any serious calculation at all; for those merchants,
their economic involvement with insurance was little different from speculation on the stock
22 1967 (3) SA 124 (W) 127–128. The definition was applied in Sydmore Engineering Works (Pty) Ltd v Fidelity
Guards (Pty) Ltd 1972 (1) SA 478 (W) 480G.
23 Clarke et al The Law of Insurance Contracts par 1.1(e) describe (as opposed to define) an insurance contract as
“a contract whereby a person (insurer), usually but not always in business
as such, agrees to pay money (or provide a corresponding benefit) on the occurrence of an
uncertain and adverse event, in return for a money consideration, usually called a premium”.
25 It may be that the definition of insurance and, with it, of insurance business or insurance
contracts for regulatory purposes may require to be different (eg, more widely drawn, so as to be
encompassing) than the definition necessary or required for other purposes. Is has also been
suggested that – given the growing role of life insurance as a vehicle for investment, and the
increasing attention indemnity insurers are paying to risk prevention – insurance contracts
should be regarded as business contracts, and not merely risk, management: Clarke et al
26 Eg, the requirement of an interest, either in the object of risk or (as in the definition) in the non-occurrence of
the uncertain event insured against is contentious: see further 5.22–5.50;
27 See further 5.1–5.21 and Nienaber and Reinecke Life Insurance in South Africa par 1.21 for the essential
features of the insurance contract.
may be considered matters such as the insurance tax law, statutory compensation
schemes (at least in so far as they employ insurance techniques), and the regulation
of insurance intermediaries.
1.26 Insurance contract law, again, concerns the conclusion and performance of
insurance contracts. In one sense, it is nothing more than applied aspects of the law
of contract. Although at one stage considered an area of law governed by its own
peculiar principles, it has become increasingly accepted that as a rule the general
principles of the law of contract also govern, or (where that is not yet the case)
1.27 Insurance contract law also has a close relationship with many other aspects of
the law of obligations generally, and many principles from the law of delict, for
instance, also find, or should find, application in the context of insurance contracts. 28
1.28 Naturally, the application of many general principles of the law of obligations to
insurance contracts has been the subject of statutory intervention, or has been
insurance contracts. 29
1.29 While the classification of different types of insurance and insurance contracts
there may be compelling reasons for it and the classification may even reflect a
include, broadly, the nature of the insurer’s performance; the legal nature of the
insurer; the nature or status of the insured; the nature of the peril or event insured
against; the nature of the object of risk, or of the interest insured; and the nature of
and purpose with the underlying contract. It is possible and often convenient if not
desirable for one and the same insurance contract to combine different classes of
________________________
28 The interaction between insurance and the law of delict in particular, and the law of obligations generally, is of
course not one-sided. The existence of insurance cover (and, as its source, of an
insurance contract) very often has a close bearing on the imposition of civil liability, so much so
that in the light of the insurance cover widely carried by both plaintiffs and defendants in
delictual claims – at least in the developed world – insurance law is often jokingly referred to as
the new law of delict and as indispensable to an understanding and the teaching of that field of
law: see Jerry par 1, who adds that “for the insurance scholar, tort law is simply a special kind of
insurance”. In the same vein, it has been said that “the purpose of the law of torts [is] to
distribute risks through insurance”: Clarke et al Contracts par 1.3. See further generally, eg, Van
29 Principles either traditionally, or in other legal systems (especially English law), regarded as peculiar to
insurance contracts, such as the doctrine of (the utmost) good faith, insurable
interest, the doctrine of proximate cause, warranties or subrogation, to name but a few, are
31 Thus, a particular classification may arise from the need to obtain, or to provide, cheaper
insurance cover against a particular peril only, to the exclusion of other perils or in preference
32 This is especially true of the distinction between indemnity insurance and non-indemnity
insurance. 33 For present purposes, some of the more common classifications may be
considered briefly. 34
1.31 The classification of insurance according to the nature of the insurer as risk
transferee has its foundation in history, 35 but is, regulatory purposes aside, of lesser
importance today.
paragraphs
1.32 The main division here is between insurers who take over and spread risks for 1.25–1.35
insurance companies with a share capital36 – are owned by their shareholders who do
1.33 Seen differently, in the case of for-profit insurance, the insurance contract is
concluded between the insurer and the individual insured; in the case of not-for-
profit insurance, the insurance contract is concluded between the group of insured
and each individual insured so that each insured is also at the same time in a
1.34 Statutorily insurers, in order to be registered and thus recognised as such, have
to be either a public company with the carrying on insurance business as its main
specifically for the constitution of a person to carry on insurance business as its main
object. 39
1.35 In the case of for-profit insurance, the insurer carries on its insurance business
as to ensure that after all claims have been paid and all expenses incurred have been
________________________
33 Thus, motor-vehicle insurance policies are frequently of a comprehensive nature and not only
indemnify the insured against loss of or damage to his vehicle (property insurance), but also
against any liability he may incur towards third parties while driving that vehicle (liability
insurance).
34 There are, of course, numerous other classifications, such as those based on the manner in
which the duration of the cover is determined (eg, time and voyage policies of marine
insurance: see Lawsa Vol 12 Part 2 pars 282–283), or on the manner in which the amount
recoverable from the insurer is determined (eg, valued and unvalued policies: 4.18–4.24,
16.141–16.147, idem par 300), or on the nature in which the insurance is marketed (direct or
intermediated insurance).
should be stressed, in not an insurance company but merely an insurance market or exchange
where individual or groups (syndicates) of underwriters operate to take over (“underwrite”) the
risks, or portions of the risks, offered to them there.
37 Co-operatives or friendly societies providing insurance cover are other examples. Islamic
38 Insurers, too, may insure themselves mutually by forming “pools” with other insurers; this may, or may not,
amount to reinsurance: see further as to reinsurance 23.67–23.79.
39 LTIA s 9(3)( a); STIA s 9(3)( a). Both Acts define in s 1(1) an (a long-term or short-term) insurer as a person
registered or deemed to be registered as an insurer. A mutual insurer was defined in
the previous Insurance Act 27 of 1943 s 1(1), but the present legislation does not contain a
similar definition. In terms of the repealed definition, a mutual insurer referred to an insurer,
firstly, of whom all its members qualify as such by virtue only of their being owners of policies
issued by that insurer, and who are entitled to participate in the exercise of control in the
general meeting of that insurer; and, secondly, whose profits are distributable only to owners of
policies issued by the insurer; in both instances in accordance with the instruments under which
premiums are fixed so as to ensure that all claims may be paid and all expenses
incurred may be covered; if more premiums are collected than is required for this
1.36 Today most insurers operate on a for-profit basis and do not, or no longer,
insurance and not-for-profit insurance, and the insurance contracts concluded by the
1.37 Insurance may also be classified according to the nature or status of the insured
This distinction is often drawn for regulatory purposes, with certain consumer-
protective measures applying to the former but not to the latter category. Therefore,
a distinction may be drawn between consumer and commercial insurance law. 43 The
legislature is accordingly familiar with the notion of “personal lines business” which
1.38 The most fundamental distinction between different types of insurance contract
contracts. 46 It is the distinction that is rather troublesome in insurance law, not only
for definitional purposes but also on a theoretical level. The distinction is based on
1.39 In indemnity insurance the contract between the parties provides that the
insurer will indemnify the insured for patrimonial loss or damage suffered as the
proximate result of the happening of the event insured against. The insurer
indemnifies the insured either by replacing or repairing the lost or damaged object
of risk, or by paying the insured an ascertainable sum of money. The purpose of the
________________________
40 Often premiums are calculated ex post facto and insured are then asked to pay their contributions or “calls”.
41 In 1998, two mutual (life) insurers, Old Mutual (incorporated in terms of the consolidating
South African Mutual Life Assurance Society (Private) Act 52 of 1966, although first
incorporated in 1888 already) and Sanlam (incorporated in terms of the South African National
company with limited liability in 1918) demutualised and converted into public companies with
a share capital. They did so in terms of the now repealed Insurance Act 27 of 1943 s 25 (as
amended by the Insurance Second Amendment Act 51 of 1998) and were required to pay a
42 Another distinction loosely based on this feature (and also on the basis of the different ways in which they are
marketed) is that between individual and group insurance.
44 STIA s 19(1). The distinction is not encountered in the LTIA even though not all policyholders (ie, persons
entitled to policy benefits) under long-term policies are necessarily natural persons.
47 See further ch 16. as to the quantification of the insured’s claim and, hence, the insurer’s
performance.
contract is to restore the insured to his earlier financial position and the insured is
not entitled to make a profit from his loss. It is accordingly said that the principle of
happening of the event insured against. On the face of it, a non-indemnity insurance
contract does not purport to indemnify the insured against patrimonial loss and the
paragraphs
insurer’s performance is not determined with reference to any loss the insured may 1.35–1.46
have suffered and may in amount validly exceed the amount of such loss, if any.
1.41 The difference between indemnity and non-indemnity insurance may also be
taken to lie in the nature of the interest that is the object of the insurance. 48 In
contrast, the interest that serves as the object of a non-indemnity insurance contract
right of subrogation against the insured in respect of claims the latter may have
overlaps, but is not in all respects identical with, other distinctions between different
types of insurance. 51
Personal insurance and non-personal insurance; property insurance and liability
insurance
1.44 Several classifications may be based on the nature of the object of risk, or of the
1.45 In personal insurance, human life or the human body or mind is the object of
risk: the uncertain event insured against relates to the commencement, duration or
termination of human life or to the state of a person’s health. 52 Life insurance and
are non-personal. 53
1.46 Non-personal insurances, again, may likewise according to the nature of the
object of risk or the insured interest be divided into property insurance and liability
________________________
49 Ostensibly because there is no notion of double or over-insurance in the case of non-indemnity insurance: see
further ch 23.
50 Ostensibly because there is no “loss” and hence no right the insured may have against a third party that may
serve to minimise such loss and to which the insurer may be subrogated so as to
prevent a breach of the principle of indemnity: see further 18.27–18.29. By the same token, the
doctrine of imputation of benefits and its corrolative indemnification aliunde do not apply to
51 Thus, the distinction between indemnity and non-indemnity insurance coincides largely with the distinction
between non-personal (property and liability) insurance and personal (eg, life)
insurance, as also with that between short-term and long-term insurance. However, as will appear
52 See the definitions of “life event” and “health event” in LTIA s 1(1).
53 The division between personal insurance and non-personal insurance coincides largely, but not completely, with
that between non-indemnity insurance and indemnity insurance. Both life and
personal accident insurance may even if exceptionally take the form of indemnity insurance
contracts, especially in the case of insurance of the life or health of a third person.
1.47 Property insurance is concerned with the positive elements (assets) of the
insured’s patrimony or estate, for instance insurance relating to the ownership of his
come into being as part of the insured’s patrimony, for example insurance against
1.49 The classification of insurance contracts on the basis of the nature of the event
or risk insured against, is by far the most prevalent, even if not necessarily the most
useful. In this case the insurance is classified according to the so-called “line” of cover
1.50 Several differentiations on this basis are, or were, common: between marine
insurance56 and non-marine insurance; 57 life insurance58 and non-life insurance; fire insurance; and accident,
health and disability insurance. 59
1.51 More often than not, these classifications are historical and retained for the
sake of convenience if not by force of habit only60 and do not signify any difference in
1.52 Even more anachronistic and curious is the (probably uniquely South African)
division of insurance chosen by the legislature, that between long-term insurance and
but the distinction is also not clearly based on the actual duration of the respective
types of insurances. 62
contracts (or, as the Acts have it, policies) based on the object of risk insured or type
________________________
54 This on the basis that in the case of property insurance the insurer indemnifies the insured for loss the insured
suffered (directly) by the loss of or damage of his own property, while in the
case of liability insurance the insurer indemnifies the insured for loss the insured suffered
(indirectly, in the liability he incurred) by the loss of or damage of a third person’s property: see
55 For the elements of an estate, see 4.7–4.13; for liability insurance, see 25.24–25.83.
56 Itself in turn divided between ocean marine and inland marine insurance.
57 For marine insurance: see further Lawsa Vol 12 Part 2 pars 261–305.
58 26.8, 26.21–29.
59 See further as to accident, health and disability insurance 25.10–25.16, 25.15–26.16, 26.42–26.47, 26.63–26.66.
60 See Jerry par 13A[f], arguing that in view of multiple-line and all-line underwriting, risk-based classification
has outlived its usefulness.
61 A fact underlined by the largely identical provisions of the two governing Acts, LTIA and STIA.
62 Thus, the types of insurance classed as long-term are generally but not necessarily of a “long”
(whatever that may be taken to mean) duration (eg, life insurance may cover the life insured for
the duration of a journey by aircraft), while those classed as short-term are generally but need
not necessarily be of a short duration (there being no limitation in our law on the duration of
10
1.54 Long-term insurance63 refers to certain defined long-term policies, that is, an
assistance policy, a disability policy, a fund policy, a life policy, a sinking fund policy,
1.55 Short-term insurance64 refers to certain defined short-term policies, that is, an
paragraphs
1.56 Presumably, given the separate registration of long-term and short-term 1.46–1.59
term insurance and short-term insurance often seems to be mainly for supervisory
purposes as some of the policies listed appear to include contracts other than what
may be considered proper insurance contracts, 66 and likewise do not seem to take
analysis the real difference between long-term and short-term insurance is not clear
and may be taken to be one purely for regulatory, supervisory and administrative
1.57 A final classification is that to be drawn between private insurance and social
insurance. Although both are insurance in the sense that risk-transferring and risk-
where private insurance coverage is insufficient or too expensive or not available, and
1.59 The distinction between private insurance and social insurance is often
blurred69 not only because of the reliance in both cases on insurance techniques such
________________________
63 LTIA s 1(1) sv “long-term insurance business” and “long-term policy”. See further 26.4–26.5.
64 STIA s 1(1) sv “short-term insurance business” and “short-term policy”. See further 25.1–25.2.
65 By virtue of s 7(2)( f), LTIA does not apply to (registered) short-term insurers and by virtue of s 7(2)( e) STIA
does not apply to (registered) long-term insurers.
66 Eg, a guarantee policy (a short-term policy) and sinking fund policy (a long-term policy). See further 25.17–
25.23 and 26.19–25.20.
67 Eg, while most types of insurance covered by the term “short-term insurance” are instances of indemnity
insurance, short-term insurance is not restricted to indemnity insurance as an
accident and health policy belongs to the class of non-indemnity insurance. Long-term
instance of indemnity insurance. Further, certain instances of reinsurance fall under long-term
68 Eg, relieving society of the financial burden of caring for the indigent victims of accidents (eg, those related to
motor-vehicles, or occurring in the workplace), natural disaster (floods or
drought), and other events (eg, unemployment, war, or terrorism). See further on what he
11
as risk-rating and risk-description, but also for other reasons such as the application
________________________
70 Examples of local social insurance schemes include those in terms of the Export Credit and
Foreign Investments Insurance Act 78 of 1957, the Unemployment Insurance Act 30 of 1966, the
War Damage Insurance and Compensation Act 85 of 1976, the Compensation for Occupational
Injuries and Diseases Act 130 of 1993, and the Road Accident Fund Act 56 of 1996.
12
paragraphs
2.1–2.3
2.1 It has already been suggested that the general principles of our law, and of the
law of obligations in particular, apply also to insurance contracts and the disputes
arising from them. 1 Insurance law is not a field of law governed by its own, unique
principles, although the application of the general principles of, say, the law of
in which insurance contracts occur, or may have been the topic of statutory
2.2 Nevertheless, it has also been contended that certain matters are indeed peculiar
to insurance – a view that is also encountered in connection with the sources of South
African insurance law – and that such matters should be governed not by general
principles but by the relevant principles of insurance law. This assumes, then, first
that certain matters that are peculiar to – that can arise only in connection with –
insurance contracts exist3 and secondly that there are principles of insurance law
different from the general principles of our law that may be applied to such matters.
2.3 The fact that it may be contentious and therefore difficult to decide whether or
not a certain matter is really peculiar to insurance, is borne out by the problems our
courts have encountered in the past when they had to decide on the applicability of
________________________
2 For a perceptive explanation of the symbiotic relationship in English law between insurance law and its common
law, see Clarke Policies and Perceptions of Insurance, who concludes at 318 that
“[t]he general law provides a substratum from which the judge can draw if a rule of ‘insurance
law’ is not apparent”. He stresses the point that ideally the same legal principles should apply to
the law of contract as a whole and that different principles should not apply to different types of
contract. See also Clarke et al The Law of Insurance Contracts par 1.3.
3 Matters frequently mentioned in this regard are: the doctrine of insurable interest, the feature of (the utmost)
good faith, warranties, and the doctrine of subrogation. As will appear later on in
this work, these topics are arguably not, or no longer, peculiar to insurance law.
4 More specifically, English law (applicable to matters peculiar to insurance), or Roman-Dutch law or general
principles (applicable to other matters): see further 2.8–2.26.
13
2.4 The South African law of insurance has a chequered history. At first, the
contracts. 5
2.5 After the British occupation at the beginning of the nineteenth century, Cape
courts gradually came to rely on English precedents. The reasons for this were an
and also the introduction of English insurance practices and policy forms. In 1879,
the Cape legislature went a step further and formally introduced the English law of
insurance for the Cape Province. 6 This example was followed in 1902 in the former
colony of the Orange Free State. 7 These pieces of legislation were eventually repealed
in 1977. 8
2.6 There is some debate about the effect of this repeal and as to whether the fact
that Roman-Dutch law was generally restored as the primary and subsidiary source of
our insurance law9 meant that existing principles derived from English law could or
had to be evicted, whether principles already taken over from English law could be
regarded as having become part of our law and could remain applicable in
perceived paucity and inaccessibility of Roman-Dutch law, English law would in any
2.7 In Natal and the Transvaal Roman-Dutch insurance law was never officially
displaced, but the influence of English law was felt also in those provinces. 11
INSURANCE LAW
2.8 At the outset it should be reiterated that insurance contracts are governed by the
general principles of our law, in particular our law of obligations. 12 On matters such
________________________
5 See,
eg,
De Pass v Commercial Marine Assurance Co (1857) 3 Searle 46, holding that in a claim
against a marine insurer on an insurance contract concluded at the Cape by a local insured with
a local insurer, Roman-Dutch law was applicable as the law of the place where the contract was
concluded, the lex loci contractus; Cock v Cape of Good Hope Marine Assurance Co (1858) 3 Searle 114, holding
that the issue of the computation of a period of time to determine the duration of
(marine) insurance coverage was governed by Roman-Dutch, not English, law; Cape of Good Hope
Marine Insurance Co v Berg (1865) 1 Roscoe 289, holding that in cases of maritime law and marine
insurance, if there was any difference between the law of England and the law of Holland, the
9 See,
eg,
Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality 1985 (1) SA 419 (A).
11 See, eg, Spencer v London and Lancashire Insurance Co (1884) 5 NLR 37 43 on the relevance of English
insurance law as comparative material (see also at n 15 below); Ehrig and Weyer v
Transatlantic Fire Insurance Co 1905 TH 117, holding that a decision of the Privy Council, in a case
on appeal from the Supreme Court of New South Wales, on a matter not of English as distinct
from Roman-Dutch law, but of legal construction of an insurance contract, was binding on the
12 In a sense these principles are, of course, nothing but the general principles of Roman-Dutch law as judicially
developed by our courts over the last two centuries.
14
interpretation, performance, breach, and more, the general principles should apply
2.9 The main subsidiary source of our law of insurance is Roman-Dutch insurance
law as that is to be found in its sources. 13 Even though our institutional authors dealt
almost exclusively with the law of marine insurance, the prevalent form of indemnity
insurance of their time, they did so in considerable detail and formulated sufficient
paragraphs
principles of general application that may regulate also other forms of insurance. 14
2.4–2.13
2.10 But, it should be made clear, Roman-Dutch insurance law is merely our
common law, it is not necessarily our pertinent law. There is always room for
contending that certain principles of Roman-Dutch law are in conflict with the
2.11 The comparative approach is illustrated by the observations on the nature and
sources of insurance law made in Spencer v London and Lancashire Insurance Co. 15 While
conceding that the law of insurance in Natal was the Roman-Dutch common law, the
court remarked that as it was part of the general mercantile law, presumably,
Reference to English law was therefore permissible, in addition to references to, for
2.12 In the leading decision on the sources of South African insurance law, that in
Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality, 16 the Appellate Division
decided that the legislature had in effect restored the Roman-Dutch law of insurance
when it repealed the colonial legislation17 that had introduced English insurance law
into the former colonies of the Cape and the Orange Free State.
2.13 The court traced the origins of the Roman-Dutch law of insurance to the lex
mercatoria of the Middle Ages. 18 It regarded as authoritative not only the well-known
writers on Roman-Dutch law, but also authors on the Italian law merchant and the
broader European ius commune. 19 It explained that the Roman-Dutch and the English
law of marine insurance derive from the same original sources. 20 Yet when called
upon to decide on a matter of insurance law, the court, being unable to find specific
guidance in Roman-Dutch authorities, did not rely on the prevailing rule of English
law but took guidance from the spirit of the Roman-Dutch law and the general
________________________
13 On the sources of Roman-Dutch insurance law, see Van Niekerk Introduction to Roman-Dutch
Insurance Law; on the development and content of Roman-Dutch insurance law, see generally
14 After all, no one would argue that because the sale of, say, motor vehicles was unknown to
Roman-Dutch law, such sales can or should not in our law today be governed by our common
16 1985 (1) SA 419 (A). For a general discussion of this case, see Reinecke and Becker 1985 TSAR
86; Van der Merwe 1985 THRHR 456; Van Niekerk Roman-Dutch Law of Insurance in SA.
17 General Law Amendment Act 8 of 1879 (Cape) and General Law Amendment Ordinance 5 of
18 Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality 1985 (1) SA 419 (A) 427–429.
19 Idem. See also Trust Bank Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 552, referring to
the Roman-European ius commune as being a source of our insurance law.
20 431E.
15
principles of South African law to reach a conclusion which, according to the court,
2.14 The Roman-Dutch law applicable in South Africa is also the law to be applied to
claims on marine insurance contracts coming before courts in the exercise of their
admiralty jurisdiction. 22
2.15 The South African law of insurance has had a long relationship with its English
counterpart. As early as the first half of the nineteenth century, courts in South Africa
Act, 25 introducing English law26 to govern “every suit, action and cause having reference to fire, life and marine
assurance”. 27 English law applied only in so far as it
was not repugnant to or in conflict with any local, colonial statute28 and the term
“English law” also excluded statutes passed in England after 1879. 29 English law was
result was that the relevant English common and statute law on insurance as it existed
in 187931 became binding and authoritative in the courts of the Cape Colony.
2.17 In 1902 the law as set out above for the Cape Colony was introduced into the
2.18 Although the General Law Amendment Act of 1879 simply referred to
“assurance”, it has been held that English law was incorporated for matters peculiar
to insurance, 33 and not for every aspect pertaining to or arising in connection with an
insurance contract. 34 The principle formulated seemed clear enough, but its
________________________
21 435F; see at 434 for the court’s views on the English law on the matter in issue. See further 27.1.
23 See, eg, Hollet v Nisbet and Dickson (1829) 1 Menzies 391; Namaqua Mining Co v Commercial Marine and
Fire Insurance Co (1859) 3 Searle 231; Cornelissen v Equitable Fire Insurance Co (1861) 4 Searle
35; Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358.
27 S 2; see, eg, Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3
EDC 271 279, 283; Davies v South British Insurance Co (1885) 3 SC 416 422; Drysdale v
Union Fire Insurance Co Ltd (1890) 8 SC 63 65; Colonial Mutual Life Assurance Society Ltd v De Bruyn
1911 CPD 103 126; Morris v Northern Assurance Co Ltd 1911 CPD 293 304.
28 S 2, proviso.
29 S 3.
30 S 4.
31 S 2 referred to “the law administered . . . for the time being”. Cases decided after the Act of 1879
came into operation could therefore have been binding authority only in so far as they stated the
law before that time; cf Van der Linde v Calitz 1967 (2) SA 239 (A) 246–247 for a similar
argument.
32 General Law Amendment Ordinance 5 of 1902 (OFS). The ordinance simply incorporated “the
law administered by the Supreme Court of the Cape of Good Hope”. See also Irving v Sun
Insurance Office 1906 ORC 24 36; Ackerman v Loubser 1918 OPD 31 36; London and Scottish
34 Idem 564–565. See also Davies v South British Insurance Co (1885) 3 SC 416 422.
16
application caused considerable difficulty. 35 The applicability of English law often was
2.19 Some matters arising in connection with insurance contracts were held not to
contracts. 41 To these and other similar matters, 42 therefore, Roman-Dutch law paragraphs
continued to apply.
2.13–2.20
2.20 Other matters, again, were held to be peculiar to insurance and therefore
governed by English law, for example insurable interest, 43 good (or the utmost) faith, 44
________________________
35 It was never argued or determined in terms of which system the required “peculiarity” had to be determined,
English law or Roman-Dutch law. So, the doctrine of subrogation is unknown to
Roman-Dutch law, but not peculiar to English insurance law; that of insurable interest as well as
the rules pertaining to insurance warranties were unknown to Roman-Dutch law (at least in the
forms known to English law), but peculiar to English insurance law; the doctrine of the utmost
good faith was unknown to Roman-Dutch law (which knew only good faith, but then not as
something peculiar to insurance contracts), but known to English law where it was considered
peculiar to insurance contracts. The assumption in most decisions appears to have been that
37 See Irving v Sun Insurance Office 1906 ORC 24, holding that in the Orange Free State, the law of the Cape
Colony or of England did not in consequence of the Ordinance of 1902 apply to every
legal question that could incidentally arise in course of an action on an insurance policy;
however, in questions as to what contracts are illegal for being against public policy, our law – ie,
39 560.
40 See, eg, Trautman v Imperial Fire Insurance Co (1895) 12 SC 38, (1895) 5 CTR 68, explaining that English
insurance law was adopted in the Cape Colony, but not also the English law relating to
cession (of, here, a fire insurance policy), so that English decisions on the assignment of fire
41 See, eg, Davies v South British Insurance Co (1885) 3 SC 416, holding that the interpretation of an arbitration
clause in an insurance contract was not a matter belonging to the essence of the law
of insurance; Silverstone v North British and Mercantile Insurance Co 1907 ORC 73 75, holding that
whether a slip gummed to the margin of a policy formed part of the insurance contract was not a
matter of insurance law, but of the interpretation of written contracts, so that English law did not
apply; Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458
464. In Orenstein Arthur Koppel Ltd v Salamander Fire Insurance Co Ltd 1915 TPD 497 501–502 it was
taken, as being common cause, that a term which had been taken from an English policy had to
be construed according to the meaning given to the words in English law. This held true only if
the parties clearly intended the words to bear that meaning. But see also Wood’s Trustees v South
African Mutual Life Assurance Society (1892) 9 SC 220, (1892) 2 CTR 170, stating that as English
law is applicable in actions relating to life insurances, English decisions could not be ignored in
construing life insurance policies. See further on the relevance of English law to the
42 See, eg, Wetzlar v General Insurance Co (1884) 3 SC 86, determining that although the Act of 1879
incorporated the English law of fire insurance into the law of the Cape Colony, the English law
relating to statutory declarations in the case of fire insurance was not made part of the law of the
colony.
43 Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3 EDC 271
283; Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 378.
44 Drysdale v Union Fire Insurance Co Ltd (1890) 8 SC 63 65, determining that in a matter dealing with good
faith in insurance, English law had to be applied.
17
warranties in insurance contracts, 45 certain aspects of the risk, 46 over-insurance, under-insurance and
reinsurance. 47 Occasionally the courts were fortified in their decision
that English law was applicable by the fact that they perceived the principles they
2.21 The General Law Amendment Act of 1879, and by the same token also the
General Law Amendment Ordinance of 1902, made mention only of the English law
relating to fire, life and marine insurance. Whether other types of insurance were
2.22 The binding force of English insurance law in parts of South Africa was brought
to an end by the Pre-Union Statute Law Revision Act50 which repealed the colonial
2.23 This Act came into operation on 13 April 1977 and it contained no provision
giving it retroactive effect. Therefore, English insurance law theoretically still governs
concluded before the Act came into operation. This seems to be possible only in the
case of some long-term policies such as life policies. In respect of contracts concluded
after the Act took effect, English law no longer has any binding authority in any part
of South Africa.
2.24 However, as pointed out earlier, 51 it may be that where principles derived from
English insurance law have been taken over into our law, and where those principles
operate satisfactorily and are not in conflict with the general principles of our law,
they will be retained and that English insurance law will in respect of those principles,
even if no longer of binding authority, continue to carry great persuasive force in our
law. 52
2.25 And even on issues where English principles have not been taken over in our
insurance, English insurance law may well for historical reasons still be considered as
a source of our insurance law in the form of persuasive authority, especially in
________________________
45 Colonial Mutual Life Assurance Society Ltd v De Bruyn 1911 CPD 103 126; Morris v Northern Assurance Co
Ltd 1911 CPD 293 293, 304.
46 Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3 EDC 271
284; Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W). Arguably
the transference and, hence, also issues such as the description, duration or materialisation of
risk, while central to insurance contracts, are not matters peculiar to them: see again 1.11.
47 Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 380; General Accident, Fire and Life
Assurance Co Ltd v National British and Irish Millers’ Insurance Co Ltd 1914 CPD 586.
48 See, eg, Drysdale v Union Fire Insurance Co Ltd (1890) 8 SC 63, explaining that as English law applied in the
Cape Colony by virtue of the Act of 1879 in actions having reference to questions
of fire insurance, reference to the statements (of principle) in English decisions were apt,
especially so when they were founded upon well-established principles of Roman law.
49 The reported decisions deal almost exclusively with fire, life or marine insurance, but English law has been
applied to other types of insurance: see, eg, London and Scottish Assurance Corporation
50 43 of 1977.
51 2.6.
52 The prime example here is the doctrine of subrogation. Although unknown to Roman-Dutch
insurance law (which achieved approximately the same outcomes by means of an automatic
cession or transfer of rights from the insured to the insurer), the doctrine was taken over into
our law in 1918 in Ackerman v Loubser 1918 OPD 31, probably unjustifiably so as subrogation is
not peculiar to (English) insurance law. Nevertheless, the doctrine has been applied and even
developed in our law ever since and, even if only for the sake of legal certainty, it is probably now
too late to evict it from our insurance law. See also the observations in this regard in Rand
Mutual Assurance Co Ltd v Road Accident Fund 2008 (6) SA 511 (SCA) 518–519.
18
instances where little, or no, or no suitable guidance may be derived from our own
common law. 53
2.26 South African insurance law has developed over a long period of time during
which the influence of English law was dominant. Despite the legislative restoration
law, which have consistently been applied over the years, will in future be uprooted
merely for the sake of change. To discard workable principles simply because of their
paragraphs
origin would be a retrograde step. Judicial decisions since the passing of the 2.20–2.30
legislation in question have accordingly followed the beaten track and there is no
insurance law.
2.27 Historically54 the insurance contract was developed as part of the lex mercatoria that was generally observed
in European commerce. Consequently, when the
principles of the lex mercatoria were eventually absorbed into the laws of the different
countries, the general principles of the law of insurance were much the same over the
whole of Western Europe. This also holds true for the law of Holland. Even today, the
insurance laws of many countries are remarkably similar in nature and content. The
2.28 The international character of insurance law has been recognised in South
Africa from early on. Indeed, the Appellate Division took the view that English and
American law are of strong persuasive authority even where they do not apply by
2.29 What, then, is the effect of the restoration of Roman-Dutch law as our common
law of insurance? Certainly not that English law is no longer a source of our law, but
been applied in the past – than in others. But the door has been opened for a more
necessity tied to English law, but suited to local conditions and in consonance with
the general principles of our law. 56
2.30 South African courts are now free to play a more proactive role, first by applying
also to insurance contracts the general principles of our law, especially of the law of
________________________
53 See, eg, Trust Bank Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 552, explaining that
despite the fact that Roman-Dutch law is the main source of our insurance law, English law,
too, remains a fruitful source as long as it is in the interest of public policy; Videtsky v Liberty Life
Insurance Association of Africa Ltd 1990 (1) SA 386 (W) 390–391, basing the view that English
insurance law is, as a starting point, a good indication of what South African law is, on the “large
extent of reception of English law” in our law of insurance and on the alternative being “a return
to rare and bare comments in the Netherlands, frequently found only in inaccessible sources”.
54 For the historical development of the insurance contract, see generally Lawsa Vol 12 Part 1 pars 16–19.
55 See, eg, Lewis Ltd v Norwich Union Fire Insurance Co Ltd 1916 AD 509 521–522; Law Union and Rock
Insurance Co Ltd v De Wet 1918 AD 663 668; Scottish Union and National Insurance Co Ltd v Native
56 See further generally the approach in Schoeman v Constantia Insurance Co Ltd 2003 (6) SA 313
(SCA).
19
of the many principles to be found in our common law; and thirdly, by including in
our comparative spectrum also principles derived from sources other than English or
even Anglo-American insurance law. In view of the universal origin and nature of the
law of insurance, this would be a sound approach and one that would contribute to
trade usage. 58
2.32 Of ever increasing importance as a source of our insurance law is the role of the
legislation, both in the form of Acts and, especially, in the form of subsidiary
legislation. 59
2.33 The impact of statutory intervention has in the main been on the field of
insurance company law, and to a much lesser extent on insurance contract law.
Legislative attempts in the latter field have not always been successful. Apart from
general principles and of the relevant principles of Roman-Dutch insurance law has
2.34 The main pieces of legislation affecting insurance law60 are the LTIA61 and the STIA. 62 Attached to each
of these Acts are a number of Schedules. In terms of each of
these Acts, a set of Regulations and a set of Policyholder Protection Rules63 have been
promulgated. In addition, there are notices issued by the relevant registrar, 64 and
board notices and directives issued by the regulatory authority. 65 This plethora of
2.35 Various further pieces of legislation regulate insurers and the way in which they
conduct their insurance business, often as part of measures designed to regulate the
________________________
57 Gone, it appears, are the days when, as in the seventeenth and eighteenth centuries, one could speak of a
customary insurance law and when frequently courts (and also legislatures) could not
only fashion legal rules pertaining to insurance contracts from prevailing customs, but even hold
that such customs had abrogated a contrary legal principle. On the role of custom in fashioning
Roman-Dutch insurance law, see further van Niekerk Insurance Law in the Netherlands Vol 1
245–268.
58 See Muller Bros v Kemp and Others (1858) 3 Searle 142 (an insurance broker’s rights and duties as against a
client depend on the special nature and character of their dealings, are chiefly to be
decided by mercantile custom, and may altogether depend on that usage and precedents of
relevant judicial decisions which, though, cannot per se affect the general law of principal and
agent); General Accident, Fire and Life Assurance Co Ltd v National British and Irish Millers’ Insurance Co Ltd
1914 CPD 586 (direct insurer failing to prove the custom or course of dealing upon which
its claim against the reinsurer was based); BC Plant Hire CC t/a BC Carriers v Grenco (SA) Pty Ltd
[2004] 1 All SA 612; 2004 (4) SA 550 (C) (relevance of trade usage or implied agreement as to
insurance on passing of risk between contracting parties); and Barloworld Capital (Pty) Ltd t/a
Barloworld Equipment Finance v Napier NO 2005 (1) SA 57 (W) (proof of trade practice in the
insurance industry).
59 See generally Havenga 2002 SA Merc LJ 718.
60 They are collected and regularly updated in Van Niekerk Insurance Legislation Service.
61 52 of 1998.
62 53 of 1998.
63 The current rules are the Policyholder Protection Rules (Long-term Insurance), 2004 and the
64 The Registrar of Long-term Insurance and the Registrar of Short-term Insurance, as the case
may be. The authority to issue these various levels of subsidiary legislation is derived from the
65 The FSB.
20
financial services industry in general. These include the Financial Services Board
Act, 66 the Supervision of Financial Institutions Rationalisation Act, 67 the Inspection of Financial Institutions
Act, 68 and the Financial Institutions (Protection of Funds) Act. 69
operating in the insurance industry, is the FAIS Act. 70 Then there is also the Financial
Services Ombud Schemes Act, 71 which oversees the various statutory and voluntary
paragraphs
Ombudsman for Long-term Insurance and the Ombudsman for Short-term 2.30–2.39
Insurance. 72
Act. 73 Initially, when the Act was promulgated, insurance contracts and the
undertaking or assumption of risk they involve were excluded from the operation of
the Act. 74 The exclusion of insurance was subject to “those sector laws being aligned
with the consumer protection measures provided for in this Act” within a period of
18 months “from the commencement” of the Act, failing which the provisions of this
Act will apply to insurance contracts. 75 The Consumer Protection Act was put into
effect on 31 March 2011 and the period of 18 months therefore expired at the end of
September 2012. Consequently, the Consumer Protection Act now applies also to
insurance contracts and several of its provisions may impact on general principles of
insurance law. 76
The Constitution
2.38 The Constitution of the Republic of South Africa, 1996, is the supreme law of
South Africa and any law, statute or contract inconsistent with it is invalid. 77 The Bill
of Rights78 enshrines the rights of all people in South Africa and affirms the
2.39 The rights protected in terms of the Bill of Rights80 include the right to:
equality, human dignity, life, freedom and security of the person, privacy, health care,
access to information, and access to courts. In the interpretation of the Bill of Rights,
courts are obliged81 to promote the values underlying an open and democratic society
based on human dignity, equality and freedom, and to promote the spirit, purpose
________________________
66 97 of 1990.
67 32 of 1996.
68 80 of 1998.
70 37 of 2002. On this Act, see generally Hattingh and Millard The FAIS Act Explained.
71 37 of 2004.
72 On the features and functions of the various ombudsman schemes, see further Nienaber and
Reinecke Life Insurance in South Africa pars 3.79–3.100 and also 17.11–17.15.
73 68 of 2008.
76 The enactment of projected and dedicated consumer-protection measures for insurance is still
awaited. Since the application of the Consumer Protection Act to insurance is intended to be
only temporary, its provisions are not dealt with in this work. However, insurance consumers
who are dissatisfied with the outcome of the ordinary law of insurance will have to have recourse
to the Consumer Protection Act for possible relief.
78 Constitution ch 2.
79 S 7(1).
80 Constitution ss 9–35.
81 By s 39.
21
and objects of the Bill of Rights when interpreting any legislation and when
2.40 Insurance law, including its legislation, common law, contract terms, and
practices, are clearly also subject to the Constitution. The rights enshrined in the Bill
insurance and to insurance law and will, in the course of time, impact on various
aspects of it. 82
2.41 Until now, the impact of the Constitution on insurance law has been mainly on
its legislation83 and on a few insurance contract terms. 84 However, there is no doubt that in due course insurance
practices too will come under scrutiny.
presented by different persons for purposes of risk classification and rating will come
up against the right to equality. This right is especially relevant to insurers and
insurance law and practices as the Bill of Rights prohibits any unfair discrimination
against anyone on one or more of the so-called listed grounds, which include race,
gender, sex, pregnancy, marital status, sexual orientation, age, and disability. 85 These
grounds are, often, also the basis upon which, in deciding whether (or not) to insure
________________________
82 See generally Havenga 1997 SA Merc LJ 275; Hopkins 2002 SALJ 155.
83 See Kitshoff NO v Brink 1997 (4) SA 117 (T); Brink v Kitshoff NO 1996 (4) SA 197 (CC), holding the – now
repealed – Insurance Act 27 of 1943 s 44(1) and (2) unconstitutional and hence
invalid as in certain circumstances they deprived married women of all or some of the benefits of
life insurance policies ceded to them or made in their favour by their husbands, but did not do
likewise for married men; the different treatment of married women and married men,
disadvantaging the former but not the latter, amounted to discrimination based on the grounds
of sex and marital status (see also Havenga 1997 THRHR 164); Fairleigh NO v Whitehead 2001 (2)
SA 1197 (SCA), concerning the effect of the declaration of invalidity of the deeming provision in
the Insurance Act 27 of 1943 s 44(2); Platinum Asset Management (Pty) Ltd v Financial Services
Board; Anglo Rand Capital House (Pty) Ltd v Financial Services Board, unreported (W), (2006) 9
Juta’s Insurance L Bul 55, on the constitutionality of ss 3 (instruction of inspectors) and 4 (powers
84 See, eg, Langemaat v Minister of Safety and Security 1998 (3) SA 312 (T), concerning the unconstitutionality
of the rules of a medical aid scheme limiting the definition of “dependant” to a
legal spouse or dependant child on a basis that discriminates on grounds of marital status and
sexual orientation against unmarried couples and partners in same-sex unions (see also Havenga
1998 THRHR 722); Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C), holding the
contract if the third party was a member of the insured’s “family normally resident with him” to
include a partner living with the insured in a permanent homosexual relationship; Du Plessis v
Road Accident Fund 2004 (1) SA 359 (SCA), on the right of a partner in a same-sex relationship to
claim for damages from a statutory compensation fund for the loss of support due to the death
of the breadwinner partner; SA Bank of Athens Ltd v Van Zyl 2005 (5) SA 93 (SCA), on the
for the parate executie of such policies; Society of Lloyd’s v Romahn 2006 (4) SA 23 (C), on the
between members and Lloyd’s containing “pay now, sue later” and “conclusive evidence” clauses;
Mooi v SA Mutual Life Assurance Society, unreported (Tk), (2007) 10 Juta’s Insurance L Bul 102,
189, on the constitutionality of appointment in the life insurance policy of a beneficiary other
than the insured’s spouse; and Barkhuizen v Napier 2007 7 BCLR 691 (CC); 2007 (5) SA 323
(CC); Napier NO v Barkhuizen 2006 (4) SA 1 (SCA) and Barkhuizen v Napier NO, unreported (T),
(2005) 8 Juta’s Insurance L Bul 20, on the constitutionality and hence legality, on the basis of
possibly infringing on the right of access to court, of the presence in an insurance contract and
after the rejection of a claim by the insurer to commence litigation against the insurer.
85 Cf s 9(3) (prohibition of unfair discrimination by the state), 9(4) (prohibition of unfair
22
persons, and, if so, at what premium rates and on what terms, insurers differentiate
2.43 The crucial question is whether such differentiating practices amount to unfair
discrimination. In answering this question, two further factors are relevant. First, it is
paragraphs
2.44 Of particular further importance to insurance law in this regard is the 2.39–2.47
2.45 In its attempt to promote equality, this Act provides illustrative and non-
conclusive lists of practices in certain sectors that are or may be unfair, widespread
and may have to be addressed. 90 One of the sectors mentioned is that concerned with
the provision of insurance services. And the practices mentioned in connection with
it91 are that of unfairly refusing on one or more of the so-called prohibited grounds92
insurance; and that of unfairly disadvantaging a person or persons solely on the basis
of HIV/AIDS status.
2.46 Other practices prevalent in the insurance industry may again affect other
fundamental rights, such as the right to privacy, or to health care services, or of access
to information. 93
2.47 Related to the issue of the sources of South African insurance law, is the
question of whether South African insurance law also applies to issues coming before
a competent local court94 that arise from insurance contracts that contain one or
more foreign elements. 95 This involves the principles of South African private
international law and the more specific question as to the proper law, governing law,
or applicable law of such insurance contracts. In this regard insurance contracts are
________________________
86 On the potential unconstitutionality of discrimination on the basis of grounds such as age and gender in motor-
vehicle insurance, see Kok 2008 SAJHR 59; Wagener 2011 SA Merc LJ 376.
87 S 36(1). Such limitation may only be in terms of the law of general application and only to the extent that the
limitation is reasonable and justifiable in an open and democratic society based
88 S 9(5).
89 4 of 2000. It was passed in terms of the Constitution s 9(4) read with Sched 6, item 23(1) which required
national legislation to be enacted to prevent or prohibit unfair discrimination. On this
Act, see generally Kok 2001 TSAR 294; Kok 2008 Stell LR 122; Kok 2008 SAJHR 445.
90 S 29. The sectors are mentioned in a Schedule to the Act and a list of unfair practices is provided for each
sector.
92 The Act itself lists these grounds in its definitions of “discrimination” and “prohibited grounds”
in s 1(1); these grounds include the listed grounds mentioned in the Constitution s 9(3).
93 See, eg, Van Wyk 1997 Codicillus 34; Nienaber and Van der Nest 2002 TSAR 290; Nienaber and Van der Nest
2004 THRHR 446; Joubert 2009 THRHR 17.
94 Ie, a local court that has jurisdiction to determine the issue: see further 17.4, Lawsa Vol 12 Part 2
par 336.
95 Eg, a contract involving a foreign insurer or insured, or performance by either or both of them outside the
country.
96 For an exposition of the application of those principles to insurance contracts, see Lawsa Vol 12
23
insurable interest1
A. Introduction
................................................................................................................ 25
B. Indemnity
insurance
...................................................................................................
28
insurance.............................................................................................................. 28
C. Non-indemnity
insurance
...........................................................................................
49
(a)
General.................................................................................................................
49
insurance .............................................................................................................. 51
A. INTRODUCTION
paragraphs
3.1 Together with risk and damage, insurable interest is one of the fundamental
3.1–3.2
concepts of insurance law. 2 It developed from the lex mercatoria of the middle ages3
and was received in South Africa with the local adoption of English insurance law.
3.2 Insurable interest is a many-sided concept. Originally it was simply seen as the
object of insurance and descriptive of that which is insured. In the course of time the
________________________
2 Möller
1976
TSAR 59.
3 5.24 et seq.
25
existence of an insurable interest had been construed as not merely the object of
was also regarded as one of the requirements for the validity of an insurance contract,
at least in English law. The latter aspects of insurable interest are dealt with in the
3.3 The most important aspect of insurable interest is that it serves as the object of an
insurance contract. At issue is which interests are insurable in accordance with the
current law. From the conclusions reached in this regard, a unitary basis for
indemnity and non-indemnity insurance may be inferred. 4 The basis of insurance is,
in turn, critical for the further development of the phenomenon of insurance itself.
3.4 In the classic decision Castellain v Preston5 the court stated that an insured’s insurable interest is the object of
the insurance6 and that only those who have an
insurable interest can recover on the insurance contract. The court added that an
insured could recover to the extent to which his insurable interest had been impaired
by the insured peril and no more. This view has been echoed in South African law. 7
3.5 The object or subject matter of the insurance is therefore the interest which the
insured wishes to protect against potential peril. 8 Insurance cannot prevent the
occurrence of a particular peril to which the insured is exposed, but it can provide a
substitute for the prejudice, of whatever nature, caused by the occurrence of the
peril.
3.6 The object (or subject matter) of insurance should be distinguished from the
object of risk. The object of insurance is an intangible interest and not a physical
object. If the insurance is concluded with reference to a physical object, that object
will be the object of risk. The insured’s interest may be embodied in this object or
else the object may be instrumental in causing the insured’s loss, for example where
3.7 In the case of indemnity insurance, the object of the risk is a physical or non-
human object, while in the case of non-indemnity insurance the object relates to a
limit the risk that the insurer takes upon itself. It is not a requirement for insurance
object insured. For example, where the insurance relates to a house, it is said that the
house is insured, or where the insurance relates to a person, the life of the person is
insured. This is strictly speaking not correct because what is insured is not the house
or the person but the insured’s interest in the house or person. Thus, various persons
may take out insurance in respect of one and the same object of risk, for instance the
________________________
4 4.56–4.84.
6 397.
7 Cf
Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434 (D). In
Mostert v Cape Town City Council 2001 (1) SA 105 (SCA) 117E, the court observed that a person
26
insurance of a house by the mortgagor, the mortgagee, the lessee, the lessor and a
contractor. However, this practice should not lead to confusion as long as it is borne
in mind that to say that the house is insured is simply short for saying an interest or
3.9 In the case of indemnity insurance the insured is not required to identify and
paragraphs
insure his interest eo nomine unless he wants cover for consequential loss. 12 Otherwise
3.2–3.12
the insurance will cover the interest that exists at the time of the occurrence of the
loss. 13 This flows from the insurer’s unspecified undertaking to indemnify the insured.
If no such interest can be proved, no claim can be brought under the contract.
concerned with interests other than a particular interest he has at the time of the
contract. Hence, the insurance will simply be on an event in which the insured actually
has such an existing interest on the understanding that the sum insured is due if that
interest is impaired. 14
3.10 Except in rare cases, 15 it is not even necessary for the insured to disclose to the
3.11 The concept of “insurable interest” dates from a period when many modern
forms of insurance had not yet emerged. Originally insurance was concerned only
with corporeal objects and ownership was the best if not the only example of an
insurable interest. However, it soon became apparent that persons other than owners
3.12 The classic definition of insurable interest is that formulated in 1806 by Lord
Eldon in Lucena v Craufurd. 17 The first South African attempt at a definition of insurable interest appeared in
Littlejohn v Norwich Union Fire Insurance Society. 18 It reads as follows:
“[I]f the [insured] can show that he stands to lose something of an appreciable
commercial value by the destruction of the thing insured, then even though he
has neither a jus in re or a jus ad rem to the thing insured his interest will be an
insurable one.”
________________________
11 Clarke et al The Law of Insurance Contracts par 4.1B point out that it has been suggested that no insurance
contract insures an object, but that it is commonly said that insurance is “on property”
12 16.19.
13 Birds et al MacGillivray on Insurance Law par 1.205, Clarke et al Contracts par 4.1.
14 5.38–5.41, 5.60.
15 Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 147 (SCA) where the insured failed to disclose
that the insured motor vehicle was stolen. The court indicated that that fact affected
the insurer’s right of subrogation (ch 18) and decided that the non-disclosure was fatal. The
court did not decide whether the insured had an insurable interest in the circumstances but
assumed (155H) that as possessor he had a limited interest. See also Santam Bpk v Van Schalkwyk
16 Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374; Steyn v Malmesbury Board of Executors
17 (1806) 2 Bos & Pul NR 269, 127 ER 630 (HL) 651 where he stated that he is unable “. . . to point out what is an
interest unless it be a right in the property, or a right derivable out of some
contract about the property . . .” This perception played a significant role in the development of
18 1905 TH 374 380–381. The court took English and American decisions into account.
27
3.13 This definition provides at least a starting point by stating that an insurable
describe an insurable interest solely with reference to a tangible object is too narrow an
approach for modern conditions. There are forms of insurance known today which do
not involve any specific, physical object, for instance some liability insurances. Hence
3.14 Second, the definition does not make it clear when it may be said that a person
has been detrimentally affected by the destruction of the thing. In other words, when is
a loss a loss in fact rather than merely in the mind of the insured?
3.15 Finally, the definition appears to be formulated for the purposes of indemnity
rather than non-indemnity insurance since the latter form of insurance primarily covers
non-financial loss.
3.16 Because of the complexities involved it is not strange that it has been observed
that it is difficult to define “insurable interest” in words that will apply in all
B. INDEMNITY INSURANCE
INSURANCE
3.17 From the definition of insurable interest quoted above it can be inferred that
the concept of loss or damage plays an important role. This is all the more evident in
the case of indemnity insurance where the insurer expressly undertakes to indemnify
the insured against loss or damage. An analysis of the concept of damage is therefore
crucial.
3.18 The concept of damage is employed in several branches of the law, for instance
both patrimonial and non-patrimonial damage while the term “damages” refers to
________________________
19 Clarke et al Contracts par 4.1, quoting Feasy v Sun Life Co of Canada [2003] Lloyd’s Rep IR 637
(CA).
28
3.20 South African courts are said to proceed from the so-called “difference theory” 21
comparison is drawn between two sums of money, namely the total value a person’s
patrimony would have had had the damaging event not occurred and the total value
of his patrimony now that the damaging event has taken place. The difference
between these two sums is described as the id quod interest or interesse and, if the latter
paragraphs
sum is smaller than the former, it constitutes the loss or damage the person suffered.
3.13–3.24
3.21 The theory of difference does not explain what the constituent elements of a
person’s estate or patrimony comprise of and does little more than highlight the
person’s patrimony has been diminished by a certain event it must first of all be
established what elements make up a patrimony. This will appear from the concrete
3.22 In order to determine whether damage has occurred, the courts in everyday
practice do not make a comparison between two sums of money as required by the
theory of difference. To compare two total patrimonial positions will often not be
feasible.
3.23 In the final analysis the courts rather follow what may be described as a concrete
approach towards damage. They look upon damage not as the loss of an abstract sum
rights) and liabilities (or debts). 25 According to the concrete approach, damage
________________________
21 After the “Differenztheorie” as formulated by Friedrich Mommsen Zur Lehre von dem Interesse (1855).
22 This is especially true in the case of delict. Cf Swart v Van der Vyver 1970 (1) SA 633 (A); Santam
Versekeringsmaatskappy Bpk v Byleveldt 1973 (2) SA 146 (A); Dippenaar v Shield Insurance Co Ltd 1979
(2) SA 904 (A); Evins v Shield Insurance Co Ltd 1980 (2) SA 814 (A). In ISEP Structural Engineering
& Plating ( Pty) Ltd v Inland Exploration Co ( Pty) Ltd 1981 (4) SA 1 (A) this approach received attention in a
contractual context.
23 More specifically it adheres to the so-called conditio sine qua non theory of causation also described as the “but
for” test.
24 Santam Versekeringsmaatskappy Bpk v Byleveldt [1973] 2 All SA 173 (A); 1973 (2) SA 145 (A) 150F; HK
Outfitters (Pty) Ltd v Legal General Assurance Society Ltd 1975 (1) SA 55 (T); Botha v Rondalia
Versekeringskorporasie van SA Bpk 1978 (1) SA 996 (T). However, it should be conceded that the
courts have not yet completely abandoned the difference theory: Reinecke 1976 TSAR 26; 1988
De Jure 221; Van der Walt 1980 THRHR 1; Lubbe & Murray Contract 606–607; Visser & Potgieter Law of
Damages passim.
25 Union Government (Minister of Railways & Harbours) v Warneke 1911 AD 657 665; Santam
Versekeringsmaatskappy Bpk v Byleveldt above 150; Dippenaar v Shield Insurance Co Ltd 1979 (2) SA
904 (A) 917B; Evins v Shield Insurance Co Ltd 1980 (2) SA 814 (A) 840H; ISEP Structural
Engineering and Plating (Pty) Ltd v Inland Exploration Co (Pty) Ltd 1981 (4) SA 1 (A) 8D. Cf also in
general Reinecke idem; Van der Walt idem; Visser and Potgieter Damages passim.
29
increased, provided as always that it resulted from an unplanned event. 30 Yet another
form of loss is where an expense which has been incurred for a certain purpose,
3.25 In terms of the concrete approach, the question whether damage has occurred
3.26 A particular event may, of course, cause several items of loss. As a result of a
particular collision, the owner of a motor vehicle may for instance lose his vehicle,
lose an expectation of profit in the course of his business as a taxi driver, and incur a
3.27 It has been suggested that South African law follows a subjective approach
3.28 An event causing damage may at the same time have beneficial side-effects.
Generally our courts tend to deduct quantifiable benefits from the recoverable loss,
provided that they have resulted from the damaging event and provided that it is
reasonable to take the benefits into account. 33 In terms of the concrete approach, the
phenomenon of benefits does not affect the occurrence of damage at all but rather
3.29 All patrimonial rights having a monetary value are assets forming part of a
person’s estate, such as real rights, 34 personal rights and rights of immaterial
property.
3.30 Expectancies of patrimonial gain can also qualify as assets forming part of a
person’s patrimony. Whether an expectancy qualifies as an asset depends on consid-
erations of policy. 35 It seems, the expectancy must not be in conflict with the law, 36 its
________________________
29 The reason for this is that the value of a right (as an asset) is affected if the object of the right is not available.
30 Eg, where a dependant is injured with the result that the breadwinner who is liable for his
31 Eg, where a holiday that has been paid for has to be cancelled because of illness. This is a rather complex item
of loss. The injured party’s loss will usually, though not necessarily, lie in the
diminution in value of the rights he acquired, but the costs incurred for those rights may be
indicative of the value lost. In Santam Bpk v Van Schalkwyk 2002 (4) SA 193 (O) a father assisted
his son in buying a vehicle. The father provided the deposit and undertook to pay the
instalments. The contract was concluded in the name of the son and the father had no title to
the vehicle. The vehicle was stolen. Can it be said that the father suffered a loss in the sense that
the expenses he had incurred became useless given that he acquired no rights in his own name?
(The question whether the father had an insurable interest in the vehicle was left open in this
case.)
32 ISEP Structural Engineering and Plating (Pty) Ltd v Inland Exploration Co (Pty) Ltd 1981 (4) SA 1 (A) 8H.
33 16.150 et seq.
36 In Dhlamini v Protea Assurance Co Ltd 1974 (4) SA 906 (A), the court decided that an unlicensed hawker who
was injured in a motor-vehicle collision could not claim damages in delict for
income she would have earned from her illegal activities as a hawker. Cf also Santam Insurance
30
value37 to it. 38
paragraphs
3.32 Not only do liabilities that have in fact resulted from the damaging event
amount to damage, but so do expectancies of such liabilities, provided that such 3.24–3.33
expected liabilities or expenses are not only unavoidable40 but also reasonably neces-
sary. 41 Hence such expectancies must also be regarded as forming part of a person’s
estate. Thus if an unavoidable liability flows from an uncertain event, the event has
caused a loss irrespective of whether payment of the debt has been effected42 and
irrespective of whether the person concerned has sufficient assets to meet his liabili-
going hand-in-hand with patrimonial damage. Whenever an insured can prove that
he has suffered damage as a result of the event insured against, he must have had an
insurable interest in that event. 45 Conversely, the absence of any loss points to the
________________________
37 16.132 et seq.
38 The frustration of an expectation of acquiring patrimonial benefits is an example of what is known as “pure
economic loss”. Such a loss may be recoverable in delict or contract. Examples of losses
consisting of the frustration of an expectancy include the loss of income to be derived from one’s
profession or work and a loss of profit ( lucrum cessans) consequent on a breach of contract. Cf
39 Ranger v Wykerd 1977 (2) SA 976 (A) where a person was induced to buy property with a defective swimming
pool and the expenses of remedying the defect were regarded as damage.
An expense willingly incurred does not amount to damage, eg, where a bet is placed on a horse
race.
41 Shrog v Valentine 1949 (3) SA 1228 (T); Ngubane v SA Transport Services 1991 (1) SA 756 (A). Thus, the
defendant may have rendered defective performance which necessitated the incurring of
expenses to rectify the defects: Schmidt Plant Hire (Pty) Ltd v Pedrelli 1990 (1) SA 398 (D).
42 In Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 837D, the court stated that the words
“loss or damage” in a clause may bear the meaning of loss or damage sustained as a
result of an inescapable obligation to pay money even before the money is actually paid.
43 Möller 1976 TSAR 59 64. It is suggested that a liability insurer cannot meet a claim by an insured with the
argument that the insured would not have been able to pay the liability he incurred
towards a third party had he not been insured. However, cf Jonnes v Anglo-African Shipping Co
(1936) Ltd 1972 (2) SA 827 (A) 837C where the court referred to “the balance between the value
of one’s incorporeal assets and the extent of one’s incorporeal liabilities”. Clarke et al Contracts
44 On the relationship between the insurable interest and the principle of indemnity, see also Jerry Understanding
Insurance Law par 41.
45 Eg, Van der Westhuizen v Santam Versekeringsmaatskappy Bpk 1975 (1) SA 236 (E); Manderson t/a Hillcrest
Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434 (D) 442E; Pienaar v
Guardian National Insurance Co Ltd [2002] 3 All SA 27 (C); 2002 (3) SA 640 (C) 645. Cf Birds et al
46 Mostert v Cape Town City Council 2001 (1) SA 105 (SCA) 27: “The Council cannot insure unless it has an
insurable interest. It has no such interest unless it is liable to someone for damage caused
31
3.34 In accordance with this approach, it has often been mooted that the insurable
interest of the law of indemnity insurance is in reality nothing other than the id quod
damage as understood in the law of damages. 48 This approach may be termed the
traditional approach. The only caveat is that insurance contracts as a rule do not
provide for cover of an insured’s full id quod interest but merely for a specific part of
his total loss, viz loss suffered as a result of the physical destruction of or damage to
the object of risk to the extent of the insured’s interest in that object. 49
between the concepts insurable interest and id quod interest representing the ordinary
concept of damage. The argument goes that historically each concept developed
independently from the other. Insurable interest is not seen as the negative
between the insured and the object of his interest which existed even before the
asset specifically for insurance purposes. The alternative approach enjoys some
3.36 The alternative view opens the door for the development of a concept of
interest, the meaning of “loss or damage” may be limited or broadened for insurance
purposes.
3.37 Yet another if novel view is that there is not necessarily a correlation between
insurable interest and loss or damage and that insurable interest simply means an
3.38 The traditional perception of insurable interest in English law tends to be strict
relation to the object of the risk. 53 Thus, insurable interest is limited to rights and
of damage that will ground an insurable interest. Thus ownership, whether sole or
joint, personal or official, 54 under ordinary or sectional title, 55 will provide an ________________________
47 3.20.
48 A good example of this approach is Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd
1996 (3) SA 434 (D).
50 As regards German law, cf Bruck-Möller Kommentar zum Versicherungsvertragsrecht und zu den Allgemeinen
Versicherungsbedinungen unter Einschluss des Versicherungsvermittlerrechtes (1961) 58.
51 The views expressed by the court in Brightside Enterprises (Pvt) Ltd v Zimnat Insurance Co Ltd
[1998] JOL 2448 (ZH); 2003 (1) SA 318 (ZH) especially the example at 326, tie in with this
approach.
52 Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 2013 (5) SA 42 (WCC) pars 28, 31, 33, 48,
48, 51. See (2013) 16 Juta’s Insurance L Bul 73–103; Reinecke 2013 4 TSAR 816.
54 Thus, a trustee may insure trust property: Barnard v Steenkamp [2007] JOL 18929 (T), (2007) 10
55 A sectional title owner may insure in his own name the building which is the object of his right.
The Sectional Title Act 95 of 1986 s 37(1)f–g provides that a body corporate may insure the
building(s) concerned. S 37(4) enacts that a body corporate shall be deemed to have an
insurable interest for the replacement value of such building. Cf Stadsraad van Pretoria v Body
32
excellent basis for an insurable interest. This is also true for other real rights such as the
3.40 Contractual rights with a monetary value can likewise form the basis of an insurable
interest. An example of a contractual right which frequently serves as such basis in the
case of indemnity insurance is the right of a buyer56 of property who has not yet received
delivery of the property. The existence of an interest based on a contractual right is not
affected by the fact that the right is of a reversionary nature, 57 that it is subject to a
paragraphs
suspensive or resolutive condition, 58 or that the contract giving rise to the right may be 3.34–3.44
3.41 In Steyn v Malmesbury Board of Executors and Trust and Assurance Co59 the court had some difficulty in
explaining the interest the insured had in a certain stack of chaff
which did not belong to him. 60 In fact, the insured’s interest was nothing sinister but
simply based on a contractual right. 61 The same holds good for Steyn v AA Onderlinge
Assuransie Assosiasie Bpk62 where a person was allowed to occupy a house free of
charge. The interest insured was the contractual right he had to occupy the house.
3.42 Furthermore, there can be no doubt that any legal liability, whether ex contractu or ex
lege, can form the basis of an insurable interest, provided it resulted from an uncertain
event. 63 Thus, an insurer may insure its contingent contractual liability towards its
contingent contractual liability towards the lessor. 64 By the same token, a company
has an insurable interest in a motor vehicle belonging to its director where it has
damaged. 65 Instances of insurable interest in liabilities ex lege are easy to come by, for example where the owner
of a motor vehicle insures against his potential delictual
below. 66
3.44 The view of English law that an insurable interest must be in the nature of a
legal right or legal liability has not found favour in America, Australia and Canada
________________________
56 3.87–3.91.
60 This was a case of fire insurance by the lessor of a farm. In terms of a contract of lease, the lessee was entitled
to make use of a haystack on the farm, but he was prohibited from removing any
61 In terms of the contract of lease, the owner obtained a right against his lessee that the latter should not remove
the chaff. This right formed part of his patrimony and was lost when a fire
63 Mostert v Cape Town City Council 2001 (1) SA 105 (SCA); Mutual and Federal Ltd v Rumdel Construction
(Pty) Ltd 2005 (2) SA 179 (SCA).
64 3.101–3.106.
65 Brightside Enterprises (Pty) Ltd v Zimnat Insurance Co Ltd [1998] JOL 2448 (ZH); 2003 (1) SA 318
(Z).
66 3.44 et seq.
33
which all follow a more liberal line. 67 In fact, there are indications that English law
3.45 The strict English approach to insurable interest has likewise not been followed
3.46 Thus, in Littlejohn v Norwich Union Fire Insurance Society, 70 the court ruled that the insured husband in the
circumstances of the case had an insurable interest in goods
property. The husband had at most an expectancy to receive some benefits from his
wife’s property. 71 At one stage it appeared that the Littlejohn decision was not well
received because it did not require insurable interest to have a legal basis as
understood in English law. 72 However, it has since become quite clear that our law has
3.47 In Phillips v General Accident Insurance Co (SA) Ltd73 the court decided that the husband had an insurable
interest in jewellery of his wife although he had no legal
title to it. The husband’s interest in the jewellery was based on the ground that he felt
3.48 A further step in liberating the concept of an insurable interest in our law from
its conservative English parentage was taken in Refrigerated Trucking (Pty) Ltd v Zive NO
clause covering the liability of authorised users of the insured vehicle. The court
decided that the insured owner of a vehicle had an insurable interest in the
contingent liability of the authorised driver even though the insured himself incurred
no liability. 76 This was based on considerations of convenience. 77 The court expressly denied any “legal basis”
for an insurable interest. 78
3.49 That an economic interest was sufficient for an insurable interest was once
again confirmed by the decision in Lynco Plant Hire & Sales BK v Univem
________________________
& Trust Co (1883) 3 EDC 271 282 the court said that a contract must be supported by an interest
such as a subsisting right and that a mere expectancy could not be regarded as an insurable
interest.
70 1905 TH 374.
71 It might be contended that the insured’s expectation of profit was not limited to a particular period of time and
that the best way to quantify the loss was to take the value of the property
72 Cf eg, Davis Gordon and Getz 99 for a much less severe criticism of the Littlejohn decision compared to that in
earlier editions.
74 660H. The court also pointed out (661A) that if hard times befell the husband, his wife would be obliged to sell
the jewellery in order to provide for household necessities. This was an additional
reason for the finding that the husband had an interest in an asset belonging to his wife.
76 370J. Also in Unitrans Freight (Pty) Ltd v Santam Ltd 2004 (6) SA 21 (SCA) the court hinted, without deciding
the matter, that the owner of the insured vehicle may have an insurable
interest in the contingent liability of the authorised driver. Cf further 19.118 et seq.
77 372H–373D.
78 372.
34
insurable interest in the property of his corporation. 80 It has also now been settled
that a bona fide possessor81 as well as a bona fide occupier82 have an insurable interest in the property they
possess or occupy although they do not have any legal right or title
in that property.
3.50 The insurability of factual expectancies not based on a legal right or liability is
recognised the world over and our courts should not be hampered by outdated
paragraphs
counterpart, insurable interest. Consequently, the widening of the concept of 3.44–3.54
3.51 Ever since the first indemnity insurance contract the purpose of the parties was
to provide security in the face of real dangers confronting the insured, and not to
cover figments of the insured’s imagination. After all, an insurer in so many words
3.52 Although it was clearly necessary to free insurable interest from the perceived
requirement that it should relate to a legal right or a liability, the door must not be
opened too wide. The aim should simply be to bring insurable interest in line with
expectancy is objectionable, for instance, where “the event did not affect [the
of a nebulous interest such as that the insured felt himself morally – but not legally –
obliged to replace the insured property, and thus leaving him a choice whether or
insurable interest simply on the ground that the insured may perhaps be liable to a
3.54 In Steyn v AA Onderlinge Assuransie Assosiasie Bpk87 the court went so far as to
suggest that the insured could have claimed damages even if he had no insurable
________________________
80 The court chose not to follow Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL), adding that the
member could be said to have an insurable interest in the property of his corporation
also on the ground that he was contractually bound to pay the insurance money to the
corporation. Cf also Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 2013 (5) SA 42
82 Pienaar v Guardian National Insurance Co Ltd [2002] 3 All SA 27 (C); 2002 (3) SA 640 (C).
83 As was suggested in Refrigerated Trucking (Pty) Ltd v Zive (Aegis Insurance Co Ltd, third party) 1996
84 Cf Phillips v General Accident Insurance Co (SA) Ltd 1983 (4) SA 652 (W) 660H.
85 Cf Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd, third party) 1996 (2) SA 361 (T).
86 In Brightside Enterprises (Pvt) Ltd v Zimnat Insurance Co Ltd [1998] JOL 2448 (ZH); 2003 (1) SA 318 (ZH)
the court suggested that if an insured has been given the right to use a vehicle for a
period of one month, he may insure it for its full value. It would seem that the only basis for such
an approach is that the insurer has a deep pocket and that there is no objection to the insured
being enriched!
87 1985 (4) SA 7 (T). The court was further of the view (11) that too much emphasis is being
placed on insurable interest and that the real question is whether or not the contract is an
unenforceable wager. To the same effect is Phillips v General Accident Insurance Co (SA) Ltd 1983
(4) SA 652 (W) at 659F. Whether this was intended to convey that the principle of indemnity
35
interest at all. If this was intended to mean that an insured can claim damages
without proving damage, the suggestion must be rejected. Likewise, in Lorcom Thirteen
(Pty) Ltd v Zurich Insurance Co South Africa Ltd88 the court suggested that a property
insurance contract which promises to pay a sum differing from (and even exceeding)
3.55 In order for the frustration of a factual expectancy to be a real loss, it must be
proved that the expectancy formed part of the insured’s patrimony. 90 Hence the
expectancy must not be in conflict with the law, its fulfilment but for the insured peril
must be reasonably probable, and it must be capable of being valued. It must in other
3.56 It is not suggested that damage must necessarily be recoverable in law in order
to be insurable. 92 Rather, it means that there is no justification for moving away from
the primary meaning of damage as understood in the law of damages except in so far
as the parties may be permitted to and do in fact agree to broaden the concept of
damage. 93 Furthermore, it must be borne in mind that cover may be arranged for the
third party, 94 thus obviating the need to distort the concept of insurable interest in an
3.57 In short, in the context of indemnity insurance insurable interest must be seen
understood in the law of damages. Insurable interest is, as it were, simply the other
side of the coin. This would be in accordance with the intention of the parties in so
far as they make provision for indemnification. Transgressing this basic principle
would lead to unlimited and unforeseen liability on the part of the insurer which
would inevitably lead to an increase in the cost of insurance to the detriment of the
insurance consumer.
3.58 It has been contended that insurable interest should in principle be limited to
to allowing the parties limited contractual freedom either to restrict or to broad the
ordinary meaning of damage, whether at the time of the contract or afterwards. 96 The
parties may for instance make provision for new value insurance, 97 or for insurance by
way of a valued policy. 98 It is furthermore suggested the parties may agree that a
shareholder may insure the assets of his company on the basis that the insurer will
________________________
88 2013 (5) SA 42 (WCC). See (2013) 16 Juta’s Insurance L Bul 73–103, Reinecke 2013 4 TSAR 816.
91 Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434 (D) 442C.
92 Eg, for damage to be recoverable in delict, wrongfulness must be proved but there is no reason to insist on
wrongfulness in the present context.
93 3.58–3.60.
94 Ch 19.
95 Cf Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3) SA 434 (D) 442E.
96 Eg the insurer may, when a claim for compensation is brought, agree that the insured’s loss is to the extent
claimed by him.
99 Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 2013 (5) SA 42 (WCC) par 71 where
reference is made to Midgley 1985 102 SALJ 466.
36
clearly spelt out what they understand under indemnification and loss, the contract
contract must like any other type of contract comply with the requirement of
his own benefit would not ground an insurable interest in favour of the prospective
paragraphs
circumstances would amount to nothing other than circular reasoning. 100 However, if
3.54–3.62
in and accept liability for any damage happening to the object, he will have a
object in the name of the owner. The situation where a person insures an object
insurable interest and the person concluding the contract has no personal insurable
interest.
of damages and damage in the law of insurance, unless the parties choose to give it a
perspective of the theory of difference, insurable interest may be equated with the so-
called id quod interest. This means that the concept of an insurable interest is actually
superfluous and that it may be abandoned in favour of the ordinary rules governing
damage. 102 Insurable interest, it may be contended, could indeed obscure and
3.62 However, even if the merits of this approach are accepted, it is conceivable that
the term “insurable interest” will be retained for historical reasons as a useful generic
term to describe the divergent assets and liabilities (in the case of indemnity
insurance) and non-patrimonial rights and interests (in the case of non-indemnity
insurance) that may form the object of an insurance contract. If so, it is suggested
that the term “insurable interest” should bear this specialised meaning.
________________________
100 Such as happened in Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK 2002 (5) SA 85 (T)
par 22. Contra Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996
(3) SA 434 (D) 443H. In Afcol Manufacturing Ltd v Afrifurn Industries CC [1998] JOL 3775
(SCA), (1998) 1 Juta’s Insurance L Bul 103–106, the court apparently assumed that an obligation
to insure could extend the insured’s insurable interest. See further Clarke et al Contracts par
4.5K1.
102 Reinecke 1971 CILSA 193 and 324. In Armstrong (In his capacity as representative of Lloyds Underwriters) v
Bhamjee 1991 (3) SA 195 (A), the court simply enquired whether the insured had suf-
fered a loss. See also Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1996 (3)
SA 434 (D). The Australian legislature abolished insurable interest for indemnity insurance in
favour of the ordinary concept of loss or damage: the Australian Insurance Contracts Act, 1984
s 16. The British and Scottish Law Commissions in their paper on insurable interest of January
2008 are apparently also of the same view: Merkin et al Colinvaux’s Law of Insurance pars 4.025,
4.027.
103 Cf Steyn v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96 and 3.44 et seq.
37
3.63 But if the notion of insurable interest is taken to go beyond assets and liabilities
defining the object of insurance. Technically “insurable interest” would then not be a
mere generic term for diverse aspects of a person’s patrimony, but it would be the
object of the insurance in its own right as explained above. 104 Hence, it would not be
possible to do away with the concept of insurable interest. In this sense insurable
interest would denote a type of asset or involvement which is peculiar to the law of
insurance. Damage in the insurance context would then mean a loss or impairment
wider import in the law of insurance than in the law of damages generally.
the direction of this second approach. Nevertheless, it cannot yet be said with
certainty that our law of insurance has crossed the proverbial Rubicon.
Rationale
3.65 Since the insurer undertakes to indemnify the insured, the insured must by
virtue of the terms of the contract prove the existence of an insurable interest at the
time of the occurrence of the peril insured against. 105 This applies irrespective of
this time the insured cannot suffer a loss and therefore he cannot claim
to insure a particular existing interest and nothing else, the insurance would go
hand-in-hand with a tacit if not an express supposition that the insured interest is in
existence at the time of the contract. Therefore, should it transpire that the interest
thought to exist at the time of the contract did not in fact exist, the contract would be
3.67 If, for instance, a person insured a motor vehicle and the parties to the contract
assumed that he was its owner while he was not, the insurance is of no force or effect
because of the failure of the supposition that he was the owner. The insurer was
3.68 Parties are not required to insure a specific existing interest unless they wish to
insure a consequential loss. 107 Indeed most insurance contracts simply provide that
the insurer will indemnify the insured on the happening of the insured event
affecting the specified object of the risk, without expressly referring to a particular
________________________
104 3.33–3.37.
105 Pienaar v Guardian National Insurance Co Ltd [2002] 3 All SA 27 (C); 2002 (3) SA 640 (C) 645.
The remarks in Brightside Enterprises (Pvt) Ltd v Zimnat Insurance Co Ltd [1998] JOL 2448 (ZH);
2003 (1) SA 318 (ZH) 326 that an interest need exist only at the time of the contract are un-
tenable.
106 14.65–14.82.
107 Cf 16.19.
38
interest. By virtue of the terms of the contract an insurable interest must in such a
case exist at the time of the occurrence of the peril insured against (otherwise there
can be no talk of a loss) but the interest need not exist at the time of the contract.
3.69 In case of the insurance of an ascertainable interest the interest need not exist
at the time of the contract because the contract will not be intended to be subject to a
Whether the parties in fact insured an ascertainable rather than an particular interest
paragraphs
3.63–3.74
3.70 If the intention was to insure an ascertainable interest but the insured had no
proper insurable interest at any time during the subsistence of the contract, the
insurer would incur no liability. Nevertheless, it is suggested that the insured would
not be able to reclaim any premium paid by him because the contract had not been
one, whether it is looked upon from the perspective of the insurer or the insured.
The insurer assumes the risk that the insured, who presently may have no interest,
may acquire one before the occurrence of the event insured against, while the
insured takes the risk that he may have to pay the premium even though he suffers
specific future interest. Thus, if the insured contemplates buying a motor vehicle, he
may take out insurance to cover him in the event the sale goes through. If the sale
does not go through, the insurance will have no purpose to serve and will therefore
express or tacit. If the condition fails, the premium will have to be restored.
3.72 If a specific existing interest has been insured, the contract produces obligations
if the interest in fact existed at the time of the contract, but should this interest
subsequently fall away or be transferred before the occurrence of the peril, the
obligations will lapse. In these circumstances the contract will have no further
purpose because it is not intended to cover any other interest. A contract relating to
an existing interest is therefore closely tied up with the fate of the interest it is
intended to protect.
3.73 The failure of the contract appears to be attributable to a (tacit) resolutive
3.74 In Commercial Assurance Co v Kern108 the owner of a motor vehicle insured the vehicle against damage.
The contract contained an endorsement to the effect that for
an additional premium, the insured’s son would be paid an amount should he die in
an accident with the insured motor vehicle or any other motor vehicle. 109 After some
time, the insured transferred the insured vehicle to his son, who in turn transferred it
to another person. While the insurance contract was still current, the son was
________________________
39
involved in an accident with another vehicle and was killed. His executor claimed the
3.75 The crucial question was whether the insurance contract had come to a
premature end on account of the insured’s loss of his interest. The court came to the
conclusion110 “that once the assured is deprived of his insurable interest in the
insured vehicle, the contract ceases to have any validity”. It did not consider whether
3.76 It is thought that the decision in this case should be explained on the basis that
motor vehicle – and that since ownership was transferred, the contract was dissolved
contract was divisible, but unfortunately this was not investigated. If it was indeed
divisible, the life cover should have survived the demise of the cover in respect of the
motor vehicle.
3.77 Where not an ascertained but an ascertainable interest has been insured, a loss
of interest prior to the event insured against will mean no more than that the insured
cannot claim any indemnification in respect of the interest lost. The contract is not
offers.
3.79 An insured’s interest may undergo changes after the conclusion of the
interest insured, for example where a full owner transfers a share in the property at
risk to someone else. 111 The change may also lead to an increase of the interest
3.80 In the case of insurance of a specific interest, it is suggested that, unless there is
a clause prohibiting any change, a mere increase or decrease in the insured interest
should not exclude the insurer’s liability, as long as the nature of the interest is not
point.
________________________
110 221.
111 Thus, where a partnership is concluded between A and B and A transfers his insured property
to the partnership, A’s interest in the insured property is thereby diminished and he should ac-
cordingly be entitled to claim in respect of the remainder of his interest only. The partnership
(ie, A and B jointly) cannot claim for the full value because the partnership did not insure it.
Similarly, where an existing partnership admits a new member, the new partnership cannot
claim in full if the property insured by the old partnership is damaged or lost.
112 The same result follows where a retiring member of a partnership transfers his interest to the remaining
partners: the remaining partners’ interests increase. Cf Bushby v Guardian Assurance
Co Ltd 1915 WLD 65 where the court did not find it objectionable that a partner had increased
his share by receiving his retiring partner’s share. This aspect of the case was not raised on ap-
40
3.81 If the change amounts to a change in the nature of the interest, the contract
will come to an end if a specific interest was insured. Thus, where an owner of
property who has insured himself in his capacity as owner, transfers the property and
then leases it from the new owner, his cover should end. 114 However, if the contract
insures not an ascertained but an ascertainable interest, the insured may claim on any
interest at the time of the loss, whether or not this interest already existed at the time
paragraphs
of the contract. 115 In such a case a change in interest can at most affect the amount of
3.74–3.86
his claim.
indemnity does not as a rule follow a transfer of the insured interest. This principle is
sometimes confirmed by a clause to this effect. 116 However, the contract may provide
otherwise, for instance where the insurer undertakes to indemnify the bearer of the
policy.
3.83 If an insured transfers his insured interest, he will be unable to claim under the
insurance contract as he will be without the required interest at the time of the
occurrence of the peril insured against, for instance where he sells the insured motor
vehicle.
3.84 A cession of his rights under an insurance contract to the transferee of the
insured interest will for the same reason be to no avail. So, where a person sells his
insured vehicle and transfers both the ownership in the vehicle and his rights under
an insurance contract to the buyer, the cession of the contractual rights concerned
will not provide insurance cover for the new owner of the vehicle and entitle him to
claim as cessionary. After all, the cessionary can only claim if the cedent could have
claimed and since the cedent has lost his interest and has none at the time of the
occurrence of the loss, the cessionary too can claim nothing. 117
3.85 Normally transfer of the insurance cover to the transferee of the insured
interest can only be accomplished through a novation of the insurance contract. This
requires agreement between the insured, the transferee of the insured interest and
Exceptions
3.86 The principle that the right to claim an indemnity does not automatically follow
a transfer of the interest insured, does not obtain where the transfer of interest is
________________________
115 Idem.
116 Northern Assurance Co Ltd v Methuen 1937 SR 103. In Bushby v Guardian Assurance Co Ltd 1915
WLD 65 the court discussed the effect of a clause which provided that if the interest in the
property insured passed from the insured otherwise than by will or operation of law, the insur-
ance would cease to cover that property. Following American authority, the court found that a
transfer from a retiring partner to a remaining partner was not within the mischief covered by
the clause. This aspect was not dealt with on appeal in Bushby v Guardian Assurance Co Ltd 1916
AD 488.
118 Northern Assurance Co Ltd v Methuen 1937 SR 103; Fouche v The Corporation of the London Assurance
1931 WLD 145; Lazy Lion Lodge (Johannesburg) (Pty) Ltd v South African Eagle Insurance Co (Pty) Ltd
2010 JDR 0422 (GSJ), (2010) 13 Juta’s Insurance L Bul 160–169. For assignment by way of nova-
41
property. 120 In such cases the rights under the contract vest respectively in the trustee,
3.87 A buyer of property, which has not yet been delivered or transferred to him,
clearly is insurably interested in the item bought despite the fact that he is not yet the
which the buyer could specifically insure. A buyer is thought to be in a better position
than an ordinary unsecured creditor121 because he has a ius ad rem acquirendam, that
3.88 If the property bought is damaged or destroyed as a result of the event insured
against, the insured buyer suffers a loss because the value of his right to claim delivery
of the property has been reduced or extinguished. This may be regarded as the buyer’s
primary interest. This is the position both where the buyer bears the risk123 and where
the risk remained with the seller. 124 If the risk lies with the seller, damage to or
destruction of the thing bought may (wholly or partially) excuse the insured buyer from
paying the purchase price. This must be regarded as a favourable consequence of the
event insured against and the saving must therefore be deducted from the amount of
his loss. 125 However, a deduction should not be made where, although the buyer does
not bear the risk de iure, he has already paid the purchase price but is unable to
3.89 A buyer may also have an interest based on his possession126 of the property
bought. This interest may be of special importance in the case of instalment sale
contracts.
3.90 Any consequential loss that a buyer suffers through the destruction of the
property represents an insurable interest, for instance where the buyer incurs a
liability towards a third party for breach of contract. 127 For these purposes it is of no
________________________
119 In such a case the contract will be effective in the hands of the executor if a loss arises before transfer of the
asset to the beneficiary, but once transfer is complete it is doubtful whether the
contract can be of any value to the heir or legatee; cf Birds et al MacGillivray pars 21.006,
21.014.
120 It is not clear what the position would be if the previously uninsured spouse is unacceptable to the insurer.
121 3.100.
122 Cf Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 380.
123 In Smit v Saipem 1974 (4) SA 918 (A) the court decided that a buyer who bears the risk suffers a loss if the
property he bought is damaged (932G) and that where such a buyer is in possession
of the property (933H), he can bring a delictual action for damages against a third party who is
to blame for the damage. The loss that the buyer suffers because of his bearing the risk, is suffi-
124 If the risk is with the seller and the article bought is damaged or destroyed by an event for which the seller is
not to blame, the buyer’s right to claim delivery is lost, whether totally or partially. If the seller is to blame, he
commits breach of contract but the buyer’s right to delivery in
forma specifica is still lost. The fact that the buyer acquires a right to claim damages from the
seller does not mean that he has not in fact suffered a loss as regards his insurer. However, it
does mean that his remedy against the seller will be the object of his insurer’s right of subroga-
tion.
42
3.91 The interests of the buyer and the seller of the property may sometimes overlap.
It is not clear whether the courts will disregard any overlapping or whether they will
attempt to differentiate between the loss of a buyer and the loss of a seller. 128 If
insurer to prevent its insured obtaining double compensation for a single loss.
paragraphs
3.92 An insured who has sold his property does not lose his insurable interest in it 3.86–3.96
merely because of the conclusion of the sale and he may therefore still insure such
property. 130 The interest of a person who has sold property is normally represented by
his right to the outstanding balance of the purchase price. However, several factors
must be taken into account before the real loss suffered by the seller as a result of the
3.93 Thus, if the seller has already transferred ownership without receiving the
unsecured creditor who has been regarded as having no special insurable interest.
3.94 Where the seller has not yet parted with ownership in the property (and
relevant to determine where the risk lies in order to determine the nature and extent
of the seller’s interest. If the risk has not passed to the buyer, the seller’s interest
remains that of an owner and therefore extends to the full value of the merx. 131 Upon
destruction of the merx, it cannot be argued that the seller’s interest as owner has
been replaced by his right to the purchase price, since the sale is dissolved if the merx
is destroyed.
3.95 Then, again, it should be borne in mind that because of the dissolution of the
contract resulting from the destruction of the merx, the seller has in fact also lost the
right to claim the price. The seller can therefore treat the loss of the right to the
price as an alternative source of loss, provided that he would have received the price
had the event not caused the destruction of the merx. This would be of importance
where the sale price is higher than the market value of the merx. 132
3.96 If the risk is with the buyer, the sale will in terms of general principles not be
dissolved by the destruction of the merx. The seller will remain interested as owner
until the destruction of the merx133 because he can retain the merx as security for the
payment of the purchase price. 134 The value of this interest will extend to the market
value of the merx up to the amount of the purchase price. The interest is limited to
the value of the merx, since it is based on the security the merx provides for payment of
________________________
128 Lean v Van der Mescht 1972 (2) SA 100 (O) 111D; Smit v Saipem 1974 (4) SA 918 (A) 932B. In certain
circumstances the buyer will have to join the seller if he institutes action against the insurer: Ruskin v British
Aviation Insurance Co Ltd 1951 (4) SA 24 (W).
130 Cf Nel v Santam Insurance Co Ltd 1981 (2) SA 230 (T) where, however, the insurance contract was antedated.
131 Cf Van der Westhuizen v Santam Versekeringsmaatskappy Bpk 1975 (1) SA 236 (E) 243B.
132 The possibility of a purchase price higher than the market value was not an issue in Van der Westhuizen v
Santam Versekeringsmaatskappy Bpk above.
133 Cf Van der Westhuizen v Santam Versekeringsmaatskappy Bpk above 240B. In Nel v Santam Insurance Co Ltd
1981 (2) SA 230 (T) 235D the insurer conceded that a hire-purchase seller had an interest in the aircraft sold to the
extent of the unpaid balance of the purchase price. In the court’s
134 The seller can invoke the exceptio non adimpleti contractus to withhold delivery unless payment is tendered.
43
the purchase price and it is subject to the amount of the purchase price, because the
3.97 If the merx has been sold below its market value, the outstanding balance of the
purchase price is all that remains of this interest. In so far as the price is lower than
the market value of the merx, the seller cannot blame the loss on the event insured
against but must blame himself for selling the merx below its market value. If the
seller has sold the merx above its market value, an additional interest or source of loss
comes into play, that is, his right to the favourable purchase price. In this regard,
however, where the buyer bears the risk, the seller does not lose his right to the
purchase price because of the destruction of the merx. Therefore the seller can still
claim the price from his buyer and his final loss is simply the loss of the security
provided by the merx. To the extent that the purchase price exceeds the value of the
3.98 Another source of loss is the seller’s potential liability if he is to blame for the
destruction of the merx. In such a case the seller is liable to the buyer for the full value
of the merx and the full value of the merx represents his insurable interest.
3.99 A seller may, of course, not retain both the insurance money and the purchase
3.100 In Malcher & Malcomess v Kingwilliamstown Fire and Marine Insurance & Trust
Co137 it was observed that “there is nothing clearer than that a mere creditor has no
insurable interest in the property of his debtor”. 138 This means that an unsecured
creditor whose personal right against his debtor is not directly linked to specific
property of his debtor, cannot effectively insure any property of his debtor. 139
3.101 A lessee may insure the property let to him. 140 In fact various different
3.102 The contingent liability of the lessee for damage to the leased property will
yield an interest to the full value of the property. Generally, a lessee is liable only if he
is to blame for the damage to the leased property. 141 Very often, though, contracts of
lease contain an undertaking by the lessee to repair or replace the property leased
should it be damaged or destroyed. 142 In such a case the liability of the lessee is not
based on fault. The lessee is entitled to take out insurance to cover himself against
3.103 A contract of lease gives rise to a personal right for the lessee to possession of
the property leased. In certain circumstances the lessee will also acquire a real right
________________________
135 If the seller is in a position to cancel the sale, this limitation falls away.
138 282.
140 Van Achterberg v Walters 1950 (3) SA 734 (T) 740C; Green v Heyman 1963 (3) SA 390 (T) 397A;
Commercial Union Assurance Co of SA Ltd v Golden Era Printers & Stationers (Bophuthatswana) (Pty)
142 As in Van Achterberg v Walters 1950 (3) SA 734 (T); Green v Heyman 1963 (3) SA 390 (T); Fir and Ash
Investments (Pty) Ltd v Cronje 2008 (1) SA 556 (C) 561.
143 Van Achterberg v Walters 1950 (3) SA 734 (T) 740H, Green v Heyman 1963 (3) SA 390 (T) 397E.
44
possessory right by the occurrence of a particular event, his primary loss will lie in
such rights, 145 but it is conceivable that he may suffer other losses.
3.104 If the property leased is used for business purposes, the infringement of the
lessee’s interest in respect of his right of occupation may lead to the infringement of
another interest, that is, expected profits. However, an insurance of such an interest
paragraphs
3.105 Clauses requiring the insurance of the subject matter of the contract are 3.96–3.109
common in leases. 147 If the clause does not require the lessee to insure the property in
the name of the lessor or in the name of both parties, the lessee complies with the
clause if he insures in his own name. 148 If the lessee insures in his own name, the
lessor has no claim as against the insurer to the indemnity, 149 nor does he have any
means of compelling the lessee to apply the proceeds of the contract for
reinstatement. 150 The main function of a clause requiring the lessee to insure is to put
3.106 A clause compelling the lessee to insure may be worded in such a way that the
lessee is to insure in the name of the lessor. The lessor then becomes the creditor of
the insurer. Alternatively, the clause may require the lessee to insure in the names of
the lessor and lessee jointly, or to note the interest of the lessor.
3.107 A mortgagee of immovable property has a real right in that property and this
right will support an insurable interest in the property. 151 The interest of the
mortgagee extends to the full value of the secured debt, subject to the value of his
security. 152 The same holds good for a holder of a notarial bond over specific movable
3.108 The respective interests of the mortgagor and mortgagee are often insured in
3.109 In Refrigerated Trucking (Pty) Ltd v Zive (Aegis Insurance Co Ltd, third party)154 the court dealt with the
effect of an extension clause in a motor-vehicle insurance
________________________
144 Kain v Khan 1986 (4) SA 251 (C).
145 Birds et al MacGillivray par 1.149. In this regard the lessee should be in the same position as any other lawful
possessor who has been disturbed in the enjoyment of his possession. See 3.114–
3.119 as regards lawful possessors and 16.60 et seq as to the quantification of such a loss.
147 Van Achterberg v Walters 1950 (3) SA 734 (T) 740. According to Barker v Beckett & Co Ltd 1911
TPD 151 the lessor cannot obtain specific performance of such a clause, but this case must be
viewed subject to the attitude taken of late in Benson v SA Mutual Life Assurance Society 1986 (1)
SA 776 (A). If the clause is silent about the amount to be insured, the insurer to be selected
and the time for the insurance, the lessee complies with the clause if he insures to the full value
with an insurer of his choice and within a reasonable time: Van Achterberg v Walters 1950 (3) SA
148 Van Achterberg v Walters 1950 (3) SA 734 (T) 740H. Provided that the insurance is procured by the lessee, it
seems that he can also comply with such a clause by insuring on behalf of or for
45
contract. 155 The court found that the owner had an insurable interest in the
contingent liability of an authorised driver. 156 The interest of the owner in the liability
convenience. 157 This is extraordinary, because the insurable interest required for
stipulation in favour of the authorised driver. The latter is then (also) an insured and
it is his, and not the owner’s, interest in his liability that is relevant. 158
3.111 A partner is entitled to insure partnership property for his own benefit. Any
one of several factors may confer an insurable interest on the partner. One such
interest arises from the fact that partners are co-owners of partnership property. 159 An
individual partner’s undivided share in the property at the time of the loss. 160
partnership property which the conclusion of a partnership agreement may create. 161
3.113 Yet another insurable interest for a partner may be founded on his or her
contingent liability for partnership debts upon the dissolution of the partnership if,
cover those debts. 162 This interest is retained by an erstwhile partner despite the
dissolution of the partnership and loss of all his direct interests in the partnership
property.
3.114 Possession of property may give rise to interests of a varying nature. For the
sake of convenience, these interests may be divided into a proprietary or full interest,
3.115 A proprietary or full interest is normally enjoyed by the owner of property, but
by way of exception such an interest is also conferred on a bona fide possessor. 163 A
bona fide possessor, being a person who believes he is the owner, 164 may therefore
________________________
155 In terms of this clause, the insurer undertook to indemnify not only the insured owner but also, subject to
qualifications, an authorised driver for liability incurred towards third parties while
156 370J. According to the court, the rights under the extension clause accrued to the driver once the owner had
intervened (374), but, given the procedural arrangement, the authorised driver
157 372H–373D.
158 The nature and consequences of extension clauses are fully dealt with below, 19.118 et seq.
159 Muller v Pienaar 1970 (2) SA 385 (C) 389.
160 If, subsequent to the conclusion of the insurance contract but before occurrence of a loss, a new partner is
admitted or an old partner retires, the extent of the partner’s interest is affected:
3.79–3.80.
161 Such an interest must be insured eo nomine, since a contract does not automatically cover consequential loss,
16.19.
163 The bona fide possessor has the (utilis) actio legis Aquiliae at his disposal to claim damages from a person
responsible for the loss: Erasmus v Mittel & Reichman 1913 TPD 617; Lean v Van der
Mescht 1972 (2) SA 100 (O). Cf also Smit v Saipem 1974 (4) SA 918 (A).
164 The term “bona fide possessor” is normally understood to mean a person with the animus domini: Smit v
Saipem 1974 (4) SA 918 (A) 926D. For the possible extension of this concept, see Lean v
46
insure to the full value of the property he possesses and against any eventuality that
may befall it. An example of such a bona fide possessor is a person who has bought a
stolen vehicle in the genuine belief that he has become the owner of it. 165
3.116 A male fide possessor, in contrast, cannot be held to possess any insurable
interest. 166
3.117 A buyer who is in possession of property bought from the owner subject to the
paragraphs
bona fide occupier and not a bona fide possessor. Nevertheless, he is considered to have 3.109–3.119
3.118 A possessory interest in the use and enjoyment of property, as a distinct part of
the full interest in such property, is vested in all bona fide occupiers, such as lessees, 168
buyers who are in occupation of the property bought but who have not yet become
owners169 and borrowers. 170 Such a possessory interest is limited and does not extend to the full value of the
property. 171 If the property in possession has been damaged as
a result of the occurrence of an uncertain event, this also produces a loss for the
person in occupation if his limited interest is thereby extinguished or diminished in
value. 172
usufructuary, a borrower, a bailee, a seller and a pledgee all have such an interest in
________________________
165 Foster v Mutual & Federal Insurance Co Ltd, unreported, (2002) (T) 5 Juta’s Insurance L Bul 31–33;
Pienaar v Guardian National Insurance Co Ltd 2002 (3) SA 640 (C). In the latter decision the in-
sured bought a vehicle in terms of an instalment-sale. In both cases the amount of the insured’s
loss was not placed in dispute. It could be argued that an insured’s loss in such circumstances
should be limited to the amount of the purchase price rather than the full value of the vehicle
on the basis that the best measure of his loss is the expenses which he has incurred and which
have become useless. Another question that arises is what the position would be if a bona fide
possessor learns of his lack of title before the happening of a loss. Will he be able to claim not-
withstanding his knowledge? And would a bona fide possessor be covered where he had to give
166 Pienaar v Guardian National Insurance Co Ltd 2002 (3) SA 640 (C) 647.
167 In Saipem the court decided that a buyer who bore the risk and was in possession of the property could claim
for the full diminution of the market value of the property (provided the parties
are solvent). However, the court did not exclude the possibility that a buyer could claim com-
pensation for a disturbance of his possession if that was in fact the only damage he suffered
168 A lessee has a personal right to possession and in certain circumstances his right may amount to a real right:
3.103.
169 Pienaar v Guardian National Insurance Co Ltd [2002] 3 All SA 27 (C) ; 2002 (3) SA 640 (C).
170 Voet Commentariu s 9.2.10; Smit v Saipem 1974 (4) SA 918 (A) 931B. In Steyn v AA Onderlinge Assuransie
Assosiasie Bpk 1985 (4) SA 7 (T) a person insured a house to which he had a right of
free occupation for as long as the owner did not require the land. The court assumed that the
171 Pienaar v Guardian National Insurance Co Ltd 2002 (3) SA 640 (C) 647.
172 Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 147 (SCA) 155G. The cost of repair could be
a measure of the loss. In St Helena Primary School v MEC, Department of Education, Free
State Province 2007 (4) SA 16 (O) a school (a juristic person) insured school buildings (the
property of the state) against fire. A fire occurred and the insurer paid the claim. The court as-
sumed that the school had an insurable interest. Such an interest could possibly be based on
the school’s possession of the school buildings, or its duty to maintain and repair the buildings.
Sonnekus and Schlemmer 2007 TSAR 823 contend that there rested no such duty to repair on
the school and they are of the opinion that the school had no insurable interest at all. But cf
47
3.120 English courts have adopted the view that a shareholder cannot insure the
property of his company even if he is the sole shareholder. 173 The rule that a
shareholder is unable to insure the property of his company has not been followed in
corporation – has indeed a very real though indirect interest in the well-being of his
company. 175 This is confirmed by the fact that a shareholder may recover damages
from directors whose unlawful conduct caused his shares to diminish in value. 176
However, a shareholder cannot recover damages from a third party who committed a
wrong against the shareholder’s company with the result that his shares diminished
in value. 177
3.122 In Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK178 the court decided that a member
of a close corporation had an insurable interest in the assets
of his corporation. Neither the extent of the insured’s interest nor the amount of the
loss was in issue. In the unreported case of Lorcom Thirteen (Pty) Ltd v Zurich Insurance
3.123 The interest which a husband may have in his wife’s property was first
considered in Littlejohn v Norwich Union Fire Insurance Society. 180 A husband insured in
his own name goods in a store against fire. The store and the goods belonged to his
wife. The spouses were married out of community of property. As sole manager of the
store, the insured husband was entirely in control of the business; he had possession
of the goods and was free to buy and sell them. The spouses lived from the profit of
the business. The goods were destroyed by a fire and the insured claimed on the
contract. The insurer denied that the husband had an insurable interest in his wife’s
property. It averred further that even if the insured had such an interest, it did not
3.124 The court set out to determine whether the husband was in a worse position
after his wife’s property had been destroyed, and whether he had suffered a loss.
Because the insured had the property almost entirely under his control and because
________________________
174 Clarke et al Contracts par 4.3B, referring to, eg, Constitution Insurance Co v Kosmopoulos [1987] 1
175 Eg, Stellenbosch Farmers’ Winery Ltd v Distillers Corporation (SA) Ltd 1962 (1) SA 458 (A) 485F.
177 Golf Estates (Pty) Ltd v Malherbe 1997 (1) SA 873 (C) applied in Pavely v Davidson, unreported (T), (2002) 5
Juta’s Insurance L Bul 115–120. In the latter case the member of a close corporation insured a motor vehicle
belonging to the corporation. The insured was the only member
of the corporation. The vehicle in question was damaged in a collision and the insurer institut-
ed action against the party responsible for the loss. The insurer’s action was based on the doc-
trine of subrogation which allows the insurer to enforce the rights of the insured. The court
decided that the insured had no action against the third party because the close corporation
was entitled to sue for its loss. To allow both the close corporation and the insured an action
179 2013 (5) SA 42 (WCC). The court took the view that a 100% shareholder who insured the
assets of the company is entitled to full compensation irrespective of any diminution in the val-
48
the spouses lived from the profit, the court found that it was in the interest of the
insured that the property should be replaced exactly as it had been before the fire. 181
3.125 The decision in Littlejohn is authority for the proposition that a husband has an
interest in his wife’s property if he is in control of it and derives a profit from it. It is
not clear whether it is in conflict with the principle that a person with a limited
interest can only recover up to the value of his interest. It may be contended that the
paragraphs
existence of the property and it was probably justified to value the expectancy at the 3.120–3.131
3.126 Although the matter has not arisen for decision, the above principles should
apply mutatis mutandis to the interest of a wife in the property of her husband.
belongings (jewellery) of his wife to their full value. Two considerations weighed with
the court. First, the husband, although not legally obliged to do so, felt himself
morally bound to replace the jewellery184 and, secondly, if hard times befell them, the
wife would have had to sell the jewellery to provide for household necessities. 185
3.128 The motivation of the court is not convincing. 186 It is submitted that there is no
spouses. A husband is, after all, free to enter into a contract in favour of his wife as a
third party and in doing so he can cover the interests of his wife. 187
C. NON-INDEMNITY INSURANCE
(a) GENERAL
Gambling on lives
3.129 In the history of life insurance, instances of gambling on lives frequently
occurred and this was generally disapproved. In 1774 the British legislature enacted
the Life Insurance Act188 to stop a “mischievous kind of gaming” on lives by requiring
3.130 The Australian legislature, on the other hand, went so far as to abolish the
need for an insurable interest in life insurance189 apparently on the ground that a
3.131 However, to allow gambling on lives cannot be wholesome. It may be true that
requiring insurable interest for the enforceability of a life insurance contract cannot
________________________
181 381.
182 Cf 16.132.
185 661.
186 Cf Reinecke & Van der Merwe 1984 SALJ 608. The decision gives rise to various questions. May a wife, eg,
insure her jewellery and claim for a loss in spite of the fact that her husband has already insured and recovered
compensation for it in full on his own insurance, or must her con-
tract be regarded as a wager? Clearly this is not an instance of double insurance as different
49
guarantee that there will be no foul play but it at least tends to discourage such
conduct.
3.132 According to English law, a person has an abstract and unlimited interest in
his or her own life, as well as in the life of his or her spouse. 190
3.133 The life of a third person may be insured provided the insured has a financial
interest in the insured life, 191 such as the interest of a creditor in the life of his debtor.
The insurance may not be for more than the value of the interest. 192
3.134 The interest must exist at the time of the conclusion of the insurance contract
and it does not matter if afterwards it falls away, 193 for instance if a husband divorces
his wife or if the debtor pays the debt. If a person merely expects to obtain an actual
interest in the life of another (eg that the other will become indebted to him), it is
not possible under English law to insure the expected interest. 194 If an insurable
interest does in fact exist upon conclusion of the contract, the contract is regarded as
a proper insurance contract on the life of the person concerned. 195 If not, the
English law therefore not non-indemnity insurance in the full sense of the word.
3.136 Because of a growing body of criticism against the English regime on insurable
interest, 196 the Law Commissions of England and Scotland have been instructed to
make recommendations for reform. 197 Their recommendations have not yet been
adopted.
retained for life insurance but they regard the current definition of insurable interest
as too restrictive and in need of revision. They assumed that there must be a proper
reason for taking out insurance, but suggested that such a reason could be natural
love and affection that would, for instance, enable parents to insure their adult
children. At the same time they accepted that pecuniary interests could also be
insured under life insurance policies and they further proposed that an expected
pecuniary interest too could support an insurable interest. Though they questioned
the rule that interest is not required at the death of the life insured, the Commissions
________________________
191 Halford v Kymer (1830) 10 B & C 724, 109 ER 619 where it was decided that a contract effected by a father
on the life of his son was void.
192 Hebdon v West (1863) 3 B & S 579, 122 ER 218. Where a particular interest has been insured with several
insurers, the insured can only recover up to the value of the interest.
193 Dalby v India and London Life Assurance Co (1854) 15 CB 365 (Ex Ch), 139 ER 465; Havenga 1991 SA
Merc LJ 234; Havenga 1999 TSAR 630.
195 Dalby v India & London Life Assurance Co (1854) 15 CB 365 (Ex Ch) 139 ER 465. The court remarked (390)
that if an insured “has an interest when the contract is made he is not wagering
or gaming”.
197 The Law Commission and the Scottish Law Commission Insurance Contract Law Issues Paper 4
50
3.138 Natural love and affection as well as pecuniary interest are seen as the
touchstone for insurable interest, but the Commissions further recommended that
consent by the life insured should serve as an alternative ground for an insurable
interest where natural affection and expectation of pecuniary loss do not feature.
3.139 The case law is also making progress towards reform. From the seminal
decision in Feasey v Sun Life Insurance Co of Canada198 it may be inferred that the
English courts are ready to relax the strict rules concerning interests in lives. 199
paragraphs
Although they do not move away from the doctrine of interest, the scope of insurable 3.131–3.143
NON-INDEMNITY INSURANCE
3.140 Although life insurance is a vast industry in South Africa, there is a paucity of
judicial decisions dealing with the question of insurable interest underlying this form
of insurance. 200 Local authors generally pay lip service to the English position in spite
of the fact that English insurance law is no longer binding in South Africa. 201 There is
Dutch law unfortunately does not provide much if indeed any guidance in this
regard.
3.141 Following English precedent, South African authors postulate that insurable
the ground of the actual existence of an insurable interest. 202 They subscribe to the
in principle of a financial nature and that the life of a third party can only be insured
interest need exist only at the time of the conclusion of the contract. 204 These rules,
derived from English insurance law, are outdated and in need of reform. 205
3.142 The current position in South African law is unclear with the result that it
cannot be stated with absolute certainty what can and what cannot be insured by way
3.143 Internationally the opinion is widely held that certain abstract interests should
________________________
200 The issue of insurable interest in the context of non-indemnity insurance has been raised
pertinently in very few decisions, eg, Morkel v London & Scottish Assurance Corporation Ltd 1927
CPD 202; Rixom v Southern Life Association of Africa & Collins & Bain 1939 SR 70 72; Steyn v AA Onderlinge
Assuransie Assosiasie Bpk 1985 (4) SA 7 (T).
201 Eg, Davis Gordon and Getz 106–110. Cf generally Havenga Origins and Nature of the Life Insurance
Contract and also Havenga 1999 TSAR 630.
202 Idem.
203 Clarke et al Contracts par 3.6D; Van Niekerk 2001 SA Merc LJ 289.
206 Eg, Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere
Overeenkomsten Deel IX Verzekering par [645], point out that a material or immaterial interest (“een belang van
materiële of ideële aard”) in the life of the life insured is sufficient in modern
Dutch law. In most of the American states close relationships of love and affection can ground
an insurable interest and there are indications that the categories of interest are in the process
of being broadened, eg, Jerry par 43; Birds et al MacGillivray par 1.104; New Appleman on Insur-
ance. Current Critical Issues in Insurance Law (2012) 114 (in the section entitled “The Clash of
( continued)
51
legitimate interests that can serve as the object of a non-indemnity insurance contract
3.144 It is true that strong bonds of love and affection may exist between two people
The death or impairment of one such a person could cause great hardship to the
other, for instance mental shock, heartache, distress, loneliness and unhappiness. If a
consequence of this nature is experienced, a need for redress of some kind arises. A
person has in the companionship or consortium of his spouse, but that is not the only
example.
3.145 Depending on the prescripts of public policy, such abstract interests should be
insurable. Why should public policy regard profound abstract interests of this nature
the life of another unless special circumstances exist? The test should be, as in other
areas of the law, 207 the intrinsic sense of the community concerned, the so-called boni
mores, derived from the norms and convictions of what is right or wrong, proper or
recognised if its deprivation would cause the insured, in the estimation of ordinary
grief.
3.146 The value to be placed on such an abstract interest in the life of a third party
need to be sufficient though it must be reasonable. The amount agreed upon by the
parties can be regarded as prima facie reasonable unless exceptional circumstances
3.147 Life insurance is usually for a fixed or determinable sum of money comparable
to the sum insured under an indemnity insurance contract. Where a person has a
limited interest in the life of another he should be unable to recover more than the
reasonable value that can be placed on his interest. If the sum insured exceeds this
existing at the time of the contract but there cannot be any objection to insurance of
a future interest on condition that it exists at the time when the the event insured
against occurs.
3.149 Finally it is suggested that for insurance on the life of a third party the life
________________________
Insurable Interest and the Evolving Secondary Life Insurance Market”). English law will proba-
bly be following suit in due course should the recommendations of the Law Commissions be
adopted: see Birds et al MacGillivray pars 1.115–1.117. The Australian Legislature perhaps went
too far by abolishing the need for an insurable interest in life insurance in the Insurance Con-
208 Cf LTIA s 55 as to the amount that may be insured on the life of certain minor children.
209 Cf 3.133 note 189. For over-insurance and double insurance, see ch 23.
210 The German VVG in art 150(2) provides that in the case of insurance on the life of another and where the sum
insured exceeds the normal funeral costs, the written consent of the life insured
is required for the validity of the insurance contract. In Britain, the Law Commissions suggests
that consent should be required but only if the insured has no direct interest in the life to be
52
would not really inconvenience the parties because the life insured is in any event in
paragraphs
3.150 South African sources seem to accept the English principle that in the case of 3.143–3.156
non-indemnity insurance an insurable interest must exist at the time of the con-
clusion of the insurance contract and that the insurance is not affected if the interest
insurance as a method of transferring a risk. 212 After all, why should a policyholder
who has insured his financial interest in the life of a third person, be able to claim in
spite of the prior cessation of his interest while it is never possible to insure the
3.152 In view of the complications associated with the insurance of pure economic
interests in the life of third persons, it is suggested that pure economic interests in
insurance. 213 However, provided certain adaptations to the law can be implemented, a
satisfactory hybrid system can be developed without compromising the basis of non-
3.153 In the case of the loss of an abstract interest after conclusion of the contract,
INSURANCE216
3.154 The principle that a person has an unlimited interest in his own life or
person217 is fully observed in practice. Insurance on one’s life or own person could
take various forms, for instance to cover the insured’s death, his survival, his body, his
limbs or his physical or mental health. The insured’s survival can be protected by an
endowment or an annuity insurance contract while a person’s body and limbs can be
3.155 Since the interest in one’s own life or person is not of a financial nature and
unlimited in extent, a person, if in good faith, may take out insurance for any amount
with a particular insurer. Where he has insured with more than one insurer, he may
Muslim or same-sex marriages, a person has an unlimited abstract interest in the life
________________________
211 In Rixom v Southern Life Association of Africa & Collins & Bain 1939 SR 7072 the English view was
reiterated that an insurable interest need exist only at the time of the conclusion of the insurance contract.
212 4.69.
213 4.51–4.55.
214 Idem.
215 Idem.
217 Idem.
53
or person of his spouse similar to the interest he has in his own person. 219 It is
spouse where ties of affection and care continue to exist and this also holds good for
interest in his partner where they are in a serious cohabition relationship. 220 This
3.158 The former Insurance Act222 by implication recognised that parties engaged to
each other have an insurable interest in each other’s lives and there is no reason to
3.159 There is no clarity in South African law on the question whether a child has an
insurable interest in the life of his parent. However, the close relationship of affection
favour of the child, whether or not the child is illegitimate. 224 This interest is
confirmed by the common-law right of support, contingent as it may be, a child has
against his parent. Hence it is suggested that a child has an unlimited insurable
3.160 This also holds good for relationships other than between parent and child
3.161 Does a parent have an insurable interest in his or her child? The LTIA227
recognises life insurance in the life of an unborn child or minor of less than 14 years
________________________
220 In McDonald v Young 2011 JDR 0233 (SCA) it was decided that there does not rest a duty of support between
unmarried people even if cohabitating unless they have concluded an agreement to this effect. See also Paixão v
Road Accident Fund 2012 (6) SA 377 (SCA). A duty of sup-
port may well confirm the presence of an insurable interest but the absence of such a duty
should not really affect the existence of an insurable interest based on a close relationship of af-
221 In Du Plessis v Road Accident Fund 2004 (1) SA 356 (SCA) the court held that a partner in a same sex
relationship could claim damages for loss of support due to the death of the breadwinner
partner on the grounds that the plaintiff proved the existence of a contractual duty of support.
Again, a duty of support should not be the only ground on which an insurable interest may be
based.
224 Cf Petersen v Maintenance Officer, Simon’s Town Maintenanance Court 2004 (2) SA 56 (C) where the court
recognised the right of an extra-marital grandchild to claim support from his paternal
grandparents.
225 Davis Gordon and Getz 108, however, limits the interest to the value of the right to support.
226 In Tyali v University of Transkei [2002] 2 All SA 47 (Tk), the court was concerned with a delictual claim by a
grandfather against a person who was responsible for the death of his grandson. The
court explained that there is no prima facie duty on a grandchild to support his grandfather. It
must be averred and proved that the grandfather was indigent and it is of no moment if the
grandchild in fact supported his grandfather. This had not been established and the court up-
held an exception. However, it is suggested the mere existence of a contingent duty of support
is sufficient to ground an insurable interest. It is proof of a close relationship between the par-
ties concerned. It is, after all, not a case of indemnity insurance. This suggestion should apply
to all cases where the duty of support is factual rather than legal.
227 S 55.
54
of age, but imposes a limit on the amount that may be insured. The Act does not
make it clear who may take out such insurance. It is also silent as to the position in
3.162 Taking into account the emotional repercussions of childbirth and the trauma
and expenses associated with the death of an unborn child, it is suggested that a
parent may insure the life of an unborn child in his own name. It is also accepted that
a parent may likewise insure the life of a child who is still below the age of 14 years to
paragraphs
3.156–3.168
parent has against his child under the common law. Although South African
on the life of a child above 14 years. The only complicating factor is that the
recommended requirement of consent by the person to be insured will have to be
3.164 Judging from practices in the insurance industry and the decisions of the
Ombudsman for Long-term Insurance, 228 it would appear that a person is considered
to have an insurable interest in the lives of extended family members for purposes of
expects to have to bury whether or not there is a legal duty on him to do so.
employee in the life of his employer. Such an interest is limited to the (actuarial?)
value of his future salary. 230 Conversely, an employer is entitled to insure the life of his
employee, apparently up to the value of the employee’s services for such time as he is
under a legal obligation to serve the employer. 231 These views derive from English law.
3.167 It would seem that the interest of both an employee and an employer is not
could be a disruptive experience. An employee may lose security and job satisfaction,
while an employer may lose a skilled person whose value to him cannot really be
quantified in money. His replacement may be possible, but the employer will
3.168 It is suggested that the relationship between employer and employee is of such
a nature that there could be room for proper non-indemnity insurance in the sense
________________________
231 Idem .
232 Cf Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807 (A) 812D.
55
of insurance for a reasonable amount decided upon by the parties, without the
other’s lives. 234 The insurance, taken out in terms of a so-called buy-and-sell
arrangement, enables the survivor to buy out the other’s share in the business should
the latter die or become disabled while still actively involved in the business. This
________________________
234 Cf Liberty Group Ltd v Jordaan, unreported (FB), (2012) 15 Juta’s Insurance L Bul 150.
56
A. Introduction
................................................................................................................ 57
(b) The adapted indemnity theory as unitary basis for insurance ....................... 68
E. Conclusion
................................................................................................................... 71
A. INTRODUCTION
4
Nature of issues
paragraphs
4.1 The phrase “basis of insurance” refers to the purpose of an insurance contract as
4.1–4.3
expressed in its terms, in other words, the rationale or reason for entering into an
insurance contract. 2 The basis of insurance permeates and informs the entire law of
4.2 Two important forms of insurance have developed in the course of time, namely
insurance was the first form to reach maturity, although rudimentary forms of life
4.3 The broad basis or purpose of indemnity insurance was clear right from the
proximately caused by the peril insured against. Less clear is to what extent, if at all,
there is room for the development of indemnity insurance beyond the strict principle
of patrimonial indemnity.
________________________
2 See Reinecke in Festschrift in Honour of Prof O Sandrock 781; Reinecke 2001 TSAR 222.
57
insurance, but its nature and basis remain controversial internationally. 4 On the
arises whether there is common ground between these two important branches of
insurance. Not only does it appear that their bases differ, but it also seems that unlike
the nature and basis of this form of insurance and these questions must be regarded
as open.
4.5 For purposes of unraveling the basis of indemnity and non-indemnity insurance,
it is necessary to take into account the nature and scope of the interests that may be
insured. 5 Once the basis, or bases, of both indemnity and non-indemnity insurance
have been determined, it would be possible to state whether there is any common
Terminology
4.6 Originally the class of insurance which was understood as not being indemnity
insurance, was simply termed life insurance. The term “life insurance” is misleading
because non-indemnity insurance goes beyond insurance on lives and includes, for
instance, disability and sickness insurance. To meet this objection, most English
4.7 Ever since the origin of insurance, the concept “loss or damage” has been one of
loss. According to the traditional view, loss or damage is restricted to patrimonial loss.
seen as a unitary concept with two divisions, namely patrimonial loss and non-
patrimonial loss.
4.9 There is an acknowledged and direct relation between patrimonial damage and
the insurable interest required for indemnity insurance and for that reason
4 Cf Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere
Overeenkomsten Deel IX Verzekering pars [645]–[650] concerning the debate in Dutch law.
5 Cf ch 3.
6 Eg, Clarke et al The Law of Insurance Contracts pars 30.7A–30.7B; Birds et al MacGillivray on Insurance Law
par 1.016
7 Cf
Medical Defence Union Ltd v Department of Trade [1979] 2 All ER 421 (Ch) 424f. Insurance always
involves a contingency of one form or another and the term is therefore not useful to describe a
9 Möller
1976
TSAR 59.
10 The main exponents of this view in South Africa are Visser and Potgieter Law of Damages.
58
has as yet been recognised between insurance and non-patrimonial loss, but it is
loss. For this reason the meaning of non-patrimonial loss must be analysed.
paragraphs
which serve to satisfy his legally recognised needs, but which do not affect his 4.4–4.15
patrimony. 12
4.11 A number of rights of personality are known, such as the right to physical and
psychological integrity, the right to privacy, the right to reputation and the right to
dignity. By virtue of these rights, a person has various abstract interests, such the
interest not to be subjected to psychiatric injury (such as mental shock) and physical
injury and the interest to be free from pain and suffering. A person also has an
loss or grief is at hand which is seen as a very real loss. Provided all the requirements
for delictual liability have been complied with, monetary compensation may be
claimed for such an abstract loss, for instance by means of an action for loss of
reputation, an action for loss of amenities of life, or an action for pain and suffering
4.13 The amount that may be recovered on account of an infringement of any such
consolation for the harm suffered. 16 The amount of the damages cannot be
4.14 The indemnity theory formed part of the original lex mercatoria. 17 It was received in Roman-Dutch
insurance law, 18 Anglo-American insurance law, 19 and South African insurance law. 20
4.15 In terms of the indemnity theory of the common law, insurance contracts are
based on the principle of indemnity. The insured’s basic motive for taking out
indemnify the insured for the patrimonial loss suffered as the proximate result of the
________________________
13 Idem ch 5 par 3.
15 Idem ch 9 par 5.2 for the meaning of imperfect compensation relating to non-patrimonial loss.
17 One of the early exponents was De Casaregis Discursus legales de Commercio (1707).
18 Grotius Inleidinge 3.24.6; Van der Keessel Praelectiones 3.24 pr (125); Van der Linden Koopmanshandboek
4.6.1. See generally Van Niekerk Insurance Law in the Netherlands Vol II 1093–1180.
20 Eg, Malcher & Malcomess v Kingwilliamstown Fire and Marine Insurance & Trust Co (1883) 3 EDC
271 284.
59
principle. 21
4.16 In Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 22
the court
challenged the indemnity basis of property insurance and suggested that property
conventional interest to the full extent of its loss hence the remarks of the court must
be treated as obiter.
4.17 The question to be decided is whether the indemnity theory of the common law
insurance in vogue today, including, for instance, valued policies, insurance for new
4.18 In terms of a valued policy, 24 the parties agree on conclusion of the contract or
at least prior to any loss on the value of the object of the risk or, rather, on the value
of the insured’s interest in that object. Their intention is that the insured may claim
the full agreed value in case of a total loss. If the loss is merely partial, the insured
may claim a proportion of the agreed value. This proportion is determined by the
ratio of the actual value of the property after the loss to the actual value of the
4.19 Prior valuation serves a most useful purpose because it relieves the insured of
the often difficult burden of proving the extent of his loss. In the past most valued
policies were marine insurance policies, but it would seem that of late the practice of
lead to overcompensation of the insured. According to English law, parties who agree
on a valued policy make an arrangement by which they are bound for better or for
resulted from the practice of upholding valued policies. The overcompensation that
may flow from a valued policy is sometimes explained on the basis that such a
4.21 The matter has not yet arisen for decision in South African law. 29 It is submitted
that the English rules on valued policies are not flexible enough. Admittedly the
parties should, in principle, be bound to the valuation agreed upon, 30 but this should
________________________
21 Such as the rules on over-insurance ( Lawsa Vol 12 Part 2 par 166), double insurance (idem pars 167–173), and
subrogation (idem pars 59 et seq).
22 2013 (5) SA 42 (WCC). See (2013) 16 Juta’s Insurance L Bul 73–103; Reinecke 2013 4 TSAR 816.
27 The precise scope of this caveat is not clear and it seems to have been overlooked in Elcock v Thomson above.
29 Davis Gordon and Getz on The South African Law of Insurance 250, eg, simply follows English law.
30 Unless both parties are aware that the value is substantially more than the real value. If both are so aware, there
is no common intention to indemnify the insured. Such a “policy” is nothing
other than a wagering agreement. If the insured alone is aware of the overvaluation, it may be an
60
4.22 In Roman-Dutch law31 an insurer was allowed to reopen a valuation and prove
the real extent of the insured’s loss. 32 This was justified on the ground that the
parties’ true intention was to indemnify the insured and that the overvaluation was
really a mistake that had to be rectified. The only benefit of a valued policy was that it
overvaluation.
4.23 It is submitted that the Roman-Dutch rule is still suitable for present-day
paragraphs
conditions. 33 Hence, the valuation should be capable of being reopened, but only if 4.15–4.28
the insurer can prove that there is a unacceptable deviation from the real value of the
object involved. 34 The effect of this is that the parties are permitted to broaden the
concept of loss or damage and its counterpart, damages, by means of a valued policy.
To this there can be no objection35 on the grounds of public policy, especially in the
4.24 The conclusion is that there is no reason why valued policies should be
4.25 New-value insurance – also known as insurance “new for old” or “replacement
cost” insurance – is a form of protection that is available37 in the insurance market for
certain risks. In terms of such an insurance contract, the insurer agrees with its
insured to accept the value or price of a new thing of similar description to the object
of the risk as the basis for compensating him. This enables the insured to replace his
4.26 There clearly are resemblances between new-value policies and valued policies.
As in the case of valued policies, insurance for new value answers the real needs of
insured.
4.27 Whether such a contract will be relegated to the realm of wagering has not yet
arisen for decision in South Africa, but new-value insurance is generally accepted in
practice. Where the extent of a loss is determined by reference to the value of a new
the parties to expand the concept of indemnity contractually for the purpose of
________________________
32 Grotius Inleidinge 3.24.6; Van der Keessel Praelectiones 3.24.6 (165); Van der Linden Koopmanshandboek
4.6.10; Van Bynkershoek Quaestiones Iuris Privati 4.3; Van der Keessel Theses Selectae
3.24.15 (195). If the valuation was too low, the insured was not allowed to recover more than the
valuation because the amount of the valuation was intended as the highest amount recoverable
33 It still prevails in modern Dutch law, though special rules pertain in the case of a valuation by an expert,
Wansink et al Assers pars [421]–[427].
34 The German VVG art 76, eg, provides that the agreed value will be deemed to be the value of the insured
interest unless it exceeds the actual insurable value to a considerable extent.
36 7.64–7.78.
37 This form of protection originated in Europe and is well established there, Möller 1976 TSAR 59.
Cf also Wansink et al Assers pars [413]–[418], [431]–[433]. It is also available in South Africa,
especially in so-called “personal lines” insurances, such as insurance of the contents of homes
38 On betterment, cf Clarke et al Contracts par 28.3C; Lawsa Vol 12 Part 1 par 363.
61
4.29 The patrimonial interests of third parties may be covered by means of a proper
without having to forego the principle of indemnity. The basis of the third party’s
cover would be the interest possessed by the third party himself, and not that of the
took a too wide view of insurable interest as a measure of loss or went so far as to
4.31 Some of these decisions could easily be reconciled with the traditional principle
should have been construed as a stipulation in favour of a third party. That would
convoluted insurable interest of sorts in the liability of the third party, resulting in an
4.32 Furthermore, some of these exceptional decisions could be reconciled with the
ordinary concept of loss or damage if it is realised that loss or damage may occur in
novel ways, for instance expenses incurred for a certain purpose may become useless
4.33 The concept of indemnity and the associated concept of loss or damage, are not
cast in stone but they are amenable to development and refinement. Instead of
4.34 As a rule insurers will not permit their indemnity insurance contracts to deviate
from the strict principles of indemnity simply because they are not in the business of
expand the concept of damage for purposes of a particular situation in which the
insured may find himself, 42 for instance to make provision for valued policies, new-
value insurance and compensation for a shareholder in a company which assets have
express or tacit agreement. To this extent the indemnity principle can be adapted to
4.35 There is certainly no real objection on the grounds of public policy to allowing
parties some contractual freedom in this regard, but this is subject to two
reservations. First, the performance expected from the insurer must be properly
circumscribed in order to meet the requirement of certainty with which all contracts
must comply. Secondly, the contract must remain within the confines of public
________________________
39 19.66.
40 3.44 et seq.
42 3.58–3.60. See also Van Niekerk 1996 TSAR 572 and cf Clarke et al Contracts par 4.2C.
62
policy. The only question is to what extent can the parties be allowed to extend the
concept of loss or damage within the confines of the indemnity theory? The parties
patrimonial loss whatsoever. Like a ship that is tied by her anchor, the concept of
indemnity – should not be allowed to drift too far from the basic concept of
indemnity as defined by law. The parties must steer free of policy objections to
paragraphs
undesirable aleatory contracts. If, for instance, the parties agree that the “insurer” will
4.28–4.38
horse fail to win a particular race, it would be nothing other than wagering under the
cloak of insurance. What freedom there can be in defining the concept of loss or
Conclusion
4.36 The conclusion is that the indemnity theory, adapted to allow the parties
limited contractual freedom to extend the concept of patrimonial loss, remains the
most satisfactory basis for the whole spectrum of indemnity insurance contracts
public policy.
4.37 It should be observed that whole-life insurance – that is, insurance payable on
the death of the life insured, whenever it occurs – is of a dual nature in that it
happen, eventual payment of the sum insured is inevitable44 and the insurer will take
investment is discernible and this is confirmed by the surrender value that whole-life
4.38 Whole-life policies do not only become payable in the event that a life insured
lives to his full life expectancy, but also if the insured life dies prematurely. This is
where the element of insurance comes to the fore. The insured desires protection
against an untimely death which could for instance disrupt his savings programme,
possibly with serious repercussions for his dependants. When calculating the
premium, the insurer will have to allow for the chance that the insured life may die
early (not living out his full life expectancy) with the result that the full sum insured
would become due. 46 By receiving the insurance money, the insured’s estate in reality
________________________
43 Havenga Origins and Nature of the Life Insurance Contract 292; Wansink et al Assers par [642].
44 Since there still is uncertainty as to when death will occur, a time clause is involved: a dies certus an incertus
quando.
45 To calculate a premium, the normal life expectancy of the insured must be determined. Once
this is known, it is a straightforward arithmetic exercise to calculate how much is needed by way
of premiums to meet the insured’s claim upon death. For practical reasons, insurers cannot
determine the life expectancy of each and every individual insured but must rely on the normal
life-span the insured is deemed to have as a member of a particular class or group of persons.
Nevertheless, premiums are often personalised by adjustments to cater for specific risk factors
63
gets what the insured would have had had he lived and saved the premium. Hence, it
has been stated that a whole-life policy is an insurance against dying too soon. 47 In
4.39 In the earliest writings it was clearly thought that there was no form of insurance
other than patrimonial indemnity insurance. In England, the House of Lords at first
but subsequently rejected it in the celebrated decision in Dalby v India and London Life
Assurance Co. 49
4.40 Ever since the decision in Dalby, a chasm developed between indemnity
insurance, on the one hand, and life insurance in general, on the other hand. The
basis of life insurance is not explained nor even discussed in English sources. The
generally conceded, even if only by implication, that the traditional indemnity theory
insurance on own life, bear some relation to indemnity in the wide sense of the word,
but not all forms of non-indemnity insurance are fully or at all compatible with the
traditional indemnity theory. 50 Moreover, contracts of this nature are not intended by
the parties to be pure indemnity contracts, nor are they treated in this way in
application.
contracts for centuries and it would not be constructive to deny them the status of
insurance simply because they do not comply with the principles of patrimonial
theory in its original form is therefore not suitable as a basis for non-indemnity
insurance and some other basis for non-indemnity insurance must be found.
4.43 The event insured against in all forms of insurance is, ex hypothesi, an
insurance contract are not motivated by a desire for excitement by speculating on the
________________________
47 Van der Merwe 1970 CILSA 149 154. On the various form of life insurance, see further Van Niekerk 2007 SA
Merc LJ 302 and Lawsa Vol 12 Part 2 pars 306 et seq.
48 Godsall v Boldero (1807) 9 East 72, 103 ER 500. According to Birds et al MacGillivray par 1.033, the decision
in Godsall v Boldero was received by the insurance world with “a chorus of
disapprobation”.
49 (1854) 15 CB 365 (Ex Ch), 139 ER 465. See further Havenga 1991 SA Merc LJ 234.
50 Eg, an accident insurance contract or a life insurance contract for a specific term can easily overstep the
boundaries of indemnity because an insured will be able to afford insurance in an
exorbitant sum. In the case of insurance of the life of a spouse (where, it should be
remembered, the existence of an unlimited insurable interest is presumed: 3.155), there is also
no guaranteed relationship between the sum insured and the loss, if any, the insured may suffer.
51 But in the past some authors have denied that certain life insurance contracts are proper
insurance contracts, eg Reinecke 1971 CILSA 193 324; Van Niekerk 2001 SA Merc LJ 289 302
(arguing that non-indemnity “insurance” is a sui generis form of contract); Havenga Origins 272–
64
contract is not primarily designed for or aimed at serving the insured’s pecuniary
4.44 Certain abstract interests have been generally accepted as insurable under a
non-indemnity insurance and it has been suggested that this category of interests
should be expanded unless it would be in conflict with public policy. 52 When such an
4
abstract interest is infringed, it typically gives rise to non-patrimonial harm or grief
paragraphs
and the ensuing condition of imbalance or distress creates a need for consolation or
4.38–4.48
insured with a sum of money as an aid to overcome the detriment or harm resulting
4.45 It has been observed that the ordinary concept of loss or damage also comprises
4.46 It is submitted that the prejudice, harm, distress, mental shock and feelings of
insecurity ordinarily flowing from the occurrence of an event insured against under a
of a spouse or injury to the insured’s mind or body, closely resemble the non-
patrimonial loss that is actionable in delict. If satisfaction can be claimed in delict for
interests, there clearly cannot be any objection from the perspective of public policy
insurance contract is intended and structured to provide the insured with a sum of
interests such as the interest of a parent in the life of a child. Hence the sum insured
insurance contract would therefore be similar to the effect of a sum insured under an
indemnity insurance contract. It is even conceivable that the sum insured could have
contract. 56
4.48 A proper understanding of the nature of the interest at the heart of non-
indemnity insurance would open the door for acknowledging the insurability of
interests that have as yet not been formally recognised, for instance the interests of
parents and children in each other’s lives, and an interest in the life of a person on
________________________
52 3.136–3.149.
53 It is instructive that the court below in Standard General Insurance Co Ltd v Dugmore [1996] 4 All SA 415
(A); 1997 (1) SA 33 (A) held that payment of the proceeds of a non-indemnity insurance
contract could not be viewed as compensation for loss of earnings or earning capacity, but rather
constituted a solatium for the totality of the consequences of the disability suffered by the
plaintiff.
55 Cf 3.133, 3.148.
56 See ch 23.
57 3.157.
65
life of a third party should always be confirmed by the consent of the life to be
insured (or his guardian), not only in order to minimise the risk of foul play but also
4.50 Some of the recognised insurable interests under non-indemnity insurance have
financial overtones, 59 but that does not contradict their essentially non-pecuniary
nature. However, certain insurable interests of a purely pecuniary nature have also
been recognised. 60 This gives rise to the question whether such interests are proper
4.51 As the law presumably now stands, a pure financial interest in the life of another
can ground an insurable interest in that life and that interest need only exist at the
time of the conclusion of the insurance contract. A person may, for instance, insure
his debtor’s life and even if the insured creditor’s interest falls away before the life
insured dies, say because the debt has been repaid, he can still claim the sum insured
on the debtor’s death. It has been suggested that the position is unsatisfactory
because it is not even possible to insure the property of a third person in such a way. 62
reasons should preferably be in the form of indemnity insurance pure and simple. 63
Yet, insurance of a pure financial interest in the life of a third person can be
promising the nature of such insurance. 64 However, this will only be possible if certain
4.53 The insured is to be allowed to take out insurance on the life of the third
person for an amount he regards sufficient. Should the policy benefits become
payable before the insured’s interest falls away, the amount of the insured’s
pecuniary interest must be deducted from the proceeds of the policy and the balance
should be paid to the life insured or his estate. 65 Provision could be made for a
deduction if the insured had to pay a higher premium than he would have had to pay
for a straightforward indemnity insurance on the life of his debtor. The effect of this
proposition is that the interest of the insured is, as it were, noted on the policy and
that he will be fully protected. At the same time it will ensure that the insured does
not take out a policy for an amount in excess of the value of his interest.
4.54 If the pecuniary interest of the insured comes to an end before the policy
benefits are paid out, the life insured should be substituted for the insured by
________________________
59 Eg, the interest of one spouse in the life of the other spouse.
61 Cf 4.51–4.55.
62 3.65.
63 However, an insured who insured his pecuniary interest in the life of a third person should at least be able to
claim the surrender value that the policy has acquired in spite of the fact that his
pecuniary interest in the life insured had fallen away.
64 Cf the proposals by Havenga Origins 310; Birds et al MacGillivray par 1.086 and Birds Birds’
65 This all the more justifies the recommendation that the consent of the life insured should be required if someone
wants to insure his life since that will ensure that he will be aware of the
66
operation of law. The insured creditor has enjoyed protection for his interest up to
this moment and the insured life can then decide whether or not to continue with
the policy.
paragraphs
4.49–4.60
4.56 Various theories have been formulated to replace the traditional indemnity
theory in an attempt to provide a unitary basis for insurance in all its manifestations.
Inevitably there is much common ground between the various theories, but there are
also differences in approach and emphasis. One such theory is the theory of estate
formation. This theory originated in Germany66 and has been recommended for
South Africa. 67
4.57 According to the theory of estate formation, every person has plans and pro-
jections for his estate or patrimony. These plans and projections include the
protection of assets, the aversion of liabilities, as well as the development of his estate
by earning income and investing savings. However, the insured’s plans may be
thwarted by undesired events or mishaps that will hamper or thwart the overall
development of his estate, for instance by preventing him from earning income or
4.58 In order to protect one’s estate against the detrimental effects of such con-
tingencies and to develop it as planned despite the occurrence of perils, one can,
intended to provide the insured with a pecuniary substitute in place of his original
financial plans or goals that have been frustrated as a result of the occurrence of the
insured event.
4.59 The theory of estate formation is in effect very similar to the indemnity theory,
except that it abandons the strict concept of indemnity. According to the theory of
estate formation, a pecuniary goal set by the insured may be the object of insurance if
the goal would have been reached on a preponderance of probabilities and even
though the frustration of such a goal would not necessarily be regarded as loss or
damage in the ordinary sense of the word. 68 In this respect the theory of estate
formation is more liberal than the strict principle of indemnity and this could be
4.60 Further, the theory of estate formation is more flexible in its application than
the indemnity theory as originally formulated. It could be a proper basis for all forms
________________________
66 Van der Merwe Juridiese Versekeringsbegrip 211–222; Havenga 268–270 on the “vermoënsvormings-teorie”.
67 Idem.
68 Eg, the rule that “wages in heaven” (income the insured would have earned had he not died do not constitute
patrimonial loss; cf Lockhat’s Estate v North British & Mercantile Insurance Co Ltd
1959 (3) SA 295 (A)) presents no problem for the proponents of the theory of estate formation.
67
of indemnity insurance and could indeed serve as a guideline for the adaptation and
4.61 However, like the traditional indemnity theory of the common law, the estate
formation theory has a financial base. It is not geared towards explaining instances of
insurance that are not aimed at protecting the insured’s pecuniary goals, for example
an accident insurance contract on the life of the insured’s wife for a large sum which
bears no realistic relation to any patrimonial goal the insured may have. The theory
4.62 Another theory offering a unitary basis for insurance instead of the indemnity
theory is the theory of need protection. It originated in Italy, but gained acceptance
in Germany where it is now the prevailing theory. According to this theory, 69 one’s
material means are clothing, food and, generally, all material assets. The opposite of
this is the loss of assets and the incurring of liabilities. Examples of immaterial
resources are good health and a sound mind, the opposite being sickness and mental
disorder.
he suffers prejudice such as the loss of an asset, the loss of a limb, or contracting an
illness. Such prejudice cannot in all cases be equated with patrimonial loss or
damage. Nevertheless a situation of imbalance results from which the affected person
will want to escape. In other words, a need arises for compensation, whether in kind
immaterial means of life that gives rise to a need on the part of the insured.
4.64 The theory of need protection certainly highlights various aspects of reality, but
does not fully take into account aspects which are not really resources, such as the
companionship of a wife.
4.65 Traditionally supporters of the indemnity theory limited the concept of damage
to patrimonial loss or damage. For this reason the indemnity theory could not
4.66 If the concept of damage were afforded its normal meaning also in the
compensation for patrimonial loss and satisfaction for non-patrimonial loss. The
indemnity theory may then be accepted as a workable explanation or basis for all
types of insurance.
________________________
70 4.10–4.13.
71 4.43–4.50.
68
contract intended and structured to compensate the insured for patrimonial loss,
the insured for a non-patrimonial loss resulting from the impairment of an abstract
interest, such as the shock brought about by the death of a beloved person. This
theory of need protection. 72 Both forms of insurance strive towards an indemnity for
paragraphs
4.60–4.72
4.68 Having assumed that both forms of insurance are aimed at an indemnity in the
wide sense of the word, it may be contended that to reserve the term “indemnity
insurance” for patrimonial indemnity is unfortunate and that one should rather
context to determine whether or not indemnity in the strict sense or wide sense of
4.69 From the very beginning, the essence of insurance has been the transfer or
of undesirable change. 73 This implies, first, that the event insured against must belong
to the category of uncertain events and, secondly, that the insured must have an
prior to its occurrence. After all, there can be no risk without interest.
4.70 Indemnity insurance always fully complied with this fundamental principle, but
it is less clear whether non-indemnity insurance shares this feature with indemnity
insurance. First of all, the question arises whether non-indemnity insurance at all
times involves an uncertain event and, secondly, whether the insured necessarily
does not serve to transfer a risk, it cannot be said that its basis is to provide for non-
uncertain event.
4.71 A typical whole-life insurance contract on a person’s own life provides that the
insurance money must be paid on the death of the insured. Is has been pointed out
that insurance on one’s own life is really intended to cover the risk of an untimely
death. 74 “Untimely death” certainly qualifies as an uncertain event and as a risk in the
technical sense of the word. The fact that the contract provides that the insurer must
pay out in the event of death whenever it occurs, rather than only in the event of an
4.72 Other forms of life and endowment insurance on one’s own life clearly depend
accident. In short, own-life insurance complies fully with the requirement that a risk
must be transferred.
________________________
72 4.62–4.64.
73 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 484D; see also ch 13.
69
in the life of a third party as a contract transferring a risk, is the alleged rule that if
the interest in the third party’s life falls away before his death, 76 the sum insured may
issue will become irreversible and indisputable only on the death of the life insured.
It would therefore make good sense to defer payment, where the abstract loss
occurred before the death of the insured life, until the actual death. In the final
analysis such a contract may still be said to cover the insured’s (abstract) loss resulting
from an uncertain event77 in spite of the fact that the sum insured becomes payable
4.74 Whether insurance of a pecuniary interest in the life of a third person can be
explained as the transfer of a risk is more of an issue. Once again the problem is
caused by the alleged rule that the interest need exist only at the time of the
conclusion of the contract. It may happen that the insured simply loses his interest in
the course of time, 78 but it is also conceivable that the insured has received full
satisfaction for the loss of his interest. 79 To allow the insured in such circumstances to
recover the sum insured despite the absence of his interest at the time of death would
law is in a state of flux and reform has been suggested in this context. 80
4.75 In summary, apart from the case where a pecuniary interest on the life of a third
person has been insured but has fallen away before the occurrence of the event
4.76 Acceptance of the adapted indemnity theory as the basis of insurance makes it
insurance, on the one hand, and wagering, on the other hand. Insurance contracts
the insured, whilst a wager is not based on or aimed at an indemnity in that (wide)
sense.
4.77 In accordance with this view, an insurer undertakes to indemnify its insured
event, while a gambler undertakes simply to pay a sum of money on the occurrence
of an uncertain event without reference to any loss or damage the event may cause.
Hence there is a fundamental difference between the bases as well as the terms of the
4.78 The true insurer’s undertaking to indemnify the insured against either
essentialia81 – that distinguishes insurance from wagering. A contract with such a tenor
is prima facie not in conflict with public policy even though it is a contract of chance,
________________________
76 Eg, where a person insures his spouse’s life but the marriage ends in divorce, or where a creditor insures his
debtor’s life but the debt is repaid, in both cases before the death of the life insured
spouse or debtor.
79 Eg, where the life-insured debtor repays the insured creditor in full for the debt he owes the debtor.
80 4.51–4.55.
81 5.51–5.62.
70
an aleatory contract. For this reason proper insurance contracts are in principle
enforceable.
Object of insurance under adapted indemnity theory
compensate the insured for patrimonial loss, it follows that the object of such
paragraphs
4.73–4.84
4.80 In the case of non-indemnity insurance, by contrast, the object of the insurance
4.81 The object of insurance under both indemnity and non-indemnity insurance
E. CONCLUSION
4.82 The adapted indemnity theory offers a unitary basis for insurance. It explains
insurance as a contract intended and designed either to compensate the insured for
insurance).
4.83 In both instances the loss is brought about by an uncertain event and a risk is
transferred to the insurer. This confirms the traditional conviction that there is
common ground between the two main branches of insurance. The historic decision
in Dalby v India and London Life Assurance Co84 herded non-indemnity insurance away
from indemnity insurance, but by accepting and introducing the adapted indemnity
4.84 In spite of the close relationship between the two main forms of insurance, it
should be borne in mind that there are also important differences flowing from the
differences in the nature of the object or interest each type of insurance protects.
________________________
82 3.4–3.5.
83 3.61–3.64.
71
(a) A term that the insurer will compensate or satisfy the insured for
paragraphs
5.1 There are several reasons why an accurate definition of an insurance contract is
5.1–5.2
because insurance contracts are prima facie valid and enforceable while wagers as a
general rule2 are not enforceable. 3 What complicates the distinction between these two types of contract, is the
fact that both belong to the category of contracts known
chance. 4
5.2 Blatant wagering by professional insurers does not take on large proportions in
modern times but outright wagers in the form of insurance do occur. 5 What is
________________________
2 Certain wagers are enforceable in terms of recent legislation (Van Niekerk 2005 JBL 70) and also at common law
( Rademeyer v Evenwel [1971] 3 All SA 387; 1971 (3) SA 339 (T) as regards wagers
super re honesta).
3 Though not totally void: Dodd v Hadley 1905 TS 439; Yannakou v Apollo Club 1974 (1) SA 614 (A) at 629. A
wager creates a natural obligation, one susceptible of performance though not
4 Cf
7.64–7.78.
5 From time to time some far-fetched or fanciful “insurance” contracts in favour of or involving people in show
business are reported in the popular press.
73
perhaps more common is that some insurers include elements of wagering in their
final analysis does not depend on the category to which it belongs but on
must therefore be decided with reference to its terms, purpose and effect rather than
5.3 Public policy affecting wagers may become more lenient as perceptions change
and it is indeed not inconceivable that wagers may in future even become legally
enforceable. 7 This will not mean that insurance and wagers will become
for purposes other than legality, for instance, unlike a wager a true insurance
whether the rules of insurance law, or rules of particular application in the insurance
subrogation may be invoked. For this reason, too, it may be necessary to decide
whether a contract covering a member of a medical aid scheme against medical
expenses amounts to insurance. 9 For the same reason it is necessary to draw a line
5.5 Finally, the common-law concept of insurance may be of importance for the
purposes of the insurance legislation12 which prohibits anyone from carrying on any
kind of insurance business unless registered as an insurer for the purpose of carrying
on that kind of insurance business. 13 “Insurance business” is defined, 14 but the term
“insurance” as such is not, though certain forms of business which otherwise could
have been regarded as insurance business are excluded from the operation of the
legislation. 15
5.6 The purpose of the legislature when it promulgated the insurance legislation
evidently was to regulate certain transactions whether or not at common law they
amount to insurance16 yet, when applying the prohibitions, a court may find it
________________________
6 Eg, by providing for payment in case of a “hole-in-one”, ie, a provision to pay a certain amount of money to the
insured should he succeed in a game of golf in hitting the ball from the tee into
the hole in one stroke. See further Lawsa Vol 12 Part 1 par 89 n 6.
7 Already certain gambling contracts are fully enforceable, National Gambling Act 10 of 2008. In England the
prohibition of wagers has been abrogated: s 335 of the Gambling Act, 2005 (c 19)
provides that the fact that a contract relates to gambling will not prevent its enforcement.
8 Thus,
in
Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W) the
9 Medical-aid schemes are not regulated by the insurance legislation but by their own legislation, ie the Medical
Schemes Act 131 of 1998. However, this is not conclusive. There clearly is a close
relationship between cover under a medical-aid scheme and health insurance, but the matter
has not yet been judicially considered. Cf the facts in Thomson v Thomson 2002 (5) SA 541 (W).
Should not a medical-aid scheme in circumstances like those in the Thomson case be entitled to
11 13.13 et seq.
15 Cf both Acts ss 7(1) and (2). Thus, eg, the business of medical schemes is excluded.
16 LTIA s 1(1) sv “sinking fund policy” (cf Lawsa Vol 12 Part 2 par 319) and STIA s 1(1) sv
“guarantee policy”. Moreover, certain long-term investment policies are subject to the LTIA
although they are not true insurance contracts given the absence of any element of risk.
74
5.7 A contract may be classified as a contract of a certain type only by reference to its
express and tacit terms and not, for instance, by looking at the aim with it of one of
the parties not expressed in the terms of the contract. Furthermore. it is the contents
of the contract that are important and not the label the parties attach to it. Contracts
paragraphs
contract are traditionally known as its “essentialia”. 17 The essentialia of a particular type 5.2–5.11
requirements laid down by law for the validity of all contracts, including insurance
contracts. 18
particular contract possesses the essentials of a certain type of contract, it will qualify
as a contract of that type and the general rules relating to that category will
accordingly apply to it. If not, the contract is not a contract of that type but either a
5.9 A particular contract may display the essentials of more than one type of
contract. If the contract is indivisible, the contract must be classified according to its
5.10 A contract may qualify as an insurance contract only if transfer of the risk20 to
the insurer is the main purpose of the contract. Often contracts contain a term
providing for the allocation or transfer of some or other risk, for example a term in a
contract of sale that the buyer is to bear the risk pertaining to the object of the sale.
That, though, does not render such a contract an insurance contract. Hence, if a
contract to convey money contains an ancillary stipulation that the risk of loss in
transit will be borne by the contractor, the incidental risk clause will not transform
the contract from one of work into one of insurance. 21 Similarly, an undertaking by
retirement may resemble insurance because the employer has to make periodic
that it expires upon death, but in reality it is an integral part of the contract of
service. 22
a risk threatening the patrimony of the insured. 23 They therefore did not make any
specific provision for non-indemnity insurance24 although life insurance was not
________________________
19 Van der Merwe 1973 THRHR 371. Also Birds et al MacGillivray on Insurance Law par 1.7.
20 3.151, 4.69–4.75.
21 Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W).
22 Dippenaar v Shield Insurance Co Ltd 1979 (2) SA 904 (A) 920G. The activities of a pension fund are not
affected by the LTIA: s 7(2).
23 Eg, Grotius Inleidinge 3.24.1; Van Leeuwen Rooms-Hollandsch-Recht 4.9.3; Van der Linden
Koopmanshandboek 4.6.1.
24 Eg, Grotius Inleidinge 3.24.6; Van der Keessel Praelectiones 3.24.pr (125); Van der Linden
Koopmanshandboek 4.6.1.
75
Judicial definition
5.12 In English law, an indemnity for patrimonial loss had been stressed as
followed this approach. 26 This created the impression that patrimonial indemnity is
insurer (or assurer) and an insured (or assured), whereby the insurer undertakes in
return for the payment of a price or premium to render to the insured a sum of
5.14 This definition is not complete. 29 For example, it does not allude to the
insurance. The policy benefit is not invariably a sum of money, 30 and it is not
identifies and isolates the contractual terms that are peculiar to both these forms of
insurance.
5.16 It has been suggested that the common ground between indemnity and non-
indemnity insurance is that they rest on the same basis, namely the adapted
contract to reimburse the insured for patrimonial loss proximately caused by the
uncertain event insured against, or as a contract to console the insured for non-
5.17 Compensation for patrimonial loss may be direct or indirect, total or partial,
________________________
25 Eg, Lucena v Craufurd (1806) 2 Bos & Pul NR 269, 127 ER 630 (HL); Castellain v Preston (1883) 11
26 See 5.51.
28 127. This definition was applied in Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1)
SA 478 (W) 480G. For English law, see the celebrated (and similar) definition in
Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658 663. The definition in
Lake has been adopted in some local tax cases: ITC 282, 7 SATC 265; ITC 366, 9 SATC 204. See
also Iscor Pension Fund v Marine & Trade Insurance Co Ltd 1961 (1) SA 178 (T) 185H.
30 The benefit will normally consist of the payment of a sum or sums of money, but it may also be the rendering of
a service, as is sometimes the case in disability or funeral insurance: Nienaber
31 The benefit may be payable to a third party, viz nominated beneficiary (ch 19), or a cessionary of the party
entitled to payment (21.1–21.46).
33 4.65–4.68.
76
5.18 In return for the insurer’s undertaking to compensate the insured for loss or to
console him for grief, the insured usually commits himself to pay a premium; often,
for the validity of the contract or a condition governing the operation of the
contract. 34
5.19 All considered, the only real difference between indemnity and non-indemnity
paragraphs
insurance relates to the nature or object of the insurance each covers. Indemnity 5.12–5.25
insurance covers the risk of patrimonial loss, while non-indemnity insurance covers
the risk of non-patrimonial loss that may broadly be described as grief. Taking into
contains the following essential terms, whether they be express or tacit: a term that
the insurer will compensate or satisfy the insured for either a patrimonial or a non-
patrimonial loss or grief; 35 a term making the insurer’s obligation dependent on the
occurrence of an uncertain or unplanned event36 and a term that the insured will pay
a premium or else a term making the contract or its operation dependent on the
payment of a premium.
risk of loss from the insured to the insurer. Whether there must be a duty on the
insurer to spread the risk over a community of exposed persons, is not clear. 37
address the moot question whether the doctrine of insurable interest can properly be
The issue
doctrine of an insurable interest. The diverse facets and meaning of the concept
5.23 For present purposes the issue is whether the actual existence of an “insurable
5.24 The doctrine of an insurable interest dates back to the lex mercatoria of the
Middle Ages. The first writer on insurance law who made use of a systematic doctrine
distinguish between wagers and indemnity insurance. He argued that if the parties
________________________
39 3.1–3.3.
77
intended the insurer to indemnify the insured, the latter would be entitled to claim
in accordance with the terms of the contract only if he had an “interesse” in the goods
lost or damaged, for otherwise the insured could not suffer any loss. By the same
token the insurer’s liability was limited to the value of the insured’s interest. 41
Caseregis reasoned, liability would follow in spite of the fact that the value of any
interest that might exist was less than the amount claimed or even that no interest
whatsoever existed. 42 This was so because the parties never intended the one to
5.26 De Caseregis therefore did not intend the existence of an insurable interest as
5.27 The original view that insurable interest merely served as a measure of damage
was gradually enhanced if not replaced by the conviction that an insurable interest
5.28 The first English decision on insurable interest, that in 1743 in Sadlers’ Co v
insurable interest had to exist both upon the conclusion of the contract and at the
5.29 The traditional approach in English law is that for a contract to qualify as an
insurance contract, the insured must have an insurable interest. Thus, in Prudential
Insurance Co v Inland Revenue Commissioners44 it was observed that “[a] contract which
having an interest in the subject-matter, that is to say, the uncertain event which is
5.30 In the case of indemnity insurance, the interest is required to exist when the
event insured against takes place. 45 In accordance with this approach, it has been
decided46 that a contract containing a “policy proof of interest” clause – the effect of
which is to dispense with the need for proof of an interest and hence of a loss – is
strictly speaking only a wager if the insured in fact had no insurable interest at the
relevant time. A contract containing such a clause, or a similar one, excusing the
contract provided that an interest does in fact exist upon the occurrence of the
insured event.
5.31 For non-indemnity insurance, by contrast, an insurable interest must exist at the
time of the conclusion of the contract though it need not exist at, or continue to exist
until, the time when the event insured against occurs. 47 Once this requirement has
________________________
41 Discursus IV.
44 [1904] 2 KB 658 663; Medical Defence Union Ltd v Department of Trade [1979] 2 All ER 421 (Ch) 425.
45 Williams v Baltic Insurance Association of London Ltd [1924] 2 KB 282 291.
46 Re London County Commercial Reinsurance Office Ltd (1922) 2 Ch 67 79, 80; Birds et al MacGillivray par
1.032.
47 Dalby v India London Life Assurance Co (1854) 15 CB 365 (Ex Ch), 139 ER 465 390, 475 where it was stated
that if “he has an interest when the policy is made, he is not wagering or gaming”. See
78
been fulfilled, the status of the contract will not be affected if the insured
subsequently loses his interest with the result that he does not have, or no longer has,
5.32 In summary, according to the traditional view of English insurance law, the
criterion to determine whether a contract is one of insurance is not so much what the
terms of the contract provide, but whether or not an insurable interest in fact existed
at a specific time, or, at least, whether the insured had an expectation of a proper
paragraphs
5.25–5.38
5.33 In the course of time the notion that an insurable interest is an essential of an
5.34 If the test for an insurance contract is whether an insurable interest exists at the
time of the occurrence of the event insured against, the contract can effectively not
uncertainty about the status of the contract during the period prior to the
occurrence of the event insured against. And, indeed, if the event never occurs,
required to exist both at the time of the occurrence of the event insured against and
the time when the contract is concluded. However, this would be totally unacceptable
because it would exclude the insurance of future interests such as a house or ship yet
5.36 If the required interest does not exist at the time of the occurrence of the
insured event, the contract must perforce be an unenforceable but nevertheless valid
wager. 52 Should the “insurer” have paid its “insured” in the blissful belief that the
latter had suffered a loss while he in fact had no interest, the insurer would not be
5.37 Finally, it would not be permissible for an insurer to waive proof of insurable
5.38 As in the case of indemnity insurance, it is not convincing to regard the actual
________________________
49 Birds et al MacGillivray par 1.058. Cf also Marine Insurance Act, 1906 s 4(2).
51 5.95 et seq.
52 As wagers are unenforceable though not invalid, wagering debts are not enforceable, but once
paid are not recoverable: Dodd v Hadley 1905 TS 439 442, 444; Rosen v Wasserman 1984 (1) SA 808 (W).
53 The same considerations will apply should the insured want to reclaim the premium on the
ground that he never had an interest. Should wagers ever become enforceable in our law, the
problem would be that the “insured” will be able to enforce a contract without interest on the
ground that it is a wager. This would fly in the face of the undertaking by the insurer to
5.39 On the one hand, there can be no real objection to a contract that is
conditional on the coming into being of a proper interest at the time of the
happening of the event insured against, for example if the parent of a child yet to be
born insures its life. As long as the insurer’s obligation to pay is conditional on the
the time of the conclusion of the contract should not affect the status of the contract
but the insured would only be able to claim on occurrence of the insured event if he
has an interest. The contract is an insurance contract right from inception and
able non-indemnity insurance contract simply on the ground that the “insured” had
an interest at the time of the conclusion of the contract in spite of the fact that the
contract does not require him to have an interest on occurrence of the event insured
against. Even if the parties to the contract do not take the trouble to express it in so
many words, the very essence of a true insurance contract is that the insurer agrees to
take over a risk burdening the insured. There can be no question of shifting any risk
interest at the time of the occurrence of the insured event. Hence, the intention must
5.41 In short, whether or not a contract is an insurance contract does not depend on
5.42 The views presented by the Roman-Dutch authorities are similar, if not
indemnity and they clearly had only patrimonial indemnity in mind. Their point of
view was simply that an insurer undertakes to indemnify an insured against the
consequences of an uncertain event and that the insured can never recover more
5.43 In defining insurance, the Roman-Dutch authors did not make use of a
technical doctrine of insurable interest as was subsequently the case in English law.
And when they stated that anything could be insured in which someone had an
interest, they intended nothing more than the interest one has in protecting oneself
5.44 The same holds good for their view that, unlike a gambler, an insured has an
interest in the condition suspending the obligation of the insurer:58 the interest being
________________________
54 4.65 et seq.
55 5.25 et seq. On the Roman-Dutch law relating to the requirement of an interest, see Van Niekerk Insurance Law
in the Netherlands Vol 1 149–158.
56 Eg, Grotius Inleidinge 3.24.1, 3.24.6–7; Van Bynkershoek Quaestiones Iuris Privati 41.3; Van der Linden
Koopmanshandboek 4.6.1, 4.6.5, 4.6.10; Van der Keessel Praelectiones 3.24.pr, 3.24.3 (125,
135).
57 Cf Van der Keessel Praelectiones 3.24.3 (135); Decker Aanteekeningen ad Van Leeuwen 2.4.9.4 n (c).
80
referred to is the interest a person has to provide against the occurrence of a loss. If,
upon the occurrence of the event insured against, the insured’s interests was
queried, 59 it did not refer to the question whether or not an insurance contract had
5
paragraphs
contract has generally and rather uncritically been adopted by most South African 5.39–5.49
authors. 60
5.46 As far as the courts are concerned, the doctrine of an insurable interest has
been applied in South Africa to determine whether an insured has a claim for
compensation for a loss suffered upon the occurrence of the event insured against, 61
but whether the factual existence of an insurable interest is regarded as one of the
5.47 In one decision, the court63 in fact took the view that insurable interest is a
foreign doctrine and that there is no justification for applying it in preference to the
principles of Roman-Dutch law. The court came to the conclusion that the real
enquiry should not be whether or not there is an insurable interest, but simply
whether or not the contract in question is, according to the intention of the parties, a
wager, as if a conclusion that the contract is not a wager necessarily implies that it
must be an insurance contract. The court regrettably did not explain how one would
5.48 Recently in Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 65
the
court expressed itself rather strongly if obiter to the effect that the difference between
“The existence of some such interest is the thing which takes the contract outside the
there is a reason (apart from the contract) why the happening of the event matters to
the insured party. Indeed, his interest is that the event should not happen, so that
unlike the person who places a bet he does not conclude the contract with the wish
that the event will occur so that he can receive a payment from the insurer.” 66
5.49 The standpoint in Lorcom is similar to the traditional view of English law67 and therefore the same criticisms
apply. 68
________________________
61 Eg Manderson t/a Hillcrest Electrical v Standard General Insurance Co Ltd 1966 (3) SA 434 (D).
62 References to insurable interest in, eg, Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) are
inconclusive. Cf also Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK 2002 (5)
63 Phillips v General Accident Insurance Co (SA) Ltd 1983 (4) SA 652 (W) 659. Cf also Steyn v AA Onderlinge
Assuransie Assosiasie Bpk 1985 (4) SA 7 (T) 10, 11.
64 In other words, if the parties intend to wager, how do they express their intention in the terms of the contract?
65 2013 (5) SA 42 (WCC). See (2013) 16 Juta’s Insurance L Bul 73–103; Reinecke 2013 4 TSAR 816.
66 Par 25.
67 Except that English law, contrary to Lorcom, requires the interest to be a financial interest: 3.38–
3.43.
68 5.34.
81
insurance contract depends on the nature of its terms. 69 It is therefore not surprising
that the idea of insurable interest as an essential of an insurance contract has been
criticised and even abolished in some jurisdictions to make room for the principles of
Indemnity insurance
genuine indemnity clause in terms of which the insurer undertakes to pay and the
insured is entitled to claim compensation for patrimonial loss suffered. 71 Hence, the
true test for an indemnity insurance contract is not whether the insured has, or
loss on the occurrence of a defined uncertain event. The performance of the insurer
5.52 For the insured to succeed with a claim in terms of an indemnity clause, the
insured will have to prove that he suffered a loss proximately caused by the insured
peril. This implies that the insured must prove the existence of an insurable interest
at the time of the loss72 because an insured cannot in fact suffer a loss if he has no
________________________
69 5.7 et seq.
70 The Australian legislature abolished insurable interest for indemnity insurance in favour of the ordinary concept
of loss or damage: Australia Insurance Contracts Act, 1984 s 16. The British
and Scottish Law Commissions in their issue paper on insurable interest of January 2008 are
apparently also of the same view: Merkin et al Colinvaux’s Law of Insurance pars 4.025–4.027 and
Lowry et al Insurance Law: Doctrines and Principles par 4.3. De Casaregis has thus been vindicated!
71 Both the Roman-Dutch authorities (5.42 et seq ) and judicial decisions stress that this class of insurance is a
contract to indemnify the insured for patrimonial loss and consequently that the
insured is not entitled to claim more than a full indemnity: Malcher & Malcomess v
Kingwilliamstown Fire and Marine Insurance & Trust Co (1883) 3 EDC 271 284; Gowie v Provident
Insurance Co (1885) 4 SC 118 121; Morris v Northern Assurance Co Ltd 1911 CPD 293 306;
Mendelsohn v Estate Morom 1912 CPD 690 693; South British Insurance Co v Union Government
(Minister of Finance) 1914 CPD 822 826; Ackerman v Loubser 1918 OPD 31 34; Nafte v Atlas
Assurance Co Ltd 1924 WLD 239 243; Norwich Union Fire Insurance Society Ltd v SA Toilet Requisite Co
Ltd 1924 AD 212 222; Oelrich v General Accident Fire & Life Assurance Corporation Ltd 1928 OPD 105
108; Claret v Assigned Estate Fallon 1931 CPD 528 529; Teper v McGees Motors (Pty) Ltd 1956 (1) SA
738 (C) 744; Iscor Pension Fund v Marine & Trade Insurance Co Ltd 1961 (1) SA 178 (T) 185;
Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A)
106, 107; Phillips v General Accident Insurance Co (SA) Ltd 1983 (4) SA 652 (W); Steyn v AA
Onderlinge Assuransie Assosiasie Bpk 1985 (4) SA 7 (T); Mostert v Cape Town City Council 2001 (1) SA 105
(SCA). See also Reinecke 1971 CILSA 193.
72 The interest a person must have according to the terms of a particular contract in order to
succeed with a claim for compensation, is often referred to in English law as a “contractual
interest”. This expression is used to distinguish such an interest from the interest required by
certain statutes, which is termed “statutory interest”; cf Birds et al MacGillivray pars 1.014 and
1.019.
82
real interest in the event insured against. 73 Indeed, the insured’s interest is seen as the
insured event is not intended to determine the nature of the contract in question,
but simply to establish whether the insured has actually suffered a loss for which he
can claim. The absence or presence of an insurable interest accordingly does not
affect the status of the contract, but only the enforcement of claims under it.
paragraphs
5.54 Suppose a contract reads that the insurer will indemnify the insured if a 5.50–5.56
particular motor vehicle is damaged and it transpires that the insured never had any
interest in the vehicle. The contract would be an insurance contract because by virtue
of its terms the insured could only claim if he suffered a loss. Should the insured lack
an interest at the time of the insured event and the insurer paid “compensation” to
the insured in ignorance of the lack of an interest, such payment may be recovered
from the insured on the basis that it was an undue payment under an insurance
contract; it will not be irrecoverable on the basis that payment amounted to the
not part of an unenforceable wager. Indeed, such a contract must for all purposes be
thinking. 77
5.55 A contract that contains a clause dispensing with the necessity to prove an
insurance. In such instances the contract is unenforceable even if the “insured” quite
incidentally acquires an interest prior to the moment that the object of risk is
wagering because, according to its terms, it may be enforced irrespective of any loss
suffered by the insured. However, the real intention of the parties could have been
merely to assist the insured by requiring the insurer to prove the absence of an
interest. If it was in fact the intention of the parties simply to shift the burden of
proof, however clumsily they may have expressed that intention, the contract should
be perfectly enforceable.
5.56 A stipulation in favour of a third party indemnifying a person other than the
(primary, named, or contracting) insured does not purport to absolve the third party
principle. 79
________________________
73 3.33 et seq regarding the relationship between patrimonial loss and insurable interest.
76 Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL) 632. The court took the view that a contract to
indemnify the insured is an insurance contract despite the absence of a proper
insurable interest upon the happening of the event insured against. According to the court, (a
claim under) such a contract is by its own terms unenforceable, but this does not affect a
submission to arbitration contained in the contract. For a similar view, see Ivamy Fire and Motor
Insurance 8–11.
77 Eg, the views of the British and Scottish Law Commissions: Merkin et al Colinvaux pars 4.025–
78 Eg, “full interest admitted” or “without further proof than the policy”. This type of clause was prevalent in
earlier times: Merkin et al Colinvaux par 4.002.
83
insurance one need not await the occurrence of the insured event to determine
whether or not an interest is then present. If the contract does contain an indemnity
clause, whether express or tacit, it may immediately upon its conclusion be classified
as an insurance contract 80 even if the insured does not then have an interest or never
insurance contract, the insurer may waive proof of interest once a claim is brought.
Insurable interest is merely one of the facta probanda for a successful claim and an
insurer may, after the conclusion of the contract, waive proof of the existence or of
the extent of the insured’s loss. There is therefore no need, or indeed room, for a
court mero motu to raise the lack of an insurable interest in such circumstances.
Non-indemnity insurance
5.59 It has been suggested that a non-indemnity insurance contract is, in effect if not
in express terms, intended and structured to satisfy or console the insured for a non-
patrimonial loss or grief caused by the event insured against. 81 Payment by the insurer
will serve as a solatium or substitute, whether in full or only partially, for the insured’s
the insurance of a specific (ie not an interest which is merely ascertainable) interest
which exists at the time of the contract (ie not a future interest). A typical contract of
this nature will simply make payment dependent (whether expressly or tacitly) on an
event in which the insured has that specific existing interest and which is regarded in
law as worthy of protection, 82 such as insurance on the life of the insured’s wife.
Should the parties wish to insure a future interest, they will make the contract
conditional on the coming into being of such interest at the time of the event insured
against.
5.61 As in the case of insurance of patrimonial interests, it may be suggested that the
existence or absence of an insurable interest does not affect the status of the contract.
The only question is whether its terms are such that the sum insured becomes
death of the insured’s wife is an insurance contract despite eventual proof that the
life insured was not in truth the insured’s legal wife. 83 Since the contract provided for
insured’s wife, the contract is by nature an insurance contract and not a wager.
5.62 If, in the above example, the insured life is found not to be the insured’s wife,
the contract (of insurance) is abortive. This results from the presence of an express
or tacit supposition that the life insured is the insured’s wife. Any payment made by
the insurer in the belief that the insured life was the insured’s wife, may therefore be
recovered on the basis that it was an undue payment under an insurance contract.
________________________
80 Provided, of course, that the contract also contains the other essentilia of an insurance contract.
81 4.34 et seq, 4.79–4.81. This interest is indeed the object of the insurance.
84
5.63 The insurer’s undertaking to indemnify or satisfy the insured usually takes the
5.64 In the case of indemnity insurance the insurer may also agree to direct or
such a clause, the insurer is granted the option of restoring the property affected by
paragraphs
the peril to the condition in which it was before the loss, for example by rebuilding a
in money is usually not a certain but an ascertainable performance. The amount can,
in other words, not be determined simply by reading the contract, but must be
calculated upon the occurrence of the event insured against and with reference to
the loss or damage suffered. There is normally a limitation on the total amount
recoverable from the insurer and this amount is known as the sum insured. 86 This is
5.66 In the case of valued policies87 the parties place a valuation on the object of the
insurance. Should the object be totally destroyed, and it be fully insured, 88 the
intention is that the insured may in principle recover the full valuation. Although to
this extent the amount of the insurer’s performance in such a case is not merely
ascertainable but certain, it is obviously not certain whether a loss will be a total loss.
5.67 In the case of non-indemnity insurance, the insurer’s undertaking to pay a sum
sum insured need not require payment on the occurrence of the loss, but payment
obligation to perform something other than the payment money, for example to
provide a funeral. It has not been considered to what extent performances other than
5.68 The difference between the terms of an insurance contract and the terms of a
terms of which the insurer undertakes to indemnify the insured against a patrimonial
insurance).
5.69 Patrimonial loss or non-patrimonial loss (grief) means a loss which can
legitimately be the object of an insurance contract. 90 There should always be room for
________________________
84 The terms “direct compensation” and “indirect compensation” are coined to indicate that in
certain cases (ie, of direct compensation) the compensation results in a restoration of the status
quo ante as nearly as possible, whereas in other cases (ie, of indirect compensation) restoration is
either not possible or a further step is necessary, eg, replacement or rebuilding according to the
compensation.
85 Department of Trade and Industry v St Christopher Motorists Association [1974] 1 Lloyd’s Rep 17.
89 4.69–4.75.
85
purport to cover a loss or grief not yet recognised at law as a proper object for
father “insured’ the life of his daughter’s biker friend with the aim of consoling his
daughter with the proceeds of the policy should her friend die in an accident? Again,
would it be true insurance if the parties gave an extended meaning to the concept
(b) A TERM THAT THE INSURED WILL PAY A PREMIUM OR ELSE A TERM
PREMIUM94
Bilateral insurance contracts
insurance contract.
reciprocal contract. The insurer undertakes to compensate or console the insured for
a loss and in exchange the proposer for insurance undertakes to pay a premium. 97
the case if credit is given to the insured for the payment of the premium. 98
5.74 A curiosity of insurance law is that the duty to pay the premium is often left to
________________________
91 3.58–3.60.
96 Eg, Van der Merwe et al Contract par 7.1.4. It is a pity that the legislature in its definition of
“premium” in both the LTIA s 1(1) and STIA s 1(1) continues to refer to the notion of
“consideration”.
97 Eg, Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) 127–128; Trans-Africa Credit & Savings Bank
Ltd v Union Guarantee & Insurance Co Ltd 1963 (2) SA 92 (C) 99; Yorkshire Insurance Co Ltd v
Dippenaar 1963 (3) SA 414 (W) 419; Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd
98 Van der Keessel Praelectiones 3.24.1 (129); Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) 127–
128.
99 National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11. This was interpreted
to mean that such a contract is a unilateral contract; Reinecke 2000 TSAR 217.
However, the possibility of a natural obligation was not considered. In Parsons Transport (Pty) Ltd
( continued)
86
naturalis obligatio. 100 It may be fulfilled by the debtor, but it cannot directly be
indirectly, namely by invoking set-off or the exceptio non adimpleti contractus in case of a
claim. 101
5.75 To protect themselves against the non-payment of the premium, insurers have
paragraphs
5.76 First, they may include in their policies a term making payment of the premium
a condition for the risk to attach. Payment of the premium is in other words a 5.69–5.81
suspensive condition qualifying not the contract as such, but only the obligation of
the insurer. 102 Such a term is common in many modern insurance contracts. 103 The contract is concluded when
the parties reach consensus, but the insurer’s obligation to
cover the risk takes effect only after payment of the premium.
5.77 Secondly, many insurance contracts contain a provision that if a premium is not
paid within certain time limits, the contract will automatically lapse without the
insurer having to make any election whether or not to cancel the agreement. 104 This
natural one – to pay a premium in exchange for the undertaking by the insurer to
that no contract will come into being until a premium has been paid. 106 If the
intention of the parties is that there will be no contract before payment of the
premium, the contract will arise when the premium has been paid. Such a contract
obviously does not create an obligation to pay a premium because it comes into being
any compensation unless he has paid the premium, but the insured is free to pay the
reciprocal obligations.
5.80 It furthermore happens that parties intend to enter into an actual contract, but
desire to make the whole contract (ie, the obligations of both parties) or else only the
obligation of the insurer, subject to the payment of the premium by the insured. 107
5.81 Where there is no undertaking to pay a premium, the contract can still qualify
premium.
________________________
v Global Insurance Co Ltd [2005] JOL 15610 (SCA); 2006 (1) SA 488 (SCA), the court found that
the insured was bound to pay the premium where the contract was subject to payment of the
102 14.22.
103 Eg, SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A) 846A.
104 Eg, Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359 (C) 364; SA Eagle
Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A); Penderis & Gutman v Liquidators, Short-term
Business, AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A).
105 14.23.
87
insurance contract.
This implies that every person at risk within the community should contribute a
proportionate share of the cost of spreading the risk over the community. 109
insurance for the very reason that in all those cases the insurer ultimately does
receive a premium for running the agreed risk even though there is no undertaking
by the insured himself to pay the premium. In the light of this, the expression
undertaken by the insured, but rather the insured’s proportionate share of the total
question of insurance unless the insurer receives a premium for the risk, whether by
5.85 Since a premium is necessary for insurance, it will not be insurance if an insurer
cover” free of charge, for example in favour of a certain class of persons. 113 This
means that such a contract, which an insurer may be willing to enter into for, say,
promotional purposes, 114 cannot possibly qualify as a true insurance contract as one
not follow that the contract will be unenforceable simply because of the lack of a
premium. If the contract meets all the requirements laid down by law for the validity
5.86 It should be observed further that insurance cover may arise from a proper
contract in favour of a third party without there being a duty on the third-party
insured to pay a premium in return for the insurance cover granted. One example is
vehicle and the parties (ie, the insurer and the owner of the vehicle as the primary or
named insured) intend to create a right for the authorised driver. 115 On acceptance
________________________
108 1.13–1.16.
109 Idem.
110 5.78–5.82.
113 So-called “coupon insurance” (as to which see, eg, Clarke et al Contracts par 11.1B1) in terms of which
accident cover is provided ostensibly at no cost to the purchasers of a newspaper, a plane
ticket or a train ticket, is not really an example of free insurance in favour of a class of persons
because the insurers underwriting the benefits are paid by the newspaper or the organisation
issuing the ticket. Unless such payment to the insurer is on behalf of the insured (postulating
that an obligation has been created for the insured), the relationship approximates a contract
in favour of a third party with the newspaper or ticketing authority acting as stipulans and the
insurer as promittens.
114 Eg, an insurer provides the members of a sporting team it sponsors with free travel or accident
115 On authorised driver extension clauses as stipulations in favour of third parties, see further 19.118 et seq.
88
of the benefit, the third party will be held covered under the original contract even
though he has, as (additional) insured person, neither paid nor undertaken to pay a
premium.
5.87 It has also been suggested that there can be an insurance contract where a
for a non-contracting party without intending to create any direct right of action for
that party, for instance where an employer pays a sum or sums of money to an insurer
paragraphs
on the understanding that the insurer will provide certain insurance benefits to 5.82–5.91
5.88 It is uncertain whether temporary insurance can exist without there being an
undertaking to pay a premium, or a term subjecting the contract to payment of a
Nature of premium
authority, 119 a premium may also consist in something other than money. It has also
something other than money. 120 Although “premium” is defined in legislation, the
5.90 If a premium could consist in something other than money, there will have to
be rules dealing with the contingency that the non-monetary premium may be
contracts, it is doubtful whether there is any need to bring a contract involving a non-
monetary “premium” under the umbrella of insurance. 122 No judicial preference has
Transfer of a risk
contingency in that the contract provides that the insurer will be liable to perform
________________________
116 Trans-Africa Credit & Savings Bank Ltd v Union Guarantee & Insurance Co Ltd 1963 (2) SA 92 (C) 99H.
118 This may be deduced from definitions of insurance contracts that provide for the “payment” of a premium, eg,
the definition in Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W).
119 Eg, Van der Keessel Praelectiones 3.24.1 (127); Van der Keessel Theses Selectae 712.
120 Eg, Schulze Legal Aspects of the Insurance Premium 301–302 who is in favour of the idea that a premium
may consist in any type of performance by the insured. In this regard it has been
pointed out (idem; see also Clarke et al Contracts par 13.2) that a premium may consist in the
liability of members of a mutual insurance society to contribute to the losses of other members.
When such a member is called upon to render his contribution, his share will have to be ex-
pressed in money. Thus, the obligation in question is still an obligation to pay money, albeit not
a determined but a determinable sum of money. However, it is conceivable that the parties may
agree on something other than money, eg, to repair the house of a member if it is damaged on
122 Thus, should informal mutual agreements to repair each other’s house if it is damaged were to be regarded as
insurance, the “insurer” would have to be registered for insurance business and
would be subject to the supervisory rules. It would appear preferable for such contracts to be
governed by the general principles of the law of contract: Reinecke 2000 TSAR 217 219. The
only meritorious exception appears to be temporary insurance. An offer to take out “perma-
nent” insurance could perhaps be regarded as a sufficient “premium” for granting temporary
89
only if a specified but uncertain event occurs. 123 This event is dependent upon a peril
or hazard. The possibility that the peril will cause harm or prejudice is the risk and
the transfer of the risk is an inherent feature of every true insurance contract.
the terms of the contract is usually satisfied by making the insurer’s performance
not it will happen. 124 Stipulations involving uncertainty of this kind are in fact
suspensive conditions qualifying the insurer’s duty to perform. The duty to pay the
premium is normally not affected by such conditions although the happening of the
event may discharge the insurer where there is a total loss. Another possibility is to
make performance by the insurer dependent upon a supposition, namely that a loss
will be covered irrespective of whether or not it has already occurred at the time of
5.93 In non-indemnity insurance, too, the event insured against may be a suspensive
condition, for instance an accident causing injury or death, death within a certain
explanation126 is that although the event of death is certain, it is not certain when it
will happen and that such uncertainty is sufficient to support the insurance. On the
surface the contract is subject to a suspensive time clause, a dies certus incertus quando,
but as far as the element of insurance goes, it really makes provision for and provides
5.94 Investment policies that limit the liability of the insurer to the policy’s invest-
ment account are in effect not true insurance contracts but rather instruments of
insurance contract by making the insurance subject to the term “lost or not lost”. 128
The insurance then covers a loss which has, unknown to the parties, already
occurred. 129 Such a term is not a suspensive condition, but a supposition that operates
on a past event.
5.96 The contract may therefore still be one of insurance where the uncertainty
merely relates to the knowledge of the parties concerning the happening of the event
insured against, provided the event belongs to the class of events which are uncertain
before they happen. The effect of such a clause is, so to speak, to antedate the
contract.
5.97 Since the essence of an insurance contract is to protect the insured against the
undesirable consequences of events that are uncertain, no insurance in the true sense
________________________
124 As to the possibility that the uncertainty may also lie in whether or not the (otherwise inevitable) event will
occur during the currency of the contract, or as to the extent of the conse-
126 Eg, Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 258 662.
128 This was known in Roman-Dutch law as insurance “op goede en kwade tijding” (“on good and bad tidings”):
Van der Keessel Praelectiones 3.24.5 (149); Van Niekerk Insurance Law in the Netherlands
Vol II 850–896.
129 London & Lancashire Insurance Co Ltd v Puzyna 1955 (3) SA 240 (C).
90
of the word is possible against events which are certain to happen, for example loss
simply as a result of inherent vice or of wear and tear. 130 This is not to say that no
5.98 However, uncertainty whether inherent vice or even wear and tear will take
effect during the currency of an “insurance contract” may well be sufficient to satisfy
paragraphs
electrical appliance such as a television set or a geyser within the contract period. 5.91–5.102
There can at least be no doubt that insurance in the true sense of the word may be
supply. 131
5.99 It has been suggested that for true insurance the insurer must have no control
over the event insured against. 132 Thus, it is said that it cannot be insurance if the
manufacturer of a machine undertakes to repair any loss arising from its defective
manufacture. 133 There is no clear precedent for such a requirement and its rationale
is questionable. After all, insurers seek in many ways, whether through or outside of
their insurance contracts, 134 to exercise some influence over the occurrence of the
Object of risk
5.100 The description of the risk in a policy normally refers to a tangible object of
risk135 in which the insured’s interest may be embodied. The interest of an owner of a
house is, for instance, embodied in the house. By contrast, the insured’s interest may
not be embodied in any particular object, but the object of the risk may then
5.101 Risk objects of the first kind feature in most forms of property and personal
insurance. In these contracts, the insurer’s liability ensues only if the object of the
risk has been affected by the peril insured against. Where the insured has, for
instance, taken out property insurance in respect of his motor vehicle, the specified
vehicle is the object of the risk and the insurer will be liable to compensate the
insured only if this particular vehicle has been damaged or destroyed. In the case of
5.102 Risk objects of the second kind are encountered in liability insurance where
the insurer undertakes to indemnify the insured if he becomes liable to third parties
as a result of his use of the object of the risk, for instance the driving of a particular
motor vehicle. Another example is liability insurance covering the insured if any
defect in the building under his control causes damage to a third party. 136
________________________
130 13.54–13.63.
131 Idem.
132 Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W). Here the court based
its decision that the contract before it (one for the conveyance of money) was not
one of insurance on the consideration that the risk lay wholly within the hands of the purport-
ed insurer (the transporter), but it is not clear whether the risk did in fact lie wholly within the
134 Eg, by means of promissory warranties (15.22–15.29) or by imposing other methods of risk
91
limit the risk and hence its liability. Liability insurance often does not involve an
5.104 The object of the risk should not be confused with the object of the insurance,
5.105 The payment of a sum of money, the completion of a contract, or the fidelity
insurance can be concluded to indemnify the insured against any loss caused by such
an event.
5.106 Both suretyship and insurance involve a performance, by the surety and the
insurer, respectively, that are dependent upon the happening of an uncertain event
and both aim at providing, to the insured and the creditor, a mere indemnity to the
exclusion of profit. The two types of contract are accordingly closely related to each
the law of suretyship. Examples are the right to claim a contribution, 138 and the right
5.108 There are several practical reasons for distinguishing between insurance and
contract need not be. 141 Second, a surety who has paid the creditor is entitled to sue
the debtor in his own name, whilst an insurer, unless it has obtained a cession of the
insured’s rights, is by virtue of the doctrine of subrogation only entitled to make use
5.109 In the past the distinction between suretyship and insurance was also of
significance with regard to the Insurance Act of 1943. 143 In terms of current insurance
legislation, a person may not carry on any kind of insurance business unless he is
________________________
137 3.4–3.5.
138 As to contribution, 23.20 et seq. See also Caney et al Caney’s Law of Suretyship ch XII for the right of a surety
to claim a contribution from his co-sureties.
139 As to subrogation, ch 18. See Caney et al ch XI for the right of a surety to a cession of actions and for the
surety’s right of recourse. The right of an insurer who has made good a loss to proceed against the third party who
has caused the loss, has on occasion been equated to the rights
possessed by a surety: South British Insurance Co v Union Government (Minister of Finance) 1914
CPD 822 826. It is perhaps more apt to equate a surety to an insurer because insurance can be
concerned with events other than non-fulfilment of an obligation, whereas suretyship cannot.
141 7.42.
143 Eg, the Insurance Act 27 of 1943 s 20(2)(b); Trans-Africa Credit & Savings Bank Ltd v Union Guarantee &
Insurance Co Ltd 1963 (2) SA 92 (C).
92
5.110 A further prohibition found in the current legislation is that an insurer may
not, without the approval of the registrar, give security in relation to obligations
paragraphs
between other persons.145 The prohibition covers suretyship as well as any other form 5.103–5.113
that the registrar may allow an insurer to stand surety, but has no power to allow an
insurer who is not registered for guarantee business to issue a guarantee policy.
terms of which a person, other than a bank, in return for a premium, undertakes to
provide policy benefits if an event, contemplated in the policy as a risk relating to the
obligation and not that of another. An insurance contract may be distinguished from
because a surety undertakes to fulfil the debt of another, the debtor, and not its
own.148 This is an essential difference between the principal insurance contract and
specific person does not perform his contract, it can be an insurance contract only if
it is the intention of the parties that the insurer will indemnify the insured for any
loss caused by the event concerned, that is, the non-fulfilment of the contract. An
that upon non-fulfilment of an obligation, that obligation must be fulfilled by the so-
________________________
147 Cf Iscor Pension Fund v Marine & Trade Insurance Co Ltd 1961 (1) SA 178 (T); Trans-Africa Credit
& Savings Bank Ltd v Union Guarantee & Insurance Co Ltd 1963 (2) SA 92 (C); Yorkshire Insurance
148 Caney’s Law of Suretyship ch II on the accessory nature of the surety’s obligation.
149 Yorkshire Insurance Co Ltd v Dippenaar 1963 (3) SA 414 (W); Heathfield v Maqelepo 2004 (2) SA 636
(SCA). Depending on its terms, a guarantee (such as a performance guarantee) may be in-
tended to create an independent rather than an accessory obligation: cf Carrim v Omar 2001 (4)
SA 691 (W); Petric Construction CC t/a AB Construction v Toasty Trading t/a Furstenburg Property De-
velopment 2009 (5) SA 550 (ECG); Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010
(2) SA 86 (SCA); Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA); Min-
ister of Transport and Public Works: Provincial Government of the Western Cape v Zanbuild Construction
93
B. Temporary
insurance................................................................................................
106
Introduction: consensus
paragraphs
6.1–6.3
consensus there can be no contract at all and this holds good for insurance contracts
London. 8
insured. Insurers are free to reject risks or accept them on such terms as they
consider appropriate, 9 except that an insurer may not discriminate on the grounds
6.3 A person who intends to conclude an insurance contract will have to take steps to
achieve consensus by making his intention known to the person with whom he wants to
for the validity of a contract; they are merely building blocks for achieving consensus. 12
________________________
2 7.4 et seq.
3 7.7.
4 6.64–6.70.
5 6.71–6.72.
6 6.73.
7 6.74 et seq.
8 6.93 et seq.
9 Cf Bredenkamp v Standard Bank of South Africa [2010] 4 All SA 113 (SCA); 2010 9 BCLR 892
10 Act 4 of 2000.
11 A long-term insurer may not unreasonably discriminate against an applicant specifically on the grounds of
military service, LTIA s 57.
95
6.4 The insurance contract comes into being only when consensus is reached. Until
then, the proposed contract cannot provide cover although the contract, once
Offer
6.5 An “offer” is a declaration of intention stating the terms upon which the person
making it (the offeror) is prepared to contract with the person to whom he has
addressed his offer (the offeree). 14 To qualify as an offer, the declaration must
determinable content by simply accepting the offer. 15 The offer must, for instance,
state the nature of the cover required, the object to be insured, and the period of
cover.
offer emanating from the offeree in reaction to the offeror’s earlier ambiguous or
inchoate offer.
6.7 An offer is only completed once it has been brought to the attention of the
offeree.
6.8 Since neither the law nor, as a rule, the parties themselves16 prescribe any
formalities (such as writing) for the validity of an insurance contract, there is no need
for declarations of intent to be in writing. Hence a person may apply for insurance by
premium. 17
6.9 Especially in the case of assistance insurance, 18 members of the public are
telesales. The telephonic discussion between the parties will usually be recorded, but
the actual offer will be an oral one. As always, the usual requirements imposed by the
6.10 The tendency in recent times is to move away from the traditional paper-based
forms of communication and to make use of electronic means instead. This applies
________________________
14 As explained below, in the insurance context either the insurer or the insured may be the
15 This flows from the requirement of certainty which applies to all contracts, including insurance contracts:
7.111–7.118.
16 However, payment of the first premium is often set as a requirement for the coming into being of the contract,
7.46–7.51, 14.16 et seq.
17 Where the parties require payment of the premium for the validity of the contract, the offer (or, depending on
the circumstances, the acceptance) is not complete before payment of the premium,
7.47.
19 Ch 7.
20 Eg, Kahn v African Life Assurance Society Ltd 1932 WLD 160 163, 164; Dicks v SA Mutual Fire & General
Insurance Co Ltd [1963] 4 All SA 501 (N); 1963 (4) SA 501 (N) 504G.
96
either a broker or an agent of the insurer, 21 for assistance. More often than not it will
convincing them to apply for insurance. The intermediary will then obtain a
“quotation” or “benefit description” from one or even more than one insurer. The
quotation will explain the cover that the insurer will be prepared to provide and the
premium it will require for such cover. The quotation will contain at least some of the
paragraphs
standard terms upon which the insurer is willing to contract or otherwise it will
6.4–6.18
6.13 A quotation22 from an insurer is usually no more than an invitation to do business not supported by the
intention to be legally bound. The information so
obtained simply enables the applicant to decide what terms and which insurer will
suit him best. An application form can then be completed and submitted to the
6.14 The application form is a printed standard form drafted by the insurer
concerned. It normally leaves little scope for any bargaining and amending the
insurer’s standard terms. What bargaining there is, is confined to matters which
cannot be settled in advance, such as the amount of the insurance, the period of
occasion request an amendment of the insurer’s standard terms. This may be effected
by way of an endorsement of the policy.
6.15 For practical reasons the application form will not as a rule include all the terms
insurer’s usual terms23 and sometimes there is an express provision to that effect. In
determining what these usual terms are, evidence of other policies issued by the insurer
for the risk in question is admissible. 24 Where the application has been preceded by a
6.16 A proposal form submitted to the insurer may serve as an offer by the applicant
only if it has been authorised by him. A policy issued by the insurer in response to an
proposed insured. 25
6.17 In strict law, the application form need not be signed by the applicant as long as
lead to factual disputes and difficulties of proof. Also, the signature of any other
person that may be or become involved, such as the premium payer, the life to be
parties. 27
6.18 The application form is designed to fulfil various functions. Its primary function
the application form will contain questions asking the applicant precisely what cover
________________________
21 Ch 24.
22 6.38–6.43.
23 Kahn v African Life Assurance Society Ltd 1932 WLD 160 163, 164; British Oak Insurance Co Ltd v Atmore
1939 TPD 9 14.
25 Bodemer v American Insurance Co [1961] 2 All SA 615 (A); 1961 (2) SA 662 (A) 668D.
26 This follows from the fact that writing is not a formal requirement for an insurance contract: 7.42–7.51.
27 An insurer may, eg, require the signature and so the consent of the life insured for the validity of the contract
with a view to protecting the life insured against possible foul play by the insured.
97
South African Insurance Law
he desires. It will also enquire from the applicant the sum to be insured and, where
6.19 The application form is, moreover, an important tool to extract information
from the applicant and to record his answers. Thus, the applicant will be asked about
the nature and extent of the risk that the insurer is to assume, for instance questions
about the medical history of the life to be insured, the structure of the house to be
insured, the applicant’s claims record. The information so obtained will enable the
form, insurers routinely insist that the application form be completed and put into
proper shape by someone who is trained for that purpose, such as one of their agents
or a broker. In the result, application forms in practice are regularly, if not invariably,
completed by an intermediary.
6.21 The procedure usually followed is that the intermediary asks the applicant to
respond to the questions in the application form. The answers are then recorded.
Sometimes the intermediary completes the form on his own before submitting it to
the applicant for his approval and signature. However, no insurance party may in
sign any blank or partially completed form necessary for the completion of the
frequently gives rise to disputes29 when it is subsequently established that the form
6.22 The application form is not merely an offer by the prospective insured; it may
also contain an offer or offers by the insurer to enter into one or more ancillary
agreements with the applicant. For example, there may be a term in the application
form extending the applicant’s duty of disclosure to a date after the actual conclusion
of the contract. By submitting the completed application form to the insurer, the
applicant in effect accepts any offer from the insurer that may be contained in the
application form.
6.23 A fairly general practice is to require an applicant to warrant the truth of the
introduced by an express or tacit term in the policy, 30 but this is not necessarily the
provide the insurer with an additional defence should it wish to challenge the validity
penalty clause which provides that in case of cancellation of the policy on account of
________________________
28 Policyholder Protection Rules (Long-term Insurance), 2004 rule 17 and Policyholder Protection Rules (Short-
term Insurance), 2004 rule 7.6. The term “insurance party” is a creation of the
supervisory authorities and presumably includes the insurer and its agents.
29 This is especially true in the case of electronic applications where the applicant has no real opportunity to check
the responses recorded by the intermediary: Nienaber and Reinecke Life
Insurance pars 8.21–8.23. As to the imputation of the agent’s knowledge (of the correct
30 The warranty may therefore appear for the first time in the policy itself, see ch 15 for a
31 Such a clause is subject to the Conventional Penalties Act 15 of 1962. The amount of the penalty can be
reduced if it is out of proportion to the prejudice suffered by the insurer: Nienaber and
98
6.24 Where the application is submitted electronically, the applicant must likewise
6.25 Because it may take some time for the insurer to consider and finalise
from the insurer to grant immediate but temporary cover. This ancillary agreement
of temporary insurance will function for the period stated whether or not the insurer
paragraphs
6.18–6.31
6.26 The application form will, as a rule, authorise the insurer to obtain confidential,
medical information about the life to be insured from hospitals and doctors. It will
also confer authority on the insurer to collect premiums for the proposed insurance
from the bank account of the insured or a designated third-party payor. 34 Applicants
6.27 Finally, the application form may contain an acknowledgement that the policy
to be issued, or the policy together with certain other documentation such as the
quotation and the application form, will serve as the sole record of the proposed
insurance contract. 35
Offers by insurers
6.28 Although it is usually the person requiring cover who makes the offer to an
insurer, for instance in the case of coupon insurance and temporary insurance. 36
6.29 An offer will also proceed from the insurer where the proposer’s offer as it
stands is not acceptable to the insurer, but the insurer is prepared to make a counter-
offer on terms different from those proposed by the prospective insured. It will then
counter-offer. 37
6.30 Where the original offer by the proposed insured lacks sufficient content, it may
induce the insurer to make him a proper offer. A purported acceptance by the
insurer of an incomplete and thus ineffective “offer” by the applicant may therefore
even to the public at large. Another instance where an offer will proceed from the
insurer is where an option is granted to the insured to extend his insurance; or the
insurer may upon expiry of a term insurance, invite the insured to renew his existing
insurance contract.
________________________
32 6.33–6.37.
33 6.74–6.92.
34 12.20.
36 Lines v Liberty Life Association of Africa Ltd 1990 (3) SA 268 (T) where the insurer’s application form was
both an invitation to the prospective insured to make an offer for life cover, and an
offer of immediate temporary cover to those prospective insured who did in fact respond to its
invitation: Van Niekerk & Havenga 1990 SA Merc LJ 367, and for temporary insurance, 6.74–6.92.
37 Blumenau v Neethling (1906) 23 SC 435 is a good example of this. A proposal was made to the insurer for
insurance on the joint lives of the proposer and his wife. The insurer refused to
insure the life of the proposer’s wife, but sent the proposer a policy on his life alone. The
proposer returned this policy without even opening the letter containing it. The court found
that in the circumstances there had not been an acceptance of the policy, ie, of the insurer’s
counter-offer.
99
question of fact.
Electronic applications
Not only do insurers advertise their products on their websites, but quotations,
cation. However, the eventual policies are invariably produced in printed format.
not without legal force and effect merely because it was concluded partly or in whole
by means of data messages, that is, information generated, sent, received or stored by
electronic means. 39 Section 24 adds that as between the originator and the addressee
force and effect merely on the grounds that it is in the form of a data message.
6.35 Thus, an offer for insurance is not disqualified from being a proper offer simply
because it is in the form of a data message. The message is seen as complete once it
enters the information system used by the addressee and is capable of being retrieved
6.36 This movement away from paper-based applications is more apparent than real.
Electronic characters simply replace the words recorded on paper. The basic rules
by means of data messages is concluded at the time when and place where the
6.37 Electronic applications are almost always completed by intermediaries who have
been authorised by the insurer concerned to issue the application form. The
prospective insured has no real opportunity to verify the correctness of the answers in
Quotations
6.38 Anyone wishing to obtain insurance cover naturally requires information about
the products marketed by the insurer. One way to obtain such information is to ask
them to print a quotation for the applicant. Once an applicant has obtained an
electronic quotation, his next step would be to apply for the desired insurance,
6.39 Unlike ordinary quotations, quotations for insurance cover (whether written or
electronic) are as a rule not intended as full-blown offers. They are issued before any
assessment of the particular risk and therefore rest on assumptions that still have to
be verified. Their basic function is to inform the applicant of the premium he may
expect to pay for the cover he desires, and there will probably also be a reference to
________________________
38 Act 25 of 2002.
39 S 1 sv “data message”.
40 S 23.
41 S 22(2). Thus, the reception theory applies about which Van der Merwe et al Contract par 3.2.6.
100
the insurer’s standard terms. The use of the term “quotation” in this context by the
to negotiate not supported by any serious intention to be legally binding, unless it has
been made clear that the quotation is indeed regarded as a fully-fledged offer.
6.41 Insurers are unfortunately not always assiduous in making clear that they do not
paragraphs
intend the quotation as a complete and firm offer and this may mislead the other 6.32–6.46
party to believe that a proper offer was intended. In appropriate circumstances, the
6.42 A quotation other than for ordinary insurance cover may more readily be
contract issues a quotation stating the options open to the insured, it may well be a
firm offer. The same holds true when during the currency of his policy an insured
6.43 Any mistakes in a quotation amounting to a firm offer will have to be dealt with
between quotations, offers and acceptances are sometimes so blurred that it is not
easy to distinguish between these various manifestations of intent. Even so, it is not
necessarily crucial for the validity of the contract to identify and isolate what is an
offer and what is its acceptance. The decisive question is whether or not consensus
has been reached, firstly about the parties to the proposed contract, and secondly
6.44 All insurers must appoint a statutory actuary. 45 The statutory actuary of a long-
term insurer is entrusted with the actuarial basis underlying the different kinds of
products that the insurer intends to market. He must be satisfied that the premiums,
benefits, bonuses and other values of the insurer’s policies are actuarially sound. 46
6.45 A long-term insurer does not enjoy unrestricted freedom to determine the
contents of its policies, but must offer terms conforming to the approved actuarial
basis of the kind of policy in question. However, the validity of a policy issued in
Duration of offer
6.46 An offer to take out or to provide insurance cover expires under circumstances
leading to the termination of offers generally, 48 such as rejection, revocation, 49 or the expiry of a fixed term for
which the offer was made or, in the absence of such a term,
the rejection of the offer. Counter-offers made by insurers are as a rule subject to a
________________________
46 LTIA s 46.
49 Eg, if the insurer is advised of the cancellation or revocation of an application amounting to an offer before it
had accepted the application.
101
Acceptance
6.47 Acceptance of an offer is an express or tacit declaration of intention in which
the offeree signifies his consent with the offer. In principle the offeror must be
6.49 Insurers usually accept an application for insurance by sending to the proposer
a policy accompanied by a covering letter explaining that the proposal has been
6.50 If a policy which is dispatched to the proposer differs from the terms of the
offer, but the insurer does not intend it to differ, dispatching the policy is still
6.51 If, by contrast, the policy as issued is intended to differ from the proposal
received by the insurer, issuing the policy can at most amount to a counter-offer
requiring acceptance by the original offeror. 57 Mere silence upon receipt of such a
constituting an acceptance.
6.52 If the proposer pays the premium in ignorance of the fact that the policy differs
from the proposal, the payment can in certain circumstances be treated as ostensible
creating the impression that the issue of its policy is an acceptance corresponding to
6.53 Acceptance by the prospective insured of an offer from the insurer may be
made in a variety of ways, including electronically, 58 unless the offeror has prescribed
________________________
50 Whether there was communication of the offeree’s acceptance in Van Straaten v Liebaert 1907
EDC 231 – where, in a dispute over the question whether a contract had arisen, the letter
containing the policy was returned to the insurer marked “unknown, unclaimed” – cannot be
51 See Van der Merwe et al Contract par 3.2.5 for a different perspective.
53 Kahn v African Life Assurance Society Ltd 1932 WLD 160 164.
54 In Dicks v SA Mutual Fire & General Insurance Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N) 505A,
the application was accompanied by the premium in anticipation of the conclusion of the
contract. The court held that receipt of the premium did not amount to acceptance of the
application. Mere retention by the insurer of an amount paid in terms of a cover note, which
makes provision for the return of the amount if the insurer declines to issue a final policy, does
not ordinarily amount to an acceptance of the final contract: Estate Ralston v New York Life
Insurance Co (1909) 26 SC 482; (1909) 19 CTR 808. In the case of the renewal of a policy,
acceptance of the renewal premium is prima facie an acceptance of the offer: Southern Insurance
56 Kahn v African Life Assurance Society Ltd 1932 WLD 160 172.
102
how the offer should be accepted. In such case the offeror’s instructions must be
6.54 An insurer’s offer of temporary cover may be accepted simply by submitting the
signed application form to the insurer. An oral offer may be accepted by informing a
person who has authority to receive such a notice, that the offer has been accepted.
6
offer by the insurer will be tantamount to an acceptance by him.
paragraphs
6.55 It is also possible, although exceptional, that the acceptance of an offer may be 6.47–6.60
inferred from the offeree’s mere silence. That will be so if a duty to speak rested on
him. Such a duty will only be found to exist if a reasonable person in his position
would have realised that the other party would be justified in concluding that he
6.56 Where the policy affords the insured a choice of options and requires him to
rectified. 61
6.58 The time and place62 of the acceptance of an offer for insurance are governed
complete only when the offeror has been informed of the acceptance by the offeree,
for example, if the applicant for insurance has received a letter of acceptance or
delivery of the policy from the insurer. The contract will therefore come into being
when and where the offeror has learned of the acceptance. This principle – the
information theory – is of special importance if the parties are not in each other’s
presence.
6.59 A different principle obtains in the case of postal contracts (where the offer had
been made through the post). In such a case the contract will come into being when
and where the letter of acceptance has been properly dispatched. The postal,
dispatch or expedition theory does not apply to contracts over the telephone. 64
concluded at the time when and place where the acceptance of the offer was received
by the offeror. 65 A data message is regarded as having been received by the addressee
when the complete data message enters an information system designated or used for
that purpose by the addressee and is capable of being retrieved and processed by the
addressee. 66 However, if the offer was not made electronically, the general principles
should apply.
________________________
59 Van der Merwe et al Contract par 3.2.5; Nienaber and Reinecke Life Insurance par 8.38.
61 Kahn v African Life Assurance Society Ltd 1932 WLD 160; 9.46–9.47.
62 The time of conclusion of an insurance contract may be relevant in that the pre-contractual duty of disclosure
comes to an end at that time, 8.151–8.152. The place of conclusion may be relevant
64 For an instance of an insurance contract concluded telephonically, cf Masango v Lloyds of London, unreported
(W), (2004) 6 Juta’s Insurance L Bul 169.
66 S 23(b).
103
6.61 Insurance, especially funeral67 and consumer credit68 insurance, is sometimes marketed through banks, trade
unions and retail outlets. Thus, where a person buys
premium for insurance in respect of the outstanding debit balance. The policy is
6.62 In most cases of this nature there will be no offer by the consumer. However, it
is conceivable that there may be a concealed offer by the insurer, an offer that
operates, as it were, behind the scene. If the consumer is aware of this offer, he may
accept it, for example, by paying the amount allocated to the premium.
insurance forced on him. Yet, in the final analysis, any such practice would be
objectionable. Thus, it may happen that the “insured” never becomes aware of the
“existence” of insurance cover with the result that he does not derive any benefit
from the “insurance”. In such circumstances the ordinary rules69 on material mistake
will come into play.
6.64 When the fixed term of an insurance contract expires, the contract may be
renewed. However, the insured normally has no right of renewal and therefore the
insurer may refuse to renew the contract. 70 Renewal is the conclusion of a new
agreement, 71 albeit one on the same terms, 72 and it is governed by the general rules on formation. Usually no
new application form is completed.
6.65 After the expiration of a term contract, insurers often send a renewal notice to
the insured inviting him to continue with the insurance. Such a notice may qualify as
an ordinary offer of cover for a further period. The insured may accept this offer
6.66 The insurer is neither obliged to send a renewal notice nor to give notice of an
intention not to renew the contract. If the insurer does not send a renewal notice, the
insured may make an offer to the insurer to renew the policy, for instance by tender-
ing payment of the renewal premium. Acceptance by the insurer of such a renewal
premium could amount to an acceptance of the insured’s offer74 unless the insurer
________________________
69 7.1–7.39.
71 A fresh duty to disclose therefore arises: Van Zyl & Maritz v SA Special Risks Insurance Association 1995 (2)
SA 331 (SE) 335C–D, 355C–D.
72 Hollard Insurance Co Ltd v Leclezio 1999 (4) SA 130 (N) 135H–I. In Jordan v New Zealand Insurance Co Ltd
1968 (2) SA 238 (E) 242E the court observed that the contract before it was for an
indefinite term subject to the acceptance of the premium annually and that the original policy
was in force throughout. This cannot be supported. Cf also AJ Shepherd (Edms) Bpk v Santam
73 Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A) 361A. See also 14.40–14.42.
74 Cf Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A) 361A. However, all premiums paid by
an insured are not necessarily renewal premiums: Van Aswegen v Mutual & Federal
Versekeringsmaatskappy, unreported (O), (1998) 1 Juta’s Insurance L Bul 45.
104
6.67 Since a renewal usually amounts to a new contract, the terms of the new con-
tract may differ from the terms of the previous contract. However, the insured may
assume that apart from the level of premium and dates, the insurance is on broadly
the same terms as before. If the insurer intended otherwise, it must give clear notice
of any new terms. 76 Any such amendment will usually be implemented by way of an
6.68 Some policies contain provisions enabling the insured to extend the term of the
paragraphs
contract before it comes to an end thus granting an option to the insured. This 6.61–6.72
means that the insured may extend the cover by his unilateral decision to continue
with the contract, provided the insurer is notified before the contract expires and the
insured observes the requirements laid down in the contract. By exercising his op-
tion, the insured accepts the offer entrenched in the policy. Such a renewal will not
for a longer period subject to forfeiture by reason of the non-payment of the premi-
ums. 78 In the case of continuation of insurance, a new contract is not concluded and
the original contract remains in force. Life insurance provides the best example of
and continuation of insurance does not depend on the classification of the insur-
in effect a renewal of the contract on the same terms as before, although the parties
are free to make adjustments. Hence the ordinary rules governing the formation of
contracts are applicable. Naturally reinstatement would not be possible if the insured
event has already occurred, for example, where the life insured has died and the
6.71 The insured has no right to reinstatement unless the policy gives him that right.
Usually insurers lay down specific formalities before they will consider the
reinstatement of a lapsed policy, though it is quite possible that the insurer may waive
its formal requirements and that the lapsed contract is reinstated either by mutual or
6.72 Often a need to revise the insurance contract arises after its conclusion. For
instance, it may be necessary to increase or decrease the amount of the sum insured;
to increase or decrease the premium; to make the life policy a paid-up policy; to vary
insured; or to consolidate two or more policies. Both the insured and the insurer are
________________________
76 Cf Hollard Insurance Co Ltd v Leclezio 1999 (4) SA 130 (N) 132H–133J; Clarke et al The Law of Insurance
Contracts par 11.4D1.
78 Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A) 361B–C. Cf again note 72 above and see
14.43–14.49.
82 7.23–7.28.
105
free to propose amendments to their policy by the ordinary process of offer and
acceptance. Naturally there must be consensus between the parties before any
B. TEMPORARY INSURANCE
Purpose of temporary insurance
6.73 It sometimes takes a considerable time to finalise the preliminaries for the
underwriters must assess the risk and make their recommendations to the insurer. In
order to protect the proposed insured during the interval before the issue of a final
policy, 84 insurers frequently issue a temporary or interim insurance contract85 to cover the proposer immediately
but for a limited period of time. This is common practice
in the case of short-term insurance contracts, but it may be invoked in all other forms
of insurance. 86
6.74 Although limited in duration, temporary insurance is nothing less than a fully-
fledged insurance contract. 87 This being so, the proposed insured must observe the
usual duty of disclosure towards his insurer. Similarly, the contract must comply with
6.75 The temporary insurance contract is separate from and independent of the
final insurance contract that may be concluded later, although it may share some or
6.76 If a claim arises during the currency of the temporary contract, it must be
considered in terms of the temporary contract itself and not in terms of the final
contract. 88 This may be of importance where only the final contract but not the
temporary contract is, say, voidable because of a misrepresentation89 and also where
obliges the insurer to provide permanent cover. By the same token the person
enjoying temporary cover is not compelled to accept permanent cover offered by the
________________________
83 Cf Okavango Foam & Bedding CC v New National Assurance Co Ltd & Another, unreported (C), (2006) 8
Juta’s Insurance L Bul 177–183. There was a purported variation of the insurance
contract by the insured’s broker and the question arose whether the insurer had accepted the
insured’s offer implied in the expressed intention and conduct of the broker.
84 Cf Bushby v Guardian Assurance Co Ltd 1916 AD 488 493.
86 Formerly temporary insurance was frequently concluded in the case of long-term insurance.
Insurers were often overseas companies wanting to decide for themselves whether to underwrite
a particular risk and therefore granted only temporary cover in the meantime; cf, eg, Lines v
Liberty Life Association of Africa Ltd 1990 (3) SA 268 (T); Van Niekerk and Havenga 1990 SA Merc
LJ 367.
87 In Dicks v SA Mutual Fire & General Insurance Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N) 504A it
was described as a “lesser contract” of insurance because of its limited duration.
89 In Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T) 355A a cover note
granting temporary insurance cover was issued prior to the completion of a proposal form
not have been caused by the misrepresentation and would therefore not have been rendered
voidable by it.
106
commonly known as a cover note, 90 but various other expressions are encountered. 91
contract. 92
6.79 A cover note may not ordinarily be regarded as a “policy” in the usual sense of
the word. 93 Nonetheless, the definitions of the various “policies” in the applicable
paragraphs
legislation94 are wide enough to include cover notes and all other like documents 6.72–6.83
6.80 Temporary insurance usually comes into existence after the insurer had issued a
(oral) offer made by the proposed insured. 96 If the cover note is an offer by the
insurer, acceptance is usually by way of conduct, for example by taking delivery of the
cover note or by paying the premium. The same considerations apply to other
being issued. 97
order to bind the insurer, the intermediary must have either actual or ostensible
the insurer. Authority to conclude temporary insurance is more readily inferred than
6.83 The proposed insured is usually required to pay the full amount of the
premium for the final insurance applied for, or at least a part of the premium, by way
________________________
90 Cf
Dicks v SA Mutual Fire & General Insurance Co Ltd 1963 (4) SA 501 (N) 505D. Other expres-
sions do occur, such as “protection note”, “temporary policy”, and, inappropriately, “interim
receipt”.
91 Thus, in Fortlaide Garages (Edms) Bpk v Schoeman 1959 (4) SA 533 (E) temporary cover was granted in terms
of a letter confirming that it had been granted.
92 On the analogous question whether a policy may be regarded as the sole memorial of an
93 Cf
Fortlaide Garages (Edms) Bpk v Schoeman 1959 (4) SA 533 (E) 536B.
95 Marine & Trade Insurance Co Ltd v J Gerber Finance (Pty) Ltd 1981 (4) SA 958 (A) 963H.
96 Usually the proposed insured merely submits a written offer to be insured for the full period of the proposed
insurance. As a rule, therefore, the offer to grant temporary cover originates from
the insurer. In Bushby v Guardian Assurance Co Ltd 1915 WLD 65 71 the court was apparently of
97 Inspan Motors (Pty) Ltd v Kock 1970 (4) SA 491 (N) 496A–B.
99 Dicks v SA Mutual Fire & General Insurance Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N).
100 Dicks v SA Mutual Fire & General Insurance Co Ltd above 505F. Cf also Petersen v Incorporated General
Insurances Ltd [1982] 2 All SA 112 (C); 1982 (3) SA 1 (C) where the court found that an
employee (a typist clerk) in a position of seniority with the insurer had authority to grant tem-
porary cover to an existing client who had a motor policy or policies with the insurer and who
107
of a deposit. If final cover is granted, the amount paid is applied towards the
6.84 If final cover is refused, the deposit made by the proposer is usually returned,
possibly subject to a deduction at the customary short-period rate for the period
during which the insured enjoyed protection in terms of the cover note. 102 Sometimes
the deposit is refunded in terms of the contract without any deduction for the
temporary cover the proposer may have enjoyed. 103 It is also possible that the insurer
has an ordinary rate for temporary cover which applies in the absence of a contrary
temporary “insurance” amounts to insurance in the true sense of the word. Perhaps
6.86 The terms of a temporary insurance contract are established in the same way as
those of a final insurance contract. As a rule the terms of the temporary insurance are
recorded in a document such as a cover note. This document may stand on its own in
expressing the terms of the temporary insurance, 105 but generally it merely
incorporates the usual terms of the insurer for the risk in question. 106 Where the usual
terms of the insurer have not been expressly incorporated, they may well have been
adopted tacitly, 107 since an applicant for insurance cover cannot reasonably expect
temporary cover on more favourable terms than those regulating the final insurance
6.87 In cases where no cover note or other relevant documentation has been issued,
the person relying on a temporary insurance contract as insured will bear the burden
of proving not only that such a contract had in fact been concluded, but also its
terms. 108
6.88 As regards the duration of the temporary insurance, the cover note or other
provision for the period of cover, 109 for instance, “for four months as from 19
October”. Temporary cover is, often if not always, subject to an express provision that
________________________
101 Estate Ralston v New York Life Insurance Co (1909) 19 CTR 808; (1909) 26 SC 482 488.
103 Mutual Life Insurance Co of New York v Ingle 1910 TPD 540 545.
104 Petersen v Incorporated General Insurances Ltd [1982] 2 All SA 112 (C); 1982 (3) SA 1 (C) 8F.
105 The “interim receipt” in Irving v Sun Insurance Office 1906 ORC 24 was self-sufficient in its terms and the
court in fact regarded this document (and not the final policy which was issued subsequently but never received by
the insured) as the record of, inter alia, the final contract be-
tween the parties. Bushby v Guardian Assurance Co Ltd 1916 AD 488 was also concerned with a
rather detailed “interim note” and the court described this document as being a final contract
(493).
106 Eg, British SA Co v The New Zealand Insurance Co 1913 SR 138 145; Greyling v Gouws 1962 (3) SA 127
(A). Where the usual terms of the contract have been incorporated expressly, there is no
need to prove that they were brought to the notice of the insured or even that he had an op-
portunity of acquainting himself with them; but cf British SA Co v The New Zealand Insurance Co
above.
107 Petersen v Incorporated General Insurances Ltd 1982 (3) SA 1 (C) 8E. In such a case the knowledge of the
insured concerning the usual terms may be of importance.
108 Kievits Kroon Country Lodge (Pty) Ltd v Hollard Insurance Co & Others, unreported (T), (2006) 9
108
it will come to an end upon refusal of the proposal by the insurer, or that the insurer
6.89 Upon expiration of the express period of temporary cover, the insurance cover
lapses automatically111 unless it has been extended by the parties. This is the case even
if the insurer has at that time not yet indicated whether it will accept or refuse the
paragraphs
6.90 If the insurer indicates its refusal to grant final cover prior to the expiration of
the agreed period for the interim insurance, the refusal can only terminate the 6.83–6.95
provides. Should the insurer issue a final policy, it does not supersede the cover note
as regards the period prior to the policy. As regards the future, the policy, being the
6.91 If no express provision is made for the duration of the temporary cover, the
insured is held covered in terms of the temporary insurance contract until the
insurer decides either to refuse the application for a final policy or to accept it.
C. INSURANCE AT LLOYD’S
from the usual insurance contracts concluded with an insurer registered in terms of
the local insurance laws. Lloyd’s is an insurance market or exchange which has
received corporate status by a special Act of the United Kingdom parliament, 113 but
neither the Corporation nor its governing Council is ever party to an insurance
The members of Lloyd’s are grouped into underwriting syndicates. The syndicates
are represented by a manager underwriter who deals from a “box” in the “room”
6.94 On account of the usual course of business at Lloyd’s, 114 it is necessary for a
instructs his own local insurance broker to communicate with a Lloyd’s broker. In
fact, it is possible for there to be more than one intervening broker. 116
6.95 The Lloyd’s broker records the details of the required cover on a document
called a “slip”. The slip is then taken by the Lloyd’s broker around the room at
Lloyd’s, seeking subscriptions to the risk being offered. The broker usually first
________________________
110 Cf Estate Ralston v New York Life Insurance Co (1909) 26 SC 482; (1909) 19 CTR 808 If the insurer exercises
its rights in terms of such a clause, the temporary cover comes to an end only if the rejection or cancellation is
brought to the knowledge of the insured. Where the cover note in ad-
dition provides that any deposit on the premium paid by the insured is to be returned to him, it
is suggested that the insurers remain liable until they have fully discharged this obligation.
114 Cf Merkin et al Colinvaux’s Law of Insurance pars 1.032–1.045; Clarke et al Contracts par 11.3.
116 Cf Representative of Lloyd’s v Classic Sailing Adventures (Pty) Ltd 2010 (5) SA 90 (SCA).
109
acceptance of the risk, usually a small part of it, by placing the stamp of the syndicate
he represents on the slip and initialing it. The percentage underwritten by the
6.96 The broker continues by approaching various other underwriters until the
amount of the risk has been fully underwritten. In offering the slip to the
underwriters, the broker makes an offer on behalf of the client who requires
insurance cover. Acceptance of this offer takes place when an active underwriter
initials the slip for an amount stated. His acceptance binds each member of the
6.97 The insurance with an underwriter at Lloyd’s is complete upon initialing of the
slip. The slip therefore embodies a binding insurance contract. The slip records only
the essential terms negotiated between the parties, but the standard terms of the
Lloyd’s policy are incorporated unless the contract states the contrary.
6.98 If there is no formal policy, the underwriter may be sued on the slip. However,
6.99 Should an individual underwriter reject a claim, an insured must institute action
against the individual underwriter and not against the syndicate. Since it is not always
practical to sue the individual underwriters abroad, the STIA provides that Lloyd’s
must appoint a local representative117 who may be cited as the nominal defendant. 118
The underwriters themselves may in appropriate cases also be sued themselves, either
by name or by identifying them through their syndicates. 119 Action may be brought in
business in South Africa. 121 It also provides for the supervision of such business. 122
________________________
118 S 59(2). The local Lloyd’s representative for many years was Ronald Napier, hence decisions such as
Barkhuizen v Napier 2007 7 BCLR 691 (CC); 2007 (5) SA 323 (CC).
119 Eg, Lloyd’s of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments (Pty)
Ltd 2004 (2) SA 276 (SCA).
121 STIA s 56. They are not treated as short-term insurers under the STIA, s 1(1) read with s 7(1).
122 Ss 56–63.
123 S 60(1). Cf s 61.
110
an insurance contract1
B. Consensus
.................................................................................................................. 112
C. Capacity
D. Formalities
................................................................................................................. 118
E. Lawfulness
................................................................................................................. 120
(a)
General...............................................................................................................
120
F.
paragraphs
VALIDITY OF CONTRACTS
7.1–7.3
7.1 The basis of contractual liability is consensus. However, consensus alone is not
enough to establish contractual liability since there may be good reasons not to
7.2 Apart from consensus, the requirements are: the parties must have capacity to
act; the contract must be lawful; the performances must be possible; the
7.3 These requirements apply equally to all types of contract, including insurance
contracts. If any one or more of these requirements have not been met, the contract,
________________________
2 By contrast, if any one or more of the essential features of an insurance contract are not present (ch 5), the
contract is not one of insurance, but another type of contract (or even an innominate
contract) and, as long as the requirements for the validity of contracts generally have been met,
111
B. CONSENSUS
7.4 The basis for contractual liability at common law is actual consensus supported
by the parties’ serious intention to be legally bound by what they have agreed to. In
7.5 A corollary of the will theory is that there can be no contract and hence no legal
the mistake may have been. This consequence of the will theory is unsatisfactory if
one of the parties was misled by the other to believe that consensus had been
7.6 This problem made it necessary to find a supplementary basis for contractual
liability. The supplementary basis which has been accepted in our law, is the reliance
whether there was concurrence between, on the one hand, the true intention of the
contract assertor (ie, the person who is claiming that there is a contract) and, on the
other hand, the intention a reasonable person would have inferred from the conduct
of the other party, the contract denier. If the conclusion is that these two “intentions”
converge, it can be said that there is constructive consensus or, as it is usually referred
7.8 If, for example, the insurer intended to exclude certain common risks from the
cover provided by the policy, but did not do so clearly and in its promotional material
it advertised full cover, the insured will have a claim when one of those risks causes
him loss. The insurer will be liable on the basis of the reasonableness of the insured’s
7.9 The reliance theory concerns exceptional circumstances. Usually the parties
understand each other correctly with the result that most contracts are based on
actual consensus. It is only where the parties misunderstand each other that the
7.10 In short, the common-law concept of consensus has been augmented with the
result that in modern contract law a contracting party may be held contractually
liable if there is either actual or constructive consensus. This also applies equally to
insurance contracts.
Actual consensus
7.11 There is actual consensus when the insured and the insurer are in agreement
about, first, the identities of the parties to the contract and, second, the
lacking if X can prove that he mistook insurer A for insurer B, or if insurer A faxed a
special offer to X whose father, with the same name, purported to accept. Consensus
about performance requires unanimity about the existence and meaning of the
conditions, exclusions, time clauses and any other terms affecting the parties’
respective obligations.
________________________
4 Eg
,
Durban’s Water Wonderland (Pty) Ltd v Botha 1999 (1) SA 982 (SCA) 991.
5 See generally Nienaber and Reinecke Life Insurance in South Africa pars 10.6–10.8.
112
which would, for example, be lacking should a person seek to insure his life for a
large sum when he had no real hope or intention of ever affording the premiums.
And there can only be real consensus if the parties are aware that they had reached
consensus. This is of importance when they do not contract in each other’s presence,
7.13 Effect is always given to the parties’ true intention and not to any simulated
paragraphs
intention each, or both of them in concert, may have pretended in their document-
7.4–7.17
ation or evidence.6
Essential mistake
mistake. 7 A mistake will exclude consensus only if it relates either to the parties
themselves, or to the performances undertaken by each party, that is, to the terms of
the proposed contract. The effect of a genuine mistake of such a nature would be
that the parties labour under the impression that consensus has been achieved when
7.15 Examples of essential mistake excluding consensus include a mistake about the
identity of the insured8 or the identity of the insurer undertaking the risk. There will
particular clause. Such a mistake may concern the property to be insured, the
amount of the premium to be paid, the amount of the sum insured, the excess to be
paid, the duration of the policy, or the maturity date of an endowment policy. A
mistake relating to the nature of the transaction will amount to a mistake about the
only be material if it affected the mistaken party’s decision to agree. In other words if
he would in any event have contracted on the same terms even if the true state of
7.16 Not every mistake excludes consensus. Suppose the parties agreed on a certain
amount as the sum insured or as the premium. Can the insurer contend that it
regarded as essential mistakes since it would not affect the performance of either
party provided the parties agreed on the actual sum to be paid. 11 However, a
miscalculation may be corrected where the parties did not agree on a specific amount
but on a particular method of calculation and the calculation was done incorrectly. It
mistake in that he did not realise that the greater part of his premium or premiums
7.17 Where an insurer agreed to all the terms as stated in the policy, but forgot to
add a particular exclusion clause to protect itself, its mistake must be branded as
immaterial. The insurer therefore cannot maintain that it thought that there was
consensus about a term it forgot to discuss with the insured. The position would be
________________________
8 Eg, where it is not certain which of two persons was intended to be the insured.
9 Eg, where it is not certain whether the contract is one of whole life insurance or endowment insurance.
10 Trust Bank of Africa Ltd v Frysch 1977 (3) SA 562 (A) 587D.
113
different if the insurer could prove that it wrongly thought that both parties had
agreed to the exclusion.
7.18 Provided the parties are otherwise in agreement on the proposed terms of the
contract, a mistake relating to the insurer’s or insured’s motives for entering into the
7.19 An insurer may, for example, be mistaken about the seriousness of the risk he is
insuring because it did not know or appreciate that the house to be insured had a
thatched roof, 12 or it may be under the wrong impression that the life to be insured
7.20 Mistakes in the insured’s motive will likewise not exclude consensus, for
example, that his policy would cover certain risks, or that the agent with whom he was
dealing was not an employee of the insurer issuing the policy, or that his premium
between unilateral and mutual mistake. Unilateral mistake covers the situation where
only one of the parties expressed his intention incorrectly. 13 Unilateral mistake is the
7.22 In summary, if parties have reached actual consensus and there is no question
Reliance theory
7.23 The reliance theory enters the picture if the parties have not reached actual
consensus, if they are not ad idem. 14 A classic description of the reliance theory has it that “[i]f whatever a man’s
real intention may be, he so conducts himself that a
reasonable man would believe that he was assenting to the terms proposed by the
other party, and that other party upon that belief enters into the contract with him,
the man thus conducting himself would be equally bound as if he had intended to
7.24 The reliance theory thus described has been referred to and applied by our
courts on numerous occasions. 16 Typical conduct on the part of an insurer that could
________________________
12 The contract cannot be attacked on the ground of a lack of consensus. It is a different matter whether or not the
insured may have committed a misrepresentation.
13 The reference to “unilateral” is confusing because in the final analysis both parties are mistaken in that each of
them labours under a wrong impression of the other’s real intention. “Mutual”
mistake refers to the situation where both parties formulated their respective intentions
incorrectly. “Common” mistake, again, describes the situation where both parties made the same
fundamental mistake, eg, that the insured car is still in existence. In the latter case the parties
are in agreement, but the contract is abortive because of a supposition that failed: see Van der
16 The leading decision is Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A). See also Hlobo
v Multilateral Motor Vehicle Accidents Fund [2001] 1 All SA 322 (SCA); Pillay v Shaik 2009
(4) SA 74 (SCA). In Constantia Insurance Co Ltd v Compusource (Pty) Ltd [2005] JOL 14053 (SCA);
2005 (4) SA 345 (SCA) the policy contained provisions entitling the insurer to cancel it in
certain circumstances and to claim the premium notwithstanding the cancellation. The
provisions were unexpected to the uninitiated in what was a specialised field of insurance and
the attention of the insured’s representative was not drawn to them. The representative created
the impression that he accepted the terms, although that was not his true intention.
Consequently this was a case of dissensus. The court held that in the circumstances a reasonable
person would not have inferred that the true intention of the insured’s representative was to
bind the insured to these provisions and for this reason the insured could not be held bound to
them.
114
mislead an insured includes providing the insured before17 the conclusion of the
omissions.
7.25 The insured’s wrong impression about the proposed terms of the contract could
7
also have resulted from the conduct of the insurer’s agent, who had authority to
paragraphs
make representations if not authority to enter into a contract on the behalf of the 7.17–7.30
insurer. 18 By the same token an agent of the insured could have misled the insurer or
7.26 The first requirement for the reliance approach is that the contract assertor
must have been led to believe that consensus had actually been achieved, and not, for
example, that the parties had merely agreed to continue with their negotiations.
7.27 The second and vital requirement for the reliance theory is that the contract
would have inferred from the other party’s conduct that he intended to bind himself
realised, or would have realised, that a mistake had occurred, there can be no
7.28 The question whether the “guilty party” (who caused the “innocent party” to
accordance with the belief he created in the mind of the other party, has not yet been
regarded as valid and binding in both directions. The innocent party cannot
complain: the contract is, after all, being upheld exactly on the lines he contemplated
7.29 Some older decisions formulated the so-called reasonable mistake (or iustus
error) approach in cases of essential mistake. This approach is also still followed in
7.30 Otherwise than with the reliance theory, the emphasis is not on the reasonable-
ness of the impression of the contract assertor who wishes to enforce the contract
mistake of the contract denier who wishes to escape from the ostensible contract
17 If the contract has already been concluded, the incorrect information will have to be treated as post-contractual
misrepresentation.
18 In such a case it would be possible, as an alternative to invoking the reliance theory, to hold the insurer
vicariously liable for loss caused by its agent’s misrepresentation. For the vicarious
19 There does not appear to be a technical requirement of fault on the part of the person who
misrepresented his intention: Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A)
240.
20 Where an insurer is therefore held to an insurance contract against its will, eg, because of the false impression it
created about a higher value of the insurance benefit, it will still be able to
21 See Van der Merwe et al Contract par 2.3.5 sv “iustus error approach”, and generally Nienaber and Reinecke
Life Insurance pars 10.22–10.24.
22 An example is where the policy reads that its maturity value is guaranteed to be Rx but, when sued on the
policy, the insurer’s defence is that the Rx was an unfortunate typing error and that
it never intended to promise that amount. The iustus error approach does not say when a
contracting party will be contractually liable, but rather when he will not be liable.
115
7.31 Where the facts justify a prima facie inference that consensus exists, a contract
denier can, according to the iustus error approach, escape liability only if he can prove
that he laboured under a mistake which was not only essential but also reasonable.
Various grounds have been listed when a mistake would be regarded as reasonable,
for example, if the contract denier’s mistake was induced by the contract assertor’s
mistake. In the final analysis all instances of reasonable mistake point in one
direction, namely, that the contract denier did not lead the contract assertor
reasonably to believe that his declared intention was his real intention. In effect a
contract denier would incur contractual liability, despite the absence of consensus,
only when he caused the other party to believe, as a reasonable person, that
consensus existed.
7.32 The main difference between the two approaches relates to the incidence of
proof. The reliance approach typically finds application when one party, say the
insured, seeks to enforce the insurance contract although the policy itself does not
support his version of what was agreed. The insured, for example, alleges that
because of the insurer’s marketing material and the assurances it had given, he
believed that the insurer guaranteed the sum insured; however, there is nothing to
that effect in the policy and the insurer can prove that such a guarantee is against its
general practice and was never intended by it. In such circumstances it is for the
contract assertor, here the insured, to prove that his reliance was reasonable. If the
insured succeeds, his claim for payment will be upheld notwithstanding the actual
absence of consensus.
7.33 Conversely, in the case of the iustus error approach, the emphasis shifts from the
contract assertor to the contract denier. Suppose the policy reads that the sum
insured is guaranteed, but the insurer contends that it was never its intention to
guarantee the sum insured and that the term was included in the policy by mistake.
In such a case the burden is on the contract denier, here the insurer, to prove, firstly,
that an essential mistake has occurred and, secondly, that the insured’s reliance on it
was not reasonable. Hence, the burden of proof is on the insurer to rebut reasonable
reliance, failing which its defence will not succeed and the insured’s claim will be
7.34 And thus, whatever the route, whether along the reliance theory or the justus
7.35 When someone signs a document, realising that it contains the terms of the
contract, there may be actual consensus if his intention was to agree to the terms
above his signature, whatever they may be. 25 But if he signs in the mistaken belief that
he was agreeing to particular terms which he had in mind, there would be essential
mistake. 26 Whether he can rely on his mistake to escape the contract, or whether the
other party can enforce it notwithstanding the proven mistake, must be determined
24 Cf Slip Knot Investments 777 (Pty) Ltd v Dun Toit 2011 (4) SA 72 (SCA).
25 Durban’s Water Wonderland (Pty) Ltd v Botha 1999 (1) SA 982 (SCA) at 991. In such a case the signatory in
effect takes a risk by signing with his eyes open.
26 Hartley v Pyramid Freight (Pty) Ltd 2007 (2) SA 599 (SCA) 601.
116
7.36 It is usually rather difficult for a person who has signed a document to escape
liability on the grounds of mistake. As a rule the person signing a document would be
liable in terms of the reliance theory despite his mistake. 28 It is usually the insured
who will be at the receiving end. The insured would be able to raise his mistake if he
could prove that the insurer (or its agent) was, or should have been, aware of his
mistake. 29 He would likewise be excused from liability where the insurer (or its agent)
misled him about the contents of the contract, for example by not alerting him to an
paragraphs
unexpected or unusual clause. 30 The insurer is required to draw the policyholder’s 7.31–7.40
7.37 Insured are regularly required to sign documents such as application forms,
claim forms, and surrender forms. If a contract is concluded in the process and a
Snatching at a bargain
example: if an insured invests R10 000 for five years, but by mistake the policy
provides that a maturity value of R1 000 000 is guaranteed, any reasonable person
would realise that a mistake had occurred and would ask further questions to clarify
the position. The insured will not be able to contend that he was reasonably led to
believe that his policy would yield such a large sum of money. Consequently the
insurer would be able to raise essential mistake.
Conclusion
contractual liability, two questions have to be asked. The first is whether the parties
have reached actual consensus in the sense described earlier. If the answer is yes,
there is contractual liability, provided, of course, that all the other requirements for
the validity of a contract have been met. If the answer is no, a second question arises.
Has the contract denier induced the contract assertor reasonably to believe that they
had reached consensus? Only if the answer to this question is in the negative will
prove actual or constructive consensus, but when a prima facie inference of consensus
can be drawn from the facts, a burden of rebuttal would rest on the contract denier.
C. CAPACITY TO ACT
Age of majority
7.40 A person must have capacity to act in order to enter into juristic acts of which
________________________
28 Reference is usually made to the rule caveat subscriptor: Afrox Healthcare Bpk v Strydom 2002 (6) SA 21
(SCA). This rule is merely a particular application of the reliance theory.
29 Hartley v Pyramid Freight (Pty) Ltd 2007 (2) SA 599 (SCA) 602.
30 Afrox Healthcare Bpk v Strydom [2002] 4 All SA 125 (SCA); 2002 (6) SA 21 (SCA); Constantia Insurance Co
Ltd v Compusource (Pty) Ltd [2005] JOL 14053 (SCA); 2005 (4) SA 345 (SCA).
31 Idem.
32 Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A) 241. See generally Nienaber and
Reinecke Life Insurance pars 10.28–10.29.
33 Juristic acts or transactions may be multilateral (multi-sided), bilateral (two-sided) and even unilateral (one-
sided). The typical example of a unilateral juristic act is a will. Some forms of
( continued)
117
bearing on a person’s capacity to act, such as his age and mental status. These rules
obtain with equal force in the insurance context. The age of majority has been set at
18 years by section 17 of the Children’s Act. 34
7.41 Both the LTIA and the STIA empowered minors35 who have attained the age of
18 years to conclude and pay the premiums for certain insurance contracts, but these
Act. 36
D. FORMALITIES
7.42 The common law does not prescribe how parties to a proposed insurance
the legislature require writing or any other formality as a prerequisite for the validity
7.43 A long-term insurer must, within a certain time, provide a summary of certain
insured. 38 The LTIA also provides that an insured may request a free copy of his
policy. 39 Short-term insurers must, within a certain time, provide a person who has
entered into or varied certain short-term policies with a copy of the document that
embodies the contract. 40 A copy of any short-term policy may be requested against
payment of a fee by the insured and the person who has entered into the contract. 41 A
failure to provide a copy does not affect the validity of the contract.
payment of the premium, for example, is therefore not a formal requirement for the
validity of the contract. 43 In principle, once the contract has been concluded either
party can, on tendering performance of any duty incumbent on him, compel the
________________________
waiver are likewise unilateral acts. Another example would be the making of an offer to enter
multilateral nature and may be divided into reciprocal contracts and those that are not
reciprocal. A reciprocal contract is one where the performance of one party is undertaken in
exchange for the performance of the other. Most insurance contracts are reciprocal contracts.
Somewhat confusingly, contracts that create duties for one party only (eg, a donation) are
occasionally referred to as “unilateral” contracts. Cf Van der Merwe et al Contract par 1.3.
34 38 of 2005.
37 Eg, Van der Keessel Praelectiones 3.24.5 (155). See generally Van Niekerk Insurance Law in the Netherlands
Vol I 463–483. This is also the position in English law: Clarke et al The Law of
39 S 48(3).
40 STIA s 47(1).
41 S 47(2).
43 Grotius Inleidinge 3.24.2; Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) 127.
118
7.45 In terms of the LTIA, 45 the undertaking of a long-term insurer to provide policy
benefits under a long-term policy (other than a fund policy or a reinsurance policy)
will be suspended until the first or only premium has been paid or satisfactory
7.46 In accordance with general principles of the law of contract, the parties to an
paragraphs
insurance contract may lay down what formalities they desire for the validity of their 7.40–7.49
contract, for instance that the contract will come into existence only if it has been
reduced to writing, 46 or that in addition to writing the policy must first be delivered to
the insured, or that the premium must first be paid. 47 In the case of a renewable
contract, pre-payment of the premium may apply to the first premium only, but more
often than not it is also prescribed for a continuation of the contract. 48
7.47 Where the parties intended payment of the premium as a formality for the
coming into being of the contract, no contract will come about prior to payment of
the premium. To conclude a contract in these circumstances, either the offer or the
acceptance by the prospective insured must take place by way of the payment of the
premium. 49 If the offer takes place by payment of the premium, the contract will
come into being at a later stage when acceptance is effected. By contrast, if the
7.48 If the validity of the contract depends on the payment of a premium, the
contract does not create a duty to pay a premium. 50 Prior to payment, there is no
enforceable contract on which to base an obligation to pay any premium and after
payment there is nothing left to pay. It is possible that a person could have been
to set a time limit within which the premium must be paid in order to renew the
contract. 52 There is also provision for a statutory period of grace in the case of long-
term53 as well as short-term contracts. 54 If the premium remains unpaid or is not paid within the period allowed,
the negotiations simply fail. 55 Once the premium has been
________________________
45 S 51.
47 Cf National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11; British Oak
Insurance Co Ltd v Atmore 1939 TPD 9.
48 Cf AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A).
49 In African Guarantee & Indemnity Co Ltd v Couldridge 1922 CPD 2 5, 6 the court took the view that the
contract was conditional upon prior payment of the premium and decided that the
insurance contract was completed only upon payment of the premium. This may be interpreted
to mean that either the offer or the acceptance took place by payment of the premium.
50 National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11; AJ Shepherd (Edms)
Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A) 417E.
insurance by payment of the premium within a certain number of days. Such a notice is an offer
by the insurer to renew the contract on payment of the premium within the stipulated period:
6.64–6.69, 14.40–14.42.
53 LTIA s 52.
55 Cf AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A) 417 where the insured
failed to provide his banker with funds to meet a debit order in respect of a renewal
premium.
119
duly paid, the contract comes alive with the result that the insurer may incur liability
7.50 The situation where payment of the premium56 is set by the parties as a formal
requirement for the validity of the contract should be distinguished from the
situation where the parties simply agree that the premium must be paid in advance of
the period of insurance. In the latter case there is, prior to the payment of the
premium, a valid insurance contract, but by virtue of its terms the insured is bound to
pay the premium in advance of the period of insurance or else he will be guilty of
breach of contract.
7.51 The parties may also regard payment of the premium as a suspensive condition
practice to determine whether the parties meant payment of the premium as a formal
E. LAWFULNESS
(a) GENERAL
7.52 The requirement of lawfulness is governed by the general principles of the law
law or by legislation. The common law renders illegal all contracts that are contrary
to public policy or good morals. 59
7.53 The prohibition of a contract by law may relate to the conclusion of the
Severance
7.54 If only certain aspects of a contract are objectionable, the contract may be saved
term) from the remainder of the contract. Severance depends first and foremost on
whether the contract as such is divisible. 61 Even if the contract is not divisible,
and notionally be separated from the rest, provided that the parties would have
7.55 An important test in this regard is whether the purified contract still fulfils the
purpose the parties had in mind with it. 63 If severance is possible, the objectionable
________________________
56 For the various possibilities when it comes to premium payment, 14.16 et seq.
57 14.16 et seq.
59 Eg, Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A); Botha (now Griessel) v Finanscredit
(Pty) Ltd [1989] 2 All SA 401 (A); 1989 (3) SA 773 (A).
60 Cf Nuclear Fuels Corporation of SA (Pty) Ltd v Orda AG 1996 (4) SA 1190 (A).
61 11.26–11.41.
62 Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) 16; Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd 1993
(1) SA 179 (A).
63 Sasfin (Pty) Ltd v Beukes above 24D; Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd above 190A.
120
Consequences of illegality
7.56 There are different sanctions that could conceivably be attached to unlawful
agreements. Sometimes the legislature prohibits a contract without rendering it
invalid. In these instances the relevant legislation usually renders the conclusion of
the contract a punishable offence64 and this serves as the only sanction. Whether or
paragraphs
7.57 A special type of sanction attaches to wagers by virtue of the common law. 7.49–7.61
Wagers are not totally devoid of effect but they create no more than natural
performed. 66
7.58 The most common sanction attached to illegality is total invalidity or voidness –
the contract does not create any rights or obligations and cannot be enforced. The
rule that an illegal contract cannot be enforced ( ex turpi causa, non oritur actio) allows
for no exceptions, not even if the parties were totally unaware of the illegality.
performance may, depending on the circumstances, be recovered with either the rei
vindicatio or the enrichment action known as the condictio ob turpem vel iniustam
causam. This right to recovery is subject to the par delictum rule (the maxim is in pari
delicto potior est conditio defendentis, vel possidentis). This rule bars recovery if the parties
acted in a shameful way. It will be relaxed if public policy will be better served by
relevance where a claim is being considered not for the enforcement of an unlawful
agreement, but for recovery of what has been performed. 68 It would appear that
prevention of unjust enrichment weighs heavily with the courts. 69 Generally a court
would be inclined to relax the par delictum rule if only one party has performed. 70
7.61 Public policy is not static, but varies from time to time71 and from place to place.
A contract is contrary to public policy if it is inimical to the interests of the
simple justice between man and man should also be strived for. 74
________________________
64 Pottie v Kotze 1954 (3) SA 719 (A); Swart v Smuts 1971 (1) SA 819 (A).
65 Cf Metro Western Cape (Pty) Ltd v Ross 1986 (3) SA 181 (A).
68 Cf Wylock v Milford Investments (Pty) Ltd 1962 (4) SA 298 (C). In Visser v Rousseau 1990 (1) SA 139
(A) 153, the court remarked that it is of importance who acted scandalously. It would appear
that the court was of the opinion that fault ( mens rea) determined whether conduct was
scandalous. See also ABSA Insurance Brokers (Pty) Ltd v Luttig 1997 (4) SA 229 (SCA) 242 where
the court indicated that equal delictum is required and that a lack of knowledge excluded
disgracefulness.
71 Magna Alloys & Research (SA) (Pty) Ltd v Ellis [1984] 2 All SA 583 (A); 1984 (4) SA 874 (A).
72 Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A) 8D; Botha (now Griessel) v Finanscredit
(Pty) Ltd [1989] 2 All SA 401 (A); 1989 (3) SA 773 (A) 782–783.
121
contracting party is generally not sufficient to render the contract contrary to public
insurance, and the ordinary sense of the words does not lead to absurdity,
repugnance or inconsistency with the rest of the contract, the contract as concluded
be regarded as a ground for rendering the contract against public policy and
transaction and not its actual proven result. All in all, it may be said that the power of
terms of which either the obligations of both the parties to it are subject to opposite
7.65 From early times most legal systems frowned upon aleatory contracts. An
important objection was that certain, if not all, aleatory contracts tempted people to
squander their assets. In the end not only the contracting party in question suffered,
but also those dependent on him. Another fairly general objection was that a person
could obtain an advantage without having earned it through hard labour and that
this discouraged persons from working for a living. Moreover, it was thought that this
type of activity did not really add any value to society. Contracts that gave rise to these
contracts and condemned for being contrary to public policy. Although not regarded
as totally devoid of any effect, 82 they were nevertheless considered unenforceable: the
assistance of the courts could not be sought to enforce them. 83 In short, freedom of
contract had to give way to the best interests of the community at large. This
________________________
75 Scottish Union andNational Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458; Robin v
Guarantee Life Assurance Co Ltd 1984 (4) SA 558 (A) 564–567; Bredenkamp v Standard Bank of South
Africa [2010] 4 All SA 113 (SCA); 2010 9 BCLR 892 (SCA); 2010 (4) SA 468 (SCA) par 50.
76 Robin v Guarantee Life Assurance Co Ltd [1984] 2 All SA 422 (A); 1984 (4) SA 558 (A) 565B.
77 Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A), Magna Alloys & Research (SA) (Pty)
Ltd v Ellis [1984] 2 All SA 583 (A); 1984 (4) SA 874 (A) 893I. See CFC van der Walt 1986
SALJ 646.
79 Eg, A undertakes to pay B R100 if a particular boxer wins while B undertakes to pay A R1 000 if that boxer
loses.
80 Eg, A undertakes to pay B R100, in return for which B undertakes to pay A R1 000 if a particular horse wins.
This is analogous to the typical insurance position, where the insured pays a
premium unconditionally and only the insurer’s obligation is subject to an uncertainty. If both
obligations are subject to the same suspensive condition, the contract is not an aleatory contract
82 Just as any other contract, they could, of course, be unlawful if against public policy for a reason other than
their aleatory nature, eg a wager on an immoral object was not merely unenforceable
(for being a wager), but also unlawful and void (for being against public policy because of its
object).
122
7.67 It is clear that an element of contingency is incorporated into the terms of all
“losing” or “gaining”, depending on the outcome of the event upon which the
insurer’s performance rests. Thus, if the insured event does take place, the insurer
will be the party who is worse off and the insured will gain from the contract in that
his loss will be compensated. If the event does not materialise during the currency of
the policy, the insured again will be on the losing end in terms of the contract while
paragraphs
the insurer will profit from receiving the premium and not having to pay out 7.62–7.71
contract. 84 This brings into play the considerations of public policy referred to.
7.68 The element of chance pertaining to insurance contracts at first rendered such
contracts suspect in the eyes of the public, the church, and the law. 85 In addition to
the general objections to aleatory contracts, it was said that an aleatory contract in the
form of an insurance contract might tempt the insured to bring about the insured
event in order to obtain the insurance money, or might at least render the insured
less careful in looking after his property because it was insured. Where lives were
7.69 In modern law, insurance contracts are distinguished from undesirable wagers
an acceptable method to transfer and spread the risk and insurance contracts are
countered through various measures. Thus, to enable insurers to compute the risk on
a scientific rather than an arbitrary basis, a duty is imposed on the insured to disclose
all material facts before the conclusion of the contract. 88 Insurance ontracts have
indeed gained in status and importance to such an extent that the law protects the
rights under certain types of insurance. 89 Certain insurances are even made
compulsory. 90
question is always whether the purpose and effect of the contract are inimical to the
interests of the community, or whether the contract runs counter to social and
economic expedience. 91 To this end the category to which a contract belongs is not
________________________
84 Eg, Birds et al MacGillivray on Insurance Law par 1.012; Wansink et al Assers Handleiding tot de Beoefening
van het Nederlands Burgerlijk Recht. 7: Bijzondere Overeenkomsten Deel IX Verzekering par
85 Some Roman-Dutch authorities apparently even thought that life insurance contracts were
3.24.5; Van Leeuwen RHR 4.9.6. However, Havenga Origins and Nature of the Life Insurance
Contract 60 is of the view that only wagering on and not insurance of lives was prohibited. Cf also
Clarke et al Contracts par 3.1A on the prohibition of life insurance on grounds of public policy in France in the
17th century and on the fact that in England too the Legislature intervened in
87 4.76–4.78, 5.68–5.70.
89 Eg, in terms of the LTIA 52 of 1998 s 63 certain long-term policies are protected against
91 Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A) which dealt with the illegality of a
contract on account of public policy in general.
123
7.72 Proper insurance contracts are nonetheless prima facie enforceable because, by
virtue of their contents, they are not within the purview of the considerations
public policy. 93 In short, proper insurance is not a mischief like wagering or gambling
7.73 Public policy is a fluid concept. It would appear that the disapproval of wagers
and gambling contracts is on the wane. The common-law rule that rendered wagers
unenforceable, has been questioned judicially, 94 and it has been suggested that
wagers super re honesta are indeed enforceable. 95 Furthermore the Legislature has validated certain instances of
erstwhile undesirable gambling contracts. 96
7.74 This creates the impression that there are no longer any real objections on the
grounds of public policy to wagering and gambling unless special circumstances exist.
It may well be that eventually all wagers will become enforceable, 97 and in England
7.75 In Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 99
the court
stated that as long as a party to a “contract of insurance” has a suitable interest in the
non-occurrence of the uncertain event upon which the outcome of the contract
depends, the contract is enforceable provided the interest is not contrary to public
policy. 100 However, it is suggested that such a contract can be an insurance contract
only if it contains an indemnity clause. 101 If not, the contract can at most be an
7.76 If wagers became enforceable, it would have indirect implications for insurance
law. However, it will not mean that the difference between insurance and wagers will
simply fade away. Historically, insurance contracts were always held distinguishable
from wagers despite the fact that at one stage wagers were regarded as enforceable in
certain jurisdictions. 102 The distinction between insurance and wagers will remain of
importance for purposes other than the legality of the contract. Thus, performance
patrimonial nature, while performance under a wager is not in any way linked to a
loss. 103 This will remain the position even if wagers became enforceable.
________________________
92 Eg, insurance contracts with an immoral purpose (eg, insurance of the enemy or smuggled
goods) or tending to encourage the commission of crime (eg, insurance against criminal pen-
alties).
93 Reinecke
1996
95 Cf
Rademeyer v Evenwel [1971] 3 All SA 387 (T); 1971 (3) SA 339 (T).
96 National Gambling Act 10 of 1998 s 18. See further Van Niekerk 2005 JBL 70.
97 Schlemmer
1999
98 Merkin et al Colinvaux’s Law of Insurance pars 4.007–4.009 on the Gambling Act, 2005 (c 19) s 335 that
renders gambling contracts enforceable unless they are unlawful otherwise than for a
reason “relating specifically to gambling”. Previously, by the Gaming Act, 1845 (8 & 9 Vict c
109) s 18, gaming and wagering agreements were null and void in English law.
99 2013 (5) SA 42 (WCC). See (2013) Juta’s Insurance L Bul 73–103; Reinecke 2013 4 TSAR 816.
101 5.51–5.62.
102 Ie, in English law prior to the passing of the Gaming Act, 1845: Birds et al MacGillivray par 1.021.
124
7.77 If wagers do in fact become generally enforceable in our law, it would probably
mean that the parties to a genuine indemnity insurance contract could be allowed
more freedom than before in defining what they mean by “loss” for the purpose of
the insurer’s undertaking to compensate the insured for a loss. The reason for this is
that there will be no fear that the contract may be against public policy and therefore
unenforceable because it deviated from the strict principle of indemnity. But if the
parties wished to employ a wider than usual concept of loss or damage, it would be
paragraphs
incumbent on them to define the performance required of the insurer clearly and 7.71–7.80
precisely in order to fulfil the general requirement of certainty. 104 Nor can such new
freedom mean that the contract may be stripped of its basis as an indemnity contract
substance not an indemnity contract, will at most be a wager under the cloak of
as an (enforceable) wager and should not give rise to a right to subrogation or lead to
on condition that a proper interest is present at the time of the loss. 105 It will
within the ordinary scope of such insurance. Hence, if a contract on the life of a third
person is not intended to be conditional on the existence of a proper interest,
existing at the time of the occurrence of the event insured against, the contract will
not be an insurance contract but a wager. 106 It is doubtful whether such a contract will
safety of insured persons will be endangered. 107 It is suggested that such a contract
7.79 The Life Assurance Act, 1774108 introduced an insurable interest as a statutory
requirement for the validity of all insurance contracts except insurances on ships and
movables. In Dalby v India and London Life Assurance Co109 the court held that the Life
Assurance Act required an insurable interest to exist at the date of the contract and
that it was not concerned with the existence of an interest at any other time. 110 This
applies to all forms of insurance under the Act, whether indemnity or non-indemnity.
The provisions of the Act are peremptory and if a contract does not conform to
them, it is illegal and void. Neither the insurer nor the insured can waive the
provisions of the Act and an English court takes cognisance mero motu of the illegality
7.80 The existence of an insurable interest is therefore a requirement for the legality
________________________
104 For the parties’ freedom to base their contract on a contractually defined notion of indemnity, see 3.55, 4.23,
4.35. See also Van Niekerk 1996 TSAR 572.
107 Put differently, it will be against public policy otherwise than merely for the reason that it is a wager.
110 Birds et al MacGillivray pars 1.019, 1.028–1.037; Clarke et al Contracts par 4.4.
125
7.82 The matter must be approached in accordance with general principles. The
justifiable interest of the insured. For this reason insurance contracts in terms of
interest, prima facie do not offend against public policy notwithstanding the absence
merely affects the liability of the insurer under the contract, not the validity or
7.83 In short, there is no room or reason for a requirement of interest affecting the
non-indemnity insurance. 114 On the other hand, an aleatory contract, which is not
conditional on the existence of a proper interest at the time of the loss, is in effect a
wager. Such a contract is at present still contrary to public policy and hence
7.84 The conclusion of an insurance contract with an alien enemy after the outbreak
of war between his country and South Africa, is, on general principles, contrary to
our common law. 116 Contracts concluded before the outbreak of war are dissolved on
its commencement, but if a loss has taken place before the commencement of
hostilities, the insured’s claim is merely suspended until the war is over.
Unlawful performance
7.85 An insurance contract is not often unlawful on account of the illegality of the
________________________
112 In Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK 2002 (5) SA 85 (T) par 12, the court
took it for granted that insurable interest is a “requirement” for the validity of an insurance contract. However, this
has been refuted in Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co
South Africa Ltd 2013 (5) SA 42 (WCC) pars 23, 26. See (2013) 16 Juta’s Insurance L Bul 73–103;
114 Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd, above.
115 7.66.
116 Janson v Driefontein Consolidated Mines Ltd [1902] AC 484 (HL), an English decision concerning losses
during the Anglo-Boer War. See also Van der Keessel Praelectiones 3.24.4 (143); Van der
Linden Koopmanshandboek 4.6.2; and generally Van Niekerk 1998 De Jure 93.
117 Where an insurer has undertaken the reinstatement of a building, its performance may be
unlawful, eg, because such rebuilding may contravene new building regulations.
126
Unlawful purpose
7.86 An agreement may be illegal on account of its unlawful purpose but only if both
parties harbour the same purpose. 118 Unlawfulness will follow even if the parties did
7.87 A loss suffered by an insured may result from a crime or civil wrong, for instance
loss may occur while a crime is taking place although there is no causal connection
paragraphs
between the crime and the loss, for instance where the insured house is gutted by a 7.81–7.92
7.88 The first step, as always, is to determine whether the loss is covered by the
contract at all. The description of the risk may be in wide terms creating the
impression that the loss is within the risk in spite of the crime but on closer scrutiny it
may transpire that the particular loss is in fact excluded when not only the express119
but also the tacit terms of the insurance contract are taken into account. The test for
7.89 In the above example of the insured house being used as a brothel, the question
must be posed what would the parties answer if a bystander asked them whether the
7.90 If the answer is in the negative, the validity of the contract is not in doubt. The
insured is not covered while the house is being used for such an immoral purpose
simply because the contract does not cover such a risk. Should the illegal activities
cease, the risk is within the contract and the insured should be able to claim for a
loss.
7.91 Should it be found that the contract did purport to cover the risk of damage to
the house while it is being used as a brothel, the next step would be to determine
whether or not the purpose of covering such loss is against public policy. The gravity
of the immoral or criminal conduct should play an important role. Thus the insured
should not be prevented from recovering his loss if the offence involved is no more
than a technical transgression, for instance where the premises are used to run an
unlicensed liquor store. Conversely, usage for purposes of a brothel is more serious.
In Richards v Guardian Assurance Co121 the court came to the conclusion that the contract insuring a house used
as a brothel was illegal.
7.92 Where the loss is the result of a crime as in the above example of the reckless
driving by the insured, the same procedure must be followed. If the intention was to
cover loss resulting from reckless driving, it must once again be determined whether
or not the purpose of covering such loss is against public policy. Also in this context
the gravity of the offence should play an important role. If for instance the insured
incurs liability for murder, a policy covering any liability would certainly be unlawful.
By contrast, it has been decided122 that where an insured who suffered a loss brought
about by the crime of reckless driving, the description of the risk in the contract was
not only wide enough to cover the eventuality, but it was also taken not to offend
119 In Lloyds of London Underwriting Syndicates 960, 48, 1183 and 2183 v Skilya Property Investments (Pty) Ltd
2004 (2) 276 (SCA) there was an express clause excluding the insurer’s liability for loss
caused by the illegal use of the insured aircraft. Cf also Nel v Santam Insurance Co Ltd 1981 (2)
SA 230 (T).
121 1907 TH 24, but cf the remarks in Lawsa Vol 12 Part 1 par 169 note 7.
122 Nathan v Ocean Accident & Guarantee Corporation Ltd 1959 (1) SA 65 (N) 72.
127
7.93 Whether criminal or undesirable conduct and its consequences can or cannot
lawfully be covered by insurance, must be decided on the facts of each case and in the
light of considerations of public policy and good morals. In the case of loss resulting
from a crime there is an additional consideration, viz that a person cannot derive a
7.94 Both the LTIA and the STIA prohibit the conclusion of certain contracts either
expressly or by implication.
7.95 One of the main prohibitions in terms of the insurance legislation is the
7.96 Another important provision is the limitation the LTIA imposes125 on the policy
benefits an insurer may provide under a life policy or assistance policy in the event of
concern whether the policy is taken out on behalf of the life insured himself, or on
behalf of any other person who may have an insurable interest in the life concerned.
The maximum amount that may be insured is R10 000 in case of an unborn and a
minor less than six years old, and R30 000 in case of a minor above six but below 14
years.126 Virtually the same limitation applies to accident and health policies under
the STIA.127
7.97 There are also a few other prohibitions in both statutes. 128
7.98 It is at first glance not clear whether insurance contracts concluded contrary to
the prohibitions129 in the insurance legislation130 are valid or invalid. The sections in question merely lay down
prohibitions without expressly providing that an offending
7.99 However, both Acts further contain a general provision132 that a policy will not
be void merely because a provision of a law, including the relevant Act itself, has been
provision for the cancellation of a policy by the insured if it was issued by a person
who was not entitled to conclude insurance. 133 This provision clearly is to the
advantage of the insurance public. It is suggested that the effect of this provision is
that offending policies are prima facie valid despite being in conflict with the
________________________
124 See both Acts s 7(1). Cf also both Acts ss 9, 10, 11 and 15 regarding conditions of registration and limitations
on insurers.
125 S 55.
126 Amounts payable in terms of certain other policies must be taken into account. See also
s 55(2).
127 S 50.
129 7.94–7.97.
128
Requirements for the validity of an insurance contract
7.100 Then again, the validating provision could not have been intended to mean
that policies in contravention of the law must in all cases be regarded as valid, no
matter how serious a matter of public policy is at stake. This raises the question
could be valid. The prohibition in both Acts is in the interests of young children
whose lives are to be insured. They are designed to exclude speculation on the lives
of defenseless children. 134 There would be little sense in regarding such agreements
paragraphs
7.93–7.104
7.101 Likewise, it may be thought, the intention could not have been that policies in
contravention of the law must in all cases be regarded as valid, even if both parties
7.102 Apart from prohibiting certain contracts, the insurance legislation also
invalidate certain clauses in insurance contracts. 136 The validity of the contract as a
whole is not affected, but the invalid clauses must be regarded as pro non scripto.
7.103 Insurance contracts must conform to the values enshrined in the Constitution
and specifically the Bill of Rights137 otherwise they will be invalid. 138 In this regard the equality clause139 is of
particular importance. 140
against anyone on one or more specific grounds, including race, gender, sex,
pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age,
disability, religion, conscience, belief, culture, language and birth. One effect of this
provision is that the grounds listed above may not be taken into account in the
assessment of risk, unless it can be justified in terms of the Bill of Rights. 141 Another is
that the terms of the contract have to be interpreted taking into account the spirit of
134 The sections concerned do not dispense with the necessity to prove insurable interest. They merely restrict the
amount which may be insured.
135 Eg, would an insured still be entitled to cancel the policy he had concluded with an insurer not registered
either at all of or for the business concerned if the insured was fully aware of the fact
that the insurer was not so registered? Or does the validity provision only protect an innocent
insured?
137 Constitution, Ch 2.
138 It has been pointed out that public policy (which governs the validity of contracts at common law) is informed
by the Constitution generally and the Bill of Rights in particular: Hopkins
2002 SALJ 155 172. In Napier v Barkhuizen 2007 (5) SA 323 (CC) a time-barring clause was con-
sidered not to infringe the insured’s constitutional right of access to the courts.
139 S 9. Insurance law may also be influenced by other clauses in the Bill of Rights. So, certain insurance
practices may infringe the right to privacy not only of the insured (Kuschke 2007 De
Jure 305; Joubert 2009 THRHR 17), but also of intermediaries (Schulze 1994 THRHR 57 75–76).
140 See generally Havenga 1997 SA Merc LJ 278; Wagener 2011 SA Merc LJ 376. The equality clause has already
been used to declare invalid certain sections of the repealed Insurance Act 27 of
141 S 36(1).
142 Eg, in Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C), the insured’s partner, with whom he
had shared his home and with whom he had maintained an unbroken and intimate
same-sex relationship for the ten years preceding the accident in which the partner had been
injured, was held to be a member of the insured’s family within the meaning of the exclusion-
ary clause. This interpretation was held to accord with the spirit, purport and objects of the Bill
of Rights. See also Langemaat v Minister of Safety and Security 1998 (3) SA 312 (T).
129
7.105 The general measures contained in the equality clause is taken further in the
Promotion of Equality and Prevention of Unfair Discrimination Act. 143 The Act
provides that no one may be unfairly discriminated against on any of the prohibited
grounds. 144 It then contains an illustrative list of unfair practices in certain sectors
“which are or may be unfair, that are widespread and that need to be addressed”. 145
7.106 One of the sectors are insurance services. And as examples of unfair practices
unfairly and unreasonably refusing to grant services to persons solely on the basis of
7.107 On the basis that an insurer’s performance is to pay a sum of money and not to
bear a risk, 147 the general requirement that the performances must be possible does
not play an important role in the insurance context. An obligation to pay money is a
reinstate the object of the risk, the requirement that performance must be possible
can become relevant since such reinstatement may be or become impossible. The
effect of such impossibility is that the insurer will have to render the agreed
in the insurance context, for instance where the object of the risk is destroyed prior
to the conclusion of the contract (initial impossibility) or where the object of the risk
question qualifies only the obligation of the insurer, but in the circumstances the
contract as such will be abortive. Subsequent impossibility will mean that the affected
________________________
143 4 of 2000. See generally the comments in (2000) 3 Juta’s Insurance L Bul 26–33.
144 The “prohibited grounds” are in essence the same as those mentioned in the equality clause
itself.
145 S 29(1).
146 Sched, par 5. Unfair practices regarding pensions (listed in par 6) include unfairly excluding any person from
membership of a retirement fund or from receiving any benefits from the
fund on one or more of the prohibited grounds; and unfairly discriminating against members
147 11.9–11.16.
148 Reinstatement is usually considered to be in the nature of a facultative performance: 22.26 et seq.
149 See generally Van der Merwe et al Contract pars 6.1 (effect of (initial) impossibility) and 13.4.1.9
130
Certainty of premium
undertaken by the parties must be certain or at least ascertainable. 150 This applies with
equal propriety to both the performance of the insured and that of the insurer.
7.112 In many cases the parties may be able to fix the amount of the premium at the
paragraphs
time of the contract, whether as a single sum or a composite amount. However, 7.105–7.114
sometimes this is not practical or even possible. 151 If the contracting parties do not
determine, whether expressly or tacitly, the precise amount of the premium upon
conclusion of the contract, they must at least agree, again either expressly or tacitly,
on a proper standard or formula for its subsequent determination. Where they have
not reached finality on the premium or a proper standard to compute it, the
7.113 A proper standard for determination of the premium could be the insurer’s
usual or ordinary rate where the insurer has a fixed tariff and there is no doubt as to
how the risk should be classed. 153 A premium at the market rate will likewise satisfy
the requirement of certainty. 154 This also holds good for an agreement that the
premium will be a certain percentage of the value of the objects found to be at risk,
and for a provision that the premium will be increased annually by a certain
7.114 May the parties simply agree that a “reasonable” premium will be charged?
According to English insurance law, this is possible. 155 This question has not been
squarely decided, but it would appear that our courts would give effect to such an
________________________
151 In some cases a provisional premium has to be paid at the commencement of the period of the risk while a
final adjustment of the premium has to take place at the end of the period: British
Oak Insurance Co Ltd v Atmore 1939 TPD 9 10; Robin v Guarantee Life Assurance Co Ltd 1984 (4) SA 558 (A)
565E.
152 For general principles in a case where the performance was still to be agreed upon: Letaba Sawmills (Edms)
Bpk v Majovi (Edms) Bpk 1993 (1) SA 768 (A). The court ruled that an option to
renew a lease was invalid because in terms of the option contract, the rental had to be negoti-
ated afresh. In accordance with these general principles, the court in Zava Trading (Prop) Ltd v
Santam Insurance Ltd, unreported (D), held that a premium to be agreed upon is not acceptable. But cf Van
Niekerk 1994 THRHR 660 who argues that there could possibly have been a
tacit term in order to give business efficacy to the agreement, namely that should the negotia-
153 Petersen v Incorporated General Insurances Ltd [1982] 2 All SA 112 (C); 1982 (3) SA 1 (C) 8F; Robin v
Guarantee Life Assurance Co Ltd [1984] 2 All SA 422 (A); 1984 (4) SA 558 (A).
156 The underlying principles have been considered in the context of sale and lease where the
question is whether a sale or a lease for a reasonable price or rental is tenable. The court in
Genac Properties Jhb (Pty) Ltd v NBC Administrators CC (previously NBC Administrators (Pty) Ltd) 1992
(1) SA 566 (A) (577F), eg, stated that it was difficult to see on what principle a sale for a rea-
sonable price, or a lease for a reasonable rent, should be regarded as invalid. This view was
echoed in NBS Boland Bank Ltd v One Berg River Drive CC, Deeb v ABSA Bank Ltd, Friedman v
Standard Bank of SA Ltd 1999 (4) SA 928 (SCA). This opens the door for the acceptance of in-
surance on the basis of a reasonable premium. See further Van Niekerk 1994 THRHR 660.
131
7.115 The parties may further agree to leave determination of the premium to an
ascertainable third party. 157 But would it be in order if the insurer itself were given the
right to determine or vary the premium? Traditional perceptions158 are against such a
notion, but it would appear that there may have been a change of opinion and that
today it would be allowed. 159 The exercise of such a discretion must be arbitrio boni
viri, that is, in accordance with the norms of good faith. This means that the
7.116 The premium may be paid in instalments provided there is certainty about the
certain event. The premium may even be revised at a later stage (as is usual in liability
policies) on condition that the parties have agreed on the method of revision. 161
7.117 In principle, the amount of the premium is a matter of contract and depends
compensate the insured for patrimonial loss (indemnity insurance) is, of course,
(non-indemnity insurance). The same holds true where the insurer undertakes to pay
monthly amounts until the insured dies as in the case of annuity insurance. In the
case of life insurance, the insurer’s performance is sometimes adjusted with reference
________________________
157 Hurwitz v Table Bay Engineering (Pty) Ltd 1994 (3) SA 449 (C). An example of this is where the premium in
terms of an insurance contract is determined by a disinterested actuary.
158 Cf, eg, Kriel v Hochstetter House Edms Bpk 1988 (1) SA 220 (T).
159 In NBS Boland Bank Ltd v One Berg River Drive CC, Deeb v ABSA Bank Ltd Friedman v Standard Bank of
SA Ltd 1999 (4) SA 928 (SCA) the court decided that a provision giving a contractual party
the right to determine a performance was unobjectionable, save perhaps where a party is given
the power to fix his own performance or to fix a purchase price or rental. See also Engen Petro-
132
A. A
conspectus
..............................................................................................................
133
D. Positive
misrepresentations
......................................................................................
145
E. Negative
misrepresentations
....................................................................................
150
F. Materiality
.................................................................................................................. 161
G. Fault
............................................................................................................................ 172
I. Relief........................................................................................................................... 174
J.
A. A CONSPECTUS
paragraph
8.1
reduced to writing and incorporated into a policy. 1 Being the product of consensus,
consensus as such can be challenged, be it because the parties were at cross purposes
or because the consent of the one party to it was procured by improper means
employed by the other. 2 The improper means may well consist of a misrepresentation
causing the other party to enter into the contract either at all or on different terms. 3
________________________
1 The topic is dealt with in greater detail in Lawsa Vol 12 Part 1 pars 179–243.
3 Van der Merwe et al Contract par 4.2. Another form of improper conduct inducing a contract is undue influence,
discussed more fully in Lawsa Vol 12 Part 1 par 243.
133
Delictual nature
African law. 5
8.3 Misrepresentation in a contractual setting has the same points of vantage and
departure as the corresponding delict, but the interposition of a contract in the latter
the wrongfulness of the conduct and the form of the relief available for it, all of
mercantile law, 7 there are no immediately apparent reasons why, but for the available
8.4 A misstatement, viewed from the perspective of the representor, may be made
________________________
4 See eg, De Wet and Van Wyk Kontraktereg en Handelsreg 47; Van der Merwe et al Contract par 4.2.3; Kern
Trust (Edms) Bpk v Hurter [1981] 2 All SA 286 (C); 1981 (3) SA 607 (C). To misrepresent a
fact is intrinsically wrong. The act of misrepresentation is thus the first, although by no means
5 In England the courts have rejected the view that the duty of disclosure is based on some
tortious duty, or arises from an implied term, or is rooted in a fiduciary relationship between the
6 In the case of a delict proper, a misrepresentation is not actionable if it was innocently made since the
blameworthiness of the representor’s conduct is a prerequisite for relief. This
approach is in accordance with the adage that loss remains where it falls unless it can be
transferred to someone else who can be blamed for it. Where the misrepresentation additionally
leads to the conclusion of a contract, and if the delictual nature of the conduct is to be
conclusive there should accordingly be no room for any relief. That view has indeed been
advanced: see De Wet and Van Wyk Kontraktereg 47. Yet according to positive law the contract
may in such circumstances be rescinded: cf 8.133, 8.143. The explanation for the apparent
contradiction may well lie in an important point of distinction between the two situations. In the
case of a delict proper, relief is in the form of compensation. If the proven misrepresentation is
found to have been innocently made, there will be no relief granted and that is the end of the
matter. But in the case of an ensuing contract, the relationship between the contracting parties,
if it is not to be rescinded because the misrepresentation was innocently made, will continue, for
all that the contractual relationship may have been contaminated and the contractual
equilibrium may have been disturbed by the misrepresentation. That is why, dogma
notwithstanding, there is much to be said for the view that if the representee would not have
contracted at all, rescission is an appropriate remedy and if the contract would have been
restore the contractual balance between the parties. See further 8.146–8.147.
7 See Van Niekerk 2005 SA Merc LJ 150 152–163 for a discussion of the history of the duty of disclosure in the
English law with reference to the literature and case law.
8 Cf
1.26.
9 F ourway Haulage SA (Pty) Ltd v SA National Road Agency Ltd [2009] 1 All SA 525 (SCA); 2009 (2) SA 150
(SCA) 152: “It is a generally accepted principle that the effect of an implied
mCubed International (Pty) Ltd v Singer [2009] 2 All SA 536 (SCA); 2009 (4) SA 471 (SCA) par 18.
134
8.5 In South African law a party to a contract or contemplated contract is not under
insurance proposer is required to disclose facts that are relevant, that is, material to
the risk the insurer is asked to assume. A distinction is thus drawn, as with delicts
paragraphs
8.2–8.8
insurance. 14 The contrast may thus be expressed as that between positive conduct in
disclosure in terms.
By whom
insured who is not the insurance proposer or policyholder, 16 will not entitle the
insurer to relief, unless the insured authorised (or created the impression that he
authorised) him to speak on the insured’s behalf. Failing such authorisation, redress
must be sought from the third party responsible for the misrepresentation. 17
Pre-contractual
during the negotiation process preceding the conclusion of the contract or its
overstate the benefits or advantages of the policy it is seeking to market and the
insured in turn may misrepresent factors that would be relevant to the assessment by
the insurer of the risk and consequently also to the fixing of the premium. 19
________________________
10 As it was stated in ABSA Bank Ltd v Fouche [2002] 4 All SA 245 (SCA); 2003 (1) SA 176 (SCA) 181A “[i]t is
not the norm that one contracting party need tell the other all he knows about
anything that may be material”; see also generally Van Niekerk 2005 SA Merc LJ 150 332.
12 Van der Merwe et al Contract par 4.2.3. The distinction can at times degenerate into an exercise in semantics.
Cf 8.41; Lowry et al Insurance Law: Doctrines and Principles 83.
13 In English law negative misrepresentation is described as “non-disclosure” and treated not as a sub-species of
the genus “misrepresentation”, but as a category separate from positive
14 See Nienaber and Reinecke Life Insurance in South Africa par 23.5.
15 Nienaber and Reinecke Life Insurance par 16.13; Van der Merwe et al Contract par 4.2.3. The same is true for a
misrepresentation by a member to a group-life scheme unless there is a
16 See further, for misrepresentations by insurers, eg in advertising or during pre-contractual negotations, Lawsa
Vol 12 Part 1 par 200.
17 Van der Merwe et al Contract par 4.2.3. See also Voet Commentarius 4.3.5.
18 For instances of post-contractual misrepresentations on the part of the insurer, see Nienaber and Reinecke Life
Insurance par 24.2.
135
in the sense, first, that it only has meaning and hence can only be relevant and thus
8.10 The misrepresentation must in the second place be material in the sense that,
viewed objectively, it would have predisposed any representee, in the position of the
actual representee, to enter into the contract, or to enter into it on different terms;
or, to put it conversely, it would not be material if it would not have influenced a
wrongfulness. 20
8.11 The misrepresentation must, in the third place, be material in the sense of
having induced the representor, as a matter of actual fact, to react to it, either by
entering into the contract or by agreeing to some of its terms which, but for the
causation. 22
Wrongfulness
8.12 A false disclosure is prima facie wrongful. In the case of a non-disclosure the
basic rule in South African law is that there is no general duty on a contracting party
ence either the conclusion or the terms of the contract with the other party. The
exception occurs when the legal convictions of the community, its innate sense of
fairness, otherwise known as the boni mores, require the one party to speak up to
either prevent or dispel a wrong impression on the part of his counter-party. 23 In such
8.13 The boni mores criterion is ubiquitous. It has latterly become something of an all-
purpose wonder drug. It determines in the first instance, in the case of an omission,
and thus in the case of a non-disclosure, whether there was a duty on the part of the
Such a duty would exist if the representor’s postulated reasonable alter ego would have
________________________
20 8.12, 8.17 et seq, 8.42, 8.94 et seq; Neethling et al Delict 302; Nienaber and Reinecke Life Insurance par 9.
21 mCubed International (Pty) Ltd v Singer [2009] 2 All SA 536 (SCA); 2009 (4) SA 471 (SCA) par 22.
There is no compelling reason why the flexible approach to causation applied in delictual
22 8.15, 8.125 et seq. According to De Wet and Van Wyk Kontraktereg 46 the distinction drawn by the courts
between materiality and inducement appears, on analysis, to be no more than that the
misrepresentation must have caused the conclusion of the contract as it is. There can be little
doubt, however, that in insurance law materiality fulfils a far more conspicuous role: 8.94 et seq.
23 Such a duty is postulated in cases such as Pretorius v Natal South Sea Investment Trust Ltd (under judicial
management) [1965] 3 All SA 1 (W); 1965 (3) SA 410 (W) 416; Meskin v Anglo-American
Corporation of SA Ltd [1968] 4 All SA 281 (W); 1968 (4) SA 793 (W) 799. As appears from
Constantia Insurance Co Ltd v Compusource (Pty) Ltd [2005] JOL 14053 (SCA); 2005 (4) SA 345
(SCA) par 16, misrepresentation by omission should not be confused with dissensus where one
party by his misleading conduct created the impression that he regarded himself as bound but
the other party should have realised that he did not in fact so intend, cf 7.27.
the representee would have thought that the non-disclosed fact would have been
taken into account by a reasonable underwriter in assessing the risk it was prepared
to assume. 25 Concomitantly, a breach of that duty would prima facie be wrongful. But it
would only be held to be wrongful if, from the perspective of ordinary members of
paragraphs
the community, having taken all the circumstances into account, also those of the
8.9–8.17
8.14 The boni mores test is thus a function not only of the requirement that there
must be a legal act but also that such act must be wrongful. Factors that may feed into
wrongfulness are the materiality of the omission and the attitude, the state of mind,
and the good or bad faith of both the representor and the representee. The test is
objective, as opposed to the test for fault, be it deliberate or negligent. Then the
focus is not, as here, on the parties as typecasts but on the wrongdoer as a particular
Causation
8.15 The false representation must be an effective cause of the contract or its terms. 26
Description
insurer regarding the insurance proposer or the life to be insured or the insured
interest, which is material to the assessment of the risk by the insurer, which is
wrongful and which caused it to conclude the insurance contract either at all or on
its terms.
B. WRONGFULNESS IN THE CONTEXT OF NON-DISCLOSURE
8.17 To be actionable, that is to say, to give rise to some or other form of legal relief,
the false or incorrect representation must at the outset be wrongful. Not all actions
whether the representee enjoys a subjective right not to be misled with a concomitant
general legal duty resting on the representor to be truthful, and with the further
the representor was, in all the circumstances of the case, 28 under a duty29 – measured
________________________
26 8.125 et seq.
27 Neethling et al Delict 54; Van der Merwe et al Contract par 4.2.3. See further Lawsa Vol 12 Part 1
28 Relevant circumstances may include the fact that the conduct of the misrepresentor is coloured by fraudulent
intent and, it is submitted, by bad faith. To that extent there may be an overlap
between the disparate legal concepts of wrongfulness, blameworthiness and good or bad faith.
But a clear line must be drawn between conduct that is deemed unreasonable for the purpose of
determining wrongfulness as opposed to negligence. See Jaffit v Garlicke & Bousfield Inc (PFK
(Durban) Incorporated and others as Third Parties) [2012] 2 All SA 95 (KZP); 2012 (2) SA 562 (KZP)
( continued)
137
according to the flexible boni mores criterion, that is to say, the norms and convictions
then prevailing in the section of the community concerned – to avoid or prevent the
8.18 The harmful consequences could have been avoided if the representor either
refrained from misrepresenting a fact to the representee, or did not remain silent
accordance with current constitutional norms. 32 As was observed in ABSA Bank Ltd v
Fouche, 33 the same test for wrongfulness, the legal convictions of the community,
disclosed are facts and information that would, on disclosure, have prevented or
________________________
which is to be read subject to what was authoritatively stated in Roux v Hattingh 2012 (6) SA 428
(SCA) 438: “Among the considerations that may influence the policy decision whether or not to
impose liability, is the nature of the fault that is proved, as well as other fault-related factors . . .”.
The test for wrongfulness should not, however, be conflated with the test for negligence: Le Roux
v Dey (Freedom of Expression Institute and Restorative Justice Centre as Amici Curiae) 2011 6 BCLR 577
(CC); 2011 (3) SA 274 (CC) par 122). See Brand 2013 THRHR 57 63 referring to SM Goldstein &
Co (Pty) Ltd v Cathkin Park Hotel (Pty) Ltd [2000] 4 All SA 407 (A) par 37: “‘The test involves a
value judgment by applying in the light of all the circumstances the general criterion of
reasonableness. The criterion is based upon considerations of morality and policy and the
court’s perception of the legal convictions of the community. That harm is foreseeable is a
relevant consideration.’ What is clear from the statement is that the criterion of reasonableness
relates to whether it would be reasonable to impose liability on the defendant.” See too Cape
Empowerment Trust Ltd v Fisher Hoffman Sithole (200/11) [2013] ZASCA 16 par 24.
29 See Cape Town Municipality v Bakkerud [2000] 3 All SA 171 (A); 2000 (3) SA 1049 (SCA) par 14; Telematrix
(Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority of SA [2006] 1 All SA
6 (SCA); 2006 (1) SA 461 (SCA) pars 11–15; Trustees, Two Oceans Aquarium Trust v Kantey &
Templer (Pty) Ltd [2007] 1 All SA 240 (SCA); 2006 (3) SA 138 (SCA) pars 11–12; MV MSC Spain;
Mediterranean Shipping Co (Pty) Ltd v Tebe Trading (Pty) Ltd [2007] 2 All SA 489 (SCA); 2008 (6) SA
another factor to be taken into account in determining wrongfulness. The greater the
foreseeability, the greater the possibility of a legal duty to prevent harm existing.” All factors
must be taken into account, including a fraudulent state of mind. See mCubed International (Pty)
Ltd v Singer [2009] 2 All SA 536 (SCA); 2009 (4) SA 471 (SCA) par 34.
31 On whether legal relief is an additional relevant factor to be taken into account in assessing wrongfulness, see
Neethling et al Delict 78; Roux v Hattingh 2012 (6) SA 428 (SCA) 437; Minister of Safety and Security v Van
Duivenboden [2002] 3 All SA 741 (SCA); 2002 (6) SA 431 (SCA) par 21;
Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority of SA [2006] 1 All SA
6 (SCA); 2006 (1) SA 461 (SCA) pars 15–16; 2006 (1) SA 461 (SCA); Fourway Haulage SA (Pty) Ltd
v SA National Roads Agency Ltd [2009] 1 All SA 525 (SCA); 2009 (2) SA 150 (SCA) pars 21–22.
32 Idem.
34 See McCann v Goodall Group Operations (Pty) Ltd [1995] 3 All SA 276 (C); 1995 (2) SA 718 (C) 722; Van
Niekerk 2005 SA Merc LJ 323 332.
35 A self-evident factor will be the representor’s purpose to mislead or confuse: Van der Merwe et al Contract par
4.2.3. In such circumstances materiality will overlap with fault.
138
Relevant factors
fiduciary relationship between the contracting parties and, secondly, the reliance
which the one party is of necessity required to place on information emanating from
the other party in whose exclusive knowledge the information resides; 37 and of course
paragraphs
recognised when certain facts are within the peculiar knowledge of the insurance 8.17–8.21
proposer and are relevant to the assessment of the risk by the insurer. 38
C. GOOD FAITH IN THE CONTEXT OF NON-DISCLOSURE
8.21 In modern South African law, as in the Roman-Dutch common law, 39 all
(contracts bonae fidei). 41 Good faith, a concept of wide and imprecise import, is
therefore not in itself a distinguishing feature of the insurance contract. 42 Only in the
last decade of the 20th century was the attention of the courts focused on this feature
on the topic43 and perhaps partly as a result of the widely lamented decision of the
________________________
37 Van Niekerk 2005 SA Merc LJ 323 333, relying on Pretorius v Natal South Sea Investment Trust Ltd (under
judicial management) [1965] 3 All SA 1 (W); 1965 (3) SA 410 (W) 418; Orban v Stead [1978]
2 All SA 659 (W); 1978 (2) SA 713 (W) 718; McCann v Goodall Group Operations (Pty) Ltd [1995] 3
All SA 276 (C); 1995 (2) SA 718 (C) 723; New Adventure Investments 193 (Pty) Ltd v Trustees for the
time being of the SAS Trust [2002] 3 All SA 544 (C) par 51; MV Afris Pioneer: National Stevedores (Pty)
Ltd v My Afris; Pioneer 2004 (3) SA 88 (N) 94; ABSA Bank Ltd v Fouche [2002] 4 All SA 245 (SCA);
38 Cf 8.30.
39 For a historical perspective, see eg, Zimmermann Law of Obligations passim; Zimmermann “Good Faith and
Equity” in Zimmermann and Visser (eds) Southern Cross. Civil Law and Common Law in
South Africa 217–260. See also Van der Merwe et al Contract par 9.7.
40 See Van Niekerk Insurance Law in the Netherlands Vol I 494–499, Van Niekerk 2005 SA Merc LJ 150
323. Roman-Dutch law recognising a general duty of good faith governing the conduct of the
insured, imposed no general pre-contractual duty upon an insured to disclose information to his
insurer; the duty was a narrow one in respect of a casuistic range of matters required by specific
legislation to be accommodated in the policy. The insured’s duty extended only to facts known
to him, although in certain circumstances the insured had to mention that he did not have the
41 See Meskin v Anglo-American Corporation of SA Ltd [1968] 4 All SA 281 (W); 1968 (4) SA 793 (W) 802A;
Paddock Motors (Pty) Ltd v Igesund [1976] 3 All SA 332 (A); 1976 (3) SA 16 (A) 28; Tuckers
Land and Development Corporation (Pty) Ltd v Hovis [1980] 1 All SA 358 (A); 1980 (1) SA 645 (A)
651B–652G; Magna Alloys & Research (SA) (Pty) Ltd v Ellis [1984] 2 All SA 583 (A); 1984 (4) SA
874 (A) 983C; Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324
(A); 1985 (1) SA 419 (A) 433B; Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1
(A) 7I; Botha (now Griessel) v Finanscredit (Pty) Ltd [1989] 2 All SA 401 (A); 1989 (3) SA 773 (A)
782J; LTA Construction Bpk v Administrateur, Tvl [1992] 3 All SA 1007 (A); 1992 (1) SA 473 (A)
480D–E; Eerste Nasionale Bank van Suidelike Afrika Bpk v Saayman [1997] 3 All SA 391 (A); 1997
(4) SA 302 (SCA) 321; Janse van Rensburg v Grieve Trust CC [1999] 3 All SA 597 (C); 2000 (1) SA
315 (C) 325–326; Van der Westhuizen v Arnold [2002] 4 All SA 331 (SCA); 2002 (6) SA 453 (SCA)
469.
42 It would therefore not be correct to include a reference to good faith in the definition of the insurance contract.
Cf 1.22 et seq, 5.1 et seq, 8.36–8.39.
43 See Carey Miller 1980 SALJ 531; Van der Merwe, Lubbe and Van Huyssteen 1989 SALJ 235.
44 See Bank of Lisbon & SA Ltd v De Ornelas [1988] 2 All SA 393 (A); 1988 (3) SA 580 (A). For a discussion of
the issues involved, see Lambiris 1988 SALJ 644; Van der Merwe, Lubbe and Van
( continued)
139
itself as a mechanism for piecemeal and incremental solutions to specific areas of it. 46
It was stated thus in SA Forestry Co Ltd v York Timbers Ltd:47 “[A]lthough abstract values such as good faith,
reasonableness and fairness are fundamental to our law of
contract, they do not constitute independent substantive rules that courts can employ
contract. They cannot be acted upon by the courts directly. Acceptance of the notion
that judges can refuse to enforce a contractual provision merely because it offends
their personal sense of fairness and equity will give rise to legal and commercial
uncertainty.” Good faith, or the lack thereof, bad faith, operates at various levels of
the law of contract. The first and most elemental division is between good faith in the
pre-contractual stage between negotiating parties and good faith between contracting
also applies to the renewal of a contract or to an agreed variation of its terms. Good
contracts, is dealt with separately. 50 Also distinguishable is the situation where parties
8.24 Until fairly recently52 insurance contracts had been classified as contracts of the
utmost good faith (contracts uberrimae fidei). 53 In general, contracts of this type have been said to impose a duty
on both the contracting parties to be more frank and
________________________
Huyssteen 1989 SALJ 235; Erasmus 1989 SALJ 666 676; Lewis 1991 SALJ 249 262. The main cause
for concern is that the principle of good faith may have been sacrificed in the process of
45 Brand and Brodie in Zimmermann, Visser and Reid (eds) Mixed Legal Systems in Comparative Perspective 94–
116.
46 Van der Merwe et al Contract par 9.7: “Good faith in this sense may be developed by way of specific
applications or by imposing a general duty”. See in general Standard Bank of South Africa
Ltd v Prinsloo [2000] 1 All SA 145 (C); 2000 (3) SA 576 (C) 585; Brisley v Drotsky 2002 12 BCLR
1229 (SCA); 2002 (4) SA 1 (SCA) pars 21–24, 93–95; Barkhuizen v Napier 2007 (5) SA 323 (CC);
2007 7 BCLR 691 (CC); 2007 (5) SA 323 (CC); Bredenkamp v Standard Bank of South Africa Ltd of
South Africa [2010] 4 All SA 113 (SCA); 2010 9 BCLR 892 (SCA); 2010 (4) SA 468 (SCA) par 53;
Maphango v Aengus Lifestyle Properties (Pty) Ltd [2011] 3 All SA 535 (SCA); 2011 (5) SA 19 (SCA)
pars 22–25; Potgieter v Potgieter 2012 (1) SA 637 (SCA) par 31.
47 [2004] 4 All SA 168 (SCA); 2005 (3) SA 323 (SCA) par 27.
49 An analogous situation is the legal duty resting on a seller to inform a potential purchaser of the existence of
latent defects in the property to be sold of which he happens to be aware: see De
50 9.32 et seq.
51 See Silent Pond Investments CC v Woolworths (Pty) Ltd [2007] JOL 20088 (D); 2011 (6) SA 343 (D).
When parties expressly agree to observe the utmost good faith in the implementation of their
agreement effect is to be given to that clause; it may create a specific obligation on the one party
52 See Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985
53 Cf Bodemer v American Insurance Co [1961] 2 All SA 615 (A); 1961 (2) SA 662 (A) 668; Pereira v Marine &
Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755.
140
preceding the contract54 than in ordinary commercial transactions. Not only must
8.25 The duty of utmost good faith surfaces most frequently in connection with
contracts typified by trust and entrustment, as in the case of partnership55 and agency
relationships, for example those involving brokers. 56 In all such cases conflicts of
interest are to be avoided and a full accounting of dealings and profits is required.
paragraphs
Insurance contracts, too, were said to belong to the category of contracts of the 8.22–8.27
utmost good faith. That view was endorsed in the English Marine Insurance Act,
1906. 57
8.26 It was, however, roundly and comprehensively rejected for South African law in
the origin of the phrase “uberrima fides” was doubtful, but noting that it apparently
made its appearance in English law in 1850, the court pointed out that it was “unable
marine insurance is a contract uberrima fidei”. 59 The court accordingly rejected the
expression as “alien, vague [and] useless . . . [and] without any particular meaning in
law”, 60 explaining61 that “there is no magic in the expression”, that “there are no degrees of good faith”, 62 that
“it is entirely inconceivable that there could be a little,
more or most (utmost) good faith”, and that “there is no room for uberrima fides as a
third category of faith in our law”. Despite these pertinent remarks, and despite the
fact that the House of Lords has subsequently, with reference to them, noted that
“[t]he concept of uberrima fides does not appear to have derived from civil law and
[that] it has been regarded as unnecessary in civilian systems”, 63 old habits die hard
and insurance contracts are still occasionally referred to as contracts of the utmost
good faith. 64 This usage must be deprecated, at least in so far as it suggests that the
distinction between utmost good faith and good faith is a matter of principle rather
than application.
8.27 While rejecting the notion of utmost good faith, the court in Mutual and Federal
________________________
54 Cf Fine v The General Accident, Fire & Life Assurance Corporation Ltd 1915 AD 213 218; Colonial Industries
Ltd v Provincial Insurance Co Ltd 1922 AD 33 40; Pereira v Marine & Trade Insurance Co
55 See eg Purdon v Muller [1961] 2 All SA 464 (A); 1961 (2) SA 211 (A) 220–231.
56 25.35 et seq.
57 (6 Edw VII c 41) s 17 describes a marine insurance contract as “a contract based upon the
utmost good faith”, following on Lord Mansfield’s celebrated judgment in Carter v Boehm 1766 3
Burr 1905, 97 ER 1162. See also Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1
AC 501 (HL); Lowry et al Doctrines 84–88; Van Niekerk’s critical analysis of the decision and its
58 [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A). For a discussion of this decision, see Reinecke and Becker 1985
TSAR 86; Van der Merwe 1985 THRHR 456.
59 431I.
60 433F.
61 433C–D.
63 Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The “Star Sea”) [2001] 1 Lloyd’s Rep 389
(HL) 392.
64 Cf Santam Bpk v Potgieter 1997 (3) SA 415 (O) 423H; Joubert v ABSA Life Ltd 2001 (2) SA 322 (W) 325I.
The notion of utmost good faith is also encountered outside the sphere of contracts, eg in
connection with the disclosure of facts in ex parte applications: Rizcun Trader (4); MV Rizcun
Trader v Manley Appledore Shipping Ltd [2000] JOL 6588 (C); 2000 (3) SA 776 (C) 793–794.
65 [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A).
141
Accordingly, past authority dealing with the content of the notion of utmost good
faith may still be consulted for guidance, mindful of the fact that, in principle, any
duty concerned is one of good but not necessarily of exaggerated good faith. In
particular, there is a duty on the parties to an insurance contract to display good faith
towards one another during the course of their negotiations preceding the contract.
Good faith in the insurance context is not an independent requirement typical only
of certain types of contract and conduct, but simply a manifestation of the more
general duty of good faith between contracting parties; 66 more pertinently it is one of
the factors determining the content, although it is not the conceptual equivalent, of
8.28 The duty of good faith applies to both parties to the insurance contract, that is,
not only to the proposer for insurance but also to the insurer. In the case of multiple
parties on either side, the duty of good faith applies to each of them individually. 67
The duty of good faith applies to all types of insurance contracts68 and is pre-
insurance contract. It has, more specifically, a direct relationship with the duty of
disclosure. 69
8.29 There are, it has been said, no degrees of good faith, such as little, more or
most (utmost) good faith, 70 but this may be an oversimplification since there clearly
are degrees of bad faith, in the same way that there are degrees of blameworthiness.
Rationale
8.30 The duty of good faith as it relates to the duty of disclosure resting on a
insurer wishing to calculate the insurability of a specific risk must be able to quantify
the possibility of loss to a degree of probability. To this end the insurer requires
extensive information about, and an awareness of, the facts affecting the risk in point.
Only then can the insurer calculate the risk and come to a decision on whether or
not it is prepared to accept the risk and, if it is, to what extent and on what terms and,
especially, at what price (or premium) it is prepared to do so. 71 Since some of the
decisions concerning the risk and its quantification are eventually embodied in the
8.31 The special facts which form the basis of these calculations are generally
regarded as being within the knowledge of the proposer for insurance cover, 73 which
________________________
66 The institutional authors usually simply referred to good faith ( bona fides), or the absence of good faith,
namely bad faith ( mala fides): Grotius Inleidinge 3 24 6, 3 24 20; Van der Keessel
67 Thus, in the case of two or more joint insured, all of them have a duty of good faith, including a duty of
disclosure: Munns v Santam Ltd [2000] 4 All SA 248 (D); 2000 (4) SA 359 (D) 366J.
70 Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A)
433D.
71 Fine v The General Accident, Fire & Life Assurance Corporation Ltd 1915 AD 213 218; Pereira v Marine
& Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755.
73 The classic statement to this effect was made by Lord Mansfield in 1766 in his judgment in Carter v Boehm
(1766) 3 Burr 1905, 97 ER 1162 1909 1164: “Insurance is a contract upon speculation.
The special facts, upon which the contingent chance is to be computed, lie most commonly in
the knowledge of the insured only: the underwriter trusts to his representation, and proceeds
upon confidence that he does not keep back any circumstances in his knowledge, to mislead the
( continued)
142
is the rationale for the proposer’s duty to provide accurate and complete information
on facts likely to influence the decision of the insurer in this regard. The above
approach to, and justification of, the insured’s duty of disclosure seem to be firmly
entrenched, 74 despite the fact that the scope of the duty has arguably been extended
beyond that originally required when the insurer was an individual underwriter and
8.32 The contrary argument has not yet been raised and considered by the courts,
paragraphs
namely that as between insurer and insured and when it comes to information about 8.27–8.33
the risk, the insurer is no longer in an unequal position and in need of protection. 76
The converse is true. Furthermore, no attention has yet been paid to the fact that at
common law the insurer’s pre-contractual duty of enquiry was as wide as, if not wider
than, the insurance proposer’s pre-contractual duty of disclosure. 77 These are all
8.33 A renewal is nothing other than the conclusion of a new contract, 79 based on
mutual consent, 80 which succeeds the previous contract which has expired through
________________________
underwriter into a belief that the circumstance does not exist, and to induce him to estimate the
risque, as if it did not exist.” See also Malcher & Malcomess v Kingwilliamstown Fire & Marine
Insurance & Trust Co (1883) 3 EDC 271 288; Pereira v Marine & Trade Insurance Co Ltd above 755.
74 Cf the decision in Pereira v Marine & Trade Insurance Co Ltd above where the court reaffirmed the principle.
The direction that the law will eventually take is at this stage merely a matter for
conjecture. However, it is conceivable that the emphasis on good faith, especially as far as the
duty of disclosure is concerned, may become less pronounced and that insurers may be content
to calculate the risk and its premium with reference to mean or commonplace circumstances.
This already and increasingly appears to be the case as insurers market insurance telephonically
and electronically without their requiring the insured to complete a proposal form on which
75 Thus, the insured is today expected to disclose, in accordance with the boni mores criterion, a wider range of
facts and not merely, as was stated in Carter v Boehm, those material facts which are
in his exclusive knowledge and of which the insurer either had no suspicion or which it could
not discover by a reasonable enquiry. But cf, eg, McCann v Goodall Group Operations (Pty) Ltd
[1995] 3 All SA 276 (C); 1995 (2) SA 718 (C) 722F–G, 723C, 726D holding that a legal duty of
disclosure, and hence potential delictual liability for a failure to disclose, may arise, eg, when the
fact in question falls within the exclusive knowledge of the defendant and the plaintiff relies on
its frank disclosure in accordance with the convictions of the community. In Munns v Santam Ltd
[2000] 4 All SA 248 (D); 2000 (4) SA 359 (D) 366B, the court described the proposer’s duty as
one “to disclose any fact, exclusively within his knowledge, which it is material for the insurer to
76 See eg Hasson 1969 Modern LR 615; Merkin 1979 Modern LR 544 547 who contends that “the duty to disclose
plays little part in the insurer’s knowledge of material facts” since modern
insurers are well versed in phrasing questions to elicit material facts and, moreover, often
employ insurance agents to fill in proposal forms on behalf of a proposer; 24.29 et seq; Van
77 See Van Niekerk Insurance Law in the Netherlands Vol I 494–499; Van Niekerk 2001 SA Merc LJ 102
109–113.
79 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 399; Van Aswegen v Mutual & Federal
Versekeringsmaatskappy Bpk, unreported (O), (1998) 1 Juta’s Insurance L Bul 45; Stander v
Raubenheimer 1996 (2) SA 670 (O) 672G; Hollard Insurance Co Ltd v Leclezio [1999] JOL 4524 (N);
1999 (4) SA 130 (N) 135I (“It is trite that each renewal of an indemnity insurance policy . . .
80 Whyte’s Estate v Dominion Insurance Co of SA Ltd above 396; Southern Insurance Association Ltd v Cooper
1954 (2) SA 354 (A) 361. There need, of course, not be renewed negotiation and a new
policy and there may, eg, be a renewal when the insured offers and the insurer accepts a
premium for a further period of insurance: Farr v Mutual & Federal Insurance Co Ltd 2000 (3) SA
684 (C) 688H where it was observed that “the contract of insurance was renewed annually when
143
effluxion of time. The same is of course true for a variation of the terms of the policy.
insurance contract just as it did to the conclusion of the original contract. 81 Renewal
occurs when a contract is concluded for a specific period, as in the case of indemnity
insurance contracts, 82 but not in the case of an insurance contract of a continuing
nature which remains in existence for as long as the premium is paid, as has been
8.34 Good faith in the negotiating process fulfilled, and continues to fulfil, a central
place in identifying and circumscribing the duty of making proper disclosure; and
by the same token the absence of good faith typifies the wrongfulness of a particular
contractual in nature for by definition the parties are in a pre-contractual mode and
at the outset be wrongful. To misrepresent a fact is prima facie wrong and thus
wrongful; not to disclose a fact when in the estimation of ordinary members of the
community it should have been disclosed, is equally wrong and thus wrongful.
8.35 The general criterion for wrongfulness which informs the law of delict, namely
the convictions of the community, either at large or in the section of the community
concerned, as to what is right and proper or wrong and against “good morals”, also
applies in the insurance context. The concept of the boni mores as the touchstone for
developed and explained in other areas of the law, especially in the law of delict. 85
mere absence of good faith. Bad faith will always be a telling factor in the assessment
consideration.
8.36 It is therefore fair to conclude that in modern law good and bad faith in the
contract bonae fidei. And if that is correct, it means that while good faith is a factor in
good faith is not the only factor in determining the overall wrongfulness of his
conduct as a step in the process of deciding whether the insurer is entitled to rescind
the contract.
8.37 Good or bad faith and wrongfulness are thus not separate or parallel or
determination of which bad faith is a relevant but not the only relevant factor. Good
faith is thus not an extra step in deciding whether the insurer may rescind; it is
blended into the requirement that the insured’s pre-contractual non-disclosure must
________________________
82 Whyte’s Estate v Dominion Insurance Co of SA Ltd above 399; Hollard Insurance Co Ltd v Leclezio
83 Steyn’s Estate v SA Mutual Life Assurance Society [1948] 1 All SA 366 (C); 1948 (1) SA 359 (C) 364; Southern
Insurance Association Ltd v Cooper 1954 (2) SA 354 (A) 360; Lawsa Vol 12 Part 2 par 1.
84 Cf 8.2.
86 8.12, 8.17.
144
tation is perhaps the clearest manifestation of the absence of good faith. But other
Yet relief is granted, even in certain circumstances when the misrepresentation was
blamelessly made. 87 The common denominator for relief is therefore not an absence
therefore, be equated with a breach of good faith. Relief for misrepresentation in the
paragraphs
considerations of good faith. But good faith is not a material element for legal relief
claimant for relief is not required to prove, in order to succeed, either the presence
8.39 An insurance proposer’s good faith is not as such an excuse or a defence for a
material non-disclosure; his bad faith is not a separate requirement for actionability
against him, but is a manifestation of the wrongfulness of his conduct. Good or bad
faith in the insurance context will always be a relevant factor, but in South Africa and
for the time being at any rate, it may be an article of faith rather than a rule of law. 88
D. POSITIVE MISREPRESENTATIONS
Positive statements
writing, for instance a false response to a question posed in a proposal form. 89 The
statement may also consist of conduct, for instance a nod of the head or “no’s” to a
8.41 Similarly, a proposer may provide an answer to a question in the proposal form
incorrect. If the proposer fails to correct his earlier answer his failure to do so may
existing and in this case self-created false impression, but also because he has made a
positive statement by his conduct. 91 In instances such as these the distinction between
becomes a fine one. 92 Since the cause of action in both instances is a misrepresen-
________________________
87 8.3, 8.27 .
89 Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755; Rabinowitz v
Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 407–408;
was nevertheless repeated tacitly by conduct. The same will apply to statements of intent.
92 Whyte’s Estate v Dominion Insurance Co of SA Ltd above. A positive misrepresentation in the form of an
incorrect statement may at the same time amount to a negative misrepresentation, namely
93 In English law a distinction is drawn between the duty of disclosure and the duty to refrain from
misrepresentation. See further Lawsa Vol 12 Part 1 par 202 n 5.
145
In both instances it will be determined in accordance with the legal convictions of the
community, the oft-mentioned test of the boni mores, whether the positive conduct
whether the negative inaction complained of was in breach of a duty to act positively
(and hence wrongful). This is, after all, the general criterion for establishing
wrongfulness. 94 When the statement is entirely untrue, the issue is relatively simple. If,
a proposal form that he has not been involved in an accident during the past three
years, whereas in fact he has, the statement is obviously wholly false. 95 The same may
be said of a statement in a proposal for fire insurance that the premises to be insured
are occupied by a particular person when they are not96 or that no proposal for
similar insurance has been declined in the past, when in fact it has been declined. 97
8.43 However, the position is not always so clear-cut. A statement may, for instance,
be inaccurate because it is incomplete and so mislead the other party to the contract
by the suppression of a part of the true facts. Thus, in answer to a question whether a
proposal or insurance has ever been declined or cancelled, a proposer may state that
no proposal has ever been declined, thereby telling the truth, while omitting to
mention that a previous insurance contract had been cancelled. The statement,
proposals have been made to other insurers, a proposer answers: “Yes, to the XYZ
companies, the answer may again be said to be partially true but substantially
contracts means that such particulars are to be furnished fully and not selectively.
8.44 As stated earlier, 99 a failure to state all the material facts in answer to a question may at one and the same
time amount to both a negative misrepresentation and a
impression that all the relevant facts had been furnished when that was not the
case. 100
________________________
94 8.17.
97 Cf
Colonial Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 38. See also Broli v London
Assurance Co 1931 EDL 186 where the proposer stated that a previous insurance had been de-
99 8.41.
100 Eg, if a house which is used not only as a dwelling-house but also as a brothel is simply described as a
dwelling-house: Richards v Guardian Assurance Co 1907 TH 24 30. See also Broli v
146
within the context in which it was made. Thus, a statement which is wholly true when
read in isolation, may be inaccurate when judged in the context in which it is made.
So, the answer “no” to the question “Have you had a serious accident during the past
three years?” may be perfectly true for the proposer but not true for one of his
employees. However, when read in the context of other questions and answers in the
paragraphs
proposal form, the answer may be inaccurate because it may be clear that the “you” 8.42–8.48
interpreted with reference to the purpose for which it is elicited. So, a proposer who
has personally been refused fire insurance in the past and who nevertheless gives a
negative reply to the question “Have you ever applied for fire insurance and been
that the question is meant to refer to the past insurance record of the company and
not that of a director in his personal capacity, so that the answer may be correct. 102
8.47 It is sometimes said that a statement need not be correct in every minor detail,
but must be substantially accurate. 103 Whether substantial inaccuracy should lead to
legal liability will depend on the test for wrongfulness. 104 Even when a statement is
inaccurate it may not warrant legal liability, for instance where the inaccuracy is trivial
and covered by the de minimis rule or is immaterial to the assessment of the risk
which are not merely possible but are “at least plausible and reasonable”. 106 The test is
clearly objective107 and the mere fact that an interpretation is favourable to the
insured does not mean that it is reasonable. However, once ambiguity has been
construction and the particular question may more readily be construed against the
party at whose behest the contract or, in this case, the particular question was
________________________
101 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 390–391. It is even possible that a number
of statements, each basically true, may, when taken together, create a false impression.
102 See Ehrig & Weyer v Transatlantic Fire Insurance Co 1905 TS 557 560–561; Colonial Industries Ltd v
Provincial Insurance Co Ltd 1922 AD 33 38–39. Depending on the circumstances the proposer
may, of course, be under a duty to disclose facts relating to his own insurance record, eg, where
the insurance is effected by a partnership: Colonial Industries Ltd v Provincial Insurance Co Ltd
1922 AD 33 40.
103 Cf the English Marine Insurance Act, 1906 (6 Edw VII c 41) s 20(4) according to which,
sented and what is actually correct would not be considered material by a prudent insurer”.
107 Cf the way in which the question of ambiguity was dealt with in British America Assurance Co v Cash
Wholesale above.
147
drafted. 108 This is invariably the insurer, so that an answer to an ambiguous question is
form. 110 If a proposer’s answers are clearly inconsistent and contradictory, an insurer
who nevertheless issues a policy may, of course, be held either to have waived its
remedies or not to have been misled by them at all. If a proposer leaves a question in
the proposal form unanswered, he cannot summarily be said to have made a positive
statement of fact, unless the context of the other answers to questions in the proposal
form justifies the inference that a negative answer was intended. Omitting to answer a
Opinions
opinion. 111 The expression of an opinion is therefore, prima facie, not wrongful, even
namely that it is not a genuine opinion because it does not truly reflect the
8.51 An opinion differs from a statement of fact in that the former does not purport
to assert its subject matter as a categorical fact but merely expresses the view,
conviction or conclusion held by the party expressing it about the subject matter. The
context will determine whether a representation is viewed as the one or the other.
8.52 Every opinion contains at least one implicit statement of fact, namely that the
person expressing the opinion honestly holds the view he expresses. 113 Moreover, the
opinion may contain an express or, more usually, imply a tacit statement that the
opinion, or even a statement that he has properly applied his mind in arriving at his
nature and which are incorrect, should be actionable like any other wrongful
representation of fact, especially if the non-compliance was intentional. 114 The action
in such a case is not based on the failure of the opinion, but on the implied incorrect
statement.
________________________
108 This approach was stretched in Bruwer v Nova Risk Partners Ltd [2010] JOL 26333 (GSJ); 2011
(1) SA 234 (GSJ). See 10.64 for the contra proferentem rule.
109 British America Assurance Co v Cash Wholesale 1932 AD 70 74: “If, then, the question is capable of two
reasonable meanings, that which is the more favourable to the insured will be accepted by a
92 (A); 1981 (2) SA 684 (A) 695C; Aldeia v Coutinho 1997 (4) SA 295 (O) 298G–H.
112 Cf Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 149; Rabinowitz v Ned-
Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 408. See also Lourens
v Genis [1962] 1 All SA 272 (T); 1962 (1) SA 431 (T) 434; Presidency Property Investments (Pty) Ltd
v Patel 2011 (5) SA 432 (SCA) par 28; Van der Merwe et al Contract par 4.2.3.
113 Van Heerden v Smith [1956] 3 All SA 220 (O); 1956 (3) SA 273 (O) 276; Rabinowitz v Ned-Equity Insurance
Co Ltd above 408.
114 Which would emphasise the wrongfulness of the statement. Cf Presidency Property Investments (Pty) Ltd v
Patel 2011 (5) SA 432 (SCA) par 28; Feinstein v Niggli [1981] 2 All SA 92 (A); 1981 (2)
SA 684 (A) 695. See Van Heerden v Smith above 276; cf Kern Trust ( Edms) Bpk v Hurter [1981] 2
All SA 286 (C); 1981 (3) SA 607 (C) regarding an opinion expressed negligently.
148
relating to future events, and to statements of intent and promises. 115 The weight of
authority seems to be that a representation must refer not merely to fact but to a
purported past or present fact, and that there can be no actionable representation as
such concerning anticipated future events. 116 Any liability for a statement relating to
the future therefore does not lie in its eventual future result, but in the state of mind
paragraphs
of the party making it at the time when it is made. Such a statement is, in other 8.48–8.55
words, “not a representation as to the truth or accuracy of its content; it can, however,
state of mind”. 117 If a statement relating to a future event or state of affairs has been
made a term of a contract, the usual remedies for breach of such a term are available
Misstatement of law
8.54 An incorrect statement concerning a rule of law follows a similar pattern. 119 The
weight of authority favours the view that a representation about a matter of law is, in
facts known to both parties to the contract, and a pertinent “conclusion of law stated
as a fact”. 121
8.55 The former is regarded as a mere opinion and the latter as a factual statement.
Thus, it has been held that a statement that a clause in a contract bears a particular
meaning in law is not a representation of fact but one of law and that, as a mere
________________________
115 Lourens v Genis [1962] 1 All SA 272 (T); 1962 (1) SA 431 (T) 434; Novick v Comair Holdings Ltd
[1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 149; Rabinowitz v Ned-Equity Insurance Co Ltd
116 Ruto Flour Mills (Pty) Ltd v Moriates [1957] 3 All SA 28 (T); 1957 (3) SA 113 (T) 116; Novick v Comair
Holdings Ltd above 149; Rabinowitz v Ned-Equity Insurance Co Ltd above 408; cf Donners Motors (Pvt) Ltd v
Kufinya [1968] 1 All SA 371 (RA); 1968 (1) SA 434 (RA) 436–438. And cf also R v
Larkins 1934 AD 91 92 where the court stated with reference to the crime of fraud that “to sup-
port a charge of fraud the false pretence must be that some fact exists or has existed; a mere
117 Novick v Comair Holdings Ltd above 149; Rabinowitz v Ned-Equity Insurance Co Ltd above 408. See also Van
Heerden v Smith [1956] 3 All SA 220 (O); 1956 (3) SA 273 (O) 276; but cf Kern Trust
(Edms) Bpk v Hurter [1981] 2 All SA 286 (C); 1981 (3) SA 607 (C) 618 where the words of the
court may be open to the construction that an opinion or a forecast is actionable merely if it
118 As to whether a “representation” can relate to the future and, eg, be the subject of a promissory warranty, see
8.86, 15.22 et seq; Lawsa Vol 12 Part 2 par 38.
120 Kharwa v Minister of Interior 1912 NPD 441; Sampson v Union & Rhodesia Wholesale Ltd 1929 AD
468 478–479; Mann v Sydney Hunt Motors (Pty) Ltd [1958] 1 All SA 328 (GW); 1958 (2) SA 102
(GW) 105–106; S v Schnittker [1964] 1 All SA 247 (GW); 1964 (3) SA 10 (GW).
121 In Sampson v Union & Rhodesia Wholesale Ltd above 479 the court quoted with approval the following
passage from Eaglesfield v Marquis of Londonderry (1876) 4 ChD 693 (CA) 702: “A misrepresentation of law is
this: when you state the facts and state a conclusion of law so as to dis-
tinguish between facts and law. The man who knows the facts is taken to know the law, but
when you state that as a fact which no doubt involves as most facts do a conclusion of law, that is
still a statement of fact and not a statement of law.” See also Mann v Sydney Hunt Motors (Pty) Ltd
149
based on misrepresentation. 122 By contrast, the statement “I put this meaning on that
clause” has been held to be a statement of fact, namely the fact of the speaker’s
interpretation. 123 In similar vein it has expressly been decided that a representation
conclusion of law presented as a fact and therefore a representation of fact, 124 which
may be actionable, if the person expressing the conclusion, for instance an official in
8.56 From these examples it is plain that the distinction can be illusory and that the
whether the misstatement, applying the boni mores criterion, was wrongful. A
conclusion of law stated as a mere opinion may thus at the same time amount to a
representation of fact and therefore wrongful, if it is not honestly held by the party
expressing it. 126 Alternatively, the reason for holding that a conclusion of law, stated
infallible assertion, but simply that it is a statement that the person involved places a
particular interpretation on a certain term of the contract and, should a dispute arise,
E. NEGATIVE MISREPRESENTATIONS
Misrepresentation by omission
8.58 This test, like the obeisance to good faith, 132 relates back to wrongfulness as the primal constituent of
actionability. 133 The nature of the act or conduct involved
conduct which creates the wrong impression does not consist of a positive statement
of fact but of a negative act, namely the failure to prevent a new wrong impression or
dispel a pre-existing one on the part of the representee which would have been
________________________
122 Sampson v Union & Rhodesia Wholesale Ltd above 778; Mann v Sydney Hunt Motors (Pty) Ltd above 105–
106; S v Schnittker above 11–12.
124 S v Schnittker [1964] 1 All SA 247 (GW); 1964 (3) SA 10 (GW) 12.
125 See S v Schnittker above 11 where the court referred to Wessels Contract par 1095 for the example of a lawyer
who wilfully misstates the law.
127 Sampson v Union & Rhodesia Wholesale Ltd 1929 AD 468 479–481; Mann v Sydney Hunt Motors (Pty) Ltd
[1958] 1 All SA 328 (GW); 1958 (2) SA 102 (GW) 106. See further on this topic, Lawsa Vol
12 Part 1 par 208 and, for the current position in England, eg Clarke et al The Law of Insurance
130 8.75. It is a judicial axiom in England, adopted in South Africa, that “you cannot disclose what you do not
know”: Joel v Law Union and Crown Insurance Co [1908] 2 KB 863 (CA) 884.
133 8.34.
150
corrected if the fact in question had been disclosed. 134 The failure or omission may
either the one or the other. Thus, a positive misstatement in answer to a question in
an insurance proposal form may at the same time be described as a negative failure to
paragraphs
disclose the truth. 137 On general principles of the law of delict, the requirements for 8.55–8.62
liability for positive and negative misrepresentations are identical, 138 but there may
standards of conduct set by a particular community, 139 is particularly true in the case
of negative acts or omissions. In South African contract law there is no general duty
on one contracting party to volunteer information to the other party about any
circumstance of which the former is aware that may conceivably influence the latter
to enter into the contract or not and if so on what terms. 140 Such a duty will exist only
if the legal convictions of the community, in its innate sense of what is right and fair,
8.61 The mere non-disclosure of a material fact is therefore not prima facie wrongful.
on the party concerned to act positively. A duty to act positively arises if the
circumstances are such that the imposition of a duty is reasonable or, to put it
community, not to act. In the law of insurance such a duty exists with reference to
facts that are material for insurance purposes. 141 Therefore, a negative representation
is actionable only if, amongst other requirements, it relates to material facts and if the
8.62 The range of risks is not predetermined. The normal and contemplated risk is,
of course, the defined subject matter of the insurance, be it short term or long term.
But a risk precipitating or contributing to the occurrence of the insured event and
leading to a later claim under the policy may not always be self-evident. Those are the
________________________
134 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271
(and see further 280 for an illustration of the fact that the omission consists of a failure to re-
move a wrong impression); Colonial Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 40.
135 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co above 287–288; Bodemer v
American Insurance Co 1960 (4) SA 428 (T) 433–434.
136 8.41.
137 See eg Southern Life Association v Johnson [1993] 3 All SA 816 (E); 1993 (1) SA 203 (E) 206H
where the proposer’s incorrect answer to a question in the proposal form was regarded as a
non-disclosure; De Waal v Metropolitan Lewens Bpk [1994] 1 All SA 508 (O); 1994 (1) SA 818 (O)
where the proposer had answered a question in the proposal form incorrectly and was held to
138 Cf McCann v Goodall Group Operations (Pty) Ltd [1995] 3 All SA 276 (C); 1995 (2) SA 718 (C) 722A:
“there is no difference in principle between a misstatement and a non-disclosure, inasmuch as either can create a
misrepresentation [but] liability will follow . . . only if the prerequi-
140 See in general Nienaber and Reinecke Life Insurance pars 23.23–23.28.
151
risks that require to be disclosed at the outset to enable the insurer to circumscribe
the risk it is prepared to undertake. Such indeterminate risks may relate either to the
“moral hazard”, or to the object of risk itself, referred to as a “physical hazard”. 142
8.63 Moral hazards include matters such as the insured’s claim’s history, his criminal
record, and previous refusals of insurance. 143 Physical hazards include his health
insured in the case of property insurance. These are all peripheral matters that have a
bearing on the risk that the insurer assumes. The duty to disclose has been said to be
imposed by law, these statements are in accordance with the principles relating to
the insurance contract must, it seems, be understood as an expression of the fact that
the circumstances surrounding insurance typically give rise to a duty to disclose. 146
8.65 As observed earlier in connection with the wider duty of good faith, 147 the
insurance are mainly related to the insurer’s need for information about the risk in
question to enable it to assess that risk fairly and properly. Further, they are based on
two debatable assumptions, first, that all the relevant information is exclusively within
the knowledge of the proposer or insured, and, secondly, that the insurer is itself
assumptions, though, a full and free disclosure by the insured is considered essential
________________________
142 Lowry et al Doctrines 93, 102–104. See Munns v Santam Ltd [2000] 4 All SA 248 (D) par 64.
143 It has been an issue in English law, leading to some fine distinctions, whether an insured had to disclose
allegations or insinuations of dishonesty made against him which in the event proved
to be unfounded. See Lowry et al Doctrines 105–106. In South Africa such issues, which essential-
ly are matters of degree rather than principle, would be addressed in accordance with the flex-
ible boni mores approach discussed earlier. The fact that an answer to a proposal form or a
health questionnaire was given honestly and to the best of the insurance proposer’s knowledge,
144 Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419
(A) 432H. On the duty of disclosure generally, see Van Niekerk 1989 SA Merc LJ 87; on the
various (common law, contractual and statutory) duties of disclosure which may arise in the in-
145 Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality above 433C.
146 Whatever the intention of the court in the Mutual & Federal case may have been, it should be borne in mind
that the remarks relating to the question whether the duty of disclosure is confined in its application to insurance
contracts may well have been obiter.
147 8.30.
148 Thus it was stated in an English case, Rozanes v Bowen (1928) 32 Ll L Rep 98 (CA) 102: “[it] has been for
centuries in England the law in connection with insurance of all sorts, marine, fire,
life, guarantee and every kind of policy that, as the underwriter knows nothing and the man
who comes to him to insure knows everything, it is the duty of the assured, the man who desires
to have a policy, to make a full disclosure to the underwriters without being asked all the mate-
rial circumstances, because the underwriter knows nothing and the assured knows everything.
That is expressed by saying that it is a contract of the utmost good faith – uberrima fides.” That,
as Van Niekerk 2005 SA Merc LJ 150 158–159 rightly points out, has become in modern insur-
152
8.66 The level of information demanded from an insurance proposer to enable the
underwriter to assess the risk will always remain a matter of degree. Since non-
disclosure of sufficient information is a defence open to the insurer, the onus rests on
it to prove both the inadequacy of the information that was disclosed and its
materiality.
paragraphs
8.67 Individual underwriting in the case of life insurance normally requires the 8.62–8.69
certain areas on which specific information is sought, the overall duty of disclosure is
refined by the insurer. 150 The prerequisite of a proposal form to be completed by the
insurance proposer gives rise to three broad propositions. First, questions posed on
particular topics serve as a prima facie indication to the insurance proposer that the
topics are regarded by the insurer in question as material and that if the proposer
disregards the enquiry he does so at his own peril. Secondly, the fact that questions
on a specific topic are posed may reasonably imply that the insurer does not consider
unexplored topics as material. Thirdly, when specific questions are posed but are left
blank by the insurance proposer or the answer given is patently inadequate and the
insurer does not insist on a proper reply but issues a policy on standard terms and
rates, it may (but does not necessarily) imply a waiver by the insurer of its right to be
duly informed.
If no underwriting
the case of group-risk policies, 151 or with direct marketing when policies are sold
telephonically, or when an applicant for credit at a retail store orally agrees to take
within certain broadly defined parameters, insurance will be issued and no further
8.69 In these circumstances the insurer in effect waives153 reliance on its right to be
potential defence to a claim on the policy. Hence the insurer would not be justified
________________________
150 Reform of English insurance law has now elevated the proposal form to a central position for consumers.
Materiality is no longer the issue. The issues are the questions asked and the honesty and reasonableness of the
answers given. See Lawsa Vol 12 Part 1 par 240.
151 In such a case the policy is taken out as policyholder by someone such as an employer who is the common
denominator amongst a defined group of members, such as the employees and
their dependents of a company or firm, in the interest and for the benefit of the latter. The in-
dividual group members are not underwritten, except if a predetermined limit of free cover is
exceeded. Depending on the terms of the master policy, the members are either beneficiaries
in terms of a so-called third-party contract, in which case they have a direct claim against the in-
surer, or, if not, they must look to the policyholder and not to the insurer for satisfaction. See
further Nienaber and Reinecke Life Insurance pars 18.34–18.36, 33.5 and, for current English
law, Lawsa Vol 12 Part 1 par 240.
152 The risk is calculated generally, with reference not to the individuals who qualify but to the entire pool of
potential insured: Nienaber and Reinecke Life Insurance pars 7.13–7.21.
153 Or at the very least creates the reasonable impression that it waives, thereby raising the possibility of a
response of estoppel. See further 22.92; 22.116.
153
in seeking to avoid liability under a policy on the grounds that it was afterwards
discovered that the insurance proposer for instance had previously been convicted of
insurance fraud. 154 The insurer in such a case takes the insurance proposer and the
Proposal form
8.70 Also relevant in the context of wrongfulness is the consideration that the
insurer is in the strong position to direct and refine the flow of information it regards
as material to the assessment of its risk. This the insurer can do by means of focused
questions in the proposal form to which the insurance proposer is required to furnish
direct answers. Even so, in South Africa155 the use of a proposal form by the insurer is
not a substitute for the duty of disclosure by the insured. “[I]n addition to answering
the questions truly,” it has been observed, “it [is the insured’s] duty to make a full
8.71 When a question is asked and the insurance proposer answers it incorrectly, it is
and the insurance proposer ignores it and the insurer nevertheless issues a policy, the
insurer may be taken to have waived any reliance on the information so sought but
declined. 157 That is an issue of fact, not law. When only certain case-specific questions
are asked, it may imply, not as a matter of law but as a matter of fact, a waiver of the
right to be properly informed falling outside the scope of those specific topics. A
question as to whether the insurance proposer received medical treatment during the
past five years may well imply that it is not necessary to disclose any medical treatment
that occurred six or more years ago. 158
be completed but only general questions are addressed without identifying particular
moral or physical hazards, it remains a question whether the insurance proposer was
under a duty to volunteer a particular fact or set of facts, since the proposal form or
questionnaire does not supplant the duty of disclosure but merely refines it. The
answer to this question must once more be sought in the frequently mentioned
8.73 The significance of the questionnaire for purposes of the doctrine of non-
disclosure is that the insurer can pose questions requiring the insurance proposer to
unaware. Of course, the questions must be of such a nature that, applying the boni
evade them. So, for instance, the insurance proposer may be asked about his medical
________________________
154 If, in answer to a direct question by the insurer, the proposer falsely told the insurer that he had not been
convicted of insurance fraud that would be a positive misrepresentation which is
155 In English law, reform resulted in the insurer’s proposal form and the insured’s responses to it superseding the
duty of disclosure in terms of the common law: cf Lawsa Vol 12 Part 1 par 240.
156 Colonial Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 40; Van Niekerk 2005 SA Merc LJ
323 331.
157 8.45.
158 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 404. So, eg, the question whether a
proposer has had any accidents during the past three years may justify the inference that the
insurer does not require information on accidents before that time. See too, as to waiver, AA
Mutual Life Assurance Association Ltd v Singh [1991] 4 All SA 737 (A); 1991 (3) SA 514 (A).
154
symptoms which, if properly answered, would have alerted the insurance proposer
and, if the information were properly conveyed, the insurer itself to a possible
disability which would have affected the fact or the terms of any ensuing insurance
contract. A failure by the insurance proposer to convey the information so discovered
8.74 It has been suggested159 that the questions put by an insurer, for instance in a
proposal form, may extend or enlarge the scope of the proposer’s duty of disclosure.
paragraphs
This is not, strictly speaking, an accurate statement. The duty to disclose is one to 8.69–8.77
disclose all material facts and is therefore not capable of being extended. However,
the particular questions in the proposal form may serve as a reminder to a proposer
that further material facts apart from those elicited by the questions must be
disclosed or, conversely, that facts otherwise material, need not be disclosed.
8.75 The duty in question “is a duty to disclose, and you cannot disclose what you do
not know [and that the] obligation to disclose, therefore, necessarily depends on the
knowledge you possess”. 160 This venerated dictum makes not only good sense but, as a
general proposition, also good law. It implies that the duty imposed on a party or
proposer, is simply to disclose facts within that party’s knowledge and that it does not
8.76 That means, strictly speaking, that the proposer for insurance is not required to
disclosed to the insurer, would be likely to have had an effect on the conclusion or
content of the policy. 162 Where the insurance proposer is wholly and genuinely
ignorant of a fact that is nevertheless material in the sense that it does have a bearing
on the risk the insurer is asked to assume, it is difficult to conceive how, applying the
8.77 It also means that there is, strictly speaking, no room for deemed or
constructive knowledge, that is, knowledge of which the representor, invariably the
insurance proposer, either should himself reasonably have been aware, or would have
been aware if he had made enquiries which as a reasonable person he should have
made. This last proposition, however, needs qualification. So, when someone suspects
that he may be suffering from the onset of a debilitating medical condition but
________________________
159 Whyte’s Estate v Dominion Insurance Co of SA Ltd above 382 404; AA Mutual Life Assurance Association Ltd
v Singh [1991] 4 All SA 737 (A); 1991 (3) SA 514 (A) 520J; Mahadeo v Dial Direct Insur-
ance Ltd [2008] 2 All SA 352 (W); 2008 (4) SA 80 (W) par 19. See further 8.87.
160 Joel v Law Union & Crown Insurance Co [1908] 2 KB 863 (CA) 884. See also Brownlie v Campbell (1880) 5
App Cas 925 (HL) 954. Nienaber and Reinecke Life Insurance par 23.34; Lowry et al
161 One reason for limiting an insurance proposer’s duty to disclose in this way would probably be that an
extension of the duty to one of collecting and disclosing information would require an
extensive knowledge and appreciation of the circumstances affecting the risk, something the
proposer as mere transferor and not as a bearer of risks does not necessarily have. See further
162 See Santam Ltd v Raykov [2010] JOL 24757 (N), (2010) 13 Juta’s Insurance L Bul 81 in which the insured
was not non-suited because he was ignorant of the facts that the vehicle that he had
purchased and insured had previously been stolen and that its original factory specifications
had been reconfigured. Cf, on the facts, Loyds of London v DeSousa Alho 2005 JDR 0698 (T) 17;
Mutual & Federal Insurance Co Ltd v Da Costa [2007] JOL 20030 (SCA); 2008 (3) SA 439 (SCA).
155
deliberately refrains from consulting a medical practitioner for fear of having his
fears confirmed, his ignorance may well not suffice as an answer if his worst fears are
indeed later confirmed and his disability claim is repudiated by the insurer. In those
circumstances the wrongfulness of his conduct is rooted not in his failure to disclose
something he did not know, but in his failure to know something he ought to have
Constructive knowledge
8.78 The English Marine Insurance Act, 1906164 provides that an insured “is deemed
known by him”. It has been suggested that this principle of constructive knowledge
has general application also to non-marine insurance and to instances where the
insured is not a business entity but a private individual. 165 There is, however, no direct
authority to support this line of thought. South African case law appears in general to
adhere to the narrower approach that the duty to disclose is simply a duty to disclose
material facts within the insurance proposer’s actual knowledge. 166 This means that
no duty of disclosure exists regarding facts that do not lie within a party’s actual
knowledge but of which he could have obtained knowledge had he taken reasonable
steps. 167 The failure to disclose information of this kind is accordingly, and as a matter
8.79 However, in Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality168 the court stated in passing
that the duty of disclosure extends also to facts of which the
________________________
163 But it may conceivably be different if his failure to consult a medical practitioner was due to his religious
convictions or because he was chronically suffering from, say, Alzheimer’s disease.
164 (6 Edw VII c 41) s 18. By virtue of the reform of English insurance law, this section will no longer apply
where the insured is a consumer: Lawsa Vol 12 Part 1 par 240.
165 Merkin et al Colinvaux par 6.004, noting that while the marine rule applies generally, the insured is not under
a duty to undertake enquiries beyond the ordinary course of business.
166 Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755; Fransba
Vervoer (Edms) Bpk v Incorporated General Insurances Ltd 1976 (4) SA 970 (W) 975, 977;
8.75. See also Grotius Inleidinge 3.24.5; Van der Keessel Theses Selectae 722; Van der Keessel Praelectiones
3.24.5.
167 In Universal Stores Ltd v OK Bazaars (1929) Ltd [1973] 4 All SA 611 (A); 1973 (4) SA 747 (A) 762
the court held that a party to a contract could be “under no legal duty” towards the other party
to disclose facts on the ground of knowledge he did not actually possess but which he “would
have had, were it not for [his] own negligence”. It referred to the latter as “constructive
knowledge”. It should be observed that Grotius Inleidinge 3.24.5 affords some authority for the
recognition of constructive knowledge in instances of insurance of goods lost before the con-
clusion of the contract. See also Schorer Aanteekeningen 3.24.5. In Colonial Mutual Life Assurance
Society Ltd v De Bruyn 1911 CPD 103 116, 126 in dealing with life insurance, it was remarked:
“Under a policy of this character the assured has to declare everything that he knows, or ought
reasonably to be expected to know, which may affect the risk.” However, the court was expressly
applying English law and the proposer had moreover warranted the truth of his statements.
168 [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 432E, 436E. In a subsequent case Anderson
Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987 (3) SA 506
(A) 517A, the court assumed, in the case where the insured was a corporation, that an insured
is deemed to know every circumstance which in the ordinary course of business ought to be
known by it, but refrained from deciding the point. See also Santam Ltd v Raykov [2010] JOL
24757 (N), (2010) 13 Juta’s Insurance L Bul 81: insured only under duty correctly to represent or
to disclose to insurer material facts of which has actual knowledge, but insurer here failing to
establish that insured knew or ought to have known of fact incorrectly represented or not dis-
closed. But cf Mutual & Federal Insurance Co Ltd v Da Costa, unreported (T), (2006) 9 Juta’s In-
surance L Bul 39, suggesting that the duty is simply one to disclose facts within the proposer’s
actual knowledge. And see now Mutual & Federal Insurance Co Ltd v Da Costa [2007] JOL 20030
156
proposer had constructive knowledge. 169 This much broader view of the duty of
on the insured. Such an extension may not readily find application when it concerns
exceptional circumstances where, invoking the norms of boni mores, silence would be
regarded as wrongful. The insurer would have to show that the insurance proposer,
in the ordinary course of his business, ought to have known or, in an extreme case,
paragraphs
8.77–8.82
attention but which he does not himself know or believe to be true or false, may be
considered, according to the boni mores test, to be facts within his knowledge and
unfounded. 171
8.81 The representor’s appreciation of facts or information which may have to be
disclosed should not be confused with his knowledge or not of the existence of the
legal duty to disclose, or with his knowledge and appreciation of the materiality of
those facts or information. 172 Ignorance of the existence of the duty to disclose, or a
lack of appreciation of its exact scope or application, may not excuse the insured if
he should otherwise have disclosed the underlying facts. 173 So too it may not avail the
insured that he was unaware that the duty applies equally to a renewal of the policy
and that any material change in the circumstances that had previously prevailed is to
be disclosed. 174 All such issues are again to be viewed against the backdrop of the
8.82 The obverse of the insurance proposer’s duty to disclose is the insurer’s right to
facts actually known175 to its underwriter, or already in its possession, 176 or of which it can reasonably be
assumed to be aware. 177 Apart from the question whether such facts
________________________
169 A party may have constructive (or imputed or presumed) knowledge either because the party
itself ought reasonably to have acquired such knowledge, or because the actual knowledge of
one of its agents may be imputed to it: see Anderson Shipping (Pty) Ltd v Guardian National Insur-
170 Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd above 517B–C.
171 Cf Pickering v Standard General Insurance Co Ltd [1980] 4 All SA 699 (ZA); 1980 (4) SA 326 (ZA) 331.
174 Idem .
175 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271
288.
176 Nienaber and Reinecke Life Insurance pars 23.23–23.25. It is a difficult question of fact whether and to what
extent an insurer may be said to have been in possession of knowledge. If the applicant eg had recently applied to
the same insurer, on which previous occasion he had dis-
closed material facts, the insurer will probably be considered to have been in possession of
those facts should they be relevant to the new application. Then again, the position may be dif-
ferent if the earlier application had been a long time ago. Moreover, it is uncertain to what ex-
tent, if at all, the insurer is expected to search its own or some other available data base for
177 Thus, the insurance proposer need not disclose facts which are common or public knowledge
or which fall within the knowledge of a reasonable insurer, eg, where the applicant resides in a
war stricken area. Thus it is sometimes said that a proposer need only disclose a fact, otherwise
material and falling within his exclusive knowledge. See Santam Bpk v Van Schalkwyk 2002 (4) SA
193 (O).
157
are included in the duty to disclose, their non-disclosure does not found an action
disclosure of facts already within his knowledge. 178 For similar reasons there is no duty
8.83 So, too, a person may be taken to know facts which must have been reasonably
clear from facts already in his possession. This applies especially to insurers who are
deemed to know matters of common or public knowledge, 180 and matters that lie
within the sphere of knowledge of the ordinary professional insurer. 181 Thus, an
insurer need not be told by the proposer that he had brought a claim against that
particular insurer in the past, or that the risk of certain types of loss is particularly
8.84 The knowledge of an agent, say a canvassing agent, may under given circum-
stances be imputed to his principal, the insurer. 182 The insurer, moreover, cannot
supplied by the insurance proposer. It is expected to apply its own mind, experience
and expertise to the information that is disclosed183 and if such information should
reasonably have alerted the prudent underwriter to any aspect that called for further
investigation, the insurer is required to make its own additional enquiries, either
from the insured or from any outside source available to it. 184 A failure to follow up
may be taken to mean that the insurer was satisfied, for the purpose of assessing the
risk, with the information that was furnished to it; such failure could accordingly be
treated, depending on the circumstances, 185 as a waiver by the insurer of its right to
________________________
179 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271
288. See Lowry et al Doctrines 115 on facts the insurer is presumed to know, and referring to the
view that the duty of disclosure extends only to matters which are unusual in the sense that they
fall outside the contemplation of the reasonable underwriter familiar with the particular busi-
ness.
180 Eg, that hostilities have erupted, or that an epidemic has spread to or crime rates have risen in a particular area.
181 Eg, that buildings of a certain construction, or insured belonging to a certain age or population group, pose a
higher fire or mortality risks than do others. Such knowledge usually stems from
general insurance practice. An insurer may be deemed, eg, to know the typical attributes of or-
dinary risks and also the qualities of the peculiar risks it elects to underwrite. See also Lowry et
al Doctrines 115.
182 As to the imputation of knowledge, 24.71 et seq and Lawsa Vol 12 Part 2 par 235.
183 Nienaber and Reinecke Life Insurance par 23.22. As it was stated in the English decision in Glencore
International AG v Alpina Insurance Co Ltd [2004] 1 Lloyd’s Rep 111 143: “The duty of
disclosure requires the insured to place all material information fairly before the underwriter,
but the underwriter must also play his part by listening carefully to what is said to him and can-
not hold the insured responsible if by failing to do so he does not grasp the full implications of
what he has been told.” See also Lowry et al Doctrines 94, 114.
184 Poor underwriting at contract stage encourages what is sometimes described as “underwriting at claim stage”.
Some insurers, anxious to generate business, may be inclined to issue policies
without meticulous underwriting at the time. When there is no claim, well and good. But if
there is a claim, the claimant’s history is painstakingly researched with a view to discovering a
cause for disputing liability on the grounds of non-disclosure. It is in those circumstances that
questions of implied waiver may be decisive. See also Nienaber and Reinecke Life Insurance par
23.22.
185 In particular, whether a reasonable person in the position of the insurance proposer would
have come to the conclusion that the insurer was satisfied with, and did not insist on, the in-
formation that was not furnished. In those circumstances the insurer could well be held to be
estopped from denying that it waived its right to repudiate on the grounds of the admittedly
158
rely on the inadequate information as a defence to a claim on the contract. Again the
8.85 A proposer for insurance need not disclose a fact tending to diminish the risk,
even though, strictly speaking, such a fact may be material in the sense that an
underwriter would need to know about it in its overall assessment of the risk. 186 For
paragraphs
instance, it is not fatal to a claim for damage to or loss of property not to have 8.82–8.87
mentioned the fact that a sprinkler system or an alarm system had been installed,
which in the event proved ineffective in averting the harm. 187 Such a fact, if disclosed,
would not have influenced the underwriter to have acted differently in declining or
defining the risk or in determining the premium. Factors that do not influence the
Warranties
8.86 Facts which are covered by an express or implied warranty in the insurance
contract need not be disclosed. 188 The warranty, in a manner of speaking, envelops
the duty of disclosure. 189 The presence of a warranty also provides the insurer with an
representation. At common law the fact warranted to be true did not have to be
relevant to the risk. When an insurance proposer stated and also warranted a
particular fact or state of affairs, the insurer, on discovery that the statement was not
true, would be able to rely not only on the non-disclosure of the truth but also on the
breach of the warranty as to the statement. The insurer would in principle rather rely
warranted fact was immaterial to the risk. But that situation has now been remedied
by legislation. 190
8.87 Facts that would otherwise have been material need not be disclosed if the
insurer has waived the right to such information. 191 An insurer may, for instance,
from that already elicited by way of questions posed to the proposer need be
information. 192 So, too, it may be an express term of the policy that the insurer will
not be entitled to rely on a non-disclosure, or on a breach of the duty of good faith, 193
to avoid the contract if it can be shown to have been innocently or perhaps even
________________________
191 Merkin et al Colinvaux pars 6.068–6.073 and President Versekeringsmaatskappy Bpk v Trust Bank van Afrika
Bpk [1989] 1 All SA 241 (A); 1989 (1) SA 208 (A) where it was held that the insurer had
not through the conduct of one of its employees waived full or complete disclosure of the in-
192 An insurer’s waiver of its right to receive material facts or information should not be confused with the waiver
of its right to rely on a misrepresentation, based either on the incorrect representation of, or on a failure to disclose,
such facts or information; see eg, President Verseke-
ringsmaatskappy Bpk v Trust Bank van Afrika Bpk above 220B–E 221F; Lowry et al Doctrines 116.
159
unenforceable. 194 The waiver may also be tacit. 195 In particular, the duty of disclosure may be narrowed when
an insurance proposer is asked to complete a case-specific
proposal form or health questionnaire. 196 Likewise, an insurer may, on the basis of its
matters. 197
8.88 General questions are to be interpreted against the backdrop of the duty to
disclose all material information. The posing of a question by the insurer serves as an
indication to the insurance proposer that the insurer regards the issue raised in the
regards the question as trivial, does so at the risk that the non-answer may afterwards
be treated as a non-disclosure.
the insurer fails to object and nevertheless issues a policy on standard terms, thereby
suggesting that the non-disclosed information and unanswered questions were not
answer may be treated as a waiver of the right to the information that was withheld by
the insurance proposer. 198 While the insurance proposer must be accurate in
responding to questions asked, the insurer must thus be correspondingly alert to any
inaccuracies in the response lest its failure to do so jeopardises its ultimate right to
8.90 Whether a waiver has taken place depends on the construction of the facts of
every case, especially of the questions or conduct in point. It is clear that an inference
of waiver is not lightly drawn as a matter of course. The fact that a question is put to
elicit certain information, or that the proposer completes a proposal form, may, but
will not necessarily, relieve the proposer from disclosing further information, either
on the same topics as those covered by the question or the proposal form, or on
other topics. 200 However, once a waiver has been established, the disputed facts need
________________________
194 Wells v SA Alumenite Company 1927 AD 69 72; Van der Merwe et al Contract par 7.1.2.
195 Implied (ie, tacit) waiver was extensively discussed in WISE Underwriting Agency Ltd v Grupo Nacional
Provincial SA [2004] 2 Lloyd’s Rep 483 (CA): see further Lowry et al Doctrines 117;
Merkin et al Colinvaux par 6.073.
196 8.67, 8.70; Nienaber and Reinecke Life Insurance pars 23.26–23.28.
197 AA Mutual Life Assurance Association Ltd v Singh [1991] 4 All SA 737 (A); 1991 (3) SA 514 (A) where the
insurer, having advertised life insurance cover “free of medical evidence . . . no medical questions whatsoever”,
was held to have waived its right to information about the propos-
er’s state of health. An additional factor was that the proposal form in question asked merely
200 8.67, 8.70; Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 404. See also Colonial
Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 40–41; Fransba Vervoer (Edms) Bpk v Incorporated
General Insurances Ltd 1976 (4) SA 970 (W) 975 (although the reference was made to
201 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271
288.
160
The non-disclosed information does not have to be related to the insured event
8.91 The non-disclosure or, indeed, the positive misrepresentation does not have to
be related to the occurrence of the insured event. So, the insured’s failure to disclose
that insurance had twice in the past been refused to him need not have any
connection to the loss of or damage to his insured motor vehicle. 202 An insurer is
the form of non-disclosure because it was misled as to the conclusion of the contract.
paragraphs
The causal connection is thus between the non-disclosure and the conclusion of the 8.87–8.94
contract and not between the non-disclosure and the insured event giving rise to the
claim.
8.92 So, if an insured had life and disability cover and made a claim because he
could no longer pursue his occupation, the whole contract could be rescinded,
including the life cover, if it emerged that the insured had earlier failed to disclose
that he had cancer, regardless of whether the cause of the disability was the cancer or
a motor-vehicle accident. Contrast this with the situation where the insured did
disclose the cancer, liability for which was thereupon deliberately excluded in the
policy by the insurer. If the insured became disabled, the insurer would have to
prove, in order to reject the claim, that there was a causal connection between the
disability and the cancer. The reason is that the policy, quite simply, did not cover
that eventuality. Otherwise, and save for the refusal to pay the benefit concerned, the
8.93 Valid criticism has been expressed of the continued allegiance in South African
consumers. 204
F. MATERIALITY
Relevance
8.94 As was pointed out earlier, 205 misrepresentation, be it a positive false disclosure or a negative non-
disclosure, is actionable only if it is, at the outset, wrongful. 206 A
representation is not wrongful, regardless of the nature of the facts to which it relates,
simply because it is false, or because it misleads. The courts limit the actionability of
________________________
204 See Lawsa Vol 12 Part 1 par 222; see also Van Niekerk 2005 SA Merc LJ 150 232. For the current position in
English law, cf Lawsa Vol 12 Part 1 pars 229, 240.
207 Cf Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 756; Fransba
Vervoer (Edms) Bpk v Incorporated General Insurances Ltd 1976 (4) SA 970 (W) 975–976;
Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 408; cf al-
so Alliance Assurance Co Ltd v Lewis [1958] 4 All SA 77 (SR); 1958 (4) SA 69 (SR) 74; Stumbles v
New Zealand Insurance Co Ltd [1963] 1 All SA 15 (SR); 1963 (2) SA 44 (SR) 52; Kelly v Pickering
(2) [1980] 4 All SA 19 (R); 1980 (2) SA 758 (R) 762; Pickering v Standard General Insurance Co
Ltd [1980] 4 All SA 699 (ZA); 1980 (4) SA 326 (ZA) 331; Mutual & Federal Insurance Co Ltd v
( continued)
161
not material, such as the colour of an insured vehicle’s seat covers or the colour of
the insured life’s hair, cannot be wrongful. Materiality is thus on analysis, like good
this regard the courts expressly refer not to a comprehensive duty to disclose facts
generally, but to a duty to disclose material facts only. 211 This is in line with the
sometimes taken for granted. However, a closer reading of the case law shows that, as
8.97 Some doubt has been expressed about invoking materiality when a
defence. 213 The better approach is not to regard it as an immutable rule but simply as
________________________
Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 432, 434–435; Anderson
Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987 (3) SA 506
(A) 515. For contracts other than insurance contracts, see Stacy v Sims 1917 CPD 533 533–536;
Karroo & Eastern Board of Executors & Trust Co v Farr 1921 AD 413 415–416; Flaks v Sarne [1959]
1 All SA 408 (T); 1959 (1) SA 222 (T) 226; Speight v Glass [1961] 2 All SA 223 (D); 1961 (1) SA
778 (D) 781; Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 118 149;
209 Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 149–150; Rabinowitz v Ned-
Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 408. See also, eg, Karroo & Eastern
Board of Executors & Trust Co v Farr 1921 AD 413 415–416; Pretorius v Natal South
Sea Investment Trust Ltd (under judicial management) [1965] 3 All SA 1 (W); 1965 (3) SA 410 (W)
415–416; and cf the discussion of these decisions by Van der Merwe 1977 THRHR 1 7–8.
210 See in general Nienaber and Reinecke Life Insurance pars 23.9–23.36.
211 See eg Colonial Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 40 (“it was his duty to make a full
disclosure . . . of all material facts”); Whyte’s Estate v Dominion Insurance Co of SA Ltd
1945 TPD 382 404 (“a duty to disclose all material facts”); Pereira v Marine & Trade Insurance Co
Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 756 (where, with reference to an alleged duty
to disclose facts during the currency of the contract, it was said that “any such supposed duty of
disclosure . . . would, of necessity, be limited to material facts or circumstances”); Mutual & Fed-
eral Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 432
212 Cf Speight v Glass [1961] 2 All SA 223 (D); 1961 (1) SA 778 (D) 781H.
213 Otto v Heymans [1971] 4 All SA 278 (T); 1971 (4) SA 148 (T) 157–158; Orville Investments (Pty) Ltd v
Sandfontein Motors [2000] JOL 5937 (T); 2000 (2) SA 886 (T) 915–917; De Wet and Van
214 Such an approach means that all the circumstances accompanying the conduct of the wrong-
doer (including the fact that he acted deliberately), taken together, may disqualify him from re-
lying on his contractual right to relief: Weinerlein v Goch Buildings Ltd 1925 AD 282 292–293.
Where the courts refuse to entertain a defence of “immaterial facts” merely because the repre-
sentation was fraudulent, materiality would cease to be a requirement for an action based on
fraud.
162
Objective test
8.98 The test for materiality is objective. 215 That means that the law is not concerned
interests of either the particular representor or the particular representee. What must
paragraphs
8.99 Facts are deemed to be material if those facts, stated, implied or non-disclosed 8.94–8.101
conversely, if, absent those facts, the notional representee would not have concluded
the contract at all or at any rate not on those terms. 218 If yes, the misrepresentation
was material and, in the absence of any countervailing factors, also wrongful.
8.100 Early decisions suggested what was later interpreted as one or the other of two
separate tests for materiality. The one test was said to be the value judgement of a
reasonable insurer, which meant that facts were material if they would have
risk. 219 The other test postulated a different criterion, namely whether a reasonable
insurance proposer would have regarded the particular facts as relevant to the
decision of an insurer concerning the assessment and underwriting of the risk. 220 The
latter test, that of the reasonable insurance proposer or, as it is generally referred to,
the test of the reasonable insured, has been said to apply to contracts of life insurance
in particular. 221
in the position of the proposer is clearly more favourable to the insured than the test
based on the judgement of a prudent and experienced insurer, since the latter
presupposes a more specialised insider knowledge of the factors that would influence
an underwriter in his assessment of the risk and that would not normally be known or
appreciated by the average insurance proposer. 222 The two approaches reflect a
________________________
215 This is in accordance with the fact that materiality relates to the element of wrongfulness, the test for which is
likewise objective: see Neethling et al Delict 42.
216 8.13.
217 Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755; Mutual &
Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA
218 Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 149. See further Van der Merwe
et al Contract 95–96.
219 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 404; Fransba Vervoer (Edms) Bpk v
Incorporated General Insurances Ltd 1976 (4) SA 970 (W) 980; Mutual & Federal Insurance Co Ltd v
Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 434–435; cf also the Eng-
lish Marine Insurance Act, 1906 (6 Edw VII c 41) s 18 referring to “the judgment of a prudent
insurer”. In Fine v The General Accident, Fire & Life Assurance Corporation Ltd 1915 AD 213 220
220 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd above 976–977; Mutual & Federal
Insurance Co Ltd v Oudtshoorn Municipality above 434–435.
221 Roome v Southern Life Association of Africa 1959 (3) SA 638 (D) 641.
222 Cf Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419
(A) 434.
163
8.102 Since materiality, as mentioned earlier, feeds into the wrongfulness of the
insurance contract should thus ideally encompass circumstances affecting both the
proposer and the insurer. 225
8.103 The test for the materiality of facts and information in the context of negative
“reasonable man test”. 227 The court also referred to facts that are “reasonably relative
to the risk”. 228 This test is applied to determine whether or not, from the point of view
of the reasonable man or the average prudent person, the undisclosed information
reasonably related to the assessment of the risk and the premium. However, the
precise import of this formula and how far it extends is not entirely clear. It was
explained that neither the insured nor the insurer had to be preferred in
determining materiality and that any test for materiality had to reflect this
circumstances peculiar to either of the particular parties involved. The court is itself
the personification of the hypothetical reasonable person to which the test refers. 229
8.104 However, this interpretation of the test is to some extent complicated, first, by
the fact that it refers to the “reasonable man”, an expression more typical of the
standard test for negligence. 230 Secondly, it is not clear whether the presumed vantage
be the notional insurance proposer since the court referred, 231 with apparent
approval, to Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd. 232 There
the court differentiated between facts that are material according to the judgement
of a prudent insurer, 233 on the one hand, and the question whether a reasonable man
in the position of the proposer234 would have disclosed those facts, on the other
________________________
223 Approaches in this regard differ greatly, both from one legal system to the next and also from time to time. See
Lawsa Vol 12 Part 1 par 226 n 5.
225 In fact it is evident from the arguments advanced in favour of the reasonable insured test that the interests of
both the insurer and the insured should be considered: Van der Merwe 1977
THRHR 1 9–10.
226 [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 435H–I.
227 Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality above 435G.
228 435H–I.
229 435H–I.
230 In Life Association of Scotland v Forster (1873) 11 Macph (Ct of Sess) 351, quoted in Roome v Southern Life
Association of Africa 1959 (3) SA 638 (D), the court expressly stated that an omission to disclose facts which a
reasonable proposer “would think material . . . will constitute . . .
231 Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419
(A) 435E.
233 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd above 980.
234 978.
164
hand. 235 The court apparently regarded it as a test for assessing the conduct of the
proposer. 236
8.105 This seems to suggest that the duty of a proposer is not to disclose all facts
known to him that may be regarded as material, 237 but only those facts which a
reasonable man in his position would have regarded as imperative to disclose, that is,
relevant to its assessment of the risk. 238 Since the test for materiality is objective, it
paragraphs
follows that the view of the particular insurer as to the materiality of specific facts in 8.101–8.106
question is largely irrelevant. 239 Likewise, since it is the view of the notional reasonable
the particular insurance proposer is not decisive of the issue of materiality. 240 The
question is whether the fact itself is material and not whether the proposer himself
8.106 The reasonable person test has been applied and expanded in subsequent
cases. Thus, the objectivity of the test has been stressed by pointing out that a court
considers the question of materiality from the point of view of the average prudent or
reasonable person, 242 without favouring the interests of the one above those of the
________________________
235 978D: “I turn now to . . . the questions whether or not the facts giving rise to the alleged moral hazard were
material and, if so, whether or not a reasonable man in the position of the plaintiff
236 976: “The question is whether or not the ‘moral risk’ of poor management . . . was something which was
material to [the insurer’s] . . . decision whether or not to accept the risk and, if so, at
what premium; and consequently, whether a reasonable man would have disclosed the relevant
237 Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755
(“the duty to disclose to the insurer . . . all facts material to the risk”); Mutual & Federal Insur-
ance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A); 1985 (1) SA 419 (A) 432 (“every
fact relative and material to the risk”). In Fransba Vervoer (Edms) Bpk v Incorporated General Insur-
ances Ltd 1976 (4) SA 970 (W) 975 the court stated that it “is the duty of a proposer for insur-
ance to disclose any fact, exclusively within his knowledge, which it is material for the insurer to
238 Commercial Union Insurance Co of SA Ltd v Wallace; Santam Insurance Ltd v Afric Addressing (Pty) Ltd
[2003] JOL 11584 (SCA); 2004 (1) SA 326 (SCA) par 61: “In Oudtshoorn Municipality (supra
435F–I), it was held by this Court that the test of materiality is an objective one, to be deter-
mined by asking, upon a consideration of the relevant facts of the particular case, ‘whether or
not the undisclosed information or facts are reasonably relative to the risk or the assessment of
the premiums’”. See too President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk [1989] 1
All SA 241 (A); 1989 (1) SA 208 (A) 216E–G; Potocnik v Mutual and Federal Insurance Co Ltd 2003
(6) SA 559 (SE). See further, as the effect of the 2003 amendment to the two Insurance Acts in
239 Trust Bank van Afrika Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 553E.
240 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd (4) SA 970 (W) 975–976; Trust Bank
van Afrika Bpk v President Versekeringsmaatskappy Bpk above 553E. In Southern Life Association
v Johnson [1993] 3 All SA 816 (E); 1993 (1) SA 203 (E) the fact that the insured had undergone
blood tests was held material to his application for life insurance, despite the fact that the tests
had been to ascertain his son’s health and not his own, and despite his never having been told
of the results of those tests and of the fact that they had shown that he was suffering from a
blood disorder. See also Munns v Santam Ltd [2000] 4 All SA 248 (D); 2000 (4) SA 359 (D)
366C: “[t]he test of materiality is that of the reasonable man, whatever the insured’s own as-
sessment of the fact in question is”. See further Joubert v ABSA Life Ltd 2001 (2) SA 322 (W)
328J–329B; Mahadeo v Dial Direct Insurance Ltd [2008] 2 All SA 352 (W); 2008 (4) SA 80 (W)
86B–87D.
241 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd above 976.
242 Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987
(3) SA 506 (A) 515E; Trust Bank van Afrika Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA
165
other. 243 The question is whether, in the overview of the reasonable person, 244 the facts are reasonably relative
to the assessment and quantification of the risk. 245 The
there are practical and sensible limits to the matters which a reasonable person would
consider relevant. 247 A direct question in the proposal form or health questionnaire,
as stated earlier, 248 is prima facie proof that the insurer regards the information
requested as pertinent to the assessment of the risk. But the questions may be posed
in such a way as to lead a reasonable person to conclude the contrary. 249 The
so at his peril should a court subsequently come to the opposite conclusion regarding
the materiality of the question. Finally, materiality relates both to the decision by the
insurer whether to accept the risk and insure or not and, if so, to the decision on
avoid a claim against it on the policy, had to show that the misrepresentation was
material to the risk giving rise to the harm for which the claim was made. The insurer
would not be able to do so if the representation did not relate to the risk. The
absence of materiality could thus be perceived as a weakness in the armoury of an
insurer who resolved to resist a claim on the policy on the grounds of an insurance
________________________
243 Trust Bank van Afrika Bpk v President Versekeringsmaatskappy Bpk above 553D; Pillay v SA National Life
Assurance Co Ltd 1991 (1) SA 363 (D) 367A: “not a materiality from the viewpoint of either
partisan side, but materiality that would have added up to such in the disinterested estimation
244 In President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk [1989] 1 All SA 241 (A); 1989
(1) SA 208 (A) 216F, 217G, 219C it appears that the court had a reasonable insurer and not the
particular insurer in mind in this regard. However, it also referred to “the prospective insurer”
(216G). Subsequent decisions would seem to refer to the particular insurer: see Cronje v AA
Lewens [1989] 4 All SA 713 (W); 1989 (4) SA 818 (W) 821J (the prospective insurer); AA Mutual
Life Assurance Association Ltd v Cronje 1990 (3) SA 966 (T) 967I (“the insurer”); Pillay v SA Na-
tional Life Assurance Co Ltd above 368D (“the defendant’s decision”); Van Zyl & Maritz v SA Spe-
cial Risks Insurance Association [1995] 1 All SA 7 (SE); 1995 (2) SA 331 (SE) 361J (the facts
should have been disclosed “leaving it to the defendants to make their own assessment” of
them); Theron v AA Life Assurance Association Ltd [1995] 2 All SA 581 (A); 1995 (4) SA 361 (A)
377H (“the prospective insurer”); Commercial Union Insurance Co of SA Ltd v Lotter [1999] 1 All
SA 235 (SCA); 1999 (2) SA 147 (SCA) 153G (“the insurer”), 155E (“the appellant”).
245 Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987
246 AA Mutual Life Assurance Association Ltd v Cronje 1990 (3) SA 966 (T) 968A.
247 AA Mutual Life Assurance Association Ltd v Cronje above 969J. See also Van Zyl & Maritz v SA Special Risks
Insurance Association [1995] 1 All SA 7 (SE); 1995 (2) SA 331 (SE) 349E, noting that
“where the test is that of reasonableness one must guard against being wise after the event”.
248 8.70.
249 In Cronje v AA Lewens [1989] 4 All SA 713 (W); 1989 (4) SA 818 (W) the fact that the questions in the
application for life insurance almost exclusively concerned the proposer’s personal circumstances, habits and
health, was considered indicative of the fact that a reasonable person
would not have considered that the proposer’s insolvency might have an influence on the in-
surer’s assessment of the risk. See also AA Mutual Life Assurance Association Ltd v Cronje 1990 (3)
SA 966 (T) 969F.
250 Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 368D–E (the same distinction is drawn when
it comes to inducement: Lawsa Vol 12 Part 1 par 233 post), 369F, 370A (it is said
that “the enquiry into materiality covers both the innate acceptability of the risk and its bearing
166
in the contract. 251 When a fact had been warranted, the insurer could in theory rely
on its breach even if the harm for which a claim was made bore no relationship to the
breach. When a mis- or non-disclosure fell within the terms of a warranty, materiality
was thus no longer a factor. This quirk of law which enabled insurers to escape
liability in otherwise deserving cases, was seen as an abuse and caused the legislature
to intervene. It did so in 1969 with the then Insurance Act, 252 which provision was re-
paragraphs
enacted in 1998 in the LTIA253 and the STIA. 254 The measure was further amplified in 8.106–8.110
2003. 255
both untrue and material; and a non-disclosure would only be actionable if material.
Sections 59(1)(a) and 53(1)(a) are both couched in the negative. Paraphrased
affected the assessment of the risk under the policy concerned at the time of its issue
or at the time of any variation”. Only in those circumstances would the insurer be
8.110 And that would be so even if the insured had agreed to warrant that every
representation made was true. 256 An insurer can thus no longer avoid future liability
proof that the representation was both false and material) into a term of the contract
in the form of a warranty (requiring only proof of its breach). 257 But if the
representation was indeed untrue and material or the failure to disclose information
________________________
254 53 of 1998 s 53(1). See Joubert v ABSA Life Ltd 2001 (2) SA 322 (W) 328F–H; Mahadeo v Dial Direct
Insurance Ltd [2008] 2 All SA 352 (W); 2008 (4) SA 80 (W) 86B–87D; Representative of
Lloyds v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA); 2010 (5) SA 90 (SCA) par
24: “Section 53 is designed to protect insured parties who are ignorant, careless or uneducated
from unscrupulous insurers who attempt to escape liability on the basis of the common law that
cause it would be “contrary to public policy and interest” for an insured to waive the benefits of
ss 53 and 54 (which ensures that a policy is not avoided only because an insured has contra-
vened some or other law) an insured can also not contract out of the benefits of those sections.
255 The amendments were by way of the Insurance Amendment Act 17 of 2003 ss 19 and 35
respectively. This measure is discussed at 15.71 et seq. See further (2003) 6 Juta’s Insurance L Bul
112–115. As to the effect of s 53, and the reasons for its amendment in 2003, see Mahadeo v Dial
Direct Insurance Ltd above par 17: “The effect of the most recent amendment is to bring the law
with regard to positive representations into line with the law on non-disclosures.” The statutory
Versekeringsmaatskappy decision (216) in relation to the position according to the common law.
The test remains objective. The question whether the particular information ought to have
been disclosed is judged not from the point of view of the insurer, or the insured, but from the
point of view of the notional, reasonable and prudent person. The subjective test propounded
in Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A); 1993 (1) SA 69 (A) would ap-
pear no longer to apply. See in this regard the discussion by Sutherland in 2003 Annual Survey
627 629–630.
257 8.86.
167
8.111 The relevant provisions require that the untrue representation made to the
insurer must be of such a nature “as to be likely to have materially affected the
assessment of the risk”. In the absence of a clear indication to the contrary, these
words must seemingly be taken to refer both to the exact scope of the risk and the
premium, on the one hand, and, on the other hand, to the decision whether the risk
8.112 Sections 59(1)(b) and 53(1)(b) then proceed to refine materiality further as a
the case may be, should have been correctly disclosed to the insurer so that the
insurer could form its own view as to the effect of such information on the assessment
reasonable person test for materiality was laid down in a case of non-disclosure, and
the event of a warranty, “[b]ut the materiality on which it insisted did not differ in
essence . . . from the concept of such [materiality] familiar to the common law” in
the case of non-disclosures. 261 The legislature did not distinguish between fraudulent
8.114 Some broad propositions may be extracted from the somewhat contorted
wording of sections 59 and 53. They are: the section, read as a whole, relates to both
prudent person”); 263 the test is based on probabilities (“likely to have materially
affected the assessment of risk”); materiality relates to “the effect of such information
on the assessment of the relevant risk”); the assessment is by the insurer; and a
warranty no longer trumps the requirement of materiality in that the insurer can rely
on the warranty only if it relates to a fact that is relevant to the assessment of the risk
8.115 What these provisions leave unanswered in clear terms is whether the
that of the notional insurer (who is to assess its relevance). Inasmuch as the section
________________________
258 Representative of Lloyds v Classic Sailing Adventures (Pty) Ltd [2010] 4 All SA 366 (SCA); 2010 (5) SA 90
(SCA) par 35.
259 1991 (1) SA 363 (D) 367C E; see also Van Niekerk 1991 SA Merc LJ 114.
260 And even in that regard, it should be stressed, it merely altered the common law by requiring materiality for
untrue representations warranted to be true, materiality having always been required in the case of a
misrepresentation itself, ie, for (positive) representations not warranted
to be true.
261 367C–E.
262 8.97.
263 Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A); Theron v AA Life Assurance Association
Ltd [1995] 2 All SA 581 (A); 1995 (4) SA 361 (A) 376F; De Waal v Metropolitan Lewens
Bpk [1994] 1 All SA 508 (O); 1994 (1) SA 818 (O); Liberty Life Association of Africa Ltd v De Waal
[1999] JOL 5367 (A); 1999 (4) SA 1177 (SCA); Clifford v Commercial Union Insurance Co of SA Ltd
[1998] JOL 2374 (A); 1998 (4) SA 150 (SCA); Joubert v ABSA Life Ltd 2001 (2) SA 322 (W)
328G–I; Lloyds of London v De Sousa Alhoe 2005 JDR 0698 (T) par 16. See further Lawsa Vol 12
168
the proposer, logic would suggest that it is the perspective of the notional proposer,
rather than that of the notional insurer, that should serve as a filter of the pertinent
paragraphs
8.116 The burden of proving materiality in South Africa rests on the party alleging
and relying on the misrepresentation. In both the case of an alleged positive 8.111–8.118
part of the proposer for insurance cover, the insurer has to establish all the
requirements of its defence to a claim on the policy, 266 including the materiality of the
8.117 The question whether particular facts are indeed material is a question of fact
concerning which evidence may and may have to be led, 268 for instance on medical
issues. 269 The mere fact that expert evidence has been led to show that particular facts
are material does not, however, preclude a court from holding the contrary. 270
or agents, is evaluated by the courts like any other evidence and is not of lesser value
than other expert evidence. 271 However, their evidence should not relate to the
subjective question whether or not the particular insurer would have taken the facts
or information into consideration in the assessment of the risk in question (ie at most
person would have thought that an insurer would have done so.
8.118 Some facts are so obviously material that evidence of their materiality (and
therefore the application of any test for materiality) is not required. 272 In such case
________________________
264 But see Liberty Life Association of Africa Ltd v De Waal above where there was an apparent attempt to
reconcile the different tests. See further Lawsa Vol 12 Part 1 par 228 n 14.
265 For recent developments in this regard in English law, cf Lawsa Vol 12 Part 1 pars 229, 240.
266 Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987
(3) SA 506 (A) 515C. This includes, therefore, the falsity of the proposer’s answers to questions
in the proposal form ( Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 365B) or
the non-disclosure of a particular fact ( De Waal v Metropolitan Lewens Bpk [1994] 1 All SA 508
(O); 1994 (1) SA 818 (O) 820J–821B). In Theron v AA Life Assurance Association Ltd [1995] 2 All
SA 581 (A); 1995 (4) SA 361 (A) 377F–G the insurer could not prove the existence of one of
267 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd 1976 (4) SA 970 (W) 977; Trust Bank
van Afrika Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 551H–J; Cronje v
AA Lewens [1989] 4 All SA 713 (W); 1989 (4) SA 818 (W) 821H–I; AA Mutual Life Assurance As-
sociation Ltd v Cronje 1990 (3) SA 966 (T) 967J; Van Zyl & Maritz v SA Special Risks Insurance Asso-
268 See Mutual & Federal Insurance Co Ltd v Da Costa [2007] JOL 20030 (SCA); 2008 (3) SA 439
269 Fouche v The Corporation of the London Assurance 1931 WLD 145 156–157; Whyte’s Estate v Dominion
Insurance Co of SA Ltd 1945 TPD 382 406; Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd
1976 (4) SA 970 (W) 977B.
270 Fouche v The Corporation of the London Assurance above; Lowry et al Doctrines 92.
271 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd 1976 (4) SA 970 (W). The court pointed
out that the statement by Gordon and Getz Law of Insurance (2 ed) 116 that “courts are
slow to admit the opinion of the insurers themselves” does not hold true. In De Waal v Metropoli-
tan Lewens Bpk [1994] 1 All SA 508 (O); 1994 (1) SA 818 (O) 823D it was observed that expert
272 Fine v The General Accident, Fire & Life Assurance Corporation Ltd 1915 AD 213 220; Fouche v The
Corporation of the London Assurance 1931 WLD 145 156; Fransba Vervoer (Edms) Bpk v Incorporated
General Insurances Ltd above 976E–F; Pienaar v Southern Insurance Association Ltd [1983] 1 All SA
268 (C); 1983 (1) SA 917 (C) 921G–H; Gordon v AA Mutual Insurance Association Ltd [1988] 3 All
( continued)
169
only evidence of inducement may be required. 273 Proof of fraudulent conduct on the
part of the insured is insufficient in itself to establish materiality. 274 Conversely, facts
may be so patently immaterial that evidence to this effect is unnecessary. 275 In such a
case evidence of inducement alone will be insufficient to permit any reliance on the
8.119 Certain categories of facts are patently material. 276 First, where the facts
indicate an unusual exposure to risk. If the object of the risk is exposed to perils to an
exceptionally high degree, the circumstances responsible for this exposure are clearly
the person or object exposed to the risk particularly vulnerable; 278 or where the geo-
graphical situation or location of the object of the risk279 or the history of the object
proposals and contracts are in principle material. Thus, the fact that a previous
proposal was declined281 or that a policy was cancelled or allowed to lapse before its
8.121 Thirdly, apart from objective circumstances relating to the risk subjective
obliged to disclose facts relating to his financial or business integrity, 283 circumstances
________________________
SA 2 (W); 1988 (1) SA 398 (W) 404G; Southern Life Association v Johnson [1993] 3 All SA 816 (E);
1993 (1) SA 203 (E) 206H; Van Zyl & Maritz v SA Special Risks Insurance Association [1995] 1 All
273 The obvious materiality of facts may influence the amount of evidence required to establish inducement: 8.125
et seq.
274 Mutual & Federal Insurance Co Ltd v Van Zyl, unreported (C), (2000) 3 Juta’s Insurance L Bul 81.
275 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 406.
277 Eg, the fact that the insured is a miner or a professional stunt artist; or the fact that he is a hang-glider or
spelunker in his spare time.
278 Eg, the insured’s own previous medical history or that of his relatives, the fact that the life insured smokes, the
driving record of the owner or driver of the insured motor vehicle, or the
279 Eg, that the insured house is situated in a subsidence area, or that the insured ship travels to or through a war
zone. However, such facts may in appropriate circumstances be taken to be
known by the insurer: Santam Bpk v Van Schalkwyk 2002 (4) SA 193 (O).
280 Eg, the fact that the vehicle was imported unlawfully, and was thus liable at any time to be forfeited to the
state, or that the insured object consisted of smuggled goods: Certain Underwriters of Lloyds of London v
Harrison [2003] JOL 11573 (SCA); 2004 (2) SA 446 (SCA) par 18.
281 Bushby v Guardian Assurance Co 1915 WLD 65; Colonial Industries Ltd v Provincial Insurance Co Ltd 1922
AD 33.
282 Fine v The General Accident, Fire & Life Assurance Corporation Ltd 1915 AD 213; Colonial Industries Ltd v
Provincial Insurance Co Ltd above.
283 Steyn v AA Onderlinge Assuransie Assosiasie Bpk 1985 (4) SA 7 (T) where the insured failed to disclose that
he was an unrehabilitated insolvent; see also Commercial Union Insurance Co of SA
Ltd v Wallace; Santam Insurance Ltd v Afric Addressing (Pty) Ltd [2003] JOL 11584 (SCA); 2004 (1)
SA 326 (SCA); President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk [1989] 1 All SA
241 (A); 1989 (1) SA 208 (A) where the insured’s failure to disclose that due to a lack of funds
it could not pay premiums to its previous insurer, in conjunction with its continuous liquidity
problems, was considered a material fact; Van Zyl & Maritz v SA Special Risks Insurance Association
[1995] 1 All SA 7 (SE); 1995 (2) SA 331 (SE) where the fact that certain of the insured were in
dire financial difficulties at the time was regarded as clearly material to the risk of insurance on
their property. Along the same lines, see Potocnik v Mutual and Federal Insurance Co Ltd 2003 (6)
SA 559 (SE).
170
indicating that his motive in seeking insurance may be improper or dishonest or that
he may personally be prone to causing the risk to materialise. 284 This dimension of
the risk is referred to as the “moral risk” or “moral hazard” as opposed to “physical
risk”. 285 The proposer’s insurance record286 or previous claims experience287 may be material, not because of
its objective nature but because in the circumstances it may
paragraphs
risk is often expressed by saying that facts which reflect on the character of the 8.118–8.121
insured, or of those who are regularly in touch with the persons or objects exposed to
the risk, must be disclosed. 288 The moral hazard may not be of equal importance in
different types of insurance. 289 Facts which may influence the insurer’s potential right
of subrogation or salvage may be material. For that reason alone, a proposer will have
to disclose to his insurer that he is not the owner of the property he wishes to
insure. 290
________________________
284 Eg, the quality of management ( Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd 1976
(4) SA 970 (W) 976); the fact that the proposer was previously in serious financial difficulties ( Fouche v The
Corporation of the London Assurance 1931 WLD 145); the fact that the premises
covered by a fire insurance contract are used as a brothel ( Richards v Guardian Assurance Co
1907 TH 24); the fact that the proposer previously suffered a loss in a manner indicating care-
lessness on his part ( Israel Bros v Northern Assurance Co & the Union Assurance Society (1892) 4 SAR
175); or that the proposer had recently suffered a similar incident to the one for which he is
claiming under the policy ( Mcinga v Auto & General Insurance Co (Ltd) [2005] JOL 14451 (E)).
285 See, eg, Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd above 978–979; Trust Bank van
Afrika Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 553G; President
Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk [1989] 1 All SA 241 (A); 1989 (1) SA 208
(A) 216H; Van Zyl & Maritz v SA Special Risks Insurance Association [1995] 1 All SA 7 (SE); 1995
(2) SA 331 (SE) 349F–G (distinguishing between the moral risk of the insurance, namely the
information relating to the insured’s financial position, and the physical risk of the insurance,
namely the threats they had received of planned attacks on the insured property); Munns v San-
tam Ltd [2000] 4 All SA 248 (D); 2000 (4) SA 359 (D) 367E; Potocnik v Mutual and Federal Insur-
ance Co Ltd 2003 (6) SA 559 (SE); Commercial Union Insurance Co of SA Ltd v Wallace; Santam
Insurance Ltd v Afric Addressing (Pty) Ltd [2003] JOL 11584 (SCA); 2004 (1) SA 326 (SCA) par
64.
286 Fransba Vervoer (Edms) Bpk v Incorporated General Insurances Ltd above.
287 Ehrig & Weyer v Transatlantic Fire Insurance Co 1905 TS 557; Trust Bank van Afrika Bpk v President
Versekeringsmaatskappy Bpk above 562C; President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk
above 219A–C.
288 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271; Green v
Heyman [1963] 3 All SA 264 (T); 1963 (3) SA 390 (T).
289 In AA Mutual Life Assurance Association Ltd v Cronje 1990 (3) SA 966 (T) 968F the court pointed out that
the moral hazard may be of lesser importance in the context of an application for life
insurance than in the case of one for fire insurance. A quo, in Cronje v AA Lewens [1989] 4 All SA
713 (W); 1989 (4) SA 818 (W) 822I the court observed that the fact that the insured was insol-
vent is generally material in the case of short-term insurance, but held that that was not so in
the case of life insurance where the risk of fraudulent claims and non-payment of premiums
was very different. In Munns v Santam Ltd [2000] 4 All SA 248 (D); 2000 (4) SA 359 (D) 368A it
was noted that “the moral hazard is of particular importance in the case of jewellery insurance”.
290 Commercial Union Insurance Co of SA Ltd v Lotter [1999] 1 All SA 235 (A); 1999 (2) SA 147 (SCA),
holding that the fact that the motor vehicle to be insured was stolen had to be disclosed because it meant that the
insurer would not, by the exercise of its right of subrogation, be able to
recover all or some of the costs of repairs from a third person in the event of the vehicle being
171
G. FAULT
is, where no blame attaches to the misrepresentor. His state of mind is highly rele-
vant, both in respect to the actionability of the misrepresentation and the form of
actionable only if it is accompanied by fault on the part of the representor. 292 In this
quite so simple. On the one hand, certain remedies, such as rescission, are available
negligent. 293 On the other hand, other remedies, such as a claim for damages, are
8.124 Proof by the insurer of pre-contractual fault in the form of fraud or negligence
by the insured is not an element for the success of the insurer’s defence, based on a
positive or negative misrepresentation by the insured, against the latter’s claim based
H. CAUSATION OR INDUCEMENT
The false representation must be an effective cause of the contract or its terms. 296
8.125 A misrepresentation is actionable only if it has induced the representee to
when he would not have done so had he not been so misled. 297 The requirement of
inducement is nothing other than the element of causation which must be proved to
found an action in delict. 298 The representation need not be the sole cause but may
insurance contract as it is, must be determined according to the prevailing test for a
________________________
291 8.14, 8.135 et seq; Van der Merwe et al Contract par 4.2.3.
296 Cf Lowry et al Doctrines 95 for the current debate about this aspect of disclosure or non-disclosure in
England.
297 See, in general, 13.74 et seq; Lawsa Vol 12 Part 1 pars 317–320; Fouche v The Corporation of the London
Assurance 1931 WLD 145 156. For contracts other than insurance contracts, see
Geldenhuys & Neethling v Beuthin 1918 AD 426 434; Karroo & Eastern Board of Executors & Trust Co v Farr
1921 AD 413 415, 422; Pathescope (Union) of SA Ltd v Mallinick 1927 AD 292 307; Orville Investments (Pty) Ltd
v Sandfontein Motors [2000] JOL 5937 (T); 2000 (2) SA 886 (T) 916–917.
298 Karroo & Eastern Board of Executors & Trust Co v Farr above 422: “that he entered into the contract on the
faith of the false representation”.
299 See, eg, Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W) 150 stating that a
representee proves inducement if he shows that the representation “was one of the operative causes which induced
the representee to contract as he did”. This may be what the court
had in mind in Agiakatsikas v Rotterdam Insurance Co Ltd [1959] 1 All SA 159 (C); 1959 (4) SA
726 (C) 730 when it said that a causal nexus would be present if it could be shown that “the
state of intoxication of the deceased materially contributed to the bringing about of the colli-
172
causal nexus. The test cannot be objective, as is the case with the test for materiality. 300
What must be determined is not the reaction, in general, of a prudent and
experienced person in the position of the representee, but the reaction of the
particular representee. The question is thus whether the representation has caused
the contract in question, or has caused the contract with the particular terms in
question.
paragraphs
reaction of the particular insurer, and not that of a reasonable insurer, which has to 8.122–8.130
requirement of inducement.
8.128 The courts determine the existence of a causal link between facts by means of
a two-fold test, embodying a factual enquiry first into the presence of a causal
connection, and secondly into the existence of a legal (or juridical) causal
connection. 301 The first enquiry serves to establish whether a factual relationship
connects the act complained of and the detriment sustained; the second enquiry is
made in order to decide whether the wrongdoer should be held legally liable for all
8.129 Occasionally the term “materiality” is employed to suggest causation and not,
as previously contended, 302 wrongfulness. Thus, it has been said that a plaintiff in an
action based on misrepresentation must prove that the representation itself was
material, and not that it related to facts that are material. 303 If this means that the
contract, 304 the formulation points to a subjective test for causation rather than to the
8.130 Because the term “materiality” is commonly used to refer to the element of
wrongfulness, it is preferable to reserve the term for that purpose and to distinguish
between the requirements of and tests for materiality and inducement which
apparently resulted in the introduction of a subjective test for materiality in the case
of positive misrepresentation. 307 Materiality and inducement are in fact separate
________________________
300 8.98.
301 See Neethling et al Delict 175; Nienaber and Reinecke Life Insurance pars 13.15–13.20.
302 8.17.
303 Karroo & Eastern Board of Executors & Trust Co v Farr 1921 AD 413 415 420; Pretorius v Natal South Sea
Investment Trust Ltd (under judicial management) [1965] 3 All SA 1 (W); 1965 (3) SA 410 (W)
415–416; cf Alliance Assurance Co Ltd v Lewis [1958] 4 All SA 77 (SR); 1958 (4) SA 69 (SR) 74.
304 Pretorius v Natal South Sea Investment Trust Ltd (under judicial management) above 415–416: “[A
misrepresentation] is material when it has the natural and probable effect of influencing the
mind of the person to whom it is made.” See also Karroo & Eastern Board of Executors & Trust Co
v Farr above 420 (“likely to induce”); and the remarks by Van der Merwe 1977 THRHR 1 8 on
305 The words “probable” and “likely” may, eg, refer to the existence of an “adequate” or “foreseeable” causal
nexus between the representation and the contract. Lawsa Vol 12 Part 1 pars 317–
320. No clear choice has yet been made between “direct consequences” and “foreseeable con-
sequences” as the ultimate criterion for determining legal causation. It is arguable that both
criteria should be recognized, the application of the one or the other to depend on the circum-
306 As was done by the court in Novick v Comair Holdings Ltd [1979] 3 All SA 73 (W); 1979 (2) SA 116 (W)
149–150.
307 See Clifford v Commercial Union Insurance Co of SA Ltd [1998] JOL 2374 (A); 1998 (4) SA 150
(SCA) 156E–I. According to De Wet and Van Wyk Kontraktereg 46, however, there is no differ-
ence in meaning between “materiality” and “inducement”; both terms simply meaning that the
representation must have led the representee to conclude the contract as it is.
173
elements of the delict of misrepresentation and it has been correctly said that before
there can be any inference of inducement, there must first be proof of materiality. 308
8.131 At the same time it should be borne in mind that the fact that certain
information is material in the latter sense may in itself be a strong, albeit rebuttable,
indication that a causal nexus exists. 309 Put differently, it is likely that facts or
information which would have been considered relevant to the risk by a reasonable
person would have influenced and in fact did influence the particular insurer in its
assessment of that risk. This likelihood, it may be thought, will be even stronger
where the facts or information in question are so patently material that formal proof
is unnecessary.
I. RELIEF
Forms of relief
8.132 A party who has been induced to enter into an insurance contract by the other
party’s material misrepresentation may invoke the regular remedies available to any
representee who has concluded any other type of contract on the strength of a
the false or misleading statement, the representee may take active steps to rescind the
contact, 311 terminating the contract and setting aside its legal consequences and thus
obtaining, for example, a refund of premiums. Or, if pressed for performance, the
follows as a matter of logic that the representee should be able to extricate himself
8.134 But it may also serve the representee’s purpose to keep the contract intact.
The choice is his. The contract itself is legally valid – if all the requirements for the
conclusion of a valid contract have been satisfied312 – and it accordingly has legal
consequences for the parties. But because of the misconduct of the representor in
inducing the contract, the representee must have the option of having those conse-
quences legally reversed. Put differently, misrepresentation renders the contract not
________________________
308 Mutual & Federal Insurance Co Ltd v Van Zyl, unreported (C), (2000) 3 Juta’s Insurance L Bul 81.
309 Pathescope (Union) of SA Ltd v Mallinick 1927 AD 292 308: in this sense materiality and inducement may be
related. See also Clifford v Commercial Union Insurance Co of SA Ltd [1998] JOL 2374
(A); 1998 (4) SA 150 (SCA) 156G–I, noting that materiality and inducement have to be distin-
have induced the insurer; but that that would be the case only in exceptional circumstances.
See, for the possibility of an overlap between causation and wrongfulness: Cape Empowerment
Trust Ltd v Fisher Hoffman Sithole (200/11) [2013] ZASCA 16 pars 35, 36.
311 Government of the Republic of SA v Thabiso Chemicals (Pty) Ltd [2009] 1 All SA 349 (SCA); 2009 (1) SA
163 (SCA) 12: “Fraud or even negligence is not required .. . , even an innocent misrepresentation on the part of the
tenderer will suffice”.
312 Cf De Wet and Van Wyk Kontraktereg 41 and ch 7 for the requirements for a valid contract.
314 A claim for damages based on pre-contractual misrepresentation in the context of an insurance contract has
not yet been reported. Nevertheless, there is no reason in principle why an insurer
( continued)
174
prerequisite for delictual liability, it would follow that there can be no redress if there
is no blame. But there is another aspect that affects and thus modifies the dynamics.
Unlike in the case of an ordinary delict, in this case there is the interposition of a
valid insurance contract. Even if both parties were completely blameless when the
paragraphs
misrepresentation was made, the very fact of the misrepresentation may have had a 8.130–8.139
distorting effect, a ripple effect, in the sense that, but for it, the contract would not
8.137 To deny the misrepresentee the opportunity of rescinding or at the very least
of adjusting the deal316 simply because the misrepresentor was blameless, would in
effect benefit the innocent misrepresentor at the expense of the innocent misrep-
resentee who would remain fully bound to a contract to which he committed himself
on a false premise. The axiom that, in the absence of blame, loss lies where it hap-
pens to fall, makes less than perfect sense when the misrepresentation results in a
contaminated contract.
loss but not inducing a contract (the consequences of which cannot be undone
because compensation cannot in the absence of fault be awarded for the loss suffered
the contamination and restoring a form of contractual status quo without awarding
insured. 317
innocent, its effect in South Africa is to render the contract voidable, 318 unless it
case the contract could be void for lack of consensus. 319 In the case of mere misrepre-
sentation there is consensus between the parties, and hence the resultant contract is
not void, but because the consensus has been obtained in an improper manner, the
contract is voidable.
________________________
should not advance a claim for damages calculated according to the difference between the
premium actually charged and the premium the parties would have agreed upon had the in-
315 8.138.
316 Referred to in English law as the doctrine of proportionality: cf Lowry et al Doctrines 91.
317 8.3 n 6.
318 Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T) 362: where the court, in
dealing with an insurer’s election in the case of breach of contract by the insured, expressly stated that “[t]he
position in this respect is the same as in the case of a voidable contract
induced by misrepresentation”; Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635
(A); 1975 (4) SA 745 (A) 755: “entitles the insurer to avoid the contract”. See further Van Zyl v
Credit Corporation of SA Ltd [1960] 4 All SA 314 (A); 1960 (4) SA 582 (A) 591; De Wet and Van
Wyk Kontraktereg 41–42 who deny that the remedy is available in the case of an innocent misrep-
resentation. The reasoning may be that the loss must lie where it falls unless it can be trans-
ferred to another party who is at fault. Cf 8.3. See further Van der Merwe et al Contract 4.6.2.
175
8.140 This basic distinction is sometimes blurred in insurance law. Both in insurance
matters, 321 it is all too commonly stated that a misrepresentation, whether positive or
negative (in the form of a non-disclosure), will or does render the insurance contract
“void”. The use of the word “void” in this context is best avoided. The insurance
the representee. It remains valid, enforceable and generally unaffected by the mis-
between avoiding (rescinding) the contract, with a concomitant claim for restitution,
and upholding (affirming) the contract, recognising the continued validity of the
contract. This involves a scrutiny not only of the conduct of the representee, but also
of the reasonable impression such conduct would have created on the mind of the
other party.
8.142 The means by which a party exercises a right of rescission is a matter of general
contract law. 323 A representee may exercise his right of rescission by either raising the
innocent representee as well as the “guilty” representor, is not only entitled but
obliged to the return of what had been performed. In strict law it means that the
insurer, while no longer bound to render the benefit, is obliged to restore all
integrum)327 in the widest sense of the term, that is, that the parties be placed both
“physically” and legally in the position they occupied before the misrepresentation
occurred. This means not only that actual restitution of performance rendered in
________________________
320 Bodemer v American Insurance Co [1960] 4 All SA 269 (T); 1960 (4) SA 428 (T) 429; Southern Life
Association v Johnson [1993] 3 All SA 816 (E); 1993 (1) SA 203 (E) 204E (application form stating that the
insurance contract would be “invalid” in the event of any positive or negative mis-
representation).
321 Iscor Pension Fund v Marine & Trade Insurance Co Ltd [1961] 1 All SA 350 (T); 1961 (1) SA 178
(T) 185; Bodemer v American Insurance Co 1961 (2) SA 662 (A) 668.
322 Cf Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T) 362. A neat illustration
of the caution with which the word “void” should be interpreted when it is used in
this regard is to be found in Colonial Mutual Life Assurance Society Ltd v De Bruyn 1911 CPD 103
127 where the court, after stating that “any untrue statement or concealment . . . has the effect
of making the policy void”, went on to remark that “if there is such concealment the contract
may be avoided” (our empasis). In Labuschagne v Fedgen Insurance Ltd [1994] 3 All SA 90 (W);
1994 (2) SA 228 (W) 239A it was correctly observed that “[t]o avoid the contract, it being a
324 Karroo & Eastern Board of Executors & Trust Co v Farr 1921 AD 413.
327 Preller v Jordaan [1956] 2 All SA 35 (A); 1956 (1) SA 483 (A) 491–492; Van Zyl v Credit Corporation of SA
Ltd [1960] 4 All SA 314 (A); 1960 (4) SA 582 (A) 589–599.
176
entitled to institute a claim on the contract even if the claim arose before the insurer
rescinded; and since physical restitution is required, an insurer who has met a claim
before rescinding the contract, is entitled to restitution of the amount paid to the
paragraphs
insured.
8.140–8.148
8.145 However, restitution is aimed at restoring the parties to their position before
the misrepresentation took place and not at declaring that the contract never
existed. 330 Therefore, an insurer is not allowed to recover its performance from a
third party to whom the insured had ceded his claim and to whom the insurer had
paid the claim before rescission. 331 If an insurer elects to rescind the contract, one
would expect that it, too, should be compelled to restore what it has received under
the contract, that is, the accumulated amount of the premium. 332
8.146 To the general proposition that the status quo should be restored with retro-
spective effect if the contract is rescinded, and hence that a full restitution should be
made, there is this qualification. If the contract in addition contains a clause that in
the event of false or incomplete answers in the proposal form or any material non-
disclosure “the insurance will be null and void and all monies paid to the insurer will
8.147 So, too, restitution may be partial rather than total. That is the case where the
policy provides for a range of benefits and the misrepresentation relates to only to
part of it. Whether the policy can be partially rescinded will depend on the further
question whether it is divisible. And that, in turn, will depend on the nature and
correlation of the respective performances to be rendered334 and in particular on the
8 . 148 There is little doubt that the representee has an election to rescind the con-
otherwise not have concluded at all. 336 Less clear is whether a representee may
________________________
328 Van Heerden v Sentrale Kunsmis Korporasie (Edms) Bpk [1973] 1 All SA 150 (A); 1973 (1) SA 17 (A) 30, 31.
329 Subject to the normal exceptions made in certain circumstances under which a party may not
be able to restore (completely) what he has received in terms of the contract; see Van der Mer-
we et al Contract 11.4.3.
330 Cf Van Zyl v Credit Corporation of SA Ltd [1960] 4 All SA 314 (A); 1960 (4) SA 582 (A) 590.
331 Van Zyl v Credit Corporation of SA Ltd above 590. But where, say, payment is made to a cessionary and the
agreement creating the ceded right (eg the policy) is rescinded, the ceded right will itself perish (see Nienaber and
Reinecke Life Insurance par 23.43) and this may conceivably give
rise to an enrichment claim for a return of the performance that was made on the strength of
332 For the return of premiums in the event of fraudulent misrepresentation, see Lawsa Vol 12 Part 1 par 237;
14.65 et seq and Lawsa Vol 12 Part 2 pars 25 et seq.
333 15 of 1962.
336 Karroo & Eastern Board of Executors & Trust Co v Farr 1921 AD 413 422; Bowditch v Peel & Magill 1921
AD 561 572. In the case of fraud, this type of misrepresentation is commonly referred to
( continued)
177
likewise elect to rescind the contract if it was not the conclusion of the entire contract
but merely his agreement to particular terms that resulted from the misrepresenta-
tion. 337 The better view, it is suggested, would be that under such circumstances the
representee should not be entitled to rescind the entire contract since he would have
8.149 The view has nonetheless been expressed in an insurance case that in such an
instance the insurer should not be permitted either to avoid the contract as a whole
or to avoid liability for the insured’s claim, but that it should be confined to a lesser
structured remedy, referred to as reconstructing the policy. 340 The issue is dealt with
Damages
8.150 According to the general principles of the law of delict, a representee has an
action to recover compensation for any damage he may have suffered in consequence
representee may recover damages, calculated according to the normal measure, 343
claim for damages will be brought in the context of an insurance contract seems
insurers as a general rule rely on their remedy of rescission, even though the
alternative and, as far as the proposer is concerned, lesser remedy of abiding by the
contract and merely claiming damages would seem more equitable in certain
circumstances. 344
________________________
as “dolus dans causam contractui”: De Jager v Grunder [1964] 2 All SA 17 (A); 1964 (1) SA 446 (A)
452. The phrase has been translated as “causal fraud”, but this may be misleading in so far as it
may create the impression that dolus incidens in contractum (see below) is not causally relevant.
337 Fraud having this effect is often referred to as “dolus incidens in contractum”: De Jager v Grunder above 452,
which has been translated as “incidental fraud”; cf the observation in the previous
note.
339 In Karroo & Eastern Board of Executors & Trust Co v Farr 1921 AD 413 where the representee complained
about having been induced to enter into a contract containing a particular clause
to which he would not have agreed in the absence of the misrepresentation, the court said
(422): “If its presence . . . is due to the misrepresentation . . . the defendant is entitled to repu-
diate the whole contract.” These words may be interpreted to mean that rescission is possible
even in the case of a misrepresentation bearing not on the contract as a whole but on certain
terms only. See also De Vos 1964 Acta Juridica 26; De Wet and Van Wyk Kontraktereg 42.
340 See Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 371C–D; Nienaber and Reinecke Life
Insurance pars 23.45–23.48.
342 The recoverability of damages for negligent pre-contractual misrepresentation was finally
settled in Bayer SA (Pty) Ltd v Frost [1991] 2 All SA 444 (A); 1991 (4) SA 559 (A).
344 Namely in instances where the insured’s misrepresentation did not induce the contract as such but merely its
conclusion on different terms, eg at a lower premium. In the case of such an “incidental” misrepresentation (see
8.148–8.149 for the difference between incidental and causal
fraud), damages may readily be claimed in the amount of the difference between the premium
actually charged and the higher premium the parties would have agreed upon in the absence
of the misrepresentation.
178
A precontractual duty
enable the insurer to assess the risk. But the duty does not end there. The insured
moment that the insurer assumes the risk and actual cover commences, regardless of
paragraphs
whether or not that duty is spelt out in the application form. That will normally be 8.148–8.153
the moment when the contract is in law regarded as having been concluded. 345 Thus,
if a statement of fact about the insurance proposer’s state of health or the absence of
any criminal record was true when it was made, but for some or other reason it
ceased to be true because a new infirmity was diagnosed or the insurance proposer
was in the meantime convicted of fraud, the previously stated fact must be corrected.
8.152 However, the duty does not extend beyond the point that the conclusion of
the contract is finalised, unless the policy so provides. 346 Any new circumstance arising
after that moment and that may have a bearing on the risk, is for the account of the
insurer and need not be disclosed by the insured. That, after all, is part of the very
risk that the insurer assumes in issuing the policy. If the insurer wishes to protect
alteration of the risk it had taken over, it must do so by appropriate provisions in the
underwriter that may be material to the risk but that only came to his attention after
the contract was finally concluded. 347 As far as disclosure is concerned, the duty of
Misselling, properly understood, 349 amounts in essence not to a statement of fact but
himself out as an expert for that purpose. It can occur either before or after the
________________________
345 Nienaber and Reinecke Life Insurance par 23.49. On the conclusion of the insurance contract, see Lawsa Vol
12 Part 1 par 121.
346 Eg, as in the case of a so-called “increase of risk” clause in a fire policy relating to changes of a permanent
nature in the insured property that would increase the risk. Any clause purporting
to extend the general duty of disclosure beyond the commencement of the policy or the as-
sumption of the risk will, however, be strictly interpreted: Lowry et al Doctrines 121.
347 See Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 756
where it was observed that “the purpose and rationale of the pre-contract duty of disclosure
348 Whether the duty of disclosure is simply one manifestation of an overarching principle of good faith which
also operates post-contractually in other respects, is discussed in Lawsa Vol 12 Part 1
par 253.
349 Misselling is treated in greater detail in Nienaber and Reinecke Life Insurance pars 24.7–24.21, which was the
main source for what is stated here.
179
actionable in law, even if bad. 350 But things are different when the advice is furnished
mandate351 to the adviser, be it express or implied, that such advice should be honest
8.155 Two contracts are thus involved: the contract between the insured and the
insurer (the insurance contract, as evidenced by a policy) and a contract between the
insured and the adviser. A distinction should be drawn in this regard between
should assure the consumer that he is professionally qualified to give advice when in
fact he is not, and as a result the insured appoints the adviser as his broker, that is a
misrepresentation that can lead to the cancellation of the appointment and hence of
the contract of mandate. If the adviser, acting on behalf of the insurer, assures the
insured that the benefits of an investment policy are guaranteed by the insurer when
they are not, that is again a misrepresentation that can lead to the cancellation of the
policy.
8.156 But when the adviser assures the insured that an investment is a perfectly
sound investment in circumstances when the adviser as an expert in the field should
have realised that it was in fact a pyramid scheme, it is a case of misselling. So, too, if
the adviser should persuade the insured to cancel one policy and invest in another
which is inferior but generates more commission for the adviser, it is a case not of
misrepresentation but of misselling. 353 Because the advice is not honest or at any rate
appropriate, it amounts to breach of mandate to give honest and appropriate advice.
the adviser and his misselling lies in the type of relief that is available to the insured.
In the case of a misrepresentation, the resultant contract (be it the mandate or, more
rarely, if the adviser acted on behalf of the insurer, the insurance contract) may be
rescinded at the option of the insured who was misled, with a consequent refund of
what has been performed. In the case of misselling the insured can also cancel the
mandate but his primary remedy is a common-law claim for damages against the
adviser for breach of the contract to give appropriate advice. He may thus be able to
recover his losses. Where the advice also contains a false statement of fact about the
________________________
351 The importance of the mandate was stressed in Poultney v Absa Insurance Brokers (Pty) Ltd, unreported (EC),
(2002) 5 Juta’s Insurance L Bul 164.
352 See, in general, Durr v ABSA Bank Limited [1997] 3 All SA 1 (A); 1997 (3) SA 448 (SCA). The terms of the
mandate will differ from case to case. It may well include the duty to duly inform
the insured of all the available and suitable products and options in the market, to give him
353 Also referred to as “churning”: Nienaber and Reinecke Life Insurance pars 30.32 et seq 180
position of the adviser in question. It does not have to be the “very best” advice
it can be shown that there were in fact better products or a combination of products
or better terms or prospects available in the market at the time. Nor is the advice
thereafter.
8
8.159 If the above norm were consistently applied, it would mean that every adviser
paragraphs
would give more or less the same advice in the same circumstances. “Text book 8.153–8.160
requirement. That does not, it is suggested, restrict the above-average adviser with
direction from all the others, even if, in the result, the investment proved to be less
8.160 To protect himself and, if acting on its behalf, the insurer, the adviser must
ensure that the insured is fully informed and properly understands the investments
decision to invest or to insure. The adviser will not be held liable if the insured, duly
informed, chooses the adviser’s least favoured option or insists on following his own
hunch.
________________________
354 See Durr v ABSA Bank Limited [1997] 3 All SA 1 (A); 1997 (3) SA 448 (SCA).
181
Terminology
paragraphs
9.1 The contents of an insurance contract, like any other contract, consist of the
9.1–9.2
terms – clauses or provisions – determining the rights and duties of each of the
for that matter post-contractual) representations, 2 which do not form part of the body
of the contract. 3
9.2 Contractual terms may in turn be divided into consensual terms ( ex consensu) and
terms implied by law ( ex lege). Most contractual terms are consensual terms. By
agreeing to specific contractual terms, the parties in effect make their own rules to
suit their individual needs. Consensual terms may be either express or they may be
tacit (or inferred) terms. Tacit terms may be inferred from the express terms or from
the parties’ conduct. 4 Tacit terms are sometimes wrongly and confusingly referred to
“stilswyende beding” are used for both concepts. Implied terms properly so called are
________________________
1 See
further
Lawsa Vol 12 Part 1 pars 244–264; Nienaber and Reinecke Life Insurance in South
3 Lifeguards Africa (Pty) Ltd v Raubenheimer [2006] 3 All SA 350 (D); [2006] 9 BLLR 857 (D); 2006
(5) SA 364 (D); Van der Merwe et al Contract General Principles par 4.2.2. A contractual term is
supported by the intention to be legally bound, while someone making a statement amounting
to a pre-contractual representation does not intend to assume any legal obligation. A pre-
claimed: 8.150. A misrepresentation by the one party may cause a mistake in motive or even a
material mistake on the part of the other party, for which there is, in each case, an appropriate
remedy: 7.39 .
4 9.7
5 Idem .
183
South African Insurance Law
9.3 A distinction of some importance is also drawn between essential and incidental
terms, the former ( essentialia) being terms that are vital for a contract to be classified
types of contract.
9.4 A further distinction7 is that between obligationary terms (eg to pay the premium
or the insured sum, as the case may be) and non-obligationary terms. A non-
obligationary term qualifies the operation of an obligation but does not entail a
positive duty to render performance. Terms belonging to this class include suspensive
confers a discretion on a party, normally the insurer, to amend either its own
performance or that of the insured, for example by increasing the premium rate. 9
The discretion may also bear on a condition of the contract. Where, for example, the
contract provides that the insurer will pay a sum of money if the insured becomes
disabled, it may leave it to the insurer to decide whether or not the insured is
disabled in terms of the policy, in other words, whether the condition has been
fulfilled. 10
9.6 Express terms are terms articulated in so many words by the parties themselves.
may be written or oral. Express terms are sometimes ambiguous and require
interpretation. 12
9.7 Tacit (or implicit) terms are blended into the contract, as it were by implication
from the express terms or from other conduct of the parties. 13 Tacit terms14 are consensual terms which the
parties did not formulate in so many words but which
were, so to speak, taken for granted and read into the contract. “Tacit terms . . . are
by definition not to be found through interpretation of the express terms. They are
by definition neither recorded nor expressly agreed upon by the parties. They often
pertain to matters which the parties did not even consider. They emanate from the
common intention of the parties, as inferred by the court from the express terms of
________________________
8 Eg, that a claim must be brought within a specified period: 17.24 et seq, and Lawsa Vol 12 Part 1
pars 380–383.
10 See, as to the validity of all types of discretionary clauses and the exercise of the discretion, Nienaber and
Reinecke Life Insurance pars 9.1–9.9.
11 Eg, the policy may expressly incorporate the contents of the application form or the schedule into the policy; or
a quotation may incorporate standard terms of the proposed policy. Cf
13 Stalwo (Pty) Ltd v Wary Holdings (Pty) Ltd [2007] JOL 20726 (SCA); 2008 (1) SA 654 (SCA); Rockbreakers
and Parts (Pty) Ltd v Rolag Property Trading (Pty) Ltd [2010] 1 All SA 291 (SCA); 2010
(2) SA 400 (SCA) par 19; Sterklewies (Pty) Ltd t/a Harrismith Feedlot v Msimanga [2012] 3 All SA 655
15 Scholtz v Scholtz [2012] 2 All SA 553 (SCA); 2012 (5) SA 230 (SCA) par 12.
184
9.8 The courts usually employ the celebrated objective bystander test to decide
whether to infer a tacit term. This has been formulated as follows: “A term can only
be implied if . . . it is such a term that it can confidently be said that if at the time the
contract was being negotiated someone has said to the parties: ‘What will happen in
such a case?’ they would have both replied: ‘Of course so and so will happen; we did
9.9 Although specific tests have been formulated as an aid in establishing whether a
paragraphs
tacit term has been agreed to, it remains a grey area and attempts to rely on tacit
9.3–9.11
terms are more often than not unsuccessful. 17 Courts are slow to import tacit terms
imputed (or “inferred”) terms, 19 the latter being inferred even though the parties did
not specifically consider the particular matter. Terms are not, however, readily
inferred. A court must be satisfied that if the term were suggested to them at the time
9.11 Tacit terms should be distinguished from implied terms. The distinction
between tacit terms and implied terms ( naturalia) was explained thus in South African
Forestry Company Ltd v York Timbers Ltd:21 “Unlike tacit terms which are based on the
inferred intention of the parties, implied terms are imported into contracts by law
from without. Although a number of implied terms have evolved in the course of
development of our contract law, there is no numerus clausus of implied terms and the
courts have the inherent power to develop new implied terms. Our courts’ approach
the creative and informative function performed by abstract values such as good faith
and fairness in our law of contract. Indeed, our courts have recognised explicitly that
justice, reasonableness, fairness and good faith:22 Once an implied term has been
reasonable or to promote fairness and justice between the parties in a particular case.
________________________
16 This formulation has been adopted from the English decision in Reigate v Union Manufacturing Co
(Ramsbottom) [1918] 1 KB 592 (CA): see Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty)
Ltd [2004] 1 All SA 1 (SCA); 2005 (6) SA 1 (SCA) 19; South African Maritime Safety Authority v
Mckenzie [2010] 3 All SA 1 (SCA) pars 11–12; [2010] 5 BLLR 488 (SCA); 2010 (3) SA 601 (SCA);
Maphango v Aengus Lifestyle Properties (Pty) Ltd [2011] 3 All SA 535 (SCA); 2011 (5) SA 19 (SCA)
17 Cf Robin v Guarantee Life Assurance Co Ltd [1984] 2 All SA 422 (A); 1984 (4) SA 558 (A) 567.
19 Wilkins v Voges [1994] 2 All SA 349 (A); 1994 (3) SA 130 (A). Cf Strydom v Duvenhage [1998] 4 All SA 492
(A); 1998 (4) SA 1037 (SCA).
20 City of Cape Town CMC Administration v Bourbon-Leftley [2006] 1 All SA 561 (SCA); 2006 (3) SA 488
(SCA).
21 [2004] 4 All SA 168 (SCA); 2005 (3) SA 323 (SCA) 328; ABSA Bank Ltd v South African Commercial
Catering and Allied Workers Union National Provident Fund (under curatorship) [2012] 1 All SA 121
22 Referring to, eg, Tuckers Land and Development Corporation (Pty) Ltd v Hovis [1980] 1 All SA 358
(A); 1980 (1) SA 645 (A) 651C–652G; A Becker & Co (Pty) Ltd v Becker [1981] 4 All SA 289 (A);
1981 (3) SA 406 (A) 417F–420A; Ex parte Sapan Trading (Pty) Ltd [1995] 3 All SA 89 (W); 1995
23 Referring to Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration [1974] 3 All SA 497 (A);
1974 (3) SA 506 (A) 531D–H.
185
parties and set of facts can serve only as catalysts in the process of legal development.”
9.12 Implied terms, by contrast to tacit terms, are not based on the parties’ intention.
They arise ex lege and not ex consensu. They are thus more accurately described as rules
of law incorporated into the contract to supplement and complement the consensual
terms. These rules may be common-law or statutory rules. Examples of terms derived
from the common law are the implied warranty of seaworthiness24 and an insurer’s
right to subrogation. 25 The LTIA26 and the STIA27 and their respective sets of regulations are the main sources
of implied statutory insurance terms. 28 Usually the
parties are free to adapt and even to exclude a particular implied term, but the
relevant legislation may provide that the insured may not waive a right to which he is
entitled by statute. 29 This also holds good for a right derived from the regulations. 30
9.13 The courts have inherent power to develop new implied terms of general
application if good faith and fairness so demand. 31 But there is no room for an all-
embracing implied term to the effect that a contracting party such as an insurer must
observe the dictates of good faith and fairness when performing a contract, 32 even
indemnity or pay a guaranteed maturity value. If this duty is not observed, breach of
contract occurs. The bulk of insurance provisions fall within this category. Non-
obliged to fulfil. When the insurer, for example, agrees to pay an indemnity should
the insured’s house burn down, or a sum of money should the insured contract a
terminal illness, there is no duty on either party to induce the insured condition;
________________________
25 Idem 73 et seq.
27 53 of 1998.
28 An important term implied by the LTIA and its regulations concerns the actuarial basis of a
long-term insurance contract. Cf 12 Lawsa Vol 12 Part 1 par 245, Nienaber and Reinecke Life
Insurance pars 7.8, 12.10; Old Mutual Life Assurance Co (SA) Ltd v Pension Funds Adjudicator [2007]
2 All SA 98 (C); 2007 (3) SA 458 (C). A long-term insurer may only enter into a particular kind
of long-term policy if an actuarial basis for that kind of policy has been approved by its statutory
actuary who must be satisfied that the premiums, benefits and other values are actuarially sound
(LTIA s 46). According to the LTIA s 52(3) a long-term insurer must have rules which, to the
satisfaction of the statutory actuary, prescribe a sound basis on which, and the methods by which,
a long-term policy is to be valued and otherwise dealt with for the purposes of s 52(2) The
concept “actuarial basis” is defined as the underlying actuarial rules, specifications and formulae
in terms of which a long-term policy operates: reg 5.1. Cf Nienaber and Reinecke Life Insurance
31 South African Forestry Co Ltd v York Timbers Ltd [2004] 4 All SA 168 (SCA); 2005 (3) SA 323 (SCA) 339,
Van Nieukerk v McCrae 2007 (5) SA 21 (W).
33 South African Forestry Co Ltd v York Timbers Ltd above 340; 10.33 et seq.
186
event, 36 and contractual expiry clauses, providing that a claim must be brought within
a given period, 37 also belong to the class of non-obligationary terms. 38 Both suppositions and conditions make
the obligations arising from the contract
dependent on some or other external event, but while a supposition generally refers
paragraphs
9.11–9.18
insurance contracts that the insured event has not occurred prior to the conclusion
9.16 Where terms create obligations between the parties, the duty to perform may
rest, depending on the circumstances, on either the insurer or the insured. Clauses
devoted to the duties of the insured constitute the bulk of the provisions in insurance
contracts. Obligationary terms either deal with the basic performance of the insured,
that is, the payment of the premium, or create additional duties. Such additional
warranties. They may concern the correctness of representations made by the insured
at the time of conclusion of the contract, or they may be of a continuing nature, such
as the duties arising from a term requiring the insured act in a certain manner
during the currency of the contract. Terms in the latter category may be devised to
minimise the incidence of the risk or to ensure the correct determination of the
extent of a loss. 42
9.17 A breach of a term imposing a duty on the insured, activates the insurer’s
remedies for breach of contract, namely a claim for damages and cancellation.
Damages seldom if ever figure in the context of insurance. According to the general
permitted only if the breach is serious in itself or is a breach of a term that the parties
grounds of breach of contract requires a decision to cancel the contract coupled with
a notice to this effect to the other party involved. By contrast, a contractual obligation
resolutive condition.
Standard terms
they are embodied in the policy; insurance policies are usually standard form
________________________
36 9.20 and Lawsa Vol 12 Part 1 par 248; Nienaber and Reinecke Life Insurance par 12.18, Van der Merwe et al
Contract par 9.4.5.
37 This does not create a positive duty for the insured because he is under no duty to claim at all: Nienaber and
Reinecke Life Insurance pars 27.1–27.5.
42 Warranties are discussed in ch 15 and in detail in Lawsa Vol 12 Part 2 pars 33 et seq.
43 Van der Merwe et al Contract par 11.4.1; Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd
187
contracts. 44 Secondly, there can be an express provision in the application form which
incorporates the insurer’s standard terms “by reference”, that is, by cross-referencing
terms, or if his attention was drawn to them by the insurer. 47 Finally, the standard
terms could have found their way into the contract as a result of a counter-offer by
standard terms remains in the final analysis a question of fact. To provide for non-
Suppositions
existence of a particular fact, for example that the life assured was alive when the
contract was concluded. 50 Whereas a supposition (eg that the insured is alive) affects
the very existence of a contractual obligation (eg the insured’s duty to pay a
premium), a condition (eg that the insured will still be alive on a date ten years
hence) affects the mere enforceability of a contractual obligation (eg the insurer’s
duty to pay the insured sum). Suppositions, unlike conditions, do not play a
9.22 In English law the breach of an affirmative warranty is treated as if the validity of
a warranty in effect boils down to what in South African law would be known as a
is nothing other than a breach of contract which, if sufficiently serious, entitles the
________________________
47 D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd [2006] 3 All SA 309 (SCA); 2006 (3) SA 593
(SCA) 600.
51 Cf Wilson Bayly Holmes (Pty) Ltd v Maeyane [1995] 2 All SA 173 (T); 1995 (4) SA 340 (T); Van Reenen Steel
(Pty) Ltd v Smith [2002] JOL 9515 (A); 2002 (4) SA 264 (SCA) pars 9–12; Transnet Ltd
v Rubenstein [2005] 3 All SA 425 (SCA); 2006 (1) SA 591 (SCA) par 29. The juxtaposition of
supposition and misrepresentation in par 9 of the second par 29 of the third case may be
54 Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2005] JOL 15610 (SCA); 2006 (1) SA 488
(SCA). Cf Nienaber and Reinecke Life Insurance pars 23.16–23.19, 30.81. For breach of warranty,
188
Conditions
9.23 A condition in South African law is a particular type of auxiliary contractual
the condition is suspensive (eg the insurer will pay if the life insured suffers a heart
attack), the obligation is not enforceable until the condition is fulfilled and if the
condition fails, the obligation (to pay) is discharged. If the condition is resolutive (eg
paragraphs
the insurance of the insured’s vehicle ends if the vehicle is sold), the obligation (of 9.18–9.26
postpones the enforceability of one or more of the obligations under the contract
qualified thereby until the occurrence of an uncertain future event, for example the
obligation of the insurer to pay an indemnity if the insured’s factory burns down, or
to pay the sum insured if and when the insured should become disabled or if a life
insured should die before a certain date. But when the insurer agrees to pay a sum of
money on the death of the insured whenever that may occur, the provision is not in
9.25 A resolutive condition has the effect that the obligations or obligations qualified
thereby are resolved and thus come to an end when the condition is fulfilled. 59
liability of the insurer to pay the insured sum will only materialise upon payment of
the premium. 60 The condition will be a resolutive condition if it is to the effect that
the potential liability of the insurer will automatically be discharged if the condition
bears the burden of proving that the condition has been fulfilled. 62 In the case of
and the failure of the contract may be relied upon by either party. 63 However, if a
condition has been inserted in the interest of only one of the parties, that party may
________________________
57 There is some uncertainty about the precise effect of a suspensive condition on a contract. See, eg, Tuckers
Land & Development Corporation (Pty) Ltd v Strydom [1984] 1 All SA 215 (A); 1984 (1)
SA 1 (A); Geue v Van der Lith [2003] 4 All 553 (SCA); 2004 (3) SA 333 (SCA).
62 Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd [1963] 2 All SA 45 (A); 1963 (1) SA 632
(A) 644G.
63 Dirk Fourie Trust v Gerber [1986] 2 All SA 77 (A); 1986 (1) SA 763 (A). In certain circumstances the doctrine
of fictitious fulfilment of a condition may be germane.
189
the benefit of the condition. 64 There is no positive duty on a party to cause or prevent
the fulfilment of the uncertain event to which a condition relates. Indeed, this is the
contract.
9.27 Although the word “condition” has this precise technical meaning, the
make payment of the premium a condition for liability of the insurer. In connection
vested claims.
9.28 Conditions” as understood in South African law must not be confused with
between conditions proper and obligationary terms has not escaped English law, 66 the
traditional view of a “condition” in English law differs significantly from a term with
the same name in a South African contract. According to the English view, a
entails a duty to perform. 67 If the condition is not fulfilled, a breach of contract has
been committed. This applies even if the word “precedent” is added to the word
may be cancelled if one of its provisions has been breached. The party who wishes to
proving that a breach has in fact occurred. The party who is in breach of the
condition, has no right to cancel the contract on account of his own breach of
contract.
9.29 Conditions under English insurance law are therefore vital obligationary terms,
South African insurance contracts in the past similarly referred to various terms in
the contract as “conditions precedent” whenever the intention was to stipulate that
the insurer would be entitled to refuse liability for a claim or cancel the contract if
________________________
64 Van Jaarsveld v Coetzee [1973] 3 All SA 285 (A); 1973 (3) SA 241 (A).
(A) 644E, where reference is made to Cheshire and Fifoot Law of Contract (5 ed). The court
observed (644): “The so-called conditions of the contract are not conditions as understood in
our law; they are undertakings by the insured and therefore terms of the contract. The
nomenclature of the policy is that of the English law, which fails to observe the distinction
between a condition proper and a term of the contract. . . . The terms of the contract cannot be
changed into suspensive conditions merely by calling them conditions precedent. A term of the
contract may be so material that a breach of it will entitle the other party to repudiate the
contract, and in the present case the parties have used the words ‘conditions precedent to any
liability’ to indicate that the so-called conditions are material terms of the contract.” Cf further
17.19 et seq.
68 The word “precedent” may indicate that the parties had a vital term in mind. As to “conditions precedent” in
English law, see Clarke et al Contracts par 20.1B.
69 For the nature and consequences of these conditions and warranties, see ch 15 and Lawsa Vol 12
190
the insured breached the particular term. English terminology was likewise applied
by the courts. 70 This has led to confusion which the appellate division in Resisto Dairy
notwithstanding this decision, with the connotation it has in English law. 73 When the
accordingly be taken to determine its true nature in accordance with the intention of
paragraphs
9.26–9.30
Circumscribing risk
9.30 The description of the risk is generally embodied in a complex set of terms
describing the event insured against. It is customary to define the risk in broad terms
and then to limit its scope by means of exceptions. 74 These exceptions may in turn be
precedent, regardless of whether it stands alone or is part of a set of terms that must
descriptive of the risk or whether it entails an obligation. If they intend that the
insured must fulfil a term exactly in accordance with its content, the term is
obligationary, such as a warranty which may found an action for breach of contract.
Conversely, if the parties do not intend that the insured should carry out the term,
________________________
70 Cf Norris v Legal and General Assurance Society Ltd [1962] 4 All SA 422 (C); 1962 (4) SA 743 (C).
71 [1963] 2 All SA 45 (A); 1963 (1) SA 632 (A). Cf Optima Paint Manufacturers CC v Santam Ltd, unreported
(C), (2005) 8 Juta’s Insurance L Bul 12.
72 Cf, eg, the terms of the policies in Nel v Santam Insurance Co Ltd [1981] 3 All SA 342 (T); 1981
(2) SA 230 (T) 37; Johnson v Incorporated General Insurances Ltd [1983] 3 All SA 255 (A); 1983 (1)
SA 318 (A) 326B; Bates & Lloyd Aviation (Pty) Ltd v Aviation Insurance Co; Bates & Lloyd Aviation
(Pty) Ltd v Aviation Insurance Co [1985] 2 All SA 428 (A); 1985 (3) SA 916 (A) 930C; City Council
of the City of Durban v Rumdel Construction (Pty) Ltd [1997] 3 All SA 20 (D) 30.
73 In Russell and Loveday v Collins Submarine Pipelines Africa (Pty) Ltd [1975] 1 All SA 344 (A); 1975
(1) SA 110 (A) 149C the court seems to have taken a step backwards when it came to the
conclusion that a so-called condition in the policy was in fact a “condition precedent”. The
expression was clearly used in the sense in which it is employed in English insurance law. In
Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 752C,
752F the court remarked that despite the use of the words “condition precedent” in the policy, it
was clear that the provision in question was not intended as a suspensive condition but as a
material term of the contract amounting to a forfeiture provision. The court proceeded to call
the provision in question a “condition” (753B) but this was clearly intended to denote a mere
term or provision of the contract. In Marine and Trade Insurance Co Ltd v Van Heerden 1977 (3) SA
553 (A) 558 the court described a so-called condition precedent in the policy as a term of the
contract and required the insurer to prove its breach. See also Kali v Incorporated General
Insurances Ltd [1976] 2 All SA 443 (D); 1976 (2) SA 179 (D) 180; Nel v Santam Insurance Co Ltd
74 Cf, in general, ch 13 and Lawsa Vol 12 Part 1 pars 301 et seq, 3.12. In Provincial Insurance Co Ltd v Morgan
[1933] AC 240 (HL), an English decision, a truck was insured. The cover was limited to
transportation in connection with the insured’s business. In the proposal form the insured was
asked to state the purpose for which the vehicle would be used and the nature of the goods to be
carried. He responded that it would be used for the delivery of coal. The insured’s answers were
made the “basis of the contract”, so that his statement in respect of future use would ordinarily
have amounted to a warranty. The insured vehicle was in fact occasionally used to transport
timber but as it happened it was carrying coal when it was involved in an accident. The court did
not regard the occasional carrying of timber as a breach of contract, but found that the apparent
warranty was in truth a term descriptive of the risk. Since the truck was used to carry coal at the
time of the accident, which fell within the agreed risk, the insured was entitled to recover his
loss. Cf also Maze v Equitable Trust and Insurance Co of SA Ltd 1938 CPD 431 437; Botha’s Trucking v
Global Insurance Co Ltd [1999] JOL 4496 (T); 1999 (3) SA 378 (T).
191
but merely want to state the circumstances under which the insured would be entitled
to claim, the term does not create an obligation. Such a term, whatever the parties
may have called it, is then, in South African legal parlance, a condition precedent. 75
Time clauses
reference to a specified moment or period which is certain to occur, for example, the
payment of an annuity at the end of the month ( dies certus an, certus quando), or to a
future event which is also certain to occur, but uncertain when, such as the insured’s
death76 ( certus an, incertus quando). A time clause may be either suspensive or
resolutive. In case of a suspensive time clause only the enforceability of the obligation
is affected and not its existence, for example the obligation of an insurer to pay to the
insured an annuity at regular future dates. In such a case the insured cannot claim
the annuity before the due date, but the insurer is free to pay it before then and in
doing so it will discharge its debt. 77 The effect of a resolutive time clause is to
terminate the obligation on a certain future date, for example, a term-life policy
9.32 The distinctive role of good faith as the inspiration and source of an insurance
insurer to assess the risk it is asked to assume, is considered earlier. 79 The question
now under discussion is a different one: whether good faith can also serve as the
deal with each other in good faith. Such a duty may translate into either a particular
duty in particular circumstances, the breach of which would give rise to some or
9.33 The key question, it has been said, 80 applicable to general contract law and
hence also to insurance law, is whether good faith operates as an overarching and
________________________
75 In Turdeich v National Employers’ General Insurance Co Ltd 1982 (2) SA 219 (C) the court was concerned
with a “condition” which read that the “insured shall take all reasonable steps and
precautions to ensure the maintenance and safety of the property to which this insurance
relates”. In dealing with this clause, the court made use of terminology which created the
impression that it regarded the term as a limitation on the risk (220–221). A clause such as this
one could in fact have been intended as an exception to the risk despite its form. The exact
76 See further Nienaber and Reinecke Life Insurance par 2.23; Van der Merwe et al Contract par 9.4.5.
77 Unless the parties have agreed that the time clause is in favour of the creditor: Van der Merwe et al Contract
295.
80 Brand and Brodie in Zimmermann, Visser and Reid (eds) Mixed Legal Systems in Comparative Perspective 94–
116.
81 Van der Merwe et al Contract par 9.7.
192
faith as the provenance of ex lege contractual duties leading to liability if the duty is
such as that any discretion must be exercised fairly. 82 It is also necessary to distinguish
between rules of law which are drafted into a contract ex lege and ad hoc tacit terms
9.34 Abstract notions such as good faith, reasonableness and fairness, although they
paragraphs
may be fundamental to our law of contract, do not, so it has now been held 9.30–9.37
has been explained, although these abstract notions represent justification for and
inform and contribute to the alteration of the rules of “hard law”, they do not
contractual terms, a court has no general discretion to act on abstract notions such as
good faith and fairness. It is bound to apply the fixed and determined rules of hard
law.
9.35 Good faith may thus be said to be the rationale for a rule of law, but it is not as
such a rule in itself or, as it was stated in South African Forestry Company Ltd v York
Timbers Ltd, 85 the rationale for implying a term by operation of law should not be
confused with the contents of the term to be implied: “To say that terms can be
implied if dictated by fairness and good faith does not mean that these abstract values
themselves will be imposed as terms of the contract.” 86 There is thus, at least as of yet,
no general doctrine of good faith in our law, elevating good faith by operation of law
cannot preclude reliance on a clear contractual right. And what is true for contract
9.37 Turning to insurance contracts, good faith, it has been suggested, is of limited
general or even a particular duty of good faith attaches once the contract has been
duty of good faith in the context of insurance contracts, the possibility of the gradual
________________________
82 Thus good faith, embracing concepts such as unconscionable conduct, business morality and
equity, has been invoked in the development of new terms to be implied by law: A Becker & Co
(Pty) Ltd v Becker [1981] 4 All SA 289 (A); 1981 (3) SA 406 (A) where the court inferred from the
84 Afrox Healthcare Bpk v Strydom [2002] 4 All SA 125 (SCA); 2002 (6) SA 21 (SCA) par 32, referring to Brisley
v Drotsky 2002 12 BCLR 1229 (SCA); 2002 (4) SA 1 (SCA) par 22. Cf also Van der
86 South African Forestry Company Ltd v York Timbers Ltd above 329 .
87 8.151 and Lawsa Vol 12 Part 1 par 241. Cf Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945
TPD 382. See also Roome v Southern Life Association of Africa 1959 (3) SA 638 (D) 640; Bodemer v
American Insurance Co [1961] 2 All SA 615 (A); 1961 (2) SA 662 (A) 668. In Pereira v Marine &
Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755–756 the matter was
193
law, 88 remains a matter for conjecture and debate. It is not inconceivable that in the
spirit of the South African Constitution greater weight will be accorded to consider-
ations of good faith in the future, also in the field of insurance contracts. 89 However,
it may be an overstatement to assert that a doctrine of contractual good faith is
continuing duty of good faith during the existence of the insurance contract, is the
fact that the law does not countenance a fraud perpetrated by the insured on the
distilled. If there is such a thing as a duty of good faith, fraud would epitomise its
breach. If, therefore, the law allows a remedy, it would conceivably serve as an
9.39 The type of fraud here concerned is not confined to the causa for the claim – as
for instance when a claim is made that the life insured had died when in fact he was
still alive, 92 or that cargo had been stolen when the insured had sold it, or when the
the insured – but fraud related to an attempt to enforce even a legitimate claim, for
instance when the insured submits false medical reports in support of a disability
claim that is valid but difficult to prove or false invoices to bolster a claim. Other
when a false item claim is added to a valid claim, or when false information is
gratuitously furnished which was not in fact material in influencing the insurer. In
some but not in all of these instances, depending on the circumstances, there will be
fraud.
9.40 This topic is more fully discussed in Lawsa93 with reference to the Roman-Dutch law and current authority,
particularly Schoeman v Constantia Insurance Co Ltd. 94 It is
conclusion on the issue here raised is that the treatment of a fraudulently presented
________________________
88 Brand and Brodie in Zimmermann, Visser and Reid (eds) Mixed Legal Systems in Comparative Perspective,
observe at 116: “In conclusion, therefore, it may be said that in both systems [those of
South Africa and Scotland] the role of good faith is to inform and explain the rules of the law of
contract and, when necessary, to provide the basis for amending these rules. In neither of the
two systems, however, is good faith recognised as an independent or free-floating basis for
89 Nienaber and Reinecke Life Insurance par 1.46; Van der Merwe et al Contract par 9.7.
90 Eerste Nasionale Bank van Suidelike Afrika Bpk v Saayman [1997] 3 All SA 391 (A); 1997 (4) SA 302
(SCA). See generally Lubbe 1990 Stellenbosch LR 19; Cockerell 1992 SALJ 55; Neels 1999 TSAR
684.
91 Cf South African Eagle Insurance Co Ltd v KRS Investments CC [2007] 1 All SA 566 (SCA); 2005 (2) SA 502
(SCA).
94 [2003] 2 All SA 642 (SCA); 2003 6 SA 313 (SCA). See also South African Eagle Insurance Co Ltd v KRS
Investments CC [2007] 1 All SA 566 (SCA); 2005 2 SA 502 (SCA); Springgold Investments (Pty)
194
claim in our law is not a manifestation of, and cannot be deployed as the rationale
for, a general and broad duty of good faith which continues after the conclusion of
the contract. 96 While the issue cannot be regarded as finally settled, 97 it is doubtful, in the light of what has been
said earlier, 98 if an all-embracing general rule of good faith
paragraphs
9.41 What has been said above, namely that our law does not recognise a universal 9.37–9.43
post-contractual ex lege duty of good faith resting on a contracting party, also applies
reasonably and fairly towards an insured. As matters stand at the moment, good faith
law right which the insurer may have to rescind or cancel the contract.
its threat of avoiding or cancelling the policy on dubious grounds in the hope of
bludgeoning the insured into a settlement or the abandonment of his claim, or its
unreasonable refusal to make a concession or settle a claim which good sense dictates
ought to happen, or its failure to advise an insured of his rights under the policy, or
9.43 Such conduct will nevertheless not give rise to legal liability unless some or
other extraneous cause of action for a claim for damages can be found, 101 such as the
breach of a tacit term or a claim for additional “special” damages102 for a parallel
breach such as mora by the insurer, the consequences of which were within the
________________________
96 Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd [1984] 2 All SA
352 (A); 1984 (3) SA 513 (A).
97 In
Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) 755–
756 the question was raised and discussed but not decided by the court. See also Lehmbecker’s
Earthmoving & Excavators (Pty) Ltd v Incorporated General Insurances Ltd [1984] 2 All SA 352 (A);
1984 (3) SA 513 (A) 523 where the court expressly refrained from deciding whether the rights
given to an insurer in terms of such a clause are precisely co-extensive with rights which the in-
98 9.35.
99 Malcher & Malcomess v Kingwilliamstown Fire & Marine Insurance & Trust Co (1883) 3 EDC 271
287, 288; Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A);
1985 (1) SA 419 (A) 432E with reference to the duty to disclose.
100 On insurer bad faith, see generally Van Niekerk 1998 SA Merc LJ 110; Havenga 1996 SA Merc LJ
75.
101 In English law the issue highlighted by Sprung v Royal Insurance (UK) [1999] 1 Lloyd’s Rep IR
111 (CA) involves whether damages should be recoverable for late payment contrary to the in-
surer’s duty of good faith. The existence of the duty to act in good faith (but not the utmost
good faith) was not in issue. The problem was that there was only one possible remedy and that
was avoidance. Hence there was no scope for a claim for damages for breach of duty, as was in-
deed held in Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1990] 2 Lloyd’s Rep 377
(HL) affirming the decision of the Court of Appeal in [1988] 2 Lloyd’s Rep 513 (CA). Cf Lawsa
Vol 12 Part 1 par 260 n 3 for the approach adopted by the Law Commission and the Scottish
Law Commission in their Discussion Paper 7 of their Joint Review of Insurance Law.
102 In English law, which recognises the reciprocal nature of the duty of good faith and of the duty of disclosure, a
claim for damages is not available for the insured in the event of a breach of the
duty of good faith by the insurer, the only remedy being avoidance of the contract in the sense
of rescission. Cf Lawsa Vol 12 Part 1 par 260 n 4; Merkin et al Colinvaux’s Law of Insurance
pars 6.122–6.131.
195
contemplation of the parties, or perhaps even a claim in delict for pure economic
loss, 103 or the invocation of the doctrine of abuse of rights. 104 But in the absence of a legislative imperative,
there is no sanction for the breach of what would generally be
regarded as a “pure” lack of good faith on the part of the insurer. 105 There may in
an aggrieved insured may rely. And there is also some authority supporting the view
insurance contract, to prove its conclusion, its validity and its terms. 107 The standard
of proof is a balance of probabilities. There are two stages in determining the terms
of a contract. The first is to establish the actual words and other conduct relied on,
and the other is to interpret them. The normal rules of the law of evidence govern
the admissibility of evidence adduced to prove the existence of a contract and its
contents and the normal rules relating to the interpretation of a document govern its
interpretation. 108
9.45 When the parties to a contract intend to reduce the entire contents of their
contract to writing, the general rule, known as the integration rule, 109 is that oral or
other evidence outside the written document itself is not admissible to contradict110
the documented terms, 111 although such evidence will be admissible to contextualise
the document. 112 This is also the approach when the contract is entered into
electronically and the electronic characters are intended to embody the entire
________________________
105 In England, by contrast, a lively debate has ensued, based on the alleged existence of an
implied term, on whether a good faith principle applies to the manner in which insurers and
reinsurers deal with claims. Cf Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3
All ER 581 (HL); [1995] 1 AC 501 (CA); Brotherton v Aseguradora Colseguros (No 2) [2003] Lloyd’s
Rep IR 762; Drake Insurance Plc v Provident Insurance Plc [2004] 1 Lloyd’s Rep 268 (CA). The
remedy would be to disallow the insurer’s purported avoidance of the contract if such avoid-
ance would be contrary to good faith. In South African law, not affected by of the Marine In-
106 Polverini v General Accident Insurance Co SA Ltd [1998] 1 All SA 588 (W); 1998 (3) SA 546 (W) 555E–F
where the court deprived the insurer of costs as a mark of its displeasure at the delaying
tactics adopted by the latter in paying the insured what it admittedly owed him.
107 As to the burden of proof, see 13.179–13.195; Nienaber and Reinecke Life Insurance pars 14.1, 20.6.
108 On the interpretation of insurance contracts, see, in general, ch 10 and Lawsa Vol 12 Part 1
pars 265–284.
109 Johnstone v Leal [1980] 2 All SA 366 (A); 1980 (3) SA 927 (A) 944; Fraser v Viljoen [2008] 3 All SA 233
(SCA); 2008 (4) SA 106 (SCA) 110; Scholtz v Scholtz [2012] 2 All SA 553 (SCA); 2012 (5) SA
110 Tacit terms are considered to form part of the written instrument – one simply has to read
between the lines – and may therefore be proved. So, too are terms implied not by the consen-
sus of the parties but by the operation of law, ie implied terms properly so-called. See again 9.6
112 KPMG Chartered Accountants v Securefin Ltd (SCA) [2009] 2 All SA 523 (SCA); 2009 (4) SA 399
(SCA).
196
contract. The electronic characters simply take the place of writing. 113 Other issues
associated with the integration rule with respect to insurance policies are discussed
paragraphs
Rectifying errors
9.43–9.47
9.46 When a contract has been recorded in a document but the document does not
correctly express the common intention of the parties, the document may be
rectified to bring it in line with the common intention of the parties. In such a case
the incorrect wording of the document purporting to reflect the intention of the
parties is replaced by the correct wording. 115 The integration rule precludes the
parties to a contract from leading evidence that would be in conflict with the
provisions of the document. This may create a dilemma if the document is not an
accurate reflection of their actual intention. The dilemma can only be resolved by
first correcting the document. When the parties are in agreement that the wording of
the documents is not correct, they can do so by consent. But when there is a dispute
it is necessary for the party alleging the inaccuracy to formally request a court for an
9.47 The purpose of rectification is to bring the document in line with the true
intention will prevail. What is to be reformed is the faulty document and not the
rules of rectification peculiar to insurance contracts. 116 Further aspects relating to the
________________________
113 Documents other than the policy, such as a written or electronic quotation, a data-source
document preceding the policy, a written or electronic application form (as in D & H Piping
Systems (Pty) Ltd v Trans Hex Group Ltd [2006] 3 All SA 309 (SCA); 2006 (3) SA 593 (SCA)), or a
special questionnaire may not be used in evidence of the existence of particular terms unless
115 Van der Merwe et al Contract par 5.6, Nienaber and Reinecke Life Insurance pars 14.10–14.21.
197
10
Interpretation of an insurance
contract1
10
paragraphs
10.1 There is no “lawyer’s paradise” in which all words have fixed and precisely 10.1–10.4
other type of contract, very often requires to be interpreted and this frequently gives
rise to litigation.
10.2 There are two distinct stages in uncovering the meaning of a contract. The first
is to determine which words and other conduct (such as the nod of a head) form part
of the contract and must therefore be interpreted. Various rules, particularly the
parol evidence rule, determine which declarations form part of the contract. 3
10.3 Not all the words appearing on the pages of the document evidencing a
contract are necessarily meant to be an integral part of the contract. A contract may,
for instance, have a preamble or it may contain “recordals” and “recitals”, all of which
generally are not taken into account when the contract is interpreted. Whether a
10.4 The second stage is to interpret the words or other forms of conduct that forms
________________________
2 Commercial Union Assurance Co of SA Ltd v Kwazulu Finance & Investment Corporation 1995 (3) SA 751 (A)
757E.
3 9.44–9.45.
4 ABSA Bank Ltd v Swanepoel NO 2004 (6) SA 178 (SCA); Logista Inc v Van der Merwe 2010 (3) SA 105
(WCC).
199
10.5 Interpretation is the process by which the exact meaning of the express terms of
a contract is determined. But the process of interpretation is also concerned with the
existence of tacit terms. A tacit term is not imposed on the parties by law, as is an
implied term, but is, as it were, written by the parties between the lines. 5 It simply has
whether the contract contains a tacit term, the courts regularly make use of the
both instances words are used to express the intention of the parties. However, the
difficulties that arise in practice relate to written rather than oral contracts.
insurance. 8 An insurance policy and the other documents making up the insurance
10.8 The interpretation of a contract is a question of law and the views of technical
persuasive. 10 Even where the phrase to be interpreted is not linked to any specific
10.9 It has repeatedly, if not consistently, been stated by the courts that the purpose
the terms of their contract. 13 This has been called “the general rule” 14 or “the golden rule” 15 of interpretation.
In actual fact the determination of the intention of the
parties is not a rule of interpretation but rather its purpose. The rules of
10.10 This aim of interpretation derives from consensus as the basis of contractual
liability. 16 Where actual consensus is absent, the interpretation of the words employed
________________________
5 Wilkins v Voges [1994] 2 All SA 349 (A); 1994 (3) SA 130 (A).
6 Van der Merwe v Viljoen 1953 (1) SA 60 (A) 65; SA Mutual Medical Aid Society v Cape Town Chamber of
Commerce 1962 (1) SA 598 (A).
7 9.8.
9 Ameen v SA Eagle Insurance Co Ltd 1997 (1) SA 628 (D) 631D; Bruwer v Nova Risk Partners Ltd 2011
10 Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 857E–F.
11 Santam Bpk v CC Designing BK [1998] 4 All SA 70 (C) 81F, noting that the English decisions referred to
provided “a persuasive construction” which was also consistent with local judgments.
12 Sikweyiya v Aegis Insurance Co Ltd 1995 (4) SA 143 (E), interpreting the phrase “accidental means”
13 Cinema City (Pty) Ltd Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A) 804D; Fedgen Insurance Ltd
v Leyds 1995 (3) SA 33 (A) 38B.
14 Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 834.
15 Joubert v Enslin 1910 AD 6 37; Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA
796 (A) 804.
16 7.4–7.40.
17 10.75–10.81
200
B. HIERARCHY OF RULES
10.12 The rules generally accepted by the courts as guidelines for ascertaining the
intention of the parties stem from Roman-Dutch law. 18 The courts clearly do not
regard these rules as constituting a numerus clausus. There is not a minimum number
to be applied in a particular case, nor is there a fixed priority of rules yet a certain
10
paragraphs
10.13 Some rules are always applied, such as the rule that words should receive their
ordinary grammatical meaning; 19 the rule that words should be read in the context of
10.5–10.17
the contract as a whole; 20 and the rule that every word should, if possible, be accorded
some effect. 21 These rules may be regarded as the primary rules of interpretation.
10.14 A second category of rules may be termed “residual” or secondary rules. 22 They
come to the fore if the primary rules are not decisive. Instances of these rules are the
rule favouring validity of the contract23 and the eiusdem generis rule. 24
10.15 A last category of rules may be regarded as tertiary in so far as they are applied
only after all the primary and secondary rules of interpretation have been exhausted
without producing clarity. These include the quod minimum rule, 25 the contra
C. RULES OF INTERPRETATION
10.16 The basic rule of interpretation is that the intention of the parties must be
sought in the words they used28 and that their words must be given their ordinary
grammatical meaning. 29 This has been called “the first step in interpretation”. 30
________________________
19 10.16 et seq.
20 10.29–10.36.
21 10.37.
22 In Barnard v Protea Assurance Co Ltd t/a Protea Assurance 1998 (3) SA 1063 (C) 1070G reference was made
to the “so-called secondary rules of interpretation”.
23 10.47–10.48.
24 10.50–10.53.
25 10.60–10.63.
26 10.65–10.69.
27 10.70–10.73.
28 In Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A) 803G it was observed
rather laconically that “the first step in interpreting a written contract is to read it”; cf
29 Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 465; Jonnes
v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 834; Blackshaws (Pty) Ltd v
Constantia Insurance Co Ltd 1983 (1) SA 120 (A) 127; Robin v Guarantee Life Assurance Co Ltd
[1984] 2 All SA 422 (A); 1984 (4) SA 558 (A); Lourens v Colonial Mutual Life Assurance Society Ltd
1986 (3) SA 373 (A) 383; Fedgen Insurance Ltd v Leyds 1995 (3) SA 33 (A) 38B; Santam Namibia Ltd
v Bank Windhoek Ltd 2000 (1) SA 889 (Nam SC) 892I; Aegis Assuransie Maatskappy Bpk v Van der
31 Hence the qualification “popular”: Scottish Union & National Insurance Co Ltd v Native Recruiting
Corporation Ltd above 465; Rand Rietfontein Estates Ltd v Cohn 1937 AD 317 325 (“the normal users
of language”).
201
the parties, acting as reasonable persons, 32 would use the words in their ordinary
sense. For this reason the normal or stereotyped meaning of the parties’ words is
accepted as “the most probable meaning . . . the parties attached to the words used in
the contract”, 33 unless there are indications to the contrary. It is, of course, possible
that the ordinary, popular meaning of words and phrases may change in the course
10.18 The common rules of grammar must be applied to determine the ordinary
grammatical meaning of words. 35 The courts often rely on dictionaries36 and previous judicial interpretations of
expressions, 37 but this approach must be applied with some
caution. 38
10.19 Established usage may be taken into consideration, especially when the words
are clearly proven terms of art or technical terms. 39 If the technical meaning is the
only meaning, it is also the ordinary grammatical meaning. The “general consent of
textbooks and academic writers” may also serve as an aid in determining a technical
meaning. 40
grammatical meaning of the words must be given effect to even if it conflicts with the
true intention of the parties. 41 This is known as the objective or literal approach as
compared to the more subjective or liberal approach in terms of which the common
intention of the parties should always be the true purpose of interpretation. 42 The
10.21 In principle there is probably nothing wrong with proceeding from the
assumption that when the parties formulated their intention, they did so fully aware
________________________
32 Cf the remarks in Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N)
909E with regard to reading a tacit term into a contract. See also Waksal Investments (Pty)
33 Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 834.
34 Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C), noting the extension in recent times of the
meaning of the word “family” to include also same-sex partners living together with
(T), (2008) 11 Juta’s Insurance L Bul 95, holding that the phrase “any person who is a member of
35 Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A) 803.
36 Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 834; Ameen v SA Eagle Insurance Co Ltd
1997 (1) SA 628 (D) 632, referring to “the dictionary definitions” or the “ordinary
meaning” of the words to be interpreted; Cargo Africa CC v Gilbeys Distillers & Vintners (Pty) Ltd
37 Arprint Ltd v Gerber Goldschmidt Group SA (Pty) Ltd 1983 (1) SA 254 (A) 261.
38 Consolidated Diamond Mines of SWA Ltd v Administrator, SWA 1958 (4) SA 572 (A) 599, 637; Santam Bpk v
CC Designing BK [1998] 4 All SA 70 (C) 81f, observing that “[i]t is conceivable that a term
in one policy may have a different meaning and effect to the same or a very similar term when
39 Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A) 501–502.
41 Thus, in Van Pletsen v Henning 1913 AD 82 99 the court said that the intention of the parties to a contract
“must be gathered from their language, not from what either of them may have had in
mind”. In a similar vein, it was remarked in Nelson v Hodgetts Timbers (East London) (Pty) Ltd 1973
(3) SA 37 (A) 45 that the rule is to determine “not what the parties’ intention was, but what the
42 For the distinction between the literal and the liberal approach, Rand Rietfontein Estates Ltd v Cohn 1937 AD
317 325–326.
43 Digest 50.16.219; Van der Linden Koopmanshandboek 1.14.4; Pothier Verhandeling van Contracten en andere
Verbintenissen 1.1.1.7.
202
of the ordinary grammatical meaning of the language they employed, 44 so that a court
may safely assume that it need not look beyond those words for the parties’
intention. 45
10.22 However, this approach should not be taken too far and on occasion the
10.23 Thus, firstly, the ordinary grammatical meaning of the words used, even if
10
clear and unambiguous, does not prevail if these words are used in a special or
paragraphs
technical sense46 provided it is clear that the parties intended the words to bear their 10.17–10.27
technical meaning. 47
10.24 In the second place, a literal interpretation would not do if there is a latent or
at hand where the parties use simple words, in themselves unambiguous, but which
cannot reasonably be applied in their literal sense to all the situations covered by the
agreement. This is the case where a literal interpretation runs contrary to sound
commercial principles and good business sense, for instance by absolving an insurer
from liability in respect of the principal risk intended to be covered by the policy. 48 It
10.25 The language employed by the parties will be patently ambiguous or uncertain
if a word used by them has more than one ordinary grammatical meaning and if
attempted.
10.26 If the language of the contract is in fact ambiguous or uncertain, a court will
10.27 There is no rule favouring an insured who has concluded a contract which
________________________
44 Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 465; Coertzen
v Gerard 1997 (2) SA 836 (O) 845I.
46 Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) 646.
47 Ameen v SA Eagle Insurance Co Ltd 1997 (1) SA 628 (D) 632E where it was held that the contended distinction
between “settlement” and “subsidence” was so highly technical that the parties could
not have intended to draw it and that they must be taken to have intended the words to bear
48 Grand Central Airport (Pty) Ltd v AIG South Africa Ltd 2004 (5) SA 284 (W).
49 Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 465–
466, Propfokus 49 (Pty) Ltd v Wenhandel 4 (Pty) Ltd [2007] 3 All SA 18 (SCA).
50 Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 834.
51 SZ Tooling Services CC v SA Eagle Insurance Co Ltd 1993 (1) SA 274 (A) 279I.
52 Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 465–
466.
54 Haviland Estates (Pty) Ltd v McMaster 1969 (2) SA 312 (A) 336; Robin v Guarantee Life Assurance Co Ltd
[1984] 2 All SA 422 (A); 1984 (4) SA 558 (A) 566.
55 Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458 465.
See 10.71–10.74 for the scope of the rule favouring the insured.
203
court will therefore not employ the process of interpretation to write a better
contract for the parties or to insert a term merely out of sympathy for either of
them. 56
10.28 In short, a court will admittedly not easily depart from the ordinary
10.29 The words from which the intention of the parties is to be determined cannot
be regarded in isolation but must be interpreted within the context of the contract in
which they appear. 58 If it is clear from the context that the parties did not use the
10.30 This rule is often expressed by saying that regard must be had to the entire
contract60 or the contract as a whole. 61 Accordingly, all the terms of a contract must be read in conjunction. 62
The words cannot be interpreted by cutting them out of the
10.31 Marginal notes are part of the expressed intention of the parties and therefore
policy, a proposal form and endorsements, all such documents must be considered
interpretation of one section, or of a word or phrase in one section, must take place
________________________
56 Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation Ltd above 465; cf Robin v
Guarantee Life Assurance Co Ltd [1984] 2 All SA 422 (A); 1984 (4) SA 558 (A).
57 Oerlikon SA (Pty) Ltd v Johannesburg City Council 1970 (3) SA 579 (A) 590; cf Arprint Ltd v Gerber
Goldschmidt Group SA (Pty) Ltd 1983 (1) SA 254 (A) 260.
58 Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) 646
where it is stated that “the ‘ordinary’ meaning of words appearing in a contract will necessarily
depend upon the context in which they are used, their interrelation, and the nature of the
transaction as it appears from the entire contract”. See further Metcash Trading Ltd v Credit
60 Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) 646.
61 Gravenor v Dunswart Iron Works 1929 AD 299; Jonnes v Anglo-African Shipping Co (1936) Ltd 1972
(2) SA 827 (A) 834; Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A)
803; Coertzen v Gerard 1997 (2) SA 836 (O) 846A; Santam Bpk v Potgieter 1997 (3) SA 415 (O)
423G; Barnard v Protea Assurance Co Ltd t/a Protea Assurance 1998 (3) SA 1063 (C) 1070J.
62 This is the way in which Van der Linden Koopmanshandboek 1.14.4 and Pothier Verhandeling van Contracten
en andere Verbintenissen 1.1.1.7 formulated the rule.
63 Swart v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) 202.
64 Bekker v Western Province Sports Club (Inc) 1972 (3) SA 803 (C) 818.
65 Bailey v SA Liberal Life Insurance Co 1928 CPD 463 466; Privest Employee Solutions (Pty) Ltd v Vital
Distribution Solutions (Pty) Ltd 2005 (5) SA 276 (SCA). Cf also Lloyds of London Underwriting
Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments (Pty) Ltd 2004 (2) SA 276 (SCA).
204
within the context of all the other sections, 66 even if those other sections are not in
issue. 67
10.34 Reference must be made to the contract as a whole whenever the language or
10
the context of the contract as a whole. 69 Thus, the rule in question is clearly a primary
paragraphs
rule of interpretation. 70
10.27–10.36
10.35 Particular circumstances may provide obvious indications of the fact that the
rest of the contract may throw special light on the meaning of particular words.
Examples of such circumstances are the fact that the same words also appear in other
parts of the contract, or that the words are actually defined or qualified in another
part of the contract. However, even in the absence of any such clear indications, the
rule is still applicable and the rest of the contract must still be considered.
10.36 In the final analysis, the rule relating to interpretation against the backdrop of
the contract as a whole may be expressed by stating that words must be construed in
their entire context. This includes references to guidelines such as the nature and
purpose of the contract, 71 and perhaps even the way in which the parties have been
carrying out the contract. 72 Indeed, clear authority exists for the proposition that the
context in which the words of a contract must be construed, goes beyond the mere
language of the document and its ordinary grammatical meaning, 73 the entire context
being more than simply the four corners of the written document. 74 A contextual
the practice of the courts, some of these guidelines which relate to more than the
document itself, are treated separately. 76
________________________
66 Mutual & Federal Insurance Co Ltd v Ingram NO 2009 (6) SA 53 (EC), where the exception of a peril in one
section of policy was unambiguous when read with the coverage of the same peril in
another section of the same policy. But cf also Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478
(C) 482F–G, explaining that a general “condition” in a policy may not be applicable to all its
sections and may then have to be “disregarded” in the interpretation of those sections.
67 Commercial Union Assurance Co of SA Ltd v Kwazulu Finance & Investment Corporation 1995 (3) SA 751 (A)
759F; Eberhardt-Martin CC v General Accident Insurance Co Ltd, unreported (W), (2002) 5
Juta’s Insurance L Bul 46, illustrating that a non-operative term in an insurance contract may be
68 Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd 1974 (1) SA 641 (A) 646;
Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A) 803.
69 Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd above 646.
70 10.13.
71 10.44–10.45.
72 10.46.
73 Swart v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) 202 (“nature and purpose of the contract”); List v Jungers
1979 (3) SA 106 (A) 118–119; Arprint Ltd v Gerber Goldschmidt Group SA (Pty) Ltd 1983 (1)
SA 254 (A).
74 As is evident from the fact that different contracts bearing on the same transaction may be
construed together.
75 DF Projects Properties v H Savy Insurance Co Ltd, unreported (T), (2008) 11 Juta’s Insurance L Bul 132,
explaining when in the process of interpretation, regard may be had to surrounding
circumstances, including other contracts concluded by parties to the insurance contract with
third parties, and their conduct subsequent to the conclusion of the insurance contract, in
determining their intention at the time of conclusion of that insurance contract; Ekurhuleni
Metropolitan Municipality v Germiston Municipal Retirement Fund 2010 (2) SA 498 (SCA), holding
that in the interpretation of pension fund rules, contextual factors to be considered included
the nature of the pension fund, the practices of pension funds generally, and, importantly, the
purpose of the rule in question and its effect according to different interpretations.
76 10.44–10.46.
205
10.37 A contract must be construed in such a manner that, as far as possible, effect is
given to every word contained in it. 77 However, although they will not readily be
regarded as such, 78 words which are tautologous or surplus must be disregarded. 79 Just as the presence of every
word or phrase in the contract is relevant to its
interpretation, so too may the absence of certain words, phrases or provisions from
the contract be relevant in its interpretation and in ascertaining what the parties
10.38 If the application of the rules requiring that every word of the contract receives
its ordinary grammatical meaning in the context of the entire contract leaves no
uncertainty or ambiguity as to the meaning the parties intended that particular word
ambiguity remain, the remaining rules of interpretation are applied in order to arrive
10.39 The rules to be applied in any given instance depend upon the facts of the
particular case. They need not be applied in any given order, except for the contra
proferentem rule and its kin, which are only applied if all other rules have failed to
10.40 If a contract is drafted in standard form but the parties insert additional words,
all the words of the contract should, if possible, be reconciled. 82 However, if there is
specifically inserted, the latter prevail inasmuch as they are regarded as “the
immediate language and words selected by the parties themselves for the expression
of their meaning”. 83
10.41 The immediate language of the parties is usually referred to where written or
typewritten words are inserted into a printed form, whether as an addition to the
words, the former prevail. Similarly, if the printed words of a document are
________________________
77 Owsianick v African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) 324.
79 Griessel v Du Toit 1948 (2) SA 562 (T) 566; Naicker v Pensil 1967 (1) SA 198 (N) 202–203; Owsianick v
African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) 324; Commercial Union
Assurance Co of SA Ltd v Kwazulu Finance & Investment Corporation 1995 (3) SA 751 (A) 757. Cf also
African Products (Pty) Ltd v AIG South Africa Ltd 2009 (3) SA 473 (SCA).
80 Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) 674D–G regarding as significant the absence from
the policy of any reference to a particular matter where such a reference was usual.
81 10.60–10.69.
82 Hayne & Co v Kaffrarian Steam Mill Co Ltd 1914 AD 363 368–369; Bull v Executrix Estate Bull 1940
83 Hayne & Co Ltd v Central Agency for Co-operative Societies 1938 AD 352 365–366; Simmons v Hurwitz 1940
WLD 20 24.
84 Hayne & Co v Kaffrarian Steam Mill Co Ltd above; Simmons v Hurwitz 1940 WLD 20; Valdave Investments
(Pty) Ltd v Total SA (Pty) Ltd 1977 (2) SA 94 (D).
206
10.42 The quest for the immediate language of the parties is, of course, not solely
dependent upon the form of the words. Therefore, printed words that are clearly
same reasoning may also serve to make a choice between conflicting written and
typewritten words.
10.43 Words that have been deleted from a document are, as a general rule, not
10
paragraphs
exists whether in certain circumstances a comparison between the original and the 10.37–10.46
altered form may be made in order to offer assistance in ascertaining the meaning of
10.44 If particular words employed in the contract are ambiguous, recourse may be
had to the nature of the contract89 and the purpose for which it was concluded, 90 or to the nature and purpose of
the particular term in the contract in which the words
appear. 91 The object of the parties as regards the contract often appears from the
10.45 Thus, it has been suggested that one of the commercial purposes of an all risks
insurance contract is to protect the insured against the consequences of his own
negligent conduct and that the contract should accordingly not be interpreted so as
to entitle the insurer to avoid liability in the event of loss resulting from the insured’s
interpreted in such a way as to allow for and take account of business efficacy. 94 An
10.46 If the words of a contract are ambiguous, the conduct of the parties after
entering into the contract may serve as an additional aid in ascertaining their
________________________
86 Indicated, eg, by the fact that the printed words are incorporated subsequently as a later clause.
88 Cf the obiter remarks in Valdave Investments (Pty) Ltd v Total SA (Pty) Ltd 1977 (2) SA 94 (D) 96–97,
expressly supported by the minority judgment in Pritchard Properties (Pty) Ltd v Koulis
above.
89 Swart v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) 202.
90 Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD
458 464; Capnorizas v Webber Road Mansions (Pty) Ltd 1967 (2) SA 425 (A); Van Rensburg v
Taute 1975 (1) SA 279 (A); Coertzen v Gerard 1997 (2) SA 836 (O) 846A.
91 Royal Mutual Insurance Co (Pvt) Ltd v Mubaiwa 1990 (4) SA 177 (ZH) 179D–F, where regard
was had to “the purpose for which the condition was inserted into the policy”. See also Farr v
Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C) 687.
92 Wijtenburg Holdings t/a Flamingo Dry Cleaners v Bobroff 1970 (4) SA 197 (T) 206–207. For the admissibility
of extrinsic evidence to prove a special purpose, see 10.76 et seq.
93 Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478 (C) 482G–H, 483A–B; Santam Bpk v CC
94 M Zahn Investments (Pty) Ltd v General Accident Insurance of SA Ltd 1981 (4) SA 143 (SEC)
148B. In Cargo Africa CC v Gilbeys Distillers & Vintners (Pty) Ltd 1998 (4) SA 355 (N) 368G, the
fact “that the parties intended their agreement to make good business sense” was taken as the
starting point of the interpretation and the court also referred to the contract making
96 Nyakambiri Farm (Pvt) Ltd v Zimnat Insurance Co Ltd 1996 LRZ 473 (HC) 476H.
207
intention. 97 Such conduct may be regarded as evidence98 of the interpretation of the ambiguous words by both
parties. 99 Subsequent conduct may, of course, also point to
a variation of intention. However, the intention of one of the parties alone as appears
from its subsequent conduct cannot have the effect of altering the objective meaning
10.47 If ambiguous words can be construed in such a way that the contract or a
validity is favoured. 101 A construction resulting in invalidity is only adopted in the last
10.48 The rule that the contract should be upheld rather than invalidated, is based
on the assumption that the contracting parties intended their contract to be effective
at law. 103 However, their actual agreement as expressed in the words they have used
may nevertheless fall short of such an aim, in which case a court “is not entitled to
strain words” in order to validate the contract contrary to the effect of the parties’
actual agreement. 104 By the same token, the rule applies only if the words are
reasonably capable of bearing a meaning which will not make the contract or term
invalid, and the decision whether this is so should not be influenced by the fact that
Equitable interpretation
unfair or unreasonable advantage over the other. 106 In order to establish whether the
contract contains a tacit term, the courts regularly make use of the officious
bystander test. 107 However, as pointed out earlier, 108 the clear and unambiguous meaning of words cannot be
departed from merely for equitable considerations.
________________________
97 C onsolidated Diamond Mines of SWA Ltd v Administrator, SWA 1958 (4) SA 572 (A) 632–633; Dettmann v
Goldfain 1975 (3) SA 385 (A) 399; Union National South British Insurance Co Ltd v De la
99 C airns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A) 107; Union National South British Insurance Co Ltd
v De la Rose 1977 (4) SA 447 (W) 451.
100 Tension Overhead Electric (Pty) Ltd v National Employers General Insurance Co Ltd 1990 (4) SA 190
(W) 195J, indicating that the insured’s intention as to the interruption of the transportation of
the insured goods cannot alter the objective meaning of the phrase “in transit”.
101 The applicable maxim is interpretatio chartarum benigne facienda est ut res magis valeat quam pereat; cf
Digest 1.3.18, 34.5.12. See also Kotze v Frenkel & Co 1929 AD 418 423, 426, 430; Incorporated General
Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 858G; SZ Tooling Services
CC v SA Eagle Insurance Co Ltd 1993 (1) SA 274 (A) 279J; IGI Insurance Co Ltd v Madasa 1995 (1)
106 Wessels Contract 1974 justifies the rule on the basis that all contracts are contracts of good faith.
See further Van Rensburg v Straughan 1914 AD 317 326; Trustee Estate Cresswell & Durbach v Coet-
zee 1916 AD 14 19; Rand Rietfontein Estates Ltd v Cohn 1937 AD 317 330–331; Van Aswegen v
Volkskas Bpk 1960 (3) SA 81 (T).
107 9.8.
108 10.27.
208
10.50 If general words or terms in a contract are used in association with specific
words or terms which are species of a particular genus or class, the meaning of the
general words or terms should be restricted to that same class. 109 Such restrictive
10
paragraphs
10.51 The mere fact that there is only one specific word or term does not prevent it
from restricting the meaning of a general word or term, although it will then be more
10.46–10.55
difficult to determine the class and scope of the restriction. 111 However, the rule
cannot be applied if the court is unable to establish a genus or class to which the
10.52 An application of the eiusdem generis rule leads to a conclusion about the
probable intention of the parties in associating general words and specific words.
However, the courts are careful not to apply the rule so as to substitute “an artificial
intention for what was clearly the real one”. 113 The application of the rule is often no
more than the application of the rule requiring words to be read in the entire
10.53 The application of the eiusdem generis rule may be expressly excluded by an
foregoing generality”, or “the foregoing specific clauses not being intended to limit
the following general clause”, or “this clause is not to be interpreted eiusdem generis”.
prima facie assumed that the parties intended to exclude everything else, even that
which would have been implied in the circumstances had it not been for the special
reference. 115
10.55 The expressio unius rule must be applied with caution. 116 A document may
contain indications that the special reference was not meant to be exhaustive, 117 that
it was made ex abundanti cautela, 118 or that it was inserted because the parties were in doubt as to whether the
contract would otherwise extend to the instance referred
to. 119
________________________
109 Grobbelaar v Van de Vyver 1954 (1) SA 248 (A) 254–255; Marrok Plase (Pty) Ltd v Advance Seed Co (Pty)
Ltd 1975 (3) SA 403 (A) 415; Shooter t/a Shooter’s Fisheries v Incorporated General Insurances Ltd
112 SASRIA Ltd v Slabbert Burger Transport (Pty) Ltd 2008 (5) SA 270 (SCA).
114 Marrok Plase (Pty) Ltd v Advance Seed Co (Pty) Ltd 1975 (3) SA 403 (A) 415.
115 Wessels Contract par 1950; R v Vlotman 1912 AD 136 141; Cargo Africa CC v Gilbeys Distillers and Vintners
1996 (2) SA 324 (C) 329I; Bruwer v Nova Risk Partners Ltd 2011 (1) SA 234 (GSJ).
116 SA Estates & Finance Corporation Ltd v Commissioner for Inland Revenue 1927 AD 230 236; Anglo-Tvl
Collieries Ltd v SA Mutual Life Assurance Society 1977 (3) SA 631 (T) 638.
117 SA Estates & Finance Corporation Ltd v Commissioner for Inland Revenue above 236; Anglo-Tvl Collieries
Ltd v SA Mutual Life Assurance Society 1977 (3) SA 631 (T) 638.
118 Digest 33.10.9; R v Vlotman 1912 AD 136 141–143; Hermer v Fisher 1960 (2) SA 650 (T) 656–657; Florida
Road Shopping Centre (Pty) Ltd v Caine 1968 (4) SA 587 (N) 603–604.
119 Digest 50.17.81; Florida Road Shopping Centre (Pty) Ltd v Caine above 603.
209
10.56 Analogous to the rule expressio unius est exclusio alterius, is the rule expressum facit
cessare tacitum120 which militates against the inclusion in a contract of a tacit term
which would conflict with the express terms, 121 or which purports to deal with a
matter on which the parties have already expressed themselves in the contract. 122
Strict interpretation of penal and limiting clauses
10.57 A penalty clause is interpreted strictly. 123 The same treatment is meted out to a
insured and which is expressed in vague or ambiguous language. 124 The reason given
is that because the insurer usually drafts the policy which contains its promise to the
insured as well as any limitations on that promise, it is its duty to make clear and spell
out plainly the limitations it wishes to impose and the risks it wishes to exclude. 125
language, it receives its full effect. 126 Further, it has been suggested that an exclusion
clause may in appropriate circumstances operate for the benefit of both insurer and
insured so that the rationale for its strict interpretation may be absent. 127
10.59 It has also been stated that because an exception clause is subordinate to the
coverage clause in the insurance contract, the former must be interpreted subject to
the latter. 128 This may be nothing more than a particular application of the rule that
interpreted in such a way that the least possible burden is placed upon the debtor or
10.61 Various reasons have been advanced for this rule, for example that it is an
expression of the principle that contracts should be construed in favour of the liberty
________________________
120 Barnabas Plein & Co v Sol Jacobson & Son 1928 AD 25 30.
121 Rouwkoop Caterers (Pty) Ltd v Incorporated General Insurance Ltd 1977 (3) SA 941 (C) 945.
122 Glennie, Egan & Sikkel v Du Toit’s Kloof Development Co (Pty) Ltd 1953 (2) SA 85 (C) 94; Rashid v Durban
City Council 1975 (3) SA 920 (D) 924–925.
123 Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 at 365.
124 Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) 354; Consani’s Engineering Ltd v
American International Insurance Co Ltd 1983 (2) SA 589 (C) 593; Paterson v Aegis Insur-
ance Co Ltd 1989 (3) SA 478 (C) 483E; IGI Insurance Co Ltd v Madasa 1995 (1) SA 144 (Tk)
147D; Fedgen Insurance Ltd v Leyds 1995 (3) SA 33 (A) 38C; Santam Bpk v CC Designing BK [1998]
4 All SA 70 (C) 75c; Botha’s Trucking v Global Insurance Co Ltd [1999] JOL 4496 (T); 1999 (3) SA
125 French Hairdressing Saloons Ltd v National Employers Mutual General Insurance Association Ltd 1931
AD 60 65; Fedgen Insurance Ltd v Leyds above 38D; Santam Bpk v CC Designing BK [1998] 4 All SA
70 (C) 75d; Barnard v Protea Assurance Co Ltd t/a Protea Assurance 1998 (3) SA 1063 (C) 1068B–
D; Botha’s Trucking v Global Insurance Co Ltd 1999 (3) SA 378 (T) 379C.
126 Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) 354.
127 Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C), observing that the exclusion of a motor
vehicle insurer’s liability for third-party claims by members of the insured driver’s family
not only reduced the insurer’s exposure to collusive claims, but also the amount of premium
the insured would have had to pay had such a large group of likely and high-risk claimants
been covered as well. Arguably, though, an exclusion of the insurer’s liability reduces the cost
128 Aegis Assuransie Maatskappy Bpk v Van der Merwe 2001 (1) SA 1274 (T).
129 10.29–10.36.
130 Wessels Contract 1961–1965; Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A) 122–123.
131 Wessels Contract 1960–1961. Cf also Van Rensburg v Taute 1975 (1) SA 279 (A) 301G where the court
referred to an agreement of servitude.
210
promise in his favour but cannot prove its full scope, the promissor must receive the
10.62 The rule has been accepted by the courts, 133 although it is often incorrectly
referred to in terms of the contra proferentem rule. 134 References to the rule that in case of doubt the words of a
contract should be construed against the party in whose
favour they were inserted, 135 must normally be regarded as referring to the quod
10
paragraphs
10.63 The quod minimum rule may be applied only if the words to be construed are 10.56–10.64
ambiguous. Where there is no ambiguity, a court may not deviate from the clear
meaning in favour of a less onerous result. 137 The rule is further applied only if the
10.64 When all the rules of interpretation have been applied, but the meaning of the
words of a contract remains obscure, resort may be had to the rule verba (cartarum)
fortius accipiuntur contra proferentem. 139 According to this rule a contract and its terms must, in case of doubt,
140 where there is ambiguity, 141 be construed against the contracting party by whom, 142 or on whose behalf,
143 it was formulated.
________________________
133 Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A); Scheckter v Kolbe 1955 (3) SA 109 (G) 113C; Van
Rensburg v Taute 1975 (1) SA 279 (A). In City Council of the City of Durban v Rumdel
Construction (Pty) Ltd [1997] 3 All SA 20 (D) 26b, the court, in rejecting the interpretation ad-
vanced by the insurer, noted that it would place an onerous duty on the insured which would
134 Eg, Poynton v Cran 1910 AD 205 213 where the contract had been drafted on behalf of both parties so that the
ratio of the contra proferentem rule could hardly apply; Coronation Collieries Ltd v Malan 1911 AD 586 612;
Cohen v Rapidol Ltd 1934 AD 137 144 where the contra proferentem rule
was said to call for interpretation “in favour of the person who has bound himself” and “strictly
against the party in whose favour it has been made”; Witwatersrand Township Estate & Finance
Corporation Ltd v Ritch 1913 AD 423 426–427 where the court referred to the rule “that the con-
struction should be against the person who stipulated for a stringent condition” as an instance
135 Witwatersrand Township Estate & Finance Corporation Ltd v Ritch above 427; Cohen v Rapidol Ltd 1934 AD
137 144.
136 Cf Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A)123.
138 Wessels Contract par 1962. For this reason it may, like the contra proferentem rule and the rule favouring the
insured, be regarded as a “tertiary” rule: 10.12–10.15.
139 Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) 752–753; Price v Incorporated General
Insurances Ltd 1983 (1) SA 311 (A) 315; Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478
(C) 483E; Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) 674; Fedgen Insurance Ltd v
Leyds 1995 (3) SA 33 (A) 38E; De Wet v Santam Bpk 1996 (2) SA 629 (A) 637F; Coertzen v Gerard
141 There is ambiguity where the term or phrase to be interpreted is susceptible of more than one meaning, one of
which favours the insured and another the insurer. Cf Swanepoel v Auto and
General Insurance Co Ltd, unreported (T), (2007) 10 Juta’s Insurance L Bul 44.
143 Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A) 124; De Chazal de Chamarel’s Estate v Tongaat
Group Ltd 1972 (1) SA 710 (D) 717.
211
10.65 The rule is based on the assumption that as the author of the words, 144 this
contracting party had the opportunity to express himself in clear language and that,
having failed to do so, the ambiguity should be interpreted against him. 145
10.66 The contra proferentem rule should be distinguished from the quod minimum
rule. 146 According to this rule, words imposing a burden should, in case of doubt, be
construed so as to impose as light a burden as possible. The two rules only coincide if
a promissee is also the author of a particular contract which is not always the case.
These rules should not be confused since, in the case of conflict, the contra proferentem
drafted by or for the insurer. Therefore, an application of the contra proferentem rule
usually serves to favour the insured and operates against the insurer. However, should
behalf of the insured, the rule favours the insurer and operates against the insured. 148
10.68 The contra proferentem rule is to be applied only as a last resort, 149 to clarify an ambiguity in a contract
when all the other rules of construction have failed to do
so. 150 It has been called a rule that arbitrarily determines against a contracting party
and summarily cuts the Gordian knot. 151 Since it does not represent an attempt at
arriving at the actual intention of the parties, the rule must be applied cautiously,
“only for the purpose of removing a doubt, not for the purpose of creating a doubt,
10.69 It appears that the rule is occasionally referred to merely to confirm the result
achieved by the application of one of the other rules of construction, 154 or on the
________________________
144 Cairns (Pty) Ltd v Playdon & Co Ltd above 124; De Chazal de Chamarel’s Estate v Tongaat Group Ltd above
717.
145 British America Assurance Co v Cash Wholesale 1932 AD 70 74; Cairns (Pty) Ltd v Playdon & Co Ltd above
122–124; Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd
1961 (1) SA 103 (A) 107; Zietsman v Allied Building Society 1989 (3) SA 166 (O) 176I, 177E.
146 10.60–10.63.
148 This may happen, eg, in the case where the insurance policy was drafted by an insurance broker on behalf of
the insured, or where the words to be interpreted are the insured’s answers to
questions put to him in a proposal form where that form has been incorporated into the subse-
149 Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 835; Farr v Mutual and Federal
Insurance Co Ltd 2000 (3) SA 684 (C) 687D.
150 Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A) 123; Jonnes v Anglo-African Shipping Co (1936)
Ltd 1972 (2) SA 827 (A) 835.
151 Wessels Contract par 1956, referring to the contra stipulatorem rule, and quoted with approval in Cairns (Pty)
Ltd v Playdon & Co Ltd above 122.
152 Standard General Insurance Co Ltd v Croucamp 1959 (3) SA 162 (A) 170.
153 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103
(A) 108.
154 In SZ Tooling Services CC v SA Eagle Insurance Co Ltd 1993 (1) SA 274 (A) 279I the court applied the rule
favouring the validity of the contract (10.48–10.49) and merely observed that an application of the contra
proferentem rule had the same result. See also Cargo Africa CC v Gilbeys Distill-
ers & Vintners (Pty) Ltd 1998 (4) SA 355 (N) 369B; Aegis Assuransie Maatskappy Bpk v Van der
155 PB Wholesalers CC v Commercial Union Assurance Co of SA Ltd 1994 (1) SA 499 (D) 502F; Fedgen
Insurance Ltd v Leyds 1995 (3) SA 33 (A) 40H.
212
10.70 Apart from the contra proferentem rule, the courts have formulated a rule that an
insurance contract should be construed in favour of the insured rather than the
insurer where an ambiguity arises on the face of the policy. 156 The basis of this rule as
a separate rule of interpretation is not clear. It has been justified simply by saying that
an insured’s claim for indemnity should not be defeated, 157 or that it is “for the
10
benefit of trade” that a policy should be upheld in favour of the insured and not
paragraphs
forfeited. 158
10.65–10.74
10.71 The rule has also on occasion been mentioned in conjunction with the rule
strictly159 and therefore in favour of the insured. 160 It has even simply been based on the fact that “the language
of the policy is the language of the [insurer]”. 161
Nevertheless, the rule is expressly distinguished from the contra proferentem rule. 162
Perhaps it should best be regarded as an indication that the courts are ordinarily
10.72 In the usual case, where the contra proferentem rule applies against the insurer
and favours the insured, the two rules will not conflict and it will not matter unduly
which rule is relied on for resolving the ambiguity. Yet, a conflict is possible and it is
10.73 As in the case of the contra proferentem rule, the rule favouring the insured is a
tertiary rule which applies only as a last resort. 164 And as in the case of that rule, it is
10.74 If, after all the rules of interpretation have been applied, no clear meaning can
________________________
156 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103
(A) 107, citing Smith v Accident Insurance Co (1870) LR 5 Exch 302 308–309. See also Bruwer v
157 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd above 107.
158 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd above 107; Pereira v
Marine & Trade Insurance Co Ltd 1975 (4) SA 745 (A) 752. The maxim interpretatio chartarum benigne facienda
est ut res magis valeat quam pereat (10.48–10.49) may also relate to this justification;
cf Waksal Investments (Pty) Ltd v Fulton 1985 (2) SA 877 (W) 885.
159 10.58–10.60.
160 Barnard v Protea Assurance Co Ltd t/a Protea Assurance 1998 (3) SA 1063 (C) 1068B–D.
161 Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 382–383.
162 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103
(A) 107 (“the insurance company is at a disadvantage in two respects and not only in one”); Pe-
reira v Marine & Trade Insurance Co Ltd 1975 (4) SA 745 (A) 752; Price v Incorporated General In-
163 Swanepoel v Auto and General Insurance Co Ltd, unreported (T), (2007) 10 Juta’s Insurance L Bul 44.
164 Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103
(A) 107.
165 Cargo Africa CC v Gilbeys Distillers & Vintners (Pty) Ltd 1998 (4) SA 355 (N) 369B; Aegis Assuransie
Maatskappy Bpk v Van der Merwe [2000] 1 All SA 420 (T) 428D.
166 Metcash Trading Ltd v Credit Guarantee Insurance Corp of Africa Ltd 2004 (5) SA 520 (SCA), holding a
time-limit clause in insurance contract not void for vagueness as its interpretation was
213
10.75 According to the parol evidence rule, 167 a document expressing a juristic act
becomes the sole evidence of the transaction and no extrinsic or outside evidence
may be adduced to contradict its terms. In some instances, though, extrinsic evidence
is admitted. 168 These are not so much exceptions to the parol evidence rule, but
rather cases that fall outside the scope of the rule. 169
10.76 In Van Aardt v Galway170 it was again confirmed that evidence of the intention of the parties and their prior
negotiations is inadmissible. However, the court stated
that in case of a prayer for rectification directed at these issues, it might be relevant
and admissible to explore the parties’ intentions and discussions at the time of
10.77 Although it is indisputable that if a contract has been reduced to writing, the
which is adduced to determine the meaning of these words and thus the intention of
the parties do not really contradict, vary or add to the words of the document. Such
evidence rather serves to clarify the words which may not be varied or contradicted.
Accordingly, the logical conclusion seems to be that extrinsic evidence which is led
10.78 The courts are only to a limited extent in agreement with such an approach.
Thus, extrinsic evidence may be adduced to show that words have been used in a
document. 174 Extrinsic evidence of this kind may probably be led even where no
10.79 Apart from the above examples, our courts have been loath to admit extrinsic
evidence as an aid in interpreting written contracts. 175 Nevertheless, the question has
warranted. 176 It has even been suggested that the courts may dispense with the
________________________
167 9.44–9.45.
168 Wedzera Petroleum (Pvt) Ltd v Zimnat Life Assurance Co of Zimbabwe, unreported (ZHC), (2004) 7
Juta’s Insurance L Bul 224, where the court held the parol evidence rule not applicable where a
document, such as the insurance policy here, was not accepted by both parties to the insurance
contract as the sole memorial of their agreement and accordingly permitted external evidence
in the form of written representations by the insurer’s authorised agents to vary the policy.
169 Strydom v Coach Motors (Edms) Bpk 1975 (4) SA 838 (T) 840.
170 [2012] 2 All SA 78 (SCA). In Zeeman v De Wet NO 2012 (6) SA 1 (SCA) the court stated that the distinction
between surrounding and background circumstances is no longer observed.
171 Van Aardt v Galway above 84.
172 7.7.
173 Coronation Collieries v Malan 1911 TPD 577 579; Richter v Bloemfontein Town Council 1922 AD 57
70.
174 Richter v Bloemfontein Town Council 1922 AD 57 59. In fact, such identificatory evidence has been said to
“apply the contract to the facts” rather than to interpret the words in point: Delmas Milling Co Ltd v Du Plessis
1955 (3) SA 447 (A) 454F.
175 Cf in this regard the approach and test formulated in Delmas Milling Co Ltd v Du Plessis above.
See further, Deetlefs v Deetlefs 1967 (1) SA 516 (A); Haviland Estates (Pty) Ltd v McMaster 1969 (2)
SA 312 (A); Van Rensburg v Taute 1975 (1) SA 279 (A); Pritchard Properties (Pty) Ltd v Koulis 1986
(2) SA 1 (A).
176 Swart v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) 202A–C; List v Jungers 1979 (3) SA 106 (A) 120B–C;
Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd 1980 (1) SA 796 (A) 804H–
806A; Sonarep (SA) (Pty) Ltd v Motorcraft (Pty) Ltd 1981 (1) SA 889 (N) 895A–897G; KPMG Char-
214
10.80 A less restrictive approach towards the problem would seem to be in keeping
with our common law. 178 The question of the admissibility of extrinsic evidence in aid
namely to determine the intention of the parties to the contract, as well as the
10
paragraphs
the courts seek the intention of the parties, extrinsic evidence should be admitted 10.75–10.81
freely.
10.81 To a certain extent the intention of the parties to a contract may be given
the rule forbidding extrinsic evidence. However, why should it not be possible to
address the issue head on by allowing extrinsic evidence in aid of interpretation? 179
________________________
177 Cinema City (Pty) Ltd v Morgenstern Family Estates (Pty) Ltd above 805H–806A; Sonarep (SA) (Pty) Ltd v
Motorcraft (Pty) Ltd 1981 (1) SA 889 (N) 897F.
179 In so far as rectification is regarded as a logical consequence of the theory that consensus is the basis of a
contract, the doctrine of rectification and the admission of extrinsic evidence about
the intention of the parties do, of course, coincide. Cf the discussion of rectification, 9.46–9.47.
215
11
11
Consequences of a contract
paragraphs
11.1–11.3
11.1 Like any other contract, an insurance contract gives rise to an obligation or
the one side, and a creditor (or creditors), on the other side. By virtue of an
obligation or legal tie, the creditor has a right to claim a particular performance from
11.2 Bilateral contracts give rise to more than one obligation. The principal
obligations in terms of a bilateral insurance contract are, on the one hand, the duty
of the insured to pay the premium, 2 and, on the other hand, the duty of the insurer
to indemnify the insured3 (in the case of indemnity insurance) or to pay a sum or
sums of money by way of consolation for a non-patrimonial loss or, in the broad sense
of the word, some or other form of grief (in the case of non-indemnity insurance). 4
11.3 An indemnity insurer’s main or basic duty to compensate the insured
furthermore gives rise to a separate duty to compensate the insured each time the
event insured against occurs and causes a patrimonial loss to the insured. Likewise, a
non-indemnity insurer may be liable to pay more than one amount of money. 5
________________________
2 Ch
14.
4 4.43 et seq.
217
11.4 Apart from the principal obligations and their offspring, a insurance contract
one of insurance, the divisibility of the contract and the performances are of decisive
importance. 7
11.6 The contents of the obligations arising out of a contract are governed by the
obligationary terms. 9 A non-obligationary term does not entail a positive duty to fulfil
the term. 10 When the insurer, for example, agrees to pay a sum of money should the
insured contract a terminal sickness, there is no duty on either party to induce the
sickness. Indeed they must abstain from unreasonably interfering with the operation
of the condition. Terms belonging to this class include suspensive conditions, also
until the occurrence of an uncertain event, and resolutive conditions, which dissolve
the obligation on the happening of an uncertain event.
11.8 Suppositions, which make the contract dependent on a designated fact or past
event, 11 and contractual expiry clauses (provisions that a claim must be brought
within, say, six months) also belong to the class of non-obligationary terms. But
fulfilment of a suspensive condition that is, whether or to what extent the peril
11.10 In the case of non-indemnity insurance in the form of whole-life insurance the
contract is on the face of it subject to an event that is certain to occur, namely death,
although it is uncertain in ordinary human experience exactly when it will occur. The
incertus quando.
11.11 However, it has been suggested that one should distinguish between the
elements of insurance and investment that are blended into a whole-life insurance
contract. As far as the element of insurance goes, the contract indeed caters for an
uncertain event, namely the untimely death of the life insured which can be regarded
insurance also make provision for suspensive conditions, such as accident insurance.
be postulated, in accordance with general principles, that the insurer does not need
________________________
6 Ch
15.
7 11.26 et seq.
8 9.14.
9 Idem.
218
to perform forthwith but that it runs the risk of having to make a performance if the
the position in case of all obligations subject to a suspensive condition, the insurer is
11
bound to the contract and must render its performance if the event insured occurs.
paragraphs
This explains why it can be said that the insurer carries the risk though it is not in
11.4–11.16
If the insured event does not take place during the period of insurance, the insurer
has nothing to perform but this does not make the conclusion of the contract
nugatory.
11.15 During the previous century a theory developed in Germany17 known as the
Supporters of this theory deny that the obligation relating to the insurer’s
obligation becomes operative immediately upon conclusion of the contract and that
the performance of the insurer is of a continuous nature. Although the reformists
admit that the obligation to bear the risk is not enforceable in any practical way, they
explain that it may give rise to concrete obligations to compensate a loss if the event
insured against occurs. In such a case the duty to shoulder the risk is said to have
insurer’s main obligation to bear the risk and subsidiary obligations stemming from
11.16 Whether the one or other approach towards the nature of an insurer’s
obligation and the performance required by the obligation is followed may have
some practical consequences. 20 South African courts have not yet been called upon to
grasp this nettle but on the basis of the current definition of an insurance contract
that, in accordance with the traditional view, the insurer’s performance is simply to
________________________
14 Apart from the possibility that a facultative obligation to reinstate may have been agreed on, 22.26 et seq.
15 Davis Gordon and Getz on The South African Law of Insurance; Kahn Contract and Mercantile Law through
the Cases Vol II 647–648; Reinecke 1996 TSAR 415.
16 Cf Birds et al MacGillivray on Insurance Law par 1.004; Ivamy General Principles of Insurance Law 11
who declares that the subject matter of an insurance contract is money. To the same effect is
17 Möller 1976 TSAR 59 68, who advocated this view as a general proposition for insurance law internationally.
18 Möller 1976 TSAR 59 68. Schulze Legal Aspects of the Insurance Premium 306–309 adopts this approach,
maintaining that apart from the indemnity clause, an insurance contract also contains
a tacit term that the insurer is to bear the risk; the obligation resulting from this tacit term is said
19 Idem.
219
obligation to do something.
B. INSURER’S OBLIGATION AS PRINCIPAL OBLIGATION
undertake to fulfil any obligation other than its own. The obligation of an insurer is
therefore a principal obligation and in that lies the distinction between a suretyship
contract, creating a duty to perform for both the insurer and the insured. 22 For this
reason a claim by an insured for performance from his insurer without having
himself paid or tendering to pay the premium which is due, may be met by the so-
11.19 It should be borne in mind that the performance of the insurer is usually
possible that the uncertainty may never materialise with the result that the insurer
performance of an insurer consists in the bearing of a risk. 24 On this basis the insured
obtains a performance in return for his own performance in the sense that the
insurer bears the risk whether or not it materialises. If the risk does materialise, the
because the one performance is undertaken in exchange for the other, but rather
because the one obligation is undertaken in exchange for the other. 26 For this reason it would not make any
difference if in the circumstances the insured did not in fact
receive a performance since the required relationship between the two obligations
exist.
________________________
21 5.105 et seq.
22 Ie, an insurance is a synallagmatic contract: Trans-Africa Credit & Savings Bank Ltd v Union Guarantee &
Insurance Co Ltd 1963 (2) SA 92 (C) 99A. For exceptions, see 11.24.
25 11.9–11.16.
220
11.23 Where insurance cover arises from a reciprocal insurance contract containing
a stipulation in favour of a third party, 27 the third party will upon acceptance of the
benefit be entitled to enforce his right only if the primary insured has paid or
11
tendered to pay the premium. 28 This conclusion is based on the view that the
paragraphs
obligation for instance to indemnify the third party stems from the original contract 11.16–11.27
and is part of the performance agreed to by the insurer in exchange for the insured’s
11.24 Unlike the position at common law, modern insurance contracts occasionally
take the form of a unilateral contract not involving any obligation to pay a premium.
obligation. 31
Divisibility of performance
performances, but very often they agree to a composite performance which may be
divided into its component parts. 32 If an insurance contract relates to more than one
separate claim for the creditor and an accompanying duty to perform on the part of
the debtor.
but not in law because the parties regarded it as an indivisible whole. 34 A performance
performance. 36
________________________
28 This is, of course, subject to the usual rules regarding the order of performance.
30 5.78–5.82.
32 Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) 429I; Van der Merwe et al
Contract par 9.6.
33 Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) 429F.
34 Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A) 16D; Lewis Ltd v Norwich Union Fire
Insurance Co Ltd 1916 AD 509 518; Collen v Rietfontein Engineering Works 1948 (1) SA 413 (A);
35 BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A).
36 Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) 430B.
221
11.28 Where an indemnity insurance contract relates to a single object of risk, the
contract creates a main obligation requiring the insurer to indemnify the insured.
This main obligation may in turn produce further distinct obligations each time the
event insured against occurs and causes the insured a loss. Consequently the insured
will have more than one claim. Where more than one object of risk is involved, it is
conceivable that the contract entails distinct obligations in respect of each different
object of risk. 37
11.29 Divisibility of performance is relevant in regard to, amongst other matters, the
cession of claims, severance of illegal terms, 38 partial performance, and the creation
Divisibility of contract
11.31 It may be convenient for the parties to an insurance contract to group together
contract may cover the insured’s liability to third parties, his house, the contents of
his house, and his motor vehicles. Several risk objects will be involved and the
11.32 A similar situation may arise in the case of long-term insurance, for instance
when an insurer grants several benefits such as life, disability and critical illness cover
under one policy, or when there is more than one life insured. 40
There cannot be a divisible contract without the performance being divisible, but a
series of successive contracts resulting from the renewal of a master contract for a
may resile from a contract on the ground of breach of contract and it is proved that
the contract is divisible and that the breach affected only part of the transaction, the
creditor may cancel only the affected contract. 43 The same holds good for
misrepresentation.
________________________
37 Santam Namibia Ltd v Bank Windhoek Ltd 2000 (1) SA 889 (Nam SC).
41 Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) 429I.
43 In Sacks v Western Assurance Co 1907 TH 257 and Lewis Ltd v Norwich Union Fire Insurance Co Ltd 1916
AD 509 519 it was alleged that the respective policies contained several contracts and that
the breach of a warranty which had occurred did not affect the claim in issue. In neither case
could the court find that the allegation was supported by the facts.
45 Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) 428J.
46 BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A).
222
independent rights and duties – in other words, how many obligations – have been
performance. 47 Moreover, every alleged different contract must contain all the
11
11.38 The decisive test for the divisibility of a contract is whether the contracting
paragraphs
parties would have been willing to enter into separate contracts in respect of each 11.28–11.41
an insurance
contract covered leased equipment and afforded the insured the right to add to the
list of insured equipment whenever new leases were concluded, in which case an
additional premium became payable. The court was confronted with an argument
that on each occasion when a new item was added, a separate insurance contract
came into existence. 50 The purpose of the argument was to maintain that an
11.40 The court described the policy as an “open” or “declaration” policy, the
characteristic features of which were that the property covered varied from time to
time as new items of equipment were endorsed on the policy by reason of the
11.41 The court held that the addition of new items of equipment would not and did
not involve any fresh agreement, either express or tacit, between the parties as there
amounted to the exercise by the insured of a right accorded to him by the terms of
the contract. By exercising this right, the insured incurred an obligation to pay an
additional premium in accordance with the agreed tariff, but this obligation and the
correlative right vested in the insured derived from the original insurance contract
________________________
47 Du Plooy v Sasol Bedryf (Edms) Bpk 1988 (1) SA 438 (A) 453E.
48 Collen v Rietfontein Engineering Works 1948 (1) SA 413 (A); Lipschitz v UDC Bank Ltd 1979 (1) SA 789 (A)
803E.
50 Aris Enterprises (Finance) (Pty) Ltd v Protea Assurance Co Ltd above 275.
51 Aris Enterprises (Finance) (Pty) Ltd v Protea Assurance Co Ltd 1981 (3) SA 274 (A) 289.
223
12
12
Terminology
paragraphs
12.1 Not every party with an interest in an insurance contract is a party to its 12.1–12.3
conclusion and not every party to the conclusion of the contract has an interest which
the one side and the insured2 on the other side. The rights and obligations arising
from the insurance contract primarily reside in them. In that sense the insured is
12.2 Prior to and during the negotiations leading to the conclusion of the insurance
provided of course that it was the prospective insured who initiated the negotiations.
The term “insured” may be confusing. The insured is mostly the policyholder to
whom the policy is issued, who stands in a contractual relationship with the insurer,
and who acquires rights and obligations under the insurance contract. Ideally the
term “insured” should be reserved, in the case of both short- and long-term
insurance, for the person whose interest is covered by the contract and who is
12.3 This does not present a problem when, in the case of life insurance, the insured
insures his own life. But if another life, or even more than one life, 5 is insured, there
may be confusion. The object of life insurance is someone’s life. The life will often be
that of the policyholder, but not necessarily so since one person is permitted to take
out insurance in the life of another in which he has an insurable interest, 6 such as a
“insured” or, more accurately, as the “life insured” or the “insured life”. 7 The life
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1 See
further
2 The insured is sometimes also referred to as the assured, especially in the case of life and marine insurance.
3 “Policyholder” is the expression used in the LTIA s 1(1) and the STIA s 1(1) to denote “the
person entitled to be provided with the policy benefits under a . . . policy”. The term
“policyholder” is itself not ideal because there does not always have to be a policy document and
if there is one, both the “insured” and the insurer may “hold” a copy of it.
4 12. 10.
7 Idem pars 16.13–16.14. “Life insured”, according to the LTIA s 1(1), means “the person or
unborn to whose life, or to the functional ability or health of whose mind or body, a long-term
policy relates”.
225
insured is, strictly speaking, not an insured at all. It is not his interest which is being
insured, but the interest of someone else, the true insured, in his life. His life is thus
not the object of the insurance but the object of the risk. He gains nothing from the
12.4 But there is a further complexity. The insured is normally the person entitled to
receive the benefits of the contract policy, but again it may be a third party. An
insurance contract may thus offer either protection in the sense of insurance cover or
party. But, although he is intended to benefit in the broad sense of the word, it is not
necessarily the third party’s interest that is covered by the insurance. 8 Accordingly it
would assist clarity of thought if the term “insured” were not used to describe a third-
party beneficiary. 9
Parties to obligations
12.5 An obligation is a relationship between persons, natural or artificial. At least two
persons are involved, a debtor on the one side and a creditor on the other side, but
there may be more parties on either side, whether as insured or as insurers. In case of
a multi-party contract, the relationship of the parties inter se, its nature and any rights
of recourse, are governed by the general rules relating to co-debtors and co-
creditors. 10
12.6 From the parties to the conclusion of the insurance contract must be
distinguished (i) parties to rights arising from the contract, such as nominated
beneficiaries and cessionaries, and (ii) non-parties who participate either in the
premium payers and payment receivers. In this conspectus the life insured, in the event
nor participant, is not personally involved, fulfils no active role in the process of
insurance, and may not even be aware of it. It is merely the life of the life insured that
is the object of the risk under the life insurance contract which insures the interest of
Insurer
12.7 An insurer must be registered under either the LTIA11 or the STIA12 to carry on long-term or short-term
insurance business. 13 It is an offence carrying a penalty if
anyone other than a registered insurer should presume to issue insurance, but the
validity of the contract itself will not be affected. 14 Being a legal entity, an insurer
must act through its organs, namely, its board of directors or, where applicable, its
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8 The third party’s interest may be covered in the case of a stipulation in his favour in an
indemnity insurance contract. The third party may be an additional insured (together with the
original or primary or contracting insured), or he may even be the only insured. In the case of a
beneficiary in terms of a life policy, again, the beneficiary is not an insured; he, or rather his
interest, is not insured but he is merely entitled to claim the benefits of the insurance contract.
See further, in general, ch 19 and Lawsa Vol 12 Part 2 pars 88 et seq for the effect of a
9 At least not without some qualification, such as third-party insured, or additional insured.
10 Van der Merwe et al Contract General Principles par 9.2.
11 52 of 1998.
12 53 of 1998.
13 See both Acts s 7. Only legal entities may register as insurers: both Acts s 9(3).
14 LTIA ss 60(2), 66(2) and STIA ss 54(1) and 54(2) respectively. See further 7.42 et seq and 7.61
et seq and Lawsa Vol 12 Part 1 par 156 and pars 170–171 apropos the validity of insurance
contracts entered into in contravention of the Insurance Acts; Nienaber and Reinecke Life
226
individual directors. Furthermore, the insurer must of necessity make extensive use of
perform its functions. Of particular interest are the insurer’s actuaries and also
Multiplicity of insurers
12.8 Several insurers sometimes underwrite a single risk. The ordinary rule of
12
paragraphs
contract is that, unless a contrary intention is evident, each debtor (here, each 12.3–12.10
insurer) is responsible for his proportionate share of the debt. 16 The parties are free
to agree to a different proportion for each insurer and this takes place in most cases.
In this type of case the insurance contract creates several distinct obligations. The
relationship between the insurers is therefore not that of true co-debtorship. It would
only be co-debtorship if the intention were that the entire performance was due to
12.9 Where several insurers are involved, the relationship is often governed by a co-
insurance clause. The effect of a co-insurance clause is that all the insurers are bound
by the decisions of the leading insurer relating to the insurance. 18 The object of the
clause is to protect the insured and it enables him to deal with the leading insurer in
enforcing his claim. However, the decision of the leading insurer will not be binding
on the other insurers if the decision is so obviously unjustified that it warrants the
conclusion that the leading insurer acted in bad faith or failed to exercise
used interchangeably with “policy owner” 21 and also, even if not strictly correctly, with
“insured”. 22 While the terms “policyholder” and “policy owner” have become accepted
in practice, it does not imply either that an insurance contract must always be in
company, a close corporation, a trust or a fund. There may be more than one
________________________
17 Idem 131.
18 Standard General Insurance Co Ltd v Voest-Alpine Industrieanlangenbau GmbH [1994] 2 All SA 360
(A); 1994 (3) SA 356 (A). For the difference between co-insurance and reinsurance, see Lawsa
20 “Policyholder” is defined in the LTIA s 1(1) and STIA s 1(1) as “the person entitled to be
provided with the policy benefits” under a policy. That description would terminologically
21 The use of the concept “ownership” is apposite only if it refers to the actual policy document, but not when it is
intended to refer to rights and obligations arising from the insurance contract.
23 See Nienaber and Reinecke Life Insurance pars 1.19, 14.4, 16.5.
227
Joint insured
married in community of property could, for instance, insure their joint interest in
the common property under one and the same insurance contract. Likewise,
ordinary co-owners could thus insure their joint property in their joint names.
Provided the intention of the parties is that there is only one performance due by the
intention is that the insurer’s performance was to be due to the various insured
a case the insured are jointly entitled to performance by the insurer and no insured
12.12 Alternatively, if the intention is that the insurer’s performance is due to the
various insured jointly and severally, the relationship will qualify as a joint and several
co-creditorship. In that event each insured, or all the insured jointly, may sue for full
performance by the insurer. 31 What occurs perhaps more often in the insurance
context is that each of several interested persons insures his own interest in the object
of the risk by concluding a joint insurance contract together with the other interested
persons. Thus, co-owners, such as the partners in a partnership, could each insure for
his own benefit his share of the common property by concluding a single, joint
insurance contract together with the other partners; or a lessor and lessee could so
cover their respective interests in the same contract. Since there are several
performances due by the insurer rather than a single performance, the contract
creates more than one distinct obligation. Each insured is entitled to a separate
performance from the insurer. Consequently this is not a true form of co-
creditorship. 32
12.13 In case of joint insured, it is common practice for them to nominate one
another as a beneficiary for ownership. 33 A joint insured may cede his undivided
share of his rights in terms of the policy to a third party with the result that the
cessionary succeeds him as a joint insured. In the event of the insolvency of a joint
insured, his trustee will succeed him as joint insured by operation of law. A joint
insured may alienate full title to the policy only with the consent of his co-insured. In
surrender, 35 making the policy paid-up36 and nominating a third-party beneficiary for the full proceeds. 37
________________________
30 Idem. See also Van der Merwe et al Contract par 9.2.2. In the case of a common co-creditorship, the creditors
must claim jointly, while in the case of a joint and several relationship the creditors
may claim either jointly or each may claim in full. If in the latter instance a creditor receives
more than his proportionate share, the other creditor(s) will have a right of recourse against
him.
31 De Wet and Van Wyk Kontraktereg 131; Van der Merwe et al Contract par 9.2.2.
228
12.14 If an insured marries in community of property, the policy becomes part of the
joint property of the spouses. 38 In effect the spouses will by operation of law be joint
insured. This also holds true where a spouse married in community of property takes
out a policy during the subsistence of the marriage. In terms of the provisions of the
Matrimonial Property Act, 39 a spouse must obtain the written consent of the other
spouse if that spouse wants to alienate the policy. 40 In case of an unauthorised
alienation, the Act protects the interests of third parties to some extent. 41 The Act also
12
paragraphs
12.11–12.17
Life insured
12.15 The life of the life insured is the object of risk on which a life insurance
contract hinges. 43 The life insured is not, in that capacity, a party to the insurance
contract44 and has no rights and no obligations under the policy. Accordingly, no
duty rests on the life insured to disclose material facts, except where the life insured
representative. But when the insured instructs or authorises the life insured to make
representations to the insurer and the life insured then fails to disclose material
12.16 As the law stands, the life insured need not give the insured permission to
insure his life although permission is frequently impliedly given by the life insured
submitting to medical examination and signing the application form, which may be
insisted on by the insurer. 45 However, the insured will be entitled to insure the life of
another – the life insured – only if he has an insurable interest in such life. 46 Not
being a party to the contract, the life insured may not challenge the contract. This
12.17 Multiple lives may be insured in various ways. 48 It is common for an insured to
insure not only his own life but also one or more other lives in which he has an
insurable interest, such as those of members of his family. This happens regularly in
the case of funeral (assistance) insurance when sometimes as many as ten lives are
insured at the same time. 49 Usually such policies provide for the adding of names
after the issue of the policy. In the event of the death of such an extended family
member, the insured is entitled to claim the sum insured for his own benefit. When,
________________________
38 Idem par 16.12. But see Danielz NO v De Wet, De Wet v Danielz NO [2008] 4 All SA 549 (C); 2009
(6) SA 42 (C) and the critical note on the decision by Wood-Bodley 2010 SALJ 224.
39 88 of 1984.
40 S 15(2).
41 S 15(9). This section provides that if the third party does not know and cannot reasonably have known that the
transaction is being entered into without the consent of the other spouse, the
transaction will be deemed to have been entered into with the necessary consent.
42 S 15(9)(b). If a spouse knew or should have known that he would probably not obtain the
required consent and the joint estate suffered a loss as a result of the unauthorised transaction,
an adjustment must be made in favour of the other spouse upon a division of the joint estate.
43 3.140 et seq, 3.154 et seq; Nienaber and Reinecke Life Insurance par 16.13.
44 Of course, if the life insured is also the insured, as in the case of an insurance on own life, he is a party to the
contract in his capacity as insured.
46 Idem par 1.23. See too par 1.33 for instances where there is an interest in the life of another.
49 For funeral insurance, see 26.67 et seq and Lawsa Vol 12 Part 2 pars 328 et seq.
229
him. 50 After the claim has been settled, the policy will continue to provide cover in
12.18 The policy will provide what is to happen when the first of several life insured
or an insured who is not himself a life insured, dies. The policy may provide that the
adjusted contract will simply continue in respect of the remaining life or lives
insured, or that it comes to an end, or that a paid-up policy will be issued. In such a
case, the insured’s estate will be the policyholder with the result that the surviving life
12.19 Besides funeral insurance, alternate lives insured are frequently added to
policies in such a way that the one or the other life is covered. 53 Such policies become
payable, depending on their provisions, on the death of either the first or the last
surviving life insured. In case the policy becomes payable on the death of the first
dying life, no payment is due on the death of the last dying life, and vice versa. It is
also possible that a limited payment will become payable on the death of the first
dying insured life and the balance on the death of the last surviving life insured.
Premium payer
12.20 The premium payer will usually be the insured, but especially in the case of
funeral insurance54 the insured may identify a third person who is to pay the
identification of the premium payer does not as such impose a duty on the latter and
does not entitle the insurer to claim payment from him where payment may
rights from the contract because he is not a party to it. If the premium payer in fact
pays the premiums, he does so either of his own accord (eg if the premium payer is
or policyholder.
12.21 The premium payer accordingly pays the debt of the insured or policyholder
and not his own debt. 57 When a policy is rescinded on the grounds of
performance, including what has been paid towards his debt by the premium payer. 58
Depending on the circumstances, the premium payer may then look to the insured
for redress. 59
________________________
50 For beneficiary nominations, see, in general, ch 19 and Lawsa Vol 12 Part 2 pars 88 et seq.
51 See Nienaber and Reinecke Life Insurance pars 18.29–18.33.
54 For funeral insurance, see 26.67 et seq, Lawsa Vol 12 Part 2 par 328.
56 Idem par 16.21. Care must be taken to ensure that the contract is not a simulation and that the premium payer is
not actually the real policyholder. Such a simulation may be perpetrated to
57 On whether the premium payer has a right of recourse against the insured or policyholder for premiums paid,
see Van der Merwe et al Contract par 13.2.4.
58 As regards restitution, see 8.143 et seq and Lawsa Vol 12 Part 1 par 237.
59 The cause of action may be the agreement between the premium payer and the insured, or it
230
Payment receiver
12.22 Someone who has been designated in the policy for the sole purpose of
not, like a beneficiary, a creditor because he is not intended to acquire any rights
12
paragraphs
12.23 The insured may prevent payment by the insurer to the receiver if he can show 12.17–12.23
that the insurer has no interest in paying to the receiver and that payment to the
receiver will result in a loss to him. Thus, if a particular funeral parlour has been
identified as the receiver of payment, the insured may instruct the insurer to pay to
another undertaker with whom he has subsequently made the funeral arrangements.
________________________
60 See Van der Merwe et al Contract par 13.2.5; Nienaber and Reinecke Life Insurance par 16.19.
61 Palmer v President Insurance Co Ltd [1967] 2 All SA 112 (O); 1967 (1) SA 673 (O) 677–678.
231
13
Risk1
A. Introduction
..............................................................................................................
233
D. Causation
................................................................................................................... 247
E. Insured’s
conduct......................................................................................................
253
F.
G. Duration
..................................................................................................................... 267
A. INTRODUCTION
13
General nature
paragraphs
13.1–13.2
that may cause an undesirable change in his particular financial, personal or general
situation. A person therefore considers his situation uncertain2 in the sense that he
does not know whether it will change and, if so, when and to what extent. 3 Prior to
such change, these circumstances are a potential source and imply the possibility of
sense that change is not impossible. 5 This uncertainty gives rise to the need for
________________________
1 This chapter corresponds largely with Lawsa Vol 12 Part 1 pars 301–336.
3 Merkin et al Colinvaux’s Law of Insurance par 1-008 and see 13.54–13.63 regarding loss caused by wear and
tear where the uncertainty may relate only to whether loss will occur during the
4 See further 13.3–13.5; Kent v SA National Life Assurance Co 1997 (2) SA 808 (D) 814A–E where reference was
made to this exposition of the general nature of risk.
5 See also the definition of “insurance contract”, quoted in Lake v Reinsurance Corporation Ltd 1967
233
13.3 The existence of a risk and its transfer from the person who is exposed to it to
an insurer constitute the basis of every insurance contract. 7 If, therefore, a transfer of
13.4 For insurance purposes, the uncertainty which underlies the risk does not
pertain to any change to the situation of the person who is exposed to the risk; it
therefore be defined as the possibility of harm10 and the uncertain event as an event
13.5 The circumstances that may cause such harm are commonly called “perils”. 12
Thus, a summer hailstorm or winter snow is a peril, whereas the possibility that it may
destroy a particular crop is a risk. Although a particular risk can usually, if not always,
13.6 Risk as a possibility of harm displays both an objective and a subjective element.
If there is objective certainty about (i) the actual occurrence; (ii) the time of
occurrence; and (iii) the extent of the harm, there is no possibility of harm but
simply the certainty of harm. In principle this is no risk. By contrast, if harm in any of
these three dimensions is objectively uncertain, there is, objectively speaking, a risk, 14
certain that harm – in all three its dimensions – will occur, but the person exposed to
question has not been directly and conclusively addressed by the courts. 15
13.8 There seems to be support for a subjective approach, in the sense that as long as
the parties to an insurance contract both believe that the occurrence of harm is in
any way uncertain, there is indeed a risk in the legal sense of the word. 16 This
________________________
7 Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W). See also 4.69–
4.75; Merkin et al Colinvaux par 1.010 and Clarke et al The Law of Insurance Contracts par 1.1E.
8 Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd above; Man Truck and Bus (SA) (Pty) Ltd v
Dorbyl Ltd t/a Dorbyl Transport Products and Busaf 2004 (5) SA 226 (SCA) (concerning the
aim of the contract and the relevance of risk in determining whether or not a risk-sharing
10 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384D; Lake v Reinsurance
Corporation Ltd 1967 (3) SA 124 (W) 127.
11 Eg, Clarke et al Contracts par 1.1E, explaining that that is so also with some forms of life insurance (eg, pure
endowment) where the uncertain event involves survival to a certain age, the
adversity there being inherent in living longer than one can financially afford to. The view that
the change inherent in risk need not be adverse to the insured, can therefore not be supported.
12 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384D. See also 13.33–
13.34.
15 In England, “uncertainty is tested with the benefit of omniscience, whereas in certain other countries [eg, the
United States of America] it is tested on the basis of the knowledge of the
parties to the contract at the time of the contract”: Clarke et al Contracts pars 1.1D1, 17.3A2.
16 Cf, for Dutch law, Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7:
Bijzondere Overeenkomsten Deel IX Verzekering par [21].
234
Risk
not lost”, in terms of which an insurer undertakes to cover a loss of those goods even
13.9 It seems axiomatic that the uncertainty inherent in the possibility of harm
should be tested for at the time when the insurance contract is concluded and the
insurer begins, or is supposed to begin, to run the risk and not, for instance, at any
13
13.10 The knowledge of the parties of the materialisation of the risk that is relevant
paragraphs
in this context is their actual knowledge, not knowledge that they should or could 13.3–13.13
have acquired. 19
subjectively. 20 The position is different if the agreement includes a term that the cover
is retroactive, such as when cover is provided “lost or not lost”, but the loss has,
13.12 Because of the need for uncertainty, insurance cannot be placed, or existing
cover activated, after a loss has to the knowledge of the insured already occurred.
Practically the requirement does not easily affect an insurer, since it will hardly
conclude a contract if it knows that the harm has already occurred; should it
nevertheless have done so, the contract cannot qualify as an insurance contract
However, fortuitousness in the sense that the occurrence must be entirely outside the
________________________
17 London and Lancashire Insurance Co Ltd v Puzyna 1955 (3) SA 240 (C). An agreement to antedate a policy
(such as occurred in Nel v Santam Insurance Co Ltd 1981 (2) SA 230 (T)) appears to be of
the same effect. Insurance “lost or not lost” was well known to the common law, as insurance “on
good or bad tidings”: see further Van Niekerk Insurance Law in the Netherlands Vol II 845–895 as
to insurance after departure, after loss and after safe arrival, and insurance “on good and bad
tidings”.
18 Wansink et al Assers pars [30], [32] (it is irrelevant that after the conclusion of the insurance contract the
uncertainty is removed for either party, eg, that the insured learns of the earlier
20 An insurance contract is generally based on the parties’ (usually tacit) common supposition (or assumption) that
the risk described in the contract exists and that the possibility of harm has not
yet materialised. If, upon the conclusion of the contract, the risk has already materialised (say
the person to be insured against disability has already been disabled: Kent v SA National Life
Assurance Co 1997 (2) SA 808 (D) 813E–G; and see further Reinecke and Van der Merwe 1997
TSAR 804; Van Niekerk 1998 SA Merc LJ 123), or never existed, the underlying supposition has
21 According to an objective construction of the risk, such a term is ineffectual because there is no risk at all; but
according to a subjective construction, there is in fact a risk and the insurance is
effective. Moreover, the inclusion of a special term of this nature excludes any supposition that
the harm has not occurred. Accordingly, there is an insurance contract with retroactive effect,
subject to the proviso that the parties are unaware of the materialisation of the risk or the extent
of the harm. See generally Van der Keessel Theses Selectae 712; Van der Linden Koopmanshandboek
4.6.4; London and Lancashire Insurance Co Ltd v Puzyna 1955 (3) SA 240 (C) 247.
22 Cf the remarks in Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478
(W) 481, with reference to the position of an insurer. Fortuitousness in the sense of an
“unintended and undesigned” occurrence may, of course, be part of (the description of) a
particular risk in a particular policy or type of insurance, such as accident insurance: Lourens v
Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384C.
235
13.14 Accordingly, the law accepts that a person may insure against the harmful
consequences of his own conduct, even if wilful, 23 which are voluntary occurrences
13.15 By the same token, the occurrence need not be entirely outside the control of
the insurer. Nothing prevents a life insurer from attempting to avoid or at least to
defer (reduce the chances of) the materialisation of the risk by persuading its insured
to follow a balanced diet or exercise regime. A fire insurer, in turn, may establish a
fire brigade in an area where it has insured a number of properties but where no
13.16 The question whether the materialisation of the risk must be outside the
control of the insurer as risk bearer has been raised in connection with the
distinction has been considered particularly with regard to contracts of sale of goods
and contracts for the rendering of services, containing warranties (such as fitness for
13.17 The need for a distinction between insurance contracts and these types of
contract becomes apparent when questions arise about the possibility of or need for
13.18 Clearly not every agreement to transfer and take over a risk amounts to an
insurance contract. Although the basis for a distinction has been discussed in various
________________________
25 Therefore, the fact that the insured’s intentional conduct causes the materialisation of the risk has no bearing on
the requirement of uncertainty, unless he had already at the time of the
conclusion of the contract formed the relevant intent, in which case the required uncertainty is
26 In Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W) a conveyor of
money, sued in terms of an agreement to make good any loss of money during transportation,
insurance contract. During the course of its judgment, the court said (481B): “[T]he agreement
vitally differs from a true insurance agreement in that the risk, the abatement or increase of the
risk of loss, lies wholly within the hands of [the conveyor] who now seeks to gain the advantages
of being the insurer.” These words do not necessarily imply that there can be risk only if the
event concerned lies wholly outside the control of the insurer as risk bearer. It seems more
probable, in view of the defence raised by the conveyor, that the court was referring to the fact
that promissory warranties are included in insurance contracts for the very reason that the
circumstances to which such warranties relate are usually within the knowledge and control of
the insured rather than that of the insurer. As to promissory warranties, see 15.22–15.28.
27 In these contracts the seller (or manufacturer) or the service provider undertakes, as against the buyer or
employer, to bear the risk of either the goods or the services not being as agreed or of
their causing the buyer or employer loss. In short, the seller or service provider bears the risk of
such uncertain events and will either repair or replace the goods, render a proper service, or
28 Eg, do such sellers or manufacturers have to register as insurers, especially (but not only) if they demand from
the buyer or employer a separately identifiable amount (“premium”) in addition
to the sale price or service fee in exchange for their (conditional) undertaking of
indemnification or replacement? See in this regard Directive 97.A.ii (ST), issued by the FSB on
1 August 2008, concerning motor-vehicle warranties and extended motor-vehicle warranty cover.
29 Cf Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W).
236
Risk
legal systems, it has not been determined conclusively. The exact basis for such a
distinction may obviously vary according to the construction placed on insurance in
its legal and economic senses30 and the system of official control which prevails in a
13.19 However, one general guideline often seems to feature prominently. If the
13
paragraphs
divisible33 so as to include a separate premium in return for the bearing of the risk,
there are of course at least two contracts, one of them being an insurance contract. 34
If the reciprocal transaction cannot be divided into separate contracts, the entire
kind.
13.21 To this end different tests have been advanced. Apart from the question
whether the risk is within the control of the contracting party by whom it is to be
borne, 35 the distinction may be sought in the principal object of the contract, or
rather the substantial part of it, as it appears from its terms. 36 According to this test,
13.22 For purposes of insurance supervision and regulation, though, the concept of
their format or nature, may well justify official supervision and regulation as if they
actually amount to insurance, if only because they involve (even if only incidentally)
risk transfer and risk bearing and because the risk bearer demands and accepts
advance payment in exchange for a future and uncertain performance. 38
________________________
31 Van der Merwe Juridiese Versekeringsbegrip 380. In terms of this test, the agreement by the conveyor-security
firm in Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W) to indemnify for
money lost in transit was not insurance. The undertaking was a natural
complement of the principal obligation to convey the money, the risk of loss of the money being
32 Thus, in a contract of sale the passing (transfer) of risk is merely ancillary to the main aim, namely the transfer
of ownership.
33 11.26–11.30.
34 Many of the so-called extended warranties on motor vehicles that are issued against payment in conjunction
with the sale of a product (such as a lubricant), may for this reason amount to
35 5.99.
36 For a discussion of “substantial part”, cf Van der Merwe Juridiese Versekeringsbegrip 381–383 where the
concept is considered in the context of the supervision of insurance business.
38 It is submitted that such an approach is more suitable in a system of state supervision than the approach that the
risk cover must represent the substantial part or principal object of the
contract. The latter approach leaves too much scope for manipulating the nature of the
making it possible to conduct insurance business without being directly subject to the governing
237
13.23 The law may, of course, develop to the extent that an independent and
the risk is entirely within the control of the person who accepts it. However, the
reason for such a development would not be that there is no risk, but would have to
B. DESCRIPTION OF RISK
General
13.24 Whereas, in general terms, risk is the possibility of harm, each of the parties to
a particular insurance contract must come to a decision about the full extent of the
possible harm and about the probability39 that the harm will materialise. The insured
must reach this conclusion not only to decide whether or not to obtain insurance
cover, but also to determine the extent of such cover so as to avoid uneconomical
to reach the conclusion not only to decide whether to conclude the insurance
contract at all, but also to determine what premium to charge to be both profitable
and competitive.
13.25 For these reasons the risk which is transferred in terms of a particular
insurance contract must be identified and described in that contract. The insurer’s
eventual performance and the extent of such performance are directly related to and
insurance contract involved; 41 however, one should in this regard not lose sight of any
13.27 The insurer’s duty to perform is subject to the materialisation of the risk as
described in the insurance contract. 42 The description is usually made with reference
to one or more of the following: the object of risk; 43 the peril which may cause the
eventual harm; 44 the circumstances affecting the risk; 45 qualifications as to time and place; 46 and qualifications
as to the extent of the insurer’s performance and liability. 47
referred to as “the event insured against”, an expression that indicates not so much
the risk to which the insured is exposed, but rather the risk as transferred to the
________________________
39 The decision about the degree of probability may range from an informed judgment based on
systematically collected and ordered statistical data (as should be undertaken by an insurer) to a
general estimate (as would more commonly be made by a prospective insured); see further Van
der Merwe Juridiese Versekeringsbegrip 45–46, 264–266, 270.
40 Clarke et al Contracts par 16.1, observing that “the work of definition [of the circumstances comprising the
insured event] is left entirely to the particular contract and the policy that
records it”.
41 David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA) 300C.
43 13.29–13.32.
44 13.3–13.5; 13.33–13.34.
45 13.35–13.40.
46 13.41–13.43.
47 13.44.
238
Risk
insurer, the occurrence or materialisation of which will render the insurer liable in
Object of risk
13.29 It is common practice in most instances of property to describe the risk that is
13
paragraphs
13.23–13.34
13.30 The object of the risk must be distinguished from what is called “the object of
the insurance”, that is, the interest insured in terms of the contract. 51
13.31 However, since risk is the possibility of harm in general, a particular risk need
not be described with reference to an object of risk. Liability insurance, even if with
13.32 Whether there is an object of risk in personal insurances, is debatable, the one
view being that only material objects or things can constitute an object of risk. 53
Peril
prognosis about the materialisation of the risk involved. 54 Such a prognosis is best and
most reliably made if the peril or hazard involved is taken into account. 55 Perils are
the circumstances or facts which, when regarded prognostically, already contain the
possibility of harm, that is, the risk. 56 For this reason a peril may be referred to as the
cause or source of potential loss. Although the peril is ultimately not part of the risk
itself, it is causally connected with harm and therefore with the risk.
13.34 The risk in a particular insurance contract, then, is described, amongst others,
by identifying a particular peril, or a particular class of peril, that may cause the
harm. 57
________________________
48 Cf the concept “Versicherungsfall” in German law: eg, VVG art 30 (notification of the occurrence of the insured
event; “des Eintritt des Versicherungsfalles”). The notion of an “insured event” is also
49 Eg, the house that is covered by a fire insurance contract, or the person who may be injured or killed in terms of
a personal accident insurance contract.
50 In English law, the phrase “subject-matter of insurance” is common: Clarke et al Contracts par 16.1,
distinguishing further between insurance on tangible property and insurance on intangible
property (pecuniary loss insurance, eg, business interruption, insolvency and guarantee
insurance).
51 This distinction is often obfuscated by the common practice of referring to that which is insured as the house; in
reality, what is insured is the insured’s interest in the house. As to the object of
52 Eg, where an insured obtains cover against liability resulting from the driving of a particular motor vehicle, the
vehicle is not the object of risk, but merely the object that may be
instrumental in causing the loss (the insured’s liability). However, in the final analysis no legal
principle is involved and it only depends on how the concept “object of risk” is defined. See 3.4–
3.8.
53 Wansink et al Assers par [373], arguing that the person or body of a person cannot be an object of risk.
54 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384D.
55 384E.
56 384D; see also 13.3–13.5.
57 Thus, a contract may refer to a particular category of peril or specific perils falling within such a category, eg,
natural perils (such as flooding, lightning or earthquake), technical perils (such as
239
consequently affect the materialisation of the risk. 58 The circumstances are mostly
because of the close relationship between peril and risk, they may also be referred to
as “risk circumstances”. 64 Indeed, the concept of risk circumstances includes the peril
parties are able to establish the exact extent of the cover they wish to provide and
obtain. 65
contained in the terms describing and limiting the particular risk. 66 Such terms deal
with matters that are problematical in practice for “technical” insurance reasons
rather than from a legal point of view, except as far as subjective and objective risk
13.38 Subjective risk circumstances are those that relate to the personality and
character of the insured or of those who have or will have a close relationship or
contact with the object or objects of risk during the period of the insurance.
13.39 All other risk circumstances are objective, for example, the fact that a house
“technical” sense mentioned above, but they also have legal significance in so far as
they are taken into account to determine the framework within which the insurer
13.41 The risk and its circumstances as described in a particular insurance contract
13.42 Generally, the time limit relates to the duration of the contract. 70 However, an
________________________
58 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384.
59 Eg, the past experience of the insured (his so-called risk and claims record), or statistical data concerning the
occurrence of particular perils in the area, affecting the kind of activity, or with
60 In so far as the circumstances may be part of the chain of events causing the peril to occur.
62 Eg, the fact that a factory that is insured against fire is located in an area where there is no fire-fighting service.
63 In Afrikaans, “gevaarsomstandighede”.
64 In Afrikaans, “risiko-omstandighede”.
65 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384F.
66 384G.
67 Cf Griessel v SA Myn en Algemene Assuransie Edms Bpk 1952 (4) SA 473 (T) 480–481.
68 Van der Merwe Juridiese Versekeringsbegrip 286–288; 8.8, 8.57–8.64, 8.151–8.152 (the precontractual
calculation of the risk and the insured’s duty to disclose); 13.64–13.73 (the alteration
of the risk after the conclusion of the contract); 13.100–13.144 (the conduct of the insured).
69 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384F.
240
Risk
that the insurer will be at risk only at certain times, 71 or that the insurer will not be at
13
paragraphs
13.44 The risk undertaken in an insurance contract may be described by limiting the 13.35–13.46
extent to which the insurer will be liable to perform. 75 This usually occurs with
reference to matters such as the amount payable, the degree of reinstatement, the
nature of the loss, 76 and the amount or excess which the insured has to bear himself. 77
13.45 The usual method of determining the confines of the risk transferred under a
particular insurance contract is, on the one hand, to limit (delimit), qualify, 78 or
define (specify)79 the risk when it is described, or, on the other hand, to create
depends in each case on the intention of the parties as expressed in the insurance
contract. 81 Both methods – limitation and exception – ultimately accomplish the same
result, namely circumscribing the extent of cover and so restricting the insurer’s
liability. Both may also be either expressed or implied from the parties’ intention,
that is, tacit. Nevertheless it has been pointed out82 that the distinction is not merely
one of expression but one of substance because it affects the incidence of the burden
of proof. 83
________________________
72 Eg, while the insured is committing a crime ( Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3)
SA 373 (A)), while the object of risk is being used for any illegal purpose ( Lloyds of
London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments (Pty) Ltd 2004
(2) SA 276 (SCA)), while the insured is intoxicated ( Price v Mutual and Federal Insurance Co Ltd
2007 (4) SA 51 (SEC)) or while the vehicle is being driven by an unlicensed driver ( Santam Bpk v
74 Eg, in a “warehouse to warehouse” clause: London and Lancashire Insurance Co Ltd v Puzyna 1955
(3) SA 240 (C) (goods covered while they were in a warehouse prior or subsequent to their
conveyance by sea).
75 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384F.
76 Eg, by excluding liability for consequential loss, as to which see further 16.19.
77 As to the measure of indemnity and limitations of the extent of the insurer’s liability, see 16.31–
16.59, 16.60–16.64.
78 It was referred to as a limitation in Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 335B.
79 In Agiakatsikas v Rotterdam Insurance Co Ltd 1959 (4) SA 726 (C) 728, the court labelled such a term
“definitive of the risk”.
80 Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) 384G; Sentraboer Koöperatief Bpk
v Boshoff 1990 (4) SA 687 (T). Clarke et al Contracts par 19.1A refer to the “use of exceptions as a tool of
definition” of the risk.
81 “Whether a promise is a promise with exceptions or whether it is a qualified promise is in every case a question
of construction of the instrument as a whole”: Munro, Brice and Co v War Risks
Association [1918] 2 KB 78 (KBD) 89, quoted with approval in Eagle Star Insurance Co Ltd v Willey
83 Thus, generally, it is for the insured to prove the peril that caused his loss and for the insurer to prove the
operation of an exception. For further detail, see 13.79–13.88.
241
13.47 The form of the policy has been held to be an important guideline in
determining the parties’ intention in this regard. 84 Thus, a term that reads that cover
is provided against damage caused by fire which is not the result of war, is clearly a
limiting description of the risk. By contrast, if a term providing that damage caused
by fire is covered, is followed by another term excepting from the cover fire caused by
war, the latter is clearly an exception to the risk. 85 A single clause in an insurance
13.48 But the distinction is not always that simple. The use of the words “limitation”,
“qualification” or “exception” is not necessarily conclusive, nor is the fact that the
words are contained in a separate clause. 87 In Eagle Star Insurance Co Ltd v Willey88 the Appellate Division
apparently approved the attempt at formulating a general test for
13.49 According to this test an “exception” which is general and as wide as the
promise and therefore qualifies the whole scope of the promise, is a limitation. 90 In
the case of an exception that is general, the exception is brought into the definition
13.50 By contrast an “exception” which is specific and excludes from the operation
of the promise causes which would otherwise have fallen within the promise – if the
proper. 92 The test seems to mean that a risk will be limited in the strict sense of the
word only if from the outset it is described so narrowly as not to include the
13.51 The whole process may be taken one step further, as in the case of a specific
________________________
84 Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 335H; Agiakatsikas v Rotterdam Insurance Co Ltd
1959 (4) SA 726 (C) 728–729.
86 In
Commercial Union Assurance Co of SA Ltd v Kwazulu Finance and Investment Corporation 1995 (3)
SA 751 (A) the clause provided: “This section is extended to cover loss or damage . . . occa-
sioned by . . . the deliberate or wilful or wanton act of any person committed with the intention
of causing such loss or damage but excluding loss or damage caused by . . . theft”. The court
agreed that the clause could be divided into a “qualification phrase” (“committed with the in-
tention of causing such loss or damage”) and an “exception phrase” (“but excluding loss or
damage caused by . . . theft”) and that this was consonant with the approach in Eagle Star Insur-
87 See
89 First
in
Munro, Brice and Co v War Risks Association [1918] 2 KB 78 (KBD) 88. See further Clarke
et al Contracts par 16.3C, from whence the examples given here are taken.
90 Eg, an excess of R500 in a motor-vehicle policy. For any loss, irrespective of its cause, the insured must always
bear the first R500 himself and there is always a possibility that the loss is
less than R500 and in consequence the insured must always establish that his loss exceeded the
amount of R500.
92 Eg, where the insured is covered against “fire”, without more (ie, fire from whatever cause) and the insurer is
not liable for fire damage caused by riot, the exception is narrower than the
scope of cover (and it is consequently for the insured to prove loss by fire and for the insurer to
prove that the fire in question was caused by riot). The description of the risk may be relevant.
If the insured is covered against “fire”, it is for the insurer to prove fire by arson (the insured’s
intentional conduct: see 13.149); but if the insured is covered against “accidental fire”, it is for
the insured to establish at least prima facie that the fire was accidental, eg, by establishing that
93 Eg,
as
in
St Paul Insurance Co SA Ltd v Eagle Ink System (Cape) (Pty) Ltd 2010 (3) SA 647 (SCA),
where public liability cover was subject to a pollution or contamination exclusion, except if the
( continued)
242
Risk
13.52 Insurance contracts often provide that the insurer will not be liable for the
risks. Such provisions are common in most property insurance contracts and have
13
risks. 95
paragraphs
13.47–13.57
13.54 Apart from providing cover against particular named, specified or enumerated
risks, insurance contracts often cover against “all risks”, for example “all risks
whatsoever however arising”, or “all loss whatsoever the insured may sustain by loss or
arising”. 96
13.55 The advantage of an all risks clause is the wide cover it provides to the
insured97 coupled with the fact that the insured need not establish the occurrence of
any specific peril, nor a causal link between his loss and such a peril, but merely that
his loss was caused by a ( any) peril, that is, an uncertain or fortuitous event. 98
13.56 All risks cover is, of course, not entirely unlimited. 99 Apart from limitations
imposed – by law or by the contract itself – by matters such as the description of the
object of risk, its location, the requirement of lawfulness of the insurance, or the
duration of the insurance cover, the expression “all risks” covers fortuitous risks and
not certainties; it certainly does not protect against all losses that may befall the
13.57 Thus, ordinary wear and tear and inherent vice are by implication not covered
but excluded. 101 The reason is that loss or damage to, say, goods or property from
those causes are not uncertain, fortuitous but, in the normal course of events,
________________________
such a case the insured had to prove its liability, the insurer that it was the result of pollution,
and the insured that the pollution was accidental. See also Clarke et al Contracts pars 16.3C5,
19.1A (pointing out that an exception to an exception does not, without more, imply cover-
age).
94 For a detailed discussion, see Lawsa Vol 12 Part 1 par 313; see also Van Niekerk 2007 SA Merc LJ 71.
95 As to the insurance cover obtainable from the South African Special Risks Insurance Association (“SASRIA”),
see further Lawsa Vol 12 Part 1 par 314.
96 Turdeich v National Employers’ General Insurance Co Ltd 1982 (2) SA 219 (C).
97 221D.
99 See
Lawsa Vol 12 Part 2 par 280 for the exceptions inherent in marine insurance cover, viz wear
and tear and inherent vice; see also Van Niekerk 1982 MB 78.
100 Clarke et al Contracts par 17.3A1 (all risks cover “is not cover against all causes of loss but against all risks of
loss”); Merkin et al Colinvaux pars 24.080–24.081. The principal authority on
all risks insurance in English law remains British and Foreign Marine Insurance Co Ltd v Gaunt
[1921] 2 AC 41 (HL).
101 13.1–13.2; B ethlehem Export Co (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 449 (W);
Blackshaws (Pty) Ltd v Constantia Insurance Co Ltd 1983 (1) SA 120 (A) (where liability for inherent vice was
expressly excluded); Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478 (C) 482C–D;
cf also British and Foreign Marine Insurance Co Ltd v Gaunt above and the Marine Insurance Act,
1906 s 55(2).
102 In this sense “inevitable” is, of course, not the same as “foreseeable”. Also, the fact that in the case of certain
objects of risk (eg, fresh produce) loss is more likely to happen or to happen
sooner than in the case of other objects of risk (eg, steel pipes, buildings), does not signify any
difference in principle.
243
13.58 In this regard certain personal insurances – life and health insurance, for
instance – are different because they ordinarily103 in effect provide cover against all
risks, including natural and inevitable “inherent vice” or “wear and tear”, that may
13.59 Inherent vice refers to a defect or characteristic in the object of risk itself, 105
inherent in it and not externally visible or detectable but latent, that will inevitably
and naturally – and therefore not fortuitously – cause the loss, damage or destruction
of the object without any external factor or accident causing or contributing to that
result. Most cases of inherent vice involve some physical change to the object of risk
resulting from the nature of the object itself and not from an external factor. Fresh
food will, by its nature, inevitably go off, rot and become unfit for human
because of an external factor, say the failure of a cooling system in the container in
which it was stored or its improper handling and stowage by stevedores, the loss is not
a result of an inherent vice, but of an external and fortuitous cause. Wear and tear,
again, 107 is “ordinary” – inevitable – wear and tear and the term includes equivalents
13.60 However, an insurance contract may expressly – but should then, it may be
thought, clearly – provide cover against a genuine uncertainty, existing at the time
when the risk commences to run for the insurer and, seen from the insured’s point of
view, 108 about the moment of the occurrence of loss or damage from the inherent vice
or wear and tear. 109 The reason is that there is uncertainty not about the fact that loss
or damage will inevitably happen from those causes, but about when it will happen
or, put differently, whether it will happen in the course of the insurance cover, for
13.61 Also by implication not covered are losses caused by the insured’s own
intentional conduct, 110 again because loss or damage from such conduct is, at least at
13.62 All risks insurance cover may also be subject to express limitations and
exclusions. These often restate those that would in any event be implied, but in view
of the wide cover afforded by an all-risks clause such limitations and exceptions are
clearly subject to the rule that clauses which restrict an insurer’s liability must be
________________________
103 There may be limitations, eg, where cover is provided only against death or illness caused by accident.
104 Eg, Clarke et al Contracts par 17.3A2; Birds Birds’ Modern Insurance Law par 13.2.3; Wansink et al Assers
par [449].
105 Cf Wansink et al Assers pars [443], [446], [448].
106 Which is considered an inherent vice in the goods themselves: Blackshaws (Pty) Ltd v Constantia Insurance
Co Ltd 1983 (1) SA 120 (A).
107 The two notions are closely related if not indistinguishable: eg, Merkin et al Colinvaux par 24.080: “[o]rdinary
leakage and breakage may be regarded as inherent vice”.
109 See again 13.1–13.2; cf also ED Sassoon and Co Ltd v Yorkshire Insurance Co Ltd (1923) 16 Ll L Rep 129
(CA) 133; Soya GmbH Kommanditgesellschaft v White [1982] 1 Lloyd’s Rep 136 (CA), [1983] 1
110 This includes reckless conduct and stands in contrast to negligent conduct: see further 13.125–
13.132. In English law this exception is referred to as loss or damage from the insured’s “wilful
misconduct”, which often comes to mean “voluntary misconduct”: Clarke et al Contracts par
17.3A3.
111 10.57–10.59 and cf French Hairdressing Saloons Ltd v National Employers Mutual General Insurance
Association Ltd 1931 AD 60 65; Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA
244
Risk
13.63 In practice, the evidentiary benefit of all risks insurance cover may in
transit, for instance, one would have thought that the insured need merely establish
that the goods were properly packed and shipped in a sound condition and that they
arrived in a damaged condition, so establishing at least prima facie that the loss was
caused by an uncertain or fortuitous event during the carriage. It is then, in line with
general principles, 112 for the insurer to establish that the loss or damage was actually
13
paragraphs
caused by one of the exceptions. 113 However, some courts seem to regard the 13.58–13.65
exceptions, as is indicated by their implied nature, 114 as part of, and thus as a
description or limitation of rather than an exception to, the risk, and hence require
the insured to establish, at least prima facie, that the loss or damage was not caused by
13.64 Once the risk has been described and the insurance contract concluded, the
insurer’s liability depends on the materialisation of the risk as described. The event
on which the insured bases his claim must therefore in all respects fall within the
confines of the limitations of and exceptions to the risk. 116 However, the risk as
described in the insurance contract does not always remain unaltered and may
increase (or even decrease) subsequent to the conclusion of the contract. 117 In this
regard a distinction, often very fine, is drawn between an alteration and a (mere)
13.65 If a change in the risk circumstances actually alters the risk itself so that it no
longer conforms with its description in the contract, the insurer is not liable if the
altered risk materialises and causes the insured loss or damage. Thus, goods that are
insured against theft from particular premises are not covered if stolen from other
premises. 119 Similarly, if the change in the risk circumstances alters the identity of the
object of the risk as described, the insurer is not liable in case of a loss, for example
________________________
112 See further 13.74–13.99 as to the causal link between peril and loss and 13.179–13.195 as to the burden of
proof.
113 In Mutual and Federal Ltd v Rumdel Construction (Pty) Ltd 2005 (2) SA 179 (SCA), eg, the policy provided
cover against “fortuitous physical loss or destruction of the property insured arising
from any cause”, other than those excepted. One of the excepted causes was “defective design”.
The insurer was held not to have proved that the design in question here was defective.
114 Presumably even if they are confirmed by an express exclusion in the contract.
115 See, eg, Bethlehem Export Co (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 449 (W).
For further arguments in this regard, see Clarke et al Contracts par 17.3B.
118 The distinction is recognised also in English law: see Merkin et al Colinvaux pars 5.016–5.028; Clarke et al
Contracts par 20.5B1.
119 Cf also C’NS Agents and Distributors CC v Nova Risk Partners Ltd, unreported (D), (2006) 9 Juta’s Insurance
L Bul 129 (in terms of a “temporary removal clause”, goods temporarily removed
“from” the risk address “to” other premises were covered; from this the court deduced that it
was a prerequisite that the goods should be covered “at” the risk address prior to their removal
and that they should have had a specific, original and permanent location there; accordingly, it
held, goods that had arrived but were never off-loaded from the truck while it was parked at the
risk address, were not covered when they were removed and damaged elsewhere).
245
specialised racing vehicle, 120 or where an additional bedroom is added to the insured
13.66 Put differently, the change here alters the risk itself and takes it outside the
scope of the cover, as described with reference to risk circumstances, provided by the
insurance contract. The reason for the insurer not being liable, it may be thought, is
because the uncertain event, as described in and contemplated by the parties to the
contract and upon the occurrence of which the insurer’s obligation to pay depends,
has not occurred or, in some but not all cases, 121 cannot ever occur. 122 It is therefore irrelevant that the
alteration occurred outside of the insured’s control or by his own
conduct, or that it did not increase the risk at all. Further, it may be that the parties
had not agreed on a single risk, but on a range of risk circumstances or events, so that
changes within that range will not amount to an alteration of risk in the sense
intended here.
13.67 However, some changes in the risk circumstances do not alter the risk by
affecting the nature of the peril or the object of risk but merely increase the possibility
or chance of the risk materialising. This happens when the degree of probability of the
materialisation of the risk, in any of its dimensions – the likelihood of its occurrence, or
the time of such occurrence, or the extent of the consequences upon its occurrence123 –
becomes greater than it was when the contract was concluded. An increase in the risk
may or may not be the result of the insured’s own conduct. 124
principle affect the insurer’s liability or continued liability under the insurance
contract. 125 That is so even if the increase was the result of the insured’s own, even
intentional, conduct. 126 The underlying assumption here is that the insurer accepted
the risk not only as it appeared – and was represented by the insured – to it on the
conclusion of the insurance contract, but also as it could change subsequently during
the period of insurance. 127 As a risk specialist, the insurer must be taken to be in a
________________________
120 The mere fact that the vehicle is used for a different purpose should ordinarily not amount to a permanent
change in its identity or nature and in an alteration in the risk. However, should the
contract contain a clause restricting the use of the vehicle to a particular purpose, use for any oth-
er purpose may well constitute an alteration of the risk, excusing the insurer from liability: cf LC’s
Dairy Products v Dial Direct Insurance Ltd, unreported (KZP), (2011) 14 Juta’s Insurance L Bul 36.
122 Contra Merkin et al Colinvaux pars 5.016, 5.024 (a substantive change in risk operates automatically to
discharge the insurer from all liability on the basis that what was agreed between the
parties has ceased to exist); 5.028 (no automatic avoidance ab initio but merely a suspension of
risk).
124 Eg, where a life insured takes up a dangerous pastime, or where a sudden change in weather
conditions increases the risk of driving an insured vehicle. For the position which obtains if the
125 Cf Cowey v London and Lancashire Fire Assurance Co (1899) 20 NLR 90 (considering whether it was a
principle of insurance that any alteration in the position of the goods insured (in the
risk) was a matter that affected the insurance and required the consent of the insurer, or
whether that was so only if a term to that effect had been taken up in the insurance contract).
The same question may arise in connection with other (aleatory) contracts such as suretyship:
126 But otherwise where the insured’s own intentional conduct did not merely increase the risk, but caused it to
operate and result in loss: see further 13.125–13.132.
127 In the same way, it may be surmised, a decrease in the risk will not entitle the insured to any proportional
reutrn of the premium, not least because the risk is generally not divisible. However, if the risk as described in the
contract was not (never) and could not (ever) be run by the
insurer, as may happen in the case of an alteration of the risk circumstances occurring before
the commencement of cover, the premium may be returnable. See 14.65–14.82 for the return
of the premium.
246
Risk
position to evaluate the risk, not only as it appears upon the conclusion of the
contract, but also as it may in its experience subsequently change during the period
of that contract. The insured is further not under any common-law obligation to
notify the insurer of an increase of the risk, the duty of disclosure having come to an
13
paragraphs
13.70 To counter an increase of risk by the insured’s own conduct, policies often 13.65–13.74
contain a term requiring the insured to take reasonable precautions to avoid loss. 129
13.71 Other terms require the insured to notify the insurer of any alteration,
variation or increase of the risk, either generally, or as regards specific aspects (eg in
the occupancy or use of insured property), or when caused by means within the
insured’s control. These terms then reserve a right for the insurer to cancel the
contract in the absence of or upon such notice, or to increase the premium. 130 Other
terms permit a future alteration, variation or increase of risk by the insured on the
insurer being informed of and consenting to it. Yet other clauses suspend the cover
for as long as (“while”) the changed or increased risk lasts. 131 And others, again, more
severely amount in effect to resolutive conditions, stipulating that cover or the entire
contract will automatically be terminated (or that the insurance will cease to attach or
that the policy will become void) upon an (unnotified) increase of the risk.
13.72 In all these terms, it is for the insurer to prove breach by the insured, for
instance that there was an alteration or increase of the risk, specifically as that risk was
described or anticipated in the contract, or that such change was not notified. 132
13.73 It should also be observed that insurers frequently make use of promissory
warranties to exercise some measure of control over both the conduct of the insured
13.74 In insurance contracts risk is commonly134 a causal concept: the insurer’s duty
________________________
128 Merkin et al Colinvaux par 5.018. In German law, there is extensive regulation of any increase of risk
(“Gefahrerhöhung”) by the insured (as opposed to an unforseen increase of the risk or
130 Or at least they enable the insurer to revise the insurance premium or other contract terms prior to any
renewal, should it in fact decide to renew.
131 Eg, N and B Clothing Manufacturers (Pty) Ltd v British Traders’ Insurance Co Ltd 1966 (2) SA 522
(W); Nel v Santam Insurance Co Ltd 1981 (2) SA 230 (T) (interpretation of a “variation of risk”
clause that required immediate notice to the insurer of any material change in the circum-
stances or nature of the risk and excluded the insurer’s liability unless such change had been
accepted by it; held, the sale of an aircraft to the pilot on credit during the period of insurance
was such as to constitute a changed circumstances, if not a change in the nature of the risk).
132 Cf Merkin et al Colinvaux pars 5.019, 5.023; Clarke et al Contracts par 20.5A4.
133 See further 15.14; Jerry Understanding Insurance Law par 62B who refers to such “increase of hazard”
clauses as “a modern day warranty”.
134 “Commonly” in so far as no general basis for insurance has as yet been accepted. Should
a general basis, such as the adapted indemnity theory (4.68–4.81) or the theory of estate
formation (4.56–4.61), eventually be accepted, every risk as described in the contract would be
causally defined in that the loss or the frustration of an estate-formation purpose (Van der
( continued)
247
insurance contract therefore requires proof not only of the peril and of the loss or
occurrence as described in and covered by the contract, but also of a causal nexus or
13.75 A causal link may be required not only between an included peril and the loss
or occurrence for the insurer to be liable, but also between an excluded peril and the
loss or consequence for the insurer to escape liability. 136 In the latter regard, an
exception may, properly interpreted, not be causally but merely temporally linked to
the loss or occurrence. 137 It is possible that more than one causal link or a sequence
13.76 The test for determining the existence of this causal link depends on the
interpretation of that contract. 139 Thus, it has been observed that “in criminal law and
the law of delict legal policy may provide an answer but in a contractual context, where
policy considerations usually do not enter the enquiry, effect must be given to the
parties’ own perception of causality lest a result be imposed upon them which they
insurance contract itself identifies the potentially relevant causes or perils, either by
insuring against them or excluding them from cover. Courts seldom concern
themselves with causes other than those so highlighted and made relevant by the
13.78 Only if no other intention appears from the contract, 142 may it be assumed that
the reference to causation, whether explicit or implicit, 143 was intended prima facie to
________________________
Merwe 1970 CILSA 149) would have to be causally connected to a particular peril. As to causa-
tion in the context of insurance, see generally Havenga Kousaliteit in die Versekeringsreg.
135 Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 861. Not all
insurance contracts require such a nexus. Thus, the insurer may, whether expressly or tacitly,
be liable in the event of the death of a person from any cause whatsoever.
137 Eg, Mutual and Federal Insurance Ltd v Gouveia 2003 (4) SA 53 (SCA) (the exclusion of the liability of the
motor-vehicle insurer for loss occurring “whilst” the vehicle was being driven by
an unlicensed driver meant that there was no need for a causal link between the loss (hijack-
138 The insurer may be liable in the event of the insured’s death or disablement “from” bodily
injury “caused by” an accident: eg, Mutual and Federal Insurance Co Ltd v SMD Telecommunications
CC 2011 (1) SA 94 (SCA).
139 Words such as “caused by” or “causally connected with” need not appear in the insurance
contract. The requirement of a causal link may appear from expressions such as “resulting
from”, “arising out of”, “traceable to”, “by reason of”, “occasioned by or through”, or “giving
rise to”; eg Kemp v Santam Insurance Co Ltd 1975 (2) SA 329 (C); Rabinowitz v Ned-Equity Insur-
ance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W); Concord Insurance Co Ltd v Oelofsen
140 Concord Insurance Co Ltd v Oelofsen above 674A–B; Cargo Africa CC v Gilbeys Distillers and Vintners
1996 (2) SA 324 (C) 330E.
141 Clarke et al Contracts par 25.2 (party intention affects the selection of potentially relevant causes).
142 Or if the parties’ intention or presumed intention cannot be inferred from the facts or circumstances, including
the terms of their contract: Cargo Africa CC v Gilbeys Distillers and Vintners 1996
143 Eg, an agreement simply to insure an object against theft without any explicit reference (or without any
reference more explicit than that inherent in the word “against”) to a requirement
248
Risk
bear the meaning that is attached to the notion of causation in other areas of the
law. 144 In this regard it has been observed that “[d]espite the differences between
various branches of the law, the basic problem of causation is the same
throughout”, 145 and that “the general approach to questions of causation . . . based as
13.79 According to this general approach, the determination of a causal link raises
13
two questions, namely, by way of an initial enquiry, whether such a link exists in fact
paragraphs
(the so-called factual causation) and, if so, by way of a further enquiry, whether and 13.74–13.83
to what extent a person should be held liable for the factual consequences (the so-
called remoteness question, sometimes also termed legal or juridical causation). 147
13.80 A claim in terms of an insurance contract can therefore arise only if a factual
causal link exists between the peril and the “fact”, the loss or occurrence described in
the contract. If such a link is absent and the peril is an included one, the event
insured against has not occurred and there is no claim. Likewise, if such a link is
absent and the peril is an excluded one, the exception does not apply. The test for
causa (or conditio) sine qua non; the “but for” test. In short, the required factual link is
present if the peril was a causa sine qua non of the loss or occurrence. 148
13.81 Once factual causation has been established, the extent of the insurer’s liability
whether there is a sufficiently close relationship between the two events, the peril and
the loss or occurrence, to constitute the former the legal cause of the latter. 149 In this
regard the provisions of the insurance contract, the type of contract and the nature
of the risk insured against may assist “in determining whether a factual cause should
13.82 With insurance claims the question frequently is not whether a consequence as
defined has occurred, but whether it was the result of a cause as defined. Accordingly,
the test for determining the extent of an insurer’s liability has, following English
insurance law, 151 traditionally been expressed in the rule in iure non remota causa sed
proxima spectatur; 152 the applicable test is the proximate cause test.
13.83 This means that an insurer will be liable only if the consequence or “fact” (the
loss or occurrence) for which a claim is brought, is the proximate result of the peril,
________________________
144 Eg, in the case of the law of delict, breach of contract and criminal law; cf Cargo Africa CC v Gilbeys
Distillers and Vintners 1996 (2) SA 324 (C) 330J.
145 Napier v Collett 1995 (3) SA 140 (A) 143F; Schlemmer 1997 TSAR 531.
147 See generally as to this two-stage enquiry in the law of delict, Neethling et al Law of Delict 175–
176; and as regards causation in connection with breach of contract, Van der Merwe et al Con-
tract General Principles par 11.5.3. In Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) 673,
150 144F.
151 Clarke et al Contracts pars 25.1–25.9C2 (a most perceptive treatment of a difficult area of –
insurance – law).
152 Eg, Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 428;
Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 862 (“in order to
succeed [the insured] must show that the loss was proximately caused by the peril in-
sured against”); Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) 673.
249
or one of the perils, insured against. Likewise, the insurer’s liability will be excluded
if the proximate cause was an excluded peril. Whether that is the case, is a factual
issue, 153 which may, at least in part, explain the apparent inconsistencies in the
13.84 The application of the proximate cause rule is occasionally expressly incor-
other appropriate words. 154 However, such an express incorporation of, or reference
to, the rule is not required and in the absence of a clear indication to the contrary, 155
it will be taken to apply, the justification for such default application being “that it
13.85 A cause has been held to be proximate if it can be described by terms such as
dominant” or “efficient”. 157 If the causal relationship between the cause and the effect
is indirect and fortuitous, that cause is not proximate and there is no legal
causation. 158
13.86 Whilst the cause must be proximate in efficiency, it need not be and is not
necessarily proximate (ie, the last) in time; it must be immediate in cause, not
immediate in time. 159 It need also not be the sole or exclusive cause but may be one of
13.87 Thus, where cargo in a ship’s hold was damaged by sea water entering through
pipes that had been gnawed through by rats, the damage was held to have been
proximately caused by the sea water, and not by the gnawing of the rats which was a
13.88 The requirement of proximate cause thus seems to mean no more than that,
________________________
153 Incorporated General Insurances Ltd v Shooter t/s Shooter’s Fisheries above 862.
154 Eg, Blackshaws (Pty) Ltd v Constantia Insurance Co Ltd 1983 (1) SA 120 (A) 125H (where “loss proximately
caused by inherent vice was specifically excluded from the cover granted by the
policy”); Abakor Ltd v Standard General Insurance Co Ltd 1995 (2) SA 575 (W) (where the policy
required a loss to be “as a direct result” of specified perils); Commercial Union Assurance Co of SA
Ltd v Kwazulu Finance and Investment Corporation 1995 (3) SA 751 (A) 755H (where it was argued
that the use of the word “direct” supported the inference that the contract contemplated the
157 Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 862D
(observing that “it matters not which [descriptive] term is used”); RM Insurance Co (Pvt) Ltd v
GCM (Pvt) Ltd 1995 (1) SA 698 (ZS) 700F. The proximate cause has also been called the “causa
causans” and has been contrasted with the “causa sine qua non”: Incorporated General Insurances
159 This was first formulated in Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd
[1918] AC 350 (HL) 369, overruling earlier decisions that had focussed on the last cause in
time. Cf also Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A)
862–863; Commercial Union Assurance Co of SA Ltd v Kwazulu Finance and Investment Corporation
1995 (3) SA 751 (A) 759I; K and S Dry Cleaning Equipment (Pty) Ltd v SA Eagle Insurance Co Ltd
160 Oelofsen v Cigna Insurance Co of SA Ltd 1991 (1) SA 74 (T); and see 13.93–13.99.
161 See Poppe v Glendining (1864) 1 Roscoe 163 and Philip Bros v Koop (1885) 4 SC 53 (both bill of lading
cases where the ship-owner’s liability was excluded for cargo damage by vermin); cf also
Risk
reasonably closely or directly linked. 162 And whether that is so, is a question of fact in
every case. Such a flexible test is in accordance with the view that the issue of
13.89 The parties to an insurance contract – or, more realistically, the insurer – may,
13
paragraphs
13.83–13.92
13.90 This may be achieved by extending the range of consequences for which the
insurer will be liable or, more usually, by limiting it. 166 Alternatively, the parties may
exclude the operation of the rule by limiting the range of consequences for which
the insurer’s liability will be excluded or, again more usually, by extending it.
13.91 The exclusion of the proximate cause rule is often accompanied by words such
as “directly or indirectly caused by”, 167 or “occasioned by”, or “arising out of”.
Importantly, though, the exclusion of the operation of the proximate cause rule does
not at the same time exclude the operation of the principle of causation generally
and a causal link, as a causa sine qua non, between peril and occurrence or loss still has
to be shown. 168
13.92 The proximate cause rule may also merely be adapted, such as by requiring that
a particular peril also be the sole or exclusive clause, or that it should have caused the
loss or occurrence “independently of any other cause”. 169 The aim here is to avoid any
difficulty arising from the existence of actual or potentially concurrent causes. 170
________________________
162 As was held in Minister of Police v Skosana 1977 (1) SA 31 (A) 34 with reference to a delictual claim. See
also Wells v Shield Insurance Co Ltd 1965 (2) SA 865 (C) 870F: asking “whether . . . the
causal connection . . . was sufficiently real and close”. This is to some extent a combination of
(C) 331H. But, as Clarke et al Contracts par 25.1 rightly warn, a resort to common sense is some-
times merely a cloak for unsupported, uncontrolled and subjective judicial intuition or discre-
tion.
164 RM Insurance Co (Pvt) Ltd v GCM (Pvt) Ltd 1995 (1) SA 698 (ZS) 700E. In the case of ambiguity, an
interpretation against the insurer should follow, so that the relevant clause may be taken
merely to confirm the application of the proximate cause rule. Thus, phrases such as “due to”,
“arising from” and “resulting from”, seem merely to confirm and not to exclude the proximity
165 That is possible because although the proximate cause rule has been referred to as a rule of law, it is no more
than a consensual term implied into insurance contracts: Lowry et al Insurance
166 Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W).
167 Agiakatsikas v Rotterdam Insurance Co Ltd 1959 (4) SA 726 (C) 729–730; Rabinowitz v Ned-Equity
Insurance Co Ltd above. In Taylor v National Mutual Life Association of Australasia Ltd 1988 (4) SA
341 (E), the court observed that “[t]he use of the word ‘indirectly’ means that the [insurer]
need not show that the consumption of intoxicating liquor was the proximate cause of his
death but merely that it probably contributed in some material respect to his death” (347). Cf
also Mutual and Federal Insurance Co Ltd v Ingram NO 2009 (6) SA 53 (EC).
168 RM Insurance Co (Pvt) Ltd v GCM (Pvt) Ltd 1995 (1) SA 698 (ZS) 702A.
169 Oelofsen v Cigna Insurance Co of SA Ltd 1991 (1) SA 74 (T) 83; Concord Insurance Co Ltd v Oelofsen 1992
(4) SA 669 (A) 673 (noting that in view of the words “independently of any other cause” it
was not sufficient that the peril insured against was the proximate cause and that, if a peril not
insured against was a contributory cause, the insurer had to be absolved); Aegis Assuransie
Maatskappy Bpk v Van der Merwe 2001 (1) SA 1274 (T) (interpretation of the phrase “inde-
251
However, such a result will be attained only by a clear and unambiguous provision in
problematic where there are two or more possible or competing causes for a single
least diminishes its effect. 174 Whether a particular supervening cause is actually a novus
actus interveniens and severs the causal link depends, again, on the facts of each case. 175
13.95 A subsequent cause may be considered to sever the causal link and constitute
which was only fortuitously linked to, or facilitated rather than actually caused by, the
earlier occurrence, 176 or where it is “a fresh cause which is not the reasonable or
probable consequence directly and naturally resulting in the ordinary course of events
from the peril insured against” but is an independent cause, 177 or where it is “a new
operative cause in its own right” rather than the consequence of an earlier peril. 178
excluded peril occurs and it, in turn, causes or is followed by a peril which is included
in the risk. 179 If the subsequent occurrence does not sever the causal link, the
exclusion should prevail and absolve the insurer from liability. The insurer must, of
course, prove that the loss or occurrence as described was caused by the excluded
________________________
171 Thus, in Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) it was held that the words
“independently of any other cause” were used in a restrictive sense and did not “embrace every
conceivable sine qua non” (674). Consequently, the insured’s ill-health at the time of the con-
clusion of the contract and of the motor-vehicle accident in which he was involved (ie, his pre-
existing state of ill-health) was, on a strict and reasonable interpretation, held not to be intend-
ed to constitute another “cause” of his death resulting from the bodily injuries he sustained in
that accident. See also Aegis Assuransie Maatskappy Bpk v Van der Merwe 2001 (1) SA 1274 (T)
(holding that “independently of any other cause” did not, in the circumstances, refer to a pre-
existing condition which merely contributed to the occurrence, even if liability was excluded if
such a pre-existing condition was the direct or proximate cause of the occurrence); Mutual and
Federal Insurance Co Ltd v SMD Telecommunications CC 2011 (1) SA 94 (SCA). See Reinecke 2012
1 TSAR 180.
172 Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) 862.
173 Clarke et al Contracts pars 25.5–25.7, distinguishing successive connected causes and concurrent causes.
174 Cf Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries above.
175 See generally Neethling et al Delict 206–208. See also Merkin et al Colinvaux par 5.030, commenting on the
inconsistent approach of English courts in such cases and concluding that “the
most that can be said of these conflicting authorities is that the courts have tended to adopt a
176 Eg, Cargo Africa CC v Gilbeys Distillers and Vintners 1996 (2) SA 324 (C) 332E. Here the vehicle conveying
the goods, in respect of which an indemnity had been given by the carrier, was involved in an accident (an
included peril), resulting in the need to transfer the goods to another
vehicle, during which process a substantial portion of the cargo was stolen (an excluded peril);
the court held the carrier not liable and the owner not entitled to an indemnification as the
theft was a new and independent occurrence only fortuitously linked to the earlier accident.
177 K and S Dry Cleaning Equipment (Pty) Ltd v SA Eagle Insurance Co Ltd 2001 (3) SA 652 (W) (proximate and
direct intervening cause of loss as against remote but assisting cause of loss).
179 Eg, an explosion (an excluded peril) causes a fire (an included peril) which results in damage to the insured
property.
180 Rootenberg v Guardian Assurance Co 1935 OPD 174; Law Union and Rock Insurance Co Ltd v De Wet 1918
AD 663.
252
Risk
13.97 The reverse is also possible, namely where an included peril occurs and it is in
turn followed by a peril which is excluded from the risk. 181 If the subsequent and
intervening occurrence does sever the causal link, the excluded cause prevails as the
proximate cause and absolves the insurer from liability. 182 But if the intervening
occurrence is merely a direct consequence of the earlier included peril, the insurer
13
13.98 It is possible that there may in reality be more than one equally effective cause
paragraphs
of a loss or occurrence, and that it is not possible to identify from several possible 13.92–13.100
causes one that is the more dominant or proximate cause. 184 This is the case only
where either of the concurrent causes, operating alone, could have caused the loss. 185
13.99 English courts have held that where a loss is caused by two perils operating
concurrently at the time of the loss, 186 the one being as a whole specifically excluded
with the other falling within the risk as described, 187 the insurer is not liable. 188 A similar approach was
followed in a local decision. 189 The possibility of an
apportionment of the insured’s loss between the insured and the insurer has not yet
E. INSURED’S CONDUCT
General190
13.100 An important link in the causal chain, and also one of the factors to be
considered by an insurer when assessing a risk and its corresponding premium, 191 is
the degree to which the insured’s own conduct causes or may cause the risk to
materialise.
________________________
181 Eg, a fire (an included peril) causes an explosion (an excluded peril) which results in damage to the insured
property.
182 Eg, Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A) where the
insured ship was arrested (an included peril) and subsequently confiscated because the insured failed to pay the
fine imposed to obtain her release (a peril not included in the cover);
the court held that the loss (the confiscation) did not result from the arrest but proximately
183 Eg, Lock v Northern Insurance Co (1886) 7 NLR 33, where damage was caused to a billiard table from a lamp
breaking while attempts were made to extinguish a fire and where the court held
that to be an incident of the fire and the fire insurer liable for what was damage from fire; Road
Accident Fund v Russell 2001 (2) SA 34 (SCA), holding that suicide was not an intervening cause
between the life insured’s accident and subsequent mental illness and his death but was causal-
184 This is so, of course, only where the operation of the proximate cause rule has not been
187 If both are specifically excluded or included, there is, of course, no problem.
188 Cf Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corporation Ltd [1974] 1 QB 57
189 Mutual and Federal Insurance Co Ltd v Ingram NO 2009 (6) SA 53 (EC), accepting (possibly obiter, as the
court had already accepted that the insured’s loss was caused, at least indirectly, by an
excepted peril) that where loss is caused by two equal perils operating simultaneously, the one
being specifically excepted from, the other falling within the description of, the risk covered by
190 For a discussion of the issues involved and their theoretical explanations, see Van der Merwe 1968 CILSA 447;
Van der Merwe Juridiese Versekeringsbegrip 325–379.
191 This is part of the so-called “moral hazard”: see Van der Merwe Juridiese Versekeringsbegrip 286 n 62 and the
sources cited there.
253
13.101 Where the conduct of the insured causes patrimonial or non-patrimonial loss
contract, the first question is whether the conduct falls within the description of the
risk. This is a question of interpretation and may further involve the insured’s
conduct, if there was in fact any “conduct” in a legal sense, being classified according
13.102 All the terms of the contract have to be considered to determine whether or
not a specific type of conduct is covered by the insurance contract in question. The
parties to the contract may have included in it a special arrangement concerning the
risk. 192 Such an arrangement may be made either expressly or by means of a tacit
consensual term. The law does not seem yet to have developed so far as to attach to
all insurance contracts a term implied by law – a naturale – to the effect that specific
13.103 Once it has been established that the particular conduct of the insured is in
fact within the description of the risk, the next step is to determine whether the
lawfulness of the contract is in any way affected by the inclusion of the conduct in
question. Here the lawfulness or otherwise of the insured’s conduct will have to be
considered. Covering certain types of conduct could render the contract as a whole
or else part of it unlawful on account of its illegal purpose. 193 To this end not only
statutory enactments but also the common law have to be taken into account. Of
contractual provisions that are contrary to public policy and good morals. 194
13.104 Apart from the insured’s conduct, the conduct of a third-party claimant may
may be barred from deriving any benefit under an otherwise valid insurance contract
only natural forces but also human conduct as a peril. The mere fact that the conduct
involved is that of the insured and not a third party – who is not also a party to the
insurance contract – does not alter the position. 196 Unless the insurance contract
of a third party197 and also of the insured which causes the materialisation of the risk.
13.106 Included within the notion of the insured’s conduct is the conduct of those
third parties which the insured has instructed or to which he has otherwise
consented. 198
________________________
194 7.61–7.63.
196 However, the two situations are not in all respects identical as far as the insurer is concerned.
Thus, while the insurer may be able to exercise a right of subrogation if the loss was caused by a
third party, there is no such possibility if the loss was caused by the insured himself; see further
18.37–18.46.
197 However, the parties may agree that if the loss or occurrence is caused by the conduct of third parties
generally, or by certain types of such conduct, the insurer will not be liable, eg, Commercial Union Assurance Co
of SA Ltd v Kwazulu Finance and Investment Corporation 1995 (3) SA 751
198 Thus, where an employee has caused the materialisation of the risk in the course of his em-
ployment, or where a third party has been instructed by the insured to cause the materialisation
of the risk, the position will be as if the insured’s own conduct had attained that result.
254
Risk
13.107 Against the background of the above general statement, it appears that the
legal position where the conduct of an insured causes the risk to materialise differs
depending on whether such conduct was without fault, negligent, intentional, and
further, in the last two of these cases, on whether or not it was wrongful or
unlawful. 199
13
paragraphs
13.108 First of all it has to be established that the insured’s “conduct” is in fact 13.101–13.110
conduct in the legal sense, that is, a voluntary act or omission. Thus, if the insured
acted under conditions that rendered him incapable of controlling his actions, there
exclusion of the insurer’s liability, may be attached. The insured may be acting
when under strong emotional pressure, while seriously intoxicated, or while mentally
ill. 200
13.109 If the materialisation of the risk is caused by the legally recognised conduct of
fault, and unless the parties agree to the contrary, the insurer’s liability remains
unaffected as such conduct is included in the risk. The insured may not be
accountable for his conduct if he does not have the necessary mental ability to
distinguish between right and wrong or cannot act in accordance with such
distinction. Mental illness and intoxication are factors that may render a person
13.110 Thus, the suicide of a life insured – at least while he is not sane201 – is covered by a life insurance contract
unless excluded in the contract. The same applies to an
insured who, while sufficiently heavily intoxicated, sets fire to his house which is
insured in terms of a fire insurance contract. Acts such as these may be said to be
included in the risk because they are involuntary or because, in law, the insured is not
accountable for his actions. Given the contractual context and seen purely from the
agreement nor any reason of public policy to exclude such conduct from the risk. 202
________________________
199 In the insurance context terms such as “fault”, “intent”, “negligence” and “wrongfulness”
cannot always be used in the strict sense in which they are used in the law of obligations gener-
ally or in criminal law. Since the risk, when it materialises, usually affects the insured’s own per-
viewed in context. Nevertheless these concepts are commonly used, not always with sufficient
awareness of the contractual context. Cf, eg, Sprangers v FGI Namibia Ltd, unreported (Namibia
HC), (2006) 9 Juta’s Insurance L Bul 272, observing that the meaning of “reasonableness” in the
context of the insured’s contractual duty to take reasonable steps to avoid loss (see 13.114–
13.119) was not the same as in the delictual context as the intention of the parties and the pur-
pose of the term imposing the duty also had to be taken into account. A further problem with
this usage is that the terminology is not always precise, the more so because terms with a specif-
ic meaning in English law (eg, “wilful” and “wilful misconduct”, meaning either voluntary or in-
tentional (deliberate); “grossly negligent”, meaning not a serious degree of negligence, but
recklessness) are frequently carelessly, if not recklessly, taken over from English decisions.
201 It is debatable whether or not legally a person who commits suicide can ever be regarded as sane: see further
13.149.
202 For this reason, though, insurance contracts often make express provision for instances of
intoxication on the part of the insured, excluding the insurer’s liability either for loss caused by
such intoxication or simply for loss occurring while intoxicated. See, eg, Price v Mutual and Fed-
eral Insurance Co Ltd 2007 (4) SA 51 (SEC) (where the motor-vehicle insurer’s liability was ex-
255
13.111 If the insured’s conduct is negligent, it is also in cluded in the risk. Put
differently, the fact that the loss or occurrence insured against was caused by the
insured’s negligence is irrelevant. This applies to all negligent acts, even those that
are grossly negligent. 203 This holds good also for so-called reckless conduct in so far as
the recklessness involved is nothing other than gross negligence. 204 If the recklessness
is the equivalent of indirect intent ( dolus eventualis as a form of intent), 205 the conduct is governed by the rules
set out below in connection with intentional conduct. 206
13.112 The possibility of reducing the benefits due under the policy and, hence, the
insurer’s liability on the insurance contract, in accordance with the severity of the
13.113 If the parties wish to exempt the insurer from liability for the consequences
concerned, have frequently come before the courts. Such provisions require the
insured, for instance, to take all reasonable precautions for the maintenance and
safety of the property insured or to avoid loss. 209 Provisions of this nature may be
13.115 These provisions have generally been held not to have been breached by the
reckless nature is required. “Reasonable” here, as between the insured and the
insurer, does not mean negligent but reckless. 211 The difference between serious
one. 212
13.116 In this regard there must be a reckless failure to take reasonable precautions.
that the risk insured against may materialise but (often because of the existence of
insurance cover) with the insured not caring whether or not that risk is averted or its
________________________
203 Government of the RSA (Department of Industries) v Fibre Spinners and Weavers (Pty) Ltd 1977 (2) SA 324
(D) 338. The degree of negligence (gross, light) merely refers to the degree by which the
204 Nathan v Ocean Accident and Guarantee Corporation Ltd 1959 (1) SA 65 (N) 72G where the court
distinguished between a “reckless” act and a “deliberately calculated” act. But cf the quotation
in n 213 below where recklessness is referred to as a notion separate from gross negligence.
206 13.125–13.132.
207 This is the solution in German law, at least in cases where the insured’s conduct was grossly negligent
(“grosse fahrlässig”): VVG art 81(2); on the proportionality approach, see further Wansink et al Assers par [454];
see also Wood-Bodley 2010 SALJ 30, 2010 SALJ 224.
208 Rouwkoop Caterers (Pty) Ltd v Incorporated General Insurance Ltd 1977 (3) SA 941 (C) 947A.
209 See also 13.150–13.163 for the insured’s distinguishable duty to avert or minimise (imminent or occurred)
loss.
211 Cf Sprangers v FGI Namibia Ltd, unreported (Namibia HC), (2006) 9 Juta’s Insurance L Bul 272; Masango v
Lloyds of London, unreported (2004) (W) 7 Juta’s Insurance L Bul 169.
212 See, eg, Neethling et al Delict 134 (in the case of recklessness the question is whether the wrongdoer actually
subjectively foresaw the possibility of consequences; in the case of negligence the question is whether objectively
seen the consequences were reasonably foreseeable).
The notions may conceivably even overlap and be present at the same time.
256
Risk
13
13.118 The reason, often expressed but also merely implied, why the insured’s
paragraphs
negligent conduct is included in the risk is that one of the, if not the, main aim of 13.111–13.120
insurance cover is to protect the insured against the consequences of his own
negligence. That is especially the case with liability insurance216 and with all risks and
comprehensive cover, 217 but there seems no reason not to consider that true of (first-
requiring the insured not to be negligent, much of the benefit of obtaining insurance
cover will be lost because most instances of loss involving conduct of one sort or the
other on the part of the insured will involve a measure of negligence, even if only as
assumption that insurance does in principle cover the insured against negligence, the
clause is construed so as not to exclude the insurer’s liability for the consequences of
negligence for then the effect would be that the insurer says that it will protect the
13.119 Be that as it may, reasonable precaution clauses have not been interpreted as
sufficiently clear so as to exclude insurers’ liability for loss or damage caused by the
insured’s negligent conduct. Terms excluding the insurer’s liability for negligence, it
may be thought, will in line with general principles be interpreted restrictively218 and
13.120 Clauses pertaining to the insured’s conduct may impose a more specific duty
on the insured which, if broken, will relieve the insurer of liability, even if the insured
was only negligent. Thus, the insured may be required to perform specific risk-related
obligations (eg, keeping the insured vehicle in a roadworthy condition, not leaving
insured goods unattended, not leaving insured premises unattended), in which case
breach may not be dependent on the nature of the insured’s conduct. 219
________________________
213 Eg, Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478 (C) 482, suggesting that the reasonable precautions
provision would probably cover “only gross negligence [but see n 207 above] or
recklessness in the sense of a recognition by the insured of an obvious and imminent risk and
his failure to take any or adequate precautionary measures to avert it”; Santam Bpk v CC Design-
ing BK 1999 (4) SA 199 (C) 121, explaining that an insured acts recklessly if he recognises the
dangers to which he is exposed and, if he does, deliberately courts them by taking measures
which he knows are inadequate to avert them, or about the adequacy of which he simply does
not care; Roos v SA Eagle Insurance Co Ltd and Another [2002] 2 All SA 315 (T) (the insured must
be shown to have acted recklessly (he must have been aware of and actually foreseen the risks)
and not merely negligently (he should not merely reasonably have foreseen the risks)).
215 Cf Purpose Paper Products (Pty) Ltd v Swaziland Royal Insurance Corp, unreported (Swaziland HC), (2009)
12 Juta’s Insurance L Bul 45.
216 An exclusion of insurer liability for negligent conduct would seem repugnant to the cover
apparently offered by the usual liability policy. As to liability insurance, see 25.24–25.83.
217 Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478 (C) 482 where it was stated that the insured’s negligence
was the very conduct which the all risks section of the policy was designed to cover.
219 However, whether the insurer will be relieved of liability is a different matter. Thus, the breach may be
required to be causally related to the loss, either by the wording of the exclusion (“the insurer is not liable for loss
caused by the unroadworthiness of the vehicle”), if it is such, or on gen-
eral principles, if the duty is cast in the form of a promissory warranty; see further 15.22–15.28.
257
negligence provides a defence for the insurer against a claim on the insurance
13.122 In Aarans v Excelsior Benefit Society222 the insured’s illness was caused by an assault committed on the
insured for which he had given some provocation. The
court held that the mere fact of the insured having given such provocation, as
opposed to his own wilful and wanton act in fighting with another man, did not
debar him from claiming from the insurer as an insured’s own negligence and
indiscretion cannot deprive him of a claim. This is correct only in so far as his
recklessness.
13.123 In Hollard Life Assurance Co Ltd v Van der Merwe NO223 the life insurer’s liability was excluded for
claims due to “suicide, self-inflicted injury or self-inflicted illness,
The life insured died when he shot himself accidentally and without any intent.
13.124 The court held the insurer not liable for the insured’s death as the exclusion
was held to include self-inflicted injury, whether or not intended. The qualifying
words “whether intended or not” applied also to the phrase “self-inflicted injury” and
in this case the insured’s death was entirely caused by his own (non-intentional)
conduct. The exclusion, although unusual, was perfectly permissible. And, it may be
added, the court in effect thought the exception – unlike the standard reasonable
precautions provision – sufficiently clear to exclude the insurer’s liability for the
ex cludes from the risk the consequences of the insured’s own deliberate or
intentional conduct. 225 In this regard intentional conduct includes reckless conduct
13.126 Thus, a fire insurer will not be liable in the event of the insured deliberately
setting fire to the insured property227 and a life insurer will not be liable in the event
of the life insured’s suicide. 228 Likewise, a liability insurer will not be liable in respect
________________________
225 Niemand v African Life Assurance Society Ltd 1969 (3) SA 259 (C) 264; Government of the RSA (Department
of Industries) v Fibre Spinners and Weavers (Pty) Ltd 1977 (2) SA 324 (D) 338; Shooter t/a
Shooter’s Fisheries v Incorporated General Insurances Ltd 1984 (4) SA 269 (D) 282F.
226 That is also the position in Dutch law: Wansink et al Assers pars [452] (pointing out that it is in principle for
the insurer to prove such intent or recklessness), [456] and [461] as to the various
forms of intent.
228 The insurer will be liable if the suicide was “insane” (see 13.109–13.110) or if the parties agreed otherwise
(see 13.131). For suicide, see 13.149.
258
Risk
intentional conduct need not, indeed cannot, be a proximate cause of the loss: the
fire, for instance, will be the proximate cause and the intentional conduct operates as
13
paragraphs
13.128 In so far as it has not yet become a naturale of the insurance contract with an 13.121–13.130
implied term to that effect, 231 most such contracts contain a tacit term to this effect,
namely that the consequences of the insured’s own intentional conduct is excluded
from the risk as the parties intend the insurance to cover only accidental loss or
13.129 Some risks as described will, of course, by the very nature of the description
exclude intentional acts. 232 Intentional acts may also be excluded expressly. 233 In this regard, policies often
exclude the insurer’s liability for losses or occurrences caused
13.130 Exceptions to the general rule seem to include conduct intended to avert a
greater danger235 or to save human life. These and like cases must be taken to be
intention. 236
________________________
231 For the Anglo-American explanation, see, eg, Clarke et al Contracts par 19.2E1; Merkin et al Colinvaux par
5.041.
232 Eg, “accidents”: Griessel v SA Myn en Algemene Assuransie Edms Bpk 1952 (4) SA 473 (T); Agiakatsikas v
Rotterdam Insurance Co Ltd 1959 (4) SA 726 (C). If the insured’s intentional conduct had
unintended consequences, those consequences are still accidental: Sikweyiya v Aegis Insurance Co
Ltd 1995 (4) SA 143 (E) 151G, holding that even if it is accepted that an occurrence was not ac-
cidental where an insured deliberately caused the risk of his injury by embarking on a hazard-
ous course of action and where the occurrence of that injury was objectively a natural or
probable consequence of his action, if the insured’s deliberate act caused an injury which was
an unexpected and unforeseeable result of his action, such injury was still caused accidentally.
See also Merkin et al Colinvaux pars 5.042 (whether or not something is an accident has to be
looked at from the insured’s point of view), 18.049; Clarke et al Contracts pars 17.5C–17.5D.
233 Eg, Maritime and General Insurance Co Ltd v Sky Unit Engineering (Pty) Ltd 1989 (1) SA 867 (T) (exclusion
of insurer liability “if any event be occasioned by the wilful act or with the connivance of the insured”); Hollard
Life Assurance Co Ltd v Van der Merwe NO [2006] 4 All SA 333
(SCA) (exclusion of the life insurer’s liability for any claim due to “suicide, self-inflicted injury
234 Eg, Van Zyl NO v Kiln Non-Marine Syndicate No 510 of Lloyds of London [2002] All SA 355 (SCA) (the
liability of the life insurer was excluded where death was caused by a wilful exposure to
danger; held, the insurer is not liable where the insured had died while driving after drinking a
235 Nell v Incorporated General Insurance Ltd 1976 (3) SA 776 (W) (putting a runaway vehicle into low gear at
high speed, so damaging the gears, in order to avert the total loss of the vehicle). See al-so 13.150–13.163 for the
duty to minimise loss.
236 Thus, although conduct performed in self-defence, emergency or by statutory or other authority does not
exclude the intent with which they may be performed (but merely their unlawful-
ness, something not relevant in the present context), such conduct may be considered to have
been intended by the parties not to have been excluded, even though intentionally performed.
259
13.131 However, the parties may agree otherwise and expressly or arguably even by
clear implication include in the risk as described the intentional conduct of the
13.132 However, if the intentional conduct is such that its inclusion will render the
insurance contract contrary to public policy, the term relating to the intentional
13.133 The general position set out above as regards the effect of negligent and
intentional conduct on the part of the insured applies in the case where the conduct
itself was lawful. If it was wrongful or unlawful – that is, amounted to a delict or a
the interpretational issues. More specifically, whereas the position as set out may be
said to apply by reason of the parties’ (usually) unexpressed, tacit intention, so that
an expressed intention to the contrary may be possible, 240 that is not the case where
case the parties cannot agree otherwise; they cannot contract out of a public-policy
prohibition.
13.134 As a starting point, the adage that nobody may take advantage of his own
wrong ( nemo ex suo delicto meliorem suam conditionem facere potest) would as a general
rule prevent the insured from claiming from his insurer where his own unlawful
conduct, whether intentional242 or even negligent, 243 had caused or contributed to the loss or the occurrence.
244
________________________
237 13.149.
238 Clarke et al Contracts pars 19.2E2, 19.2E6 point out that courts often conflate the two-stage test of
intention/interpretation and of public policy, the latter often influencing the outcome of
the former.
239 Often referred to as “(wilful) misconduct” in English law: Van der Merwe 1968 CILSA 447 455–
240 Thus, the parties may exclude the insurer’s liability for the consequences of the insured’s negligent conduct, or
may render it liable for the consequences of the insured’s intentional
conduct.
241 Further, while interpretational issues concerning the parties’ tacit intention can arise only in a contractual
setting, the public-policy issue arises also outside of a contractual context, eg, in
connection with inheritance. In this regard it should be contrasted to the rule preventing
claims on illegal contracts, ex turpi vel iniusta causa non oritur actio: see further Van der Merwe et
al par 7.3.1.
242 If intentional, the assumed tacit intention is, of course, that the insurer is not liable. Thus, in the case of
intentional unlawful conduct, there will or may be two grounds why the insured will
not be able to claim. Cf Birds Birds’ Modern Insurance Law par 14.2 (regarding the grounds as al-
ternatives).
243 If negligent, the assumed intention again is that the insurer is liable. In the case of negligent unlawful conduct,
the parties’ intention and the policy considerations may therefore clash, but
the latter will outweigh the former as the parties cannot by their contract counter a policy pro-
hibition. Cf also Merkin et al Colinvaux par 5.044, arguing that “the public policy doctrine is of
independent significance” only where the unlawful conduct was not designed to cause the loss.
244 In this regard, it seems, one should distinguish between two situations. First, an insurance contract in terms of
which the risk includes (ie, the insurer undertakes to perform in respect
of) the consequences of the insured’s unlawful or wrongful conduct. Such a contract, it may be
thought, will be void for illegality in the same way as will an agreement to commit a crime or a
delict. Secondly, where the risk covered by an insurance contract includes cover against the
consequences of the insured’s own conduct, but that conduct then turns out to be unlawful or
wrongful (in a sense the illegality here intervenes after the conclusion of the contract). In the
latter situation the contract itself is not void but the insured himself is not entitled from bene-
260
Risk
13.135 Thus, if A insured B’s life and then murdered B, A will not be able to claim
the benefits from the life insurer. The same is true if the insured set fire to his own
reckless or negligent, he may well not be able to claim from the insurer for the
damage he suffered. The same may be said for insurance against the (loss suffered in
13
consequence of) fines that may be imposed on the insured for his negligent or
paragraphs
13.131–13.140
insured’s unlawful or wrongful conduct and the loss or occurrence before the public-
policy prohibition will arise. For instance, in the theft of the insured’s unlicensed or
illegally parked motor vehicle and in its involvement in an accident while the insured
is speeding or driving drunk the insured’s unlawful conduct may not operate
13.138 The insurance policy itself may, of course, expressly exclude loss arising from
the insured’s unlawful or criminal conduct, 248 either generally or when accompanied
by intent, 249 and, depending on the wording, even without there being any causal link
13.139 However, the principle of public policy underlying the nemo ex suo delicto
adage has been said to be a rather fluid concept which may vary according to time,
place and facts and circumstances. 251 The rule relating to obtaining benefits from a
wrongful or criminal act has accordingly been held to mean no more than that,
depending on the nature of the crime and all other relevant facts and circumstances,
it “may” be against public policy to allow a claim if the insured has committed a crime
13.140 Thus, where a person who insured his own life, commits murder and is
sentenced to death and executed (obviously that is now possible only outside South
Africa), or is killed while taking part in an unlawful rebellion or crime, the insurer
may nevertheless be held liable to pay the policy benefits to the insured’s estate or to
________________________
246 Cf Niemand v African Life Assurance Society Ltd 1969 (3) SA 259 (C) 264; Shooter t/a Shooter’s Fisheries v
Incorporated General Insurances Ltd 1984 (4) SA 269 (D) 284 (where the court referred
to illegal activity but did not restrict the rule to intentional conduct).
247 The example is taken from Merkin et al Colinvaux par 5.045. Clarke et al Contracts par 25.7
suggest that “the greater the strength of public policy against the conduct in question, the
weaker the connection required between the wilful misconduct of the insured and the loss, if
248 Eg, Lloyds of London Underwriting Syndicates 969, 48, 1183 and 2183 v Skilya Property Investments (Pty)
Ltd 2004 (2) SA 276 (SCA) where the insurer’s liability was excluded “whilst the aircraft is
249 The policy itself may therefore confirm the public-policy prohibition on the insured deriving benefit from his
unlawful conduct, but may at the same time go further by excluding the insurer’s liability on the policy generally,
also towards other claimants.
250 Thus, the insurer’s liability may be excluded not only for loss caused by, or occurring whilst the insured is
engaged in, unlawful conduct, but for loss if at any time during the currency of the
251 Shooter t/a Shooter’s Fisheries v Incorporated General Insurances Ltd 1984 (4) SA 269 (D) 282–283 (“it may
be contrary to public policy to recognize a claim which has resulted from the commission
by the insured of a crime”, but that is not “an invariable rule, to apply irrespective of the nature
252 Shooter t/a Shooter’s Fisheries v Incorporated General Insurances Ltd above 282 284.
253 See Burger v SA Mutual Life Insurance Society (1903) 20 SC 538; 1903 CTR 847 (the insured was killed in
consequence of his own illegal conduct, viz participating in an unlawful rebellion; the
( continued)
261
13.141 Likewise, if the insured drives his vehicle criminally reckless or negligent, and
injures a third party, the insurer may well be liable to pay out on the liability section
13.142 The tentative explanation for the instances where the nemo ex suo delicto adage
does not apply, seems to be that there is another, stronger public-policy principle that
comes to bear on the issue and that allows if not the insured to claim, then at least
the insurer to remain liable to a third party despite the insured’s unlawful conduct.
From this it also follows that policy considerations preventing the insured from
recovering do not at the same time exclude the insurer’s liability. 255
13.143 It is difficult to predict with certainty the circumstances under which the
public-policy principle prohibiting deriving benefit from one’s own crime or delict
will be trumped. However, indicators include cases where the unlawful or wrongful
turpitude, 256 such as crimes involving negligent conduct or statutory crimes; cases
where the insured’s liability is merely vicarious; situations where the actual (even if
not the direct) beneficiary of the insurer’s payment is not the insured himself, 257 but a
third party, for instance in the case of liability insurance; and cases where the
often an indication that someone other than the insured was (ultimately) the
intended beneficiary. Put short, policy considerations operating against the insured
considerations in favour of such third parties indirectly obtaining the benefit of the
insured’s insurance cover may outweigh the policy considerations against permitting
________________________
court rejected the insurer’s contention that public policy excluded the insured’s entitlement to
claim; held, the insured’s executors were entitled to recover the amount of the policy as there
was no reason to imply a limitation in the policy on the insurer’s liability as to death while
committing an illegal act at any stage; the insured had not contemplated his illegal conduct at
the time the policy was taken out, nor had it been established that he had rebelled with the in-
tention of hastening his death and securing the benefits for his heirs; the rule as to public poli-
cy had to be carried no further than the public required and the insurer here was not protected
by that rule; public policy demanded that no one was to benefit from his own crime, and could
not be extended to depriving innocent third parties from those benefits); and cf Van Niekerk
254 But cf Nathan v Ocean Accident and Guarantee Corporation Ltd 1959 (1) SA 65 (N) which, though, was not
an instance of liability insurance.
255 Another explanation may be that the inclusion of the consequences of the insured’s unlawful or wrongful
conduct in the risk renders the purpose of the insurance contract contrary to public policy and void: see again
7.52–7.63. However, insurance contracts which are, or become,
contrary to public policy may, following the approach in respect of agreements in restraint of
trade, eg, be regarded as unenforceable only to the extent to which they are contrary to public
policy. In the present context they are void only in so far as a claim by the insured is concerned,
but not, or not necessarily, as far as third-party claims are concerned. This may well be an ap-
propriate way of dealing generally with the conduct of an insured in the present context (cf
256 Cf Shooter t/a Shooter’s Fisheries v Incorporated General Insurances Ltd 1984 (4) SA 269 (D) 283.
257 Most clearly when he is deceased. The argument remains, of course, that even though dead,
the insured “benefits” by having died knowing that his beneficiaries or estate would (prema-
turely) derive the benefit from his own unlawful or wrongful conduct.
258 See further Van der Merwe Juridiese Versekeringsbegrip 364; Birds Birds’ Modern Insurance Law par 14.1.
262
Risk
13.144 This does not mean that all wrongful or criminal conduct, especially if
negligent, 259 will or can be included in the risk, as appears to be suggested by some
sources. 260 Although there is something to be said for the suggestion,261 the position
seems to be that insurance cover against the consequences of the insured’s wrongful
or unlawful conduct is in principle against public policy and therefore not included
in the risk, unless there are clear policy considerations to the contrary.
13
paragraphs
13.141–13.147
13.145 As pointed out earlier, 262 the risk taken over by the insurer includes, as a rule, the consequences of the
conduct of a third party. 263 Unless the insurance contract
provides otherwise, therefore, the insurer remains liable for loss or an occurrence
caused or contributed to by the conduct of a third party. It matters not whether such
conduct is negligent or intentional, lawful or unlawful. 264 It is for the insurer to prove
that a particular loss was not caused by a third party but by the insured himself. 265
13.146 However, the public-policy principle that one may not take advantage of
responsible for the death of the life insured, 267 he will not be entitled to claim from
the insurer. 268 However, the insurer remains liable on the contract and has to pay the
________________________
259 It should be borne in mind that in the case of intentional unlawful or wrongful conduct it is not only
considerations of public policy that will or may prevent the insured from recovering, but
also a tacit term that may exclude the insurer’s liability. Thus, a policy consideration to the con-
trary alone may not be enough to render the insurer liable and the insured entitled.
260 Government of the RSA ( Department of Industries) v Fibre Spinners and Weavers ( Pty) Ltd 1977 (2) SA 324
(D) 338 where the court said that “[s]ubject to one limitation, a person may effectively insure against the
consequences of his own conduct, even if it is culpable. He may be indemni-
fied, for instance against loss or damage resulting from his own negligence, gross negligence or
recklessness. . . . The limitation . . . applies to a wilful or deliberate act bringing about the risk,
especially but not only when it is a crime. An insured who perpetrates such act is not entitled to
261 At least as far as negligent unlawful or wrongful conduct is concerned: see Van der Merwe
262 13.100–13.107.
263 In this context third party means someone who is not (also) a party to the insurance contract, or someone for
whose conduct the insured is not responsible or whose conduct he has not authorised or instructed (cf 13.106). Cf
also Merkin et al Colinvaux pars 5.047, 11.029 (under a
composite policy, as opposed to under a joint policy, a co-insured is a third party for present
purposes so that such a co-insured’s conduct may preclude recovery by him but not by the oth-
er (innocent, non-acting) co-insured not implicated in that conduct; in such a case, therefore,
the issue of subrogation may arise).
264 However, the parties may agree that loss from third-party conduct is not covered, either
generally, or as regards some third parties (eg, relatives of the insured), or as regards some
265 See Isando Foods (Pty) Ltd v Fedgen Insurance Co Ltd 2001 (3) SA 1278 (SCA) (fire insurance on property
“for which the insured was responsible” did not mean property for the loss of which
the insured is liable to a third party, but property the loss of which the insured has to bear it-
self).
266 See again 13.134 n 241, explaining that it arises also in non-contractual settings. Of course, a beneficiary’s
entitlement is, by reason of the stipulation in favour of a third party, a contractual
267 Distinguish from this situation the case where the insured murders the life insured and where the insured
himself is killed while participating in an unlawful activity: see 13.135, 13.140.
268 Eg, Leeb v Leeb [1999] 2 All SA 588 (N) (where the question was whether the wife who had murdered her
husband was entitled to the benefits of their marriage in community of property
and also her entitlement to the benefits of the insurance policies on his life); Ferreira v Die
( continued)
263
13.148 In Danielz NO v De Wet; De Wet v Danielz NO270 the beneficiary wife intentionally precipitated and
caused the death of her life insured husband. He died as a result of
an assault she had arranged and she was found guilty of assault with the intent to do
grievous bodily harm. The court held that even if his death was unforeseen, the
beneficiary was prevented on grounds of public policy from claiming the benefit of
the life policy from the insurer or from inheriting in her capacity as his spouse the
13.149 The general principles set out above apply also and are nicely illustrated in
General
13.150 The various legal issues arising from the existence, if any, of a duty for the
insured to avert or minimise loss have not yet arisen for pertinent consideration in
13.151 The existence and scope of such a duty has, at least in non-marine insurances,
not finally been settled in English law. In marine insurance, the insured is under a
statutory duty, 274 usually underscored by an express term in the insurance contract, to
take steps to avert or minimise loss. In the case of non-marine insurance, the
existence of such a general duty has not yet pertinently been recognised, but the
prevailing view seems to be that the marine principle should extend to non-marine
insurances. Various bases have been advanced for the existence of such a duty in the
13.152 Much greater clarity exists in continental systems where the duty is specifically
regulated in some detail. In Dutch law, for instance, 276 the duty to avert or minimise
________________________
Meester 2001 (3) SA 365 (O) (a murderer is not entitled to the benefits payable on the death of
his victim); Groenewald v Swanepoel 2002 (6) SA 724 (ECD) (a murderer is not entitled to the
benefits payable on the death of his victim; however, it is only possible to declare a person so
disentitled after a judicial finding that he had caused the deceased’s death intentionally or after
a conviction on a charge of murder); Makhanya v Minister of Finance 2001 (2) SA 1251 (D) (a
murderer is not entitled to the statutory pension benefits payable on the death of his victim);
Brooks v Minister of Safety and Security 2009 (2) SA 94 (SCA) (an instance of wrongful and culpa-
ble conduct causing the risk to materialise; the relevance of the public-policy principle that no
one should benefit from his own wrongful conduct on the liability of the insurer, or on the en-
269 From which, of course, the beneficiary will likewise not be able to benefit. This is also the position in English
law (see, eg, Lowry et al Doctrines 291–293), Dutch law (Wansink et al Assers
270 [2008] 4 All SA 549 (C); 2009 (6) SA 42 (C). See also Van Niekerk 2009 SA Merc LJ 126.
271 For suicide, see the detailed discussion in Lawsa Vol 12 Part 1 par 327.
273 However, they have been worked out in some detail in Roman-Dutch law, from whence several
broad principles may be deduced: see further Van Niekerk Insurance Law in the Netherlands Vol
II 1055–1074.
275 Clarke et al Contracts pars 28.8G2–28.8G3 (suggesting an implied or a tacit term as possible foundations);
Merkin et al Colinvaux pars 1.011, 10.038 (arguing for a common-law duty akin to
264
Risk
zijn”) materialisation of the risk insured against. 277 The duty involves taking such steps as are reasonably
possible to avert or to minimise loss that may occur or that has
occurred. 278
13.153 There is no reason why in South African law an insured should not likewise
13
paragraphs
against or, once it has occurred, at least to reduce its effect and the extent of its 13.148–13.156
consequences. The duty may arguably arise either as a tacit term, inferred from the
13.155 If a loss is caused by the insured’s conduct in compliance with this duty, the
general principles relating to the liability of the insurer for the consequences of the
insured’s conduct may not apply. The ultimate question is whether the peril, rather
than the insured’s subsequent conduct, was the proximate cause of such loss as has
insured against fire that is caused by water the insured used to prevent a fire
damaging or further damaging the property. If the real cause of the damage or the
further damage is the fire, an insured peril, and not the water (which may be either
an excluded peril or one not covered), the insurer will in principle be liable. 280
13.156 Relevant in this regard is the imminence of the loss. The peril insured against
must have occurred or be so imminent, actual, inevitable or certain (and not merely
a feared possibility or risk that it may occur) that it may for practical purposes be
regarded as having occurred even though it may not yet actually have caused any loss.
Only then can it be said to have been the proximate cause of such loss as does occur.
________________________
277 The occurrence of the risk is imminent when it is so threatening that it can be averted only by specific steps as
opposed to the usual precautionary measures (the latter remains for the insured’s own account).
278 In German law, VVG art 82(1) and (2) imposes a duty on the insured on the occurrence of the insured event to
ensure that loss is avoided or minimised whenever possible. He is under a duty
to follow or to obtain instructions from the insurer if reasonable and possible, but must other-
279 Analogous to the general legal duty in the law of obligations to mitigate loss or damage, a duty enforced
indirectly by reducing the damages of the plaintiff who has failed in it: Neethling et al
Delict 30–31, 233; Van der Merwe et al Contract par 11.5.4. The analogy with the general law of
obligations also finds support in other legal systems: Clarke et al Contracts par 28.8G1(c), refer-
ring to a dictum that the duty is not a distinct feature of insurance law but a corollary of the
principle that losses that are reasonably avoidable are not recoverable in the law of contract, a
principle expressed as a “duty” to mitigate, 28.8G1(d); Merkin et al Colinvaux par 10.038; Jerry
par 91. Naturally, as these authorities also point out, the situations are not in all respects analo-
gous: in most cases the insurer is not (yet) in breach of its obligation to pay when the duty aris-
es (ie, when the loss is imminent or has just occurred); due account must be taken of the fact
that in the insurance context one is not concerned with a claim by the insured for (legal) dam-
ages, but for a (contractual) indemnity and of the fact that the insurer’s assumption of the risk
as described, either expressly or by implication, may impact on the parties’ rights and obliga-
tions.
280 Cf also Nell v Incorporated General Insurance Ltd 1976 (3) SA 776 (W) (putting a runaway vehicle into low
gear at high speed, so damaging the gears, in order to avert the total loss of the vehicle); 13.130.
265
conduct to avoid or minimise loss is generally seen as part of the peril insured
against, so that if it is the proximate cause of the loss, the insurer remains liable. 281
depends on the facts of each case, including the imminence of the peril.
13.158 What about the expenses the insured may have incurred in complying with
his duty? Will such prevention or mitigation costs282 be recoverable from the insurer,
possibly in addition to any payment for such loss as may have occurred?
13.159 In English law, outside of the field of marine insurance,283 there is again
13.160 European systems clearly recognise the insured’s right to be compensated for
mitigatory measures. In Dutch law, 285 the insurer must reimburse the insured for
actual expenses incurred in compliance with his duty as well as for any loss caused by
minimising a loss insured against, and only if and to the extent that they were
reasonably incurred; but it is not required that they should have been successfully
incurred. Expenses are recoverable even if, together with the payment for loss, the
sum insured is exceeded. The insurer may freely limit its liability to pay expenses
contractually, except in the case of consumer insurance where it may not limit that
common law for the insured’s right to claim reimbursement from the insurer for
insured against loss and there is also support for an obligation to make an advance
________________________
imminent materialisation of the risk, eg if the contract provides cover only if burglar bars or a
sprinkler system are installed, the insured cannot recover the cost involved in such installation
283 Where the entitlement to reimbursement is concomitant to the recognised existence of the
insured’s duty and is based on the express provisions contained in the sue and labour clause (as
284 See further Clarke et al Contracts pars 28.8G2–28.8G3; Merkin et al Colinvaux par 10.039 (the claim may be
based on an implied term or on the general law of restitution); Birds Birds’ Modern Insurance Law par 13.8.5. In
American law (as to which see Jerry par 91), such expenses have
been held recoverable because mitigation is generally for the insurer’s benefit, because the in-
surer may be taken to have authorised them by imposing a mitigation duty on the insured, or
because it is an insured peril that caused the insured to incur the expenses. However, most
courts have in the absence of an express provision imposing a duty and concomitant (express
or tacit) coverage for such expenses held the insured and not the insurer liable for mitigation
expenditures, on the basis that such expenses are not a covered loss.
287 Likewise German law where VVG art 83 obliges the insurer also on request by the insured to advance the
amount of necessary expenses that must be incurred and determines that expenses
incurred on the insurer’s instructions are recoverable even if they exceed the sum insured.
266
Risk
have arisen from marine insurance contracts, 288 there appears no reason in principle
Non-compliance
with his duty amounts to conduct causing the risk to materialise, the principles set
13
paragraphs
out earlier289 are again applicable. A failure to take steps to prevent or reduce the 13.157–13.165
additional loss that occurred and so break the chain of causation between the
13.163 Alternatively, the insured’s failure, if not causatively excluding the insurer’s
liability, may be taken to entitle the insurer to claim compensation for the insured for
Practically that will entitle the insurer to reduce the amount it is obliged to pay the
G. DURATION
General
13.164 One of the ways in which the risk taken over by the insurer may be described,
is with reference to time and, more specifically, with reference to the duration of the
insurance contract. 292 In terms of the contract, the insurer usually bears the risk only
for a limited period of time. It is liable only for loss or another occurrence happening
13.165 The insurer’s obligation294 under an insurance contract may endure for a
specified period of time, such as a year, or for a determinable period of time, such as
the duration of a building project or a voyage; or it may last for an indefinite period –
that is, until the occurrence of an event such as death – even though the premiums
________________________
288 See further Lawsa Vol 12 Part 2 par 304; Van Niekerk 1987 MB 144.
289 13.100–13.144.
290 In this regard a term requiring the insured to take all reasonable precautions in the maintenance and safety of
the property insured has been held not to have been breached by the neg-
ligent conduct of the insured but only where the insured acted at least recklessly (see 13.114–
13.119). Also, it may be thought, the clause may well be concerned primarily with precaution-
relieves the insurer of liability in the case of an intentional breach of the duty, but in both cases
only if the breach did not cause either the occurrence or increase the extent of the loss).
292 There is a difference in a temporal sense, therefore, between the risk as it exists for the insured and the risk as
defined for purposes of the insurance contract, even if there is some overlap
(eg, when the risk comes to an end for the insured, so does it for purposes of the insurance
contract). Observe, though, that the duration of the contract (the contract period) and the du-
ration of the period for which the insurer bears risk under it (the insurance period) need not
293 Pretorius v Kaltwasser 1998 (1) SA 721 (SCA) where the issue was whether the event insured against had
occurred during the currency of the policy or only after its termination. See also
294 Either the conditional obligation of payment, or the unconditional obligation of bearing and being on risk: see
11.9–11.16 as to the nature of the insurer’s performance.
295 See also 14.31–14.34; cf Pretorius v Kaltwasser 1998 (1) SA 721 (SCA) 724H where there was no defined
period of insurance in the health and accident insurance contracts in question, so that
( continued)
267
13.166 Short-term insurance usually belongs to the former and long-term insurance
13.167 Contracts providing insurance cover for a defined period may specify the
period precisely, but often the period of cover is merely determinable, 297 or may even
rectification. 298
13.168 Thus, if a policy states that it is to run for a specific period from one date (for
60 days from 1 August 2012), or for a specific period from one date to another (for a
year from 2 January 2012 to 2 January 2013), the question may arise when exactly the
13.169 According to general principles, the so-called civil mode of computation must
ordinarily be employed to calculate the duration of a period of time. 299 This means
that a period is calculated de die in diem, that is, from the first moment of the first day
of the relevant period to the first moment of the last day of that period. The first day
is therefore included and the last day is excluded as it is regarded as having been
starting point. The wording of a particular contract may make it clear that another
________________________
as long as the insured was prepared to pay the premiums, the insurers were bound to grant the
stipulated benefits.
296 See again 1.52–1.56; cf also AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399
(A) 417H. In SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A) 847A, a
comprehensive householder’s insurance contract was taken to be one for an indefinite and
continuing period of time until it was cancelled by notice, and also that the premiums were
297 Eg, Naude v Commercial Union Landboukundige Dienste (Edms) Bpk, unreported (SCA), (2001) 4
Juta’s Insurance L Bul 116, where crop insurance was stated to cease as soon as the insured crop
had been harvested or in any other way collected, but in any event to continue no longer than
the usual time for the harvesting of the type or cultivar of the crop in question in the vicinity of
298 Eg, City Council of the City of Durban v Rumdel Construction (Pty) Ltd [1997] 3 All SA 20 (D) where the
insured successfully applied to have the section of its policy dealing with the period of insurance rectified so that
the incident giving rise to its liability fell within the contract period.
299 Van der Merwe et al Contract par 13.4.4. According to the civil mode of computation, fractions of a day are
not recognised and a period expires at the first moment of the commencement of
the last day: computation ad dies. According to the natural method of the computation of time,
fractions of a day are recognised and a period expires at the relevant moment on the last day:
computation ad momenta.
300 Accordingly, in Cock v Cape of Good Hope Marine Assurance Co (1858) 3 Searle 114 where the period of
insurance was expressed to run for 12 calendar months from 14 January 1857 to 14
January 1858, it was held that the policy expired at midnight on 13 January 1858 and that a loss
that occurred, it was agreed, at 10:30 pm (not 6 pm as in the headnote and in Cregoe v Bezuiden-
hout and Lark Syndicate (1897) 4 Off Rep 95 103, although nothing turns on this) on 14 January
1858, was not covered. The court held that in the absence of a contrary intention from the pol-
icy indicating a choice, either as to the commencement and/or the termination of the period,
of the natural method of computation of time, the civil mode of computation had to apply as
301 This may be done expressly (eg, where the cover is said to run from 7 August until 7 September, “both dates
inclusive”), or tacitly, as may be indicated by the termination of an earlier poli-
cy. Thus, in Cock v Cape of Good Hope Marine Assurance Co (1858) 3 Searle 114 the court
explained that even if it were accepted in favour of the insured that the natural method had
been chosen by implication, that the insurance had commenced at 12 noon on 14 January 1857
(on the basis that as earlier insurances by the same insurer on the same ship for periods of six
or twelve months had commenced “at noon” on the first day and that the last of them had en-
dured until 12 noon on 14 January 1857), and that the insurance in question had accordingly
ended at 12 noon on 14 January 1858, the insurer was still not liable as the loss had taken place
268
Risk
13.170 The date upon which the cover is to commence may present some difficulty.
Usually insurers come on risk only some time after the conclusion of the insurance
contract. 302 If no date for commencement has expressly been agreed upon, or absent
any other indication of when the insurer comes on risk, it must be taken to do so on
the date on which the contract was actually concluded303 and became effective, 304 even if no policy was then
issued. However, if a date for commencement has been
stipulated in the policy, that date cannot be effective if the contract has not yet come
13
paragraphs
into being, 305 unless it was the intention of the parties to antedate the entire policy so 13.166–13.173
13.171 Thus, where a policy contained a date for the commencement of the
insurance cover and also stated that it was to lapse in the event of suicide “within two
years from the date hereof ”, the insured could not, by relying on the contract as
expressed in the policy, assert that the date referred to was the date of
commencement of the insurance cover because the policy was only issued and signed
afterwards. 307 Put differently, the suicide clause could not apply before the policy
came to life308 and the words “from the date hereof ” referred to the date of the
policy. 309 In this case the court nevertheless accepted that the inclusion of the date of
commencement meant that for some purpose or another the insurance cover was
13.172 A policy endures for the entire period of insurance unless it comes to a
terminates. 312
13.173 The insurance contract itself may provide for the suspension or termination
of cover on the occurrence of certain events. Thus, where cargo is insured “during
the ordinary course of transit”, cover terminates if the insured leaves the cargo in a
customs warehouse by not paying the import duties necessary for their clearance as
________________________
302 Eg, only on a specified (future) date, or when the insured has paid the first premium, or a policy has been
issued, or when the risk commences.
303 The date on which the insurance contract has been concluded is relevant for purposes of the duration of the
insured’s pre-contractual duty of disclosure (see again 8.8, 8.151–8.152). Therefore, the duty of disclosure ceases
on the conclusion of the insurance contract, but that is not
necessarily the date on which cover commences (cover may be granted prospectively or retro-
spectively), nor the date when the policy (if any) was issued: Poltek Manufacturing and Sales BK v
Regent Versekeringsmaatskappy Bpk, unreported (FB), (2011) 14 Juta’s Insurance L Bul 23.
304 Merkin et al Colinvaux par 5.001, distinguishing between “the date at which a contract of insurance comes
into being and the date at which the risk attaches”.
305 Eg, because negotiations have not yet been completed and the offer not yet accepted, or
because the premium has not yet been paid as required for the validity of the contract; see
306 Cf Cock v Cape of Good Hope Marine Assurance Co (1858) 3 Searle 114 where the period of insurance was
expressed to run for 12 calendar months from 14 January 1857 to 14 January
1858 in a policy dated 22 January 1857; Nel v Santam Insurance Co Ltd 1981 (2) SA 230 (T)
241H.
307 MacKenzie v Southern Life Association of Africa 1952 (4) SA 523 (A). In this case the correctness of the
policy as the record of the contract was not put in issue and the court accepted that the
contract between the parties was concluded as stated by the policy (527A).
308 527C.
309 527F.
310 527A.
312 Eg, on the occurrence of a total loss or on the death of the life insured.
313 Fedsure General Insurance Ltd v Carefree Investments (Pty) Ltd 2001 (4) SA 1309 (SCA).
269
13.174 In the normal course of events insurance contracts for a specified period are
often upon expiry renewed by mutual agreement. 314 The insured normally has no
right of renewal, 315 although such a right may exceptionally be provided for by the
contract. 316
13.175 Each renewal amounts to a new insurance contract, although it may be on the
same terms as the previous contract. 317 As the renewed contract is a new contract, a
fresh duty to disclose therefore arises. 318 The new contract may come into being
without any formality319 or negotiation between the parties and even without any
conscious decision or action on the part of the insured, or, indeed, of the insurer. 320
The process of renewal may come to an end, again, only by the conscious decision of
13.176 There is no limit on the duration of the period for which insurance cover
may be granted or for the number of renewals of a periodic insurance contract. 322
continuing contract that endures for as long as the insured pays the periodic
premium agreed on and until the occurrence of the event insured against. 323
________________________
314 Eg, O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co
(1866) 1 Roscoe 372 (periodic fire insurance, periodically renewable – annual insurance renewed from year to year
– ceases at the end of each period (year) and is renewed at the end of
the period (year)); Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382.
315 Licences and General Insurance Co v Bassano 1936 CPD 179 187; Southern Insurance Association Ltd v
Cooper 1954 (2) SA 354 (A).
316 Merkin et al Colinvaux par 1.047, observing that the insured’s right to renew may be unconditional or, more
commonly, conditional on the assent of both parties; Birds Birds’ Modern Insur-
ance Law par 5.7.5 n 93, mentioning the possibility that in certain circumstances the insurer
may be taken to have made a standing offer to continue covering the insured subject to the ab-
317 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 399. The remarks in Jordan v New Zealand
Insurance Co Ltd 1968 (2) SA 238 (E) 242E cannot be supported. Cf also AJ Shepherd
(Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A). If on the same terms, the
representations on which affirmative warranties are based may become incorrect and amount
318 Whyte’s Estate v Dominion Insurance Co of SA Ltd above 399–400; and see again the discussion in 8.33,
8.151–8.152.
320 Insurers generally no longer send out renewal notices that may constitute an offer of insurance cover, so the
new contract may be taken to be concluded when the insured’s offer (made, eg,
by a further premium payment) is accepted by the insurer. However, there is no conscious offer
by the insured or pertinent acceptance by the insurer: see again par 6.64–6.70.
321 In practice renewals will take place for as long as the insured pays the premium agreed upon (which often
happens “automatically” by means of stop or debit orders) and the insurer accepts
such payment. Thus, many short-term policies are, in effect, self-renewing from period to peri-
od: cf Wansink et al Assers par [278], referring to tacit prolongation (“stilzwijgende verlenging”) of the period of
cover. Apart from termination by payment (22.6–22.11), renewals will ordinarily
cease – a new contract will no longer be concluded – only if either party makes a conscious de-
cision not to renew, eg, the insured decides to take his insurance elsewhere, or the insurer de-
322 As there is in Dutch law, eg, the intention being to counter the disadvantages for insured
inherent in the “automatic” renewals of periodic insurance contracts: Wansink et al Assers par
[278].
323 Some life policies are for an indefinite period (eg, until the life insured’s death) – “an entire contract for life”
according to Merkin et al Colinvaux par 1.048 – while others are for a definite
or determinable period (eg, for one year, or until the insured reaches the age of retirement).
The latter are not usually renewed, although it is possible for a life contract to be framed as a
periodic (eg, an annual) contract with a right for the insured to renew it for a further period.
270
Risk
agreement between the parties. Life insurance contracts often contain provisions
concerning the revival of a policy on the old terms. 325 Such reinstatement of an
13
paragraphs
13.174–13.181
H. BURDEN OF PROOF
Incidence
13.179 The general principles relating to the incidence and burden of proof in civil
matters apply equally to claims on or in connection with insurance contracts. 327 In the
itself.
13.180 An insured who brings a claim under an insurance contract bears the burden
of proving that the risk as described in the insurance contract has materialised328 or,
as it was described in one decision, the insured must “bring his claim within the four
13.181 If the risk is limited in the contract, 330 the insured must accordingly prove, on a balance of probabilities,
331 that his claim falls within the limited description. 332 In appropriate cases that may mean that the insured
must prove the event insured
against (the loss or occurrence) had occurred as a result of an insured peril. 333 Thus,
the insured may have to prove the occurrence of a fire that had caused damage to his
house as well as the extent of that damage; 334 or the death in the life insured335 as a result of an accident.
________________________
324 Usually because of the non-payment of premiums.
325 Marnewicke’s Executor v South Africa Mutual Life Assurance Society (1898) 15 SC 43; Steyn’s Estate v
Mutual Life Assurance Society 1948 (1) SA 359 (C) 373.
327 That is the case in other systems too: eg, Clarke et al Contracts par 16.3; Wansink et al Assers par
[319].
328 Eg, Griessel v SA Myn en Algemene Assuransie Edms Bpk 1952 (4) SA 473 (T) 477; Agiakatsikas v Rotterdam
Insurance Co Ltd 1959 (4) SA 726 (C) 727; De Wet v Santam Bpk 1996 (2) SA 629 (A)
642A.
329 Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 334B–C. See also Joosub Investments (Pty) Ltd v
Maritime and General Insurance Co Ltd 1990 (3) SA 373 (C) 379B; Sithole v Lion of Africa Insurance Co Ltd,
unreported (KZD), (2012) 15 Juta’s Insurance L Bul 57 (the insured had to prove
that he was driving the insured vehicle at the time of the accident).
330 For a limitation of the risk, see 13.45–13.51; for the insured’s burden of proof in the case of an all risks policy,
see 13.55, 13.63.
331 And must, therefore, not merely make out a prima facie case: see Clarke et al Contracts par 16.3A.
332 Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 334–335; Joosub Investments (Pty) Ltd v Maritime
and General Insurance Co Ltd 1990 (3) SA 373 (C) 379C.
333 MV ‘Recife’: Control Chemicals v Safbank Line Ltd 2000 (3) SA 357 (SCA) (insured’s disproof of another
possible cause insufficient to establish a specific cause of loss).
334 Edwards v London and Lancashire Fire Insurance Co (1896) 17 NLR 18 (the insured bears the burden of
proving the loss as claimed, including proof of all articles allegedly destroyed by the
fire and their value). As to proof of the amount of loss, see further 16.76–16.80.
335 In the case of the disappearance of the life insured, the presumption of death may come into play: see, eg,
Estate of late Basson v Law Accident Insurance Co (1903) 13 CTR 1094.
271
13.182 If necessary, the insured may even have to prove the conclusion and existence
of the insurance contract336 or that the risk insured against had materialised during
13.183 Likewise, the insured or other claimant under an insurance contract may
have to show that he has the required locus standi to sue the insurer on the contract. 338
13.184 Despite earlier decisions to the contrary, 339 it is now well established that the insured does not have to
prove that the event on which his claim is based was not
excepted340 from the risk: the burden of proving, again on a balance of proba-
bilities, 341 that it was so excepted, rests on the insurer. 342 What exactly the insurer has to prove, depends on the
type and wording of the exception. 343
part of the insured to resist a claim, the insurer must plead and prove such
misrepresentation or breach. 344 The same applies should the insurer allege and rely
13.186 The same clause may involve both a limitation and an exception. In such a
case the insured bears the burden of proving that his claim falls within the
“qualification phrase” and, on the insured successfully establishing that, the insurer
________________________
336 Sprangers v FGI Namibia Ltd, unreported (Namibia HC), (2006) 9 Juta’s Insurance L Bul 272
(insured to prove existence of insurance contract, its terms and that event giving rise to claim
337 Eg, Kiener v Waters (1836) 3 Menzies 363 (in an action on an insurance policy, the insured must allege an
actual and not merely a supposed loss and also its occurrence during the period specified in the policy); Naude v
Commercial Union Landboukundige Dienste (Edms) Bpk, unreported
(SCA), (2001) 3 Juta’s Insurance L Bul 116 (crop insurance cover extending no longer than the
usual time for the harvesting of the type or cultivar of crop in question in the vicinity of the
farm; the insured crop was damaged by hail, but the insured did not meet the burden of prov-
ing that the risk had materialised when cover was still in existence by showing that the usual
time for harvesting in the vicinity extended to the date of the hail storm).
338 Eg, K and S Dry Cleaning Equipment (Pty) Ltd v SA Eagle Insurance Co Ltd 2001 (3) SA 652 (W) (claimant
has to allege and prove in what capacity he sues); Nnewe’s Commercial Farm (Pty) Ltd v
General Insurance Botswana (Pty) Ltd, unreported (Botswana HC), (2008) 11 Juta’s Insurance L Bul
65 (the plaintiff has to establish prima facie that it was in fact the insured, that it had suffered
341 This is the standard of proof that is applicable in civil cases despite the fact that the insurer may be attempting
to prove intentional or criminal conduct on the part of the insured: cf Maritime
and General Insurance Co v Sky Unit Engineering (Pty) Ltd 1989 (1) SA 867 (T). As to the insured’s
7A; Van Zyl NO v Kiln Non-Marine Syndicate No 510 of Lloyds of London [2002] All SA 355 (SCA);
Harlow v Santam Ltd [2004] 2 All SA 643 (C); Price v Mutual and Federal Insurance Co Ltd 2007 (4)
SA 51 (SEC); Mutual and Federal Ltd v Rumdel Construction (Pty) Ltd 2005 (2) SA 179 (SCA).
343 Thus, in Witbooi v Leandra Transport CC unreported (WCC), (2010) 13 Juta’s Insurance L Bul 232, the
exclusion of insurer liability in case of unroadworthiness of the insured vehicle at the time
of any accident was a temporal exclusion so that the insurer was not required to prove that the
345 Schoeman v Constantia Insurance Co Ltd 2003 (6) SA 313 (SCA); as to fraudulent claims, see 9.38–
9.40, 17.73–17.106.
272
Risk
bears the burden of proving that it is exempt from liability by virtue of the “exception
phrase”. 346
provided by the insured’s suicide in the case of an accident and a life insurance
contract. In the former case, the claimant (the insured’s estate or a beneficiary) has
to prove an accidental death or injury and may therefore have to exclude suicide as a
13
cause of death; in the latter case the insurer has to prove suicide in so far as it is an
paragraphs
13.182–13.190
the risk and the exceptions stated to it, the insurer’s burden of proving the latter may
Contractual arrangement
13.189 However, the parties may, and often do, agree otherwise. Thus, they may by
agreement impose on the insured the burden of proof which would otherwise have
been borne by the insurer. 349
13.190 Such a reverse burden of proof clause is not contrary to public policy as it is
not sufficient for the insurer merely to allege the application of one of the excepted
causes in respect of which the insured bears the burden of proof by virtue of the
establish a factual basis pointing to the existence of an excepted risk as the cause of
the insured’s loss and so to bring that loss within the ambit of the relevant
exception. 350
________________________
346 Commercial Union Assurance Co of SA Ltd v Kwazulu Finance and Investment Corporation 1995 (3) SA 751
(A) where the clause which provided that “this section is extended to cover loss or damage
. . . occasioned by . . . the deliberate or wilful or wanton act of any person committed with the
intention of causing such loss or damage but excluding loss or damage caused by . . . theft”, was
divided into a “qualification phrase” (“committed with the intention of causing such loss or
damage”) and an “exception phrase” (“but excluding loss or damage caused by . . . theft”).
347 Aegis Insurance Co Ltd v Consani 1996 (4) SA 1 (A) 7J–8A where it was held that the presumption or
inference against suicide did not affect the incidence of proof but merely played a role in
determining the weight or effect of the evidence adduced; Standard Bank of SA v Old Mutual Life
Assurance Co of SA Ltd, unreported (ECD), (2003) 6 Juta’s Insurance L Bul 23 (in a claim on a life
insurance contract, the court is entitled to select the more probable or plausible, even if not
only reasonable, conclusion from amongst conceivable ones presented by the evidence as to
the death of the life insured, which was that the life insured had not committed suicide but was
shot by an assailant).
348 Eg, Guardian National Insurance Co Ltd v Springgold Investments (Pty) Ltd [2011] 1 All SA 301
(SCA) (the insured bears the burden of proving damage to the property from contamination
caused by malicious damage (sabotage), a covered peril; if it could succeed in doing so, which
here it could not, the insurer’s burden of showing that the exception applied as the damage to
the property was “caused directly and solely” by contamination, would become impossible).
349 Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk (2) 1978 (1) SA 164
(W) 171.
350 In Oos-Randse Bantoesake Administrasieraad v Santam Versekeringsmaatskappy Bpk (2) above the court
assumed the validity of the clause. In Joosub Investments (Pty) Ltd v Maritime and General Insurance Co Ltd
1990 (3) SA 373 (C) 385 the court explained that “where it is established that
there is a loss which prima facie falls within the risk insured against, the insurer would have to
adduce evidence pointing to the applicability of an exception in order to have the reverse onus
clause operate in his favour”. See also Mutual and Federal Insurance Co v Da Costa, unreported
(SCA), (2007) 10 Juta’s Insurance L Bul 142 (the reverse-burden-of-proof clause as regards ex-
cepted causes of loss was operative only once the insurer has pleaded that circumstances giving
rise to the insured’s claim were covered by the exclusion set out in the policy and until then it
was not incumbent on the insured to prove that those circumstances did not exist).
273
13.191 The parties may also agree to relieve the burden resting on the insurer to
some extent and at the same time to impose a burden on the insured that it would
13.192 A description of, or the limitation imposed upon, the risk is often worded in
such a way that the insured will have to prove a negative in order to bring his claim
within the description. 352 It has been held that casting such a burden of proof on an
insured does not cause hardship if the matter to be proved “is within the peculiar
13.193 However, if the matter does not specifically lie within the insured’s
knowledge, the courts may be loath to require him to prove a negative since his
inability to adduce the necessary proof may well render the insurance contract
worthless. 354 Thus, if a fire insurance contract provides that only fire not caused by
incendiarism is covered and the cause of an eventual fire is unknown, an insured may
13.194 Sometimes, though, an insured cannot avoid proving a negative which lies
outside his sphere of knowledge. Thus, where a consignment of asparagus which had
been insured against all risks deteriorated badly in transit and the insured could not
prove the exact cause of the deterioration, he bore the burden of proving that the
deterioration was not due to inherent vice. 356 Similarly, in the case of accident
insurance, where the insured, or the person claiming on behalf of his estate, has to
prove accidental death or injury, he may in an appropriate instance have to prove
that the injury was not self-inflicted injury or the death not caused by suicide. 357
13.195 Ultimately, though, the burden of proof imposed on the insured or claimant,
whether by law or by the insurer through the insurance contract, should not be so
illusory. 358
________________________
351 Eg, Lindsay and Pirie v General Accident Fire and Life Assurance Corporation Ltd 1914 AD 574 where a fire
policy excluded liability for loss “by fire during (unless it be proved by the insured that
the loss . . . was not occasioned thereby) or in consequence of . . . civil commotion”. The court
held that on the occurrence of loss to the insured premises, the insurer became prima facie lia-
ble but could discharge the burden of proof resting on it by proving that the loss was either oc-
casioned by or merely caused during a civil commotion. In the latter case, the insured could
prove the negative, viz that the loss was not occasioned by civil commotion. Cf also Orenstein Ar-
thur Koppel Ltd v Salamander Fire Insurance Co Ltd 1915 TPD 497.
352 Eg, that an injured person was not a member of the insured’s household ( Eagle Star Insurance Co Ltd v
Willey 1956 (1) SA 330 (A) 336E) or, in the case of accident insurance, that the insured’s death was accidental and
was, where that possibility is raised by the insurer, not caused
by suicide ( Aegis Insurance Co Ltd v Consani 1996 (4) SA 1 (A) 8I–J where it was observed that
“[i]f, in a particular case, [the insured is required] to disprove suicide, then so be it”).
353 Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 336E.
354 336A–D.
355 336A–D; cf the example given in Munro, Brice and Co v War Risks Association [1918] 2 KB 78 81.
356 Bethlehem Export Co (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 449 (W). See again 13.55
and 13.63.
358 See further Wansink et al Assers par [322], pointing to the need to balance the interests of insured and of
insurers, especially as regards the prevention of fraudulent claims. Cf also the
position in German law where in terms of VVG art 31 the insurer may demand proof from the
insured or claimant only to the extent that the latter may reasonably be expected to obtain
such proof.
274
14
Premium
A. General
....................................................................................................................... 275
E.
F.
14
A. GENERAL1
paragraphs
14.1 An undertaking, express or tacit, by the insured to pay a premium term is an 14.1–14.2
contract is unilateral, 2 a term making some feature of the contract dependent on the
provision for the payment of a premium, the contract is not an insurance contract. 4
There is no such thing as “free insurance”, but that does not necessarily imply that
there is not a valid contract other than one of insurance in terms of which the
14.2 However, the actual payment of a premium is not such a feature:6 a contract
may be one of insurance even if a premium has not yet been or may never be
________________________
1 See
Lawsa Vol 12 Part 2 pars 1–25. See further on insurance premiums generally, Schulze Legal
Aspects of the Insurance Premium; Nienaber 2007 SA Merc LJ 1; Nienaber and Reinecke Life
5.82.
formality for the existence of a valid contract, or making such payment a negative resolutive
4 5.72–5.77. As to free insurance, see also Merkin et al Colinvaux’s Law of Insurance par 1.003.
5 5.33–5.88.
6 Hollet v Nisbet and Dickson (1829) 1 Menzies 391 (insurance contract is a consensual contract, valid and
perfected by mere consensus even though the premium has not yet been paid).
275
where the insured is not also the person who concludes the contract with the
14.3 “Premium” is defined in both the Insurance Acts9 as “the consideration given or
consideration payable to the insurer for assuming and thus absorbing the risk of the
insured event. But the term “premium” has also been interpreted to mean not so
much the consideration or performance undertaken by the insured, but rather the
insured’s proportionate share of the total cost of spreading the risk over the
performance by the insurer of the policy benefits due to the insured or a nominated
beneficiary upon the occurrence of the insured event. Hence if the insured wants
cover, he must actually pay the premium if and when it is due. The insurer is
accordingly not obliged to render the agreed benefit should the insured event occur
when the agreed premium has not been paid by the policyholder or premium payer. 11
But the converse is not necessarily true: it does not mean that the insurer can
14.5 Whether the obligation to pay premiums is legally enforceable or not will
depend on the intention of the parties as expressed by the terms of their contract. 12 If
yes, the contract is a regular reciprocal contract comparable to, for example, the sale
of this book where delivery of the thing sold hinges on payment and payment on
delivery. But the intention may also be, and in the case of long-term insurance
contracts most probably is, that the insured cannot be compelled to pay premiums if
unlike in the case of a sale, is not an existing asset but first, the assumption of the risk
and secondly, the promise of the rendering of the agreed benefit if premiums
continue to be paid and the risk should materialise. 13 The counter-performance for
the payment of the premium is then, as it has been put in the case law, 14 “the
________________________
7 Eg, credit may be given for the payment of a premium: Hollet v Nisbet & Dickson (1829) 1 Menzies 391 (on the
conclusion of the insurance contract without any payment of a premium, it must be
taken that credit has been given for such payment); or such payment may be made conditional:
see, eg, Constantia Insurance Co Ltd v Compusource (Pty) Ltd, unreported (W), (2004) 7 Juta’s
Insurance L Bul 204, holding that a post-dispute litigation insurance contract in terms of which a
deferred premium is payable only at the termination of litigation and if no adverse award of
costs is made against the insured, so that no premium is payable in the event of an adverse award
of costs (so-called “no win, no (pay) premium” insurance), is not invalid or against public policy.
See on the premium arrangement in the case of after the event insurance, Merkin et al
8 See
10 5.89–5.90.
11 But see, where payment is to be made in arrears, SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991
12 In Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2006] JOL 15610 (SCA); 2006 (1) SA 488
(SCA) the court, in its reasoning, if not in its result, appear to confuse one issue, namely
whether compensation was payable by the insurer in terms of a policy when payment of the
premium was in default, with a different issue, namely whether the insured could be sued for
non-payment of the premium. See further Lawsa Vol 12 Part 2 par 1 n 13.
13 For a more comprehensive discussion of the difference between the so-called “reformulated
approach” and the “traditional approach”, see Lawsa Vol 12 Part 1 pars 290–291.
14 Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359 (C) 364.
276
Premium
continuation of the risk,” perhaps better expressed as the continuation of the risk
cover. The assumption of the risk of cover will continue for as long as the premium
its exact terms), the continuation of the risk is dependent on the prompt payment of
the premiums by or on behalf of the insured; the risk cover is interrupted or ceases
14
when a premium is in arrears the insurer will not be liable to render the benefit if the
paragraphs
insured event should occur when the premiums are in arrears (conversely, the 14.2–14.9
insurer will be liable if the premium payments were up to date); it is the insured who
decides whether he will continue paying the premiums and hence in effect whether
the contract will survive or expire; the insured, who can discontinue the risk by
premiums or for interest on it or for the cancellation of the contract due to such non-
payment. That is because the insured cannot at one and the same time and in respect
of one and the same obligation (to pay the premiums) be both bound and not
bound. The insured can thus walk away from the contract with impunity and
immunity, save for the loss of any future benefits if the insured event should occur
afterwards.
prospective insured to be insured. 16 Naturally this is possible only if the amount of the
14.8 An insurance premium usually takes the form of a monetary performance. 17 The
all contracts, the amount of the premium must be either certain or ascertainable at
that stage. 18
14.9 Modern insurers determine the amount or rate of the premium with reference
to many factors, including, importantly, the risk or risks involved. They base their
________________________
15 The reciprocity is thus, in the first instance, between the payment of premiums and the
assumption of the risk rather than between the payment of premiums and the rendering of the
benefit on the occurrence of the insured event. That is why the insured cannot claim a refund of
premiums paid when he chooses to discontinue paying any further premiums; see further 14.65–
14.82.
16 See again 6.47–6.57 and, eg, Sauermann v English & Scottish Law Life Assurance Association (1898) 15 SC
84, (1898) 8 CTR 103 (payment by insured and acceptance by insurer of premium
amounted to conclusion of contract and premium not recoverable); but cf Estate Ralston v New
York Life Insurance Co (1909) 19 CTR 808 (acceptance by insurer of sum paid as premium by
applicant and issuance of receipt on application for life insurance cover does not bind insurer to
accept application and issue a policy, even if stated on receipt and in temporary policy issued to
applicant that on acceptance of application and issue of definitive policy, any sum paid to be
17 See again 5.89–5.90. It may also consist of a call or liability to pay a premium contribution in the case of
mutual insurance: see 1.35.
18 See again 7.111–7.117. In the case of mutual insurance, the amount is unascertained until after the period of
cover, and insurance may be concluded at a “premium to be arranged”, which is
277
calculation of premium rates on actuarial principles, and usually rate the risks
presented by groups of insured rather than that of an individual insured, but that is
not a requirement for the legal validity of the insurance contract. 19 In the case of for-
profit insurance, the premium will be set also with a view to generating a profit for
the insurer, but again the adequacy of the premium is purely a matter of concern to
the insurer: insurance is no less insurance because the insurer does not turn a profit.
14.10 Very often the rate of premium is expressed as a percentage of the sum
factors presented by that insured that the insurer takes into account. 20 The rate or
amount of premium is no more than the insurer’s subjective assessment of the risk
and may for that reason not be admissible in evidence as to the scope of its insurance
cover. 21
14.12 By contrast, insurers may be prepared to reduce premium rates if certain terms
aimed at reducing the risk are included in an insurance contract. 23 Likewise, they
often offer insured a reduction or discount in premium rate – or, which amounts to
the same thing, a return of a portion of the premium paid – should the insured
present a good risk by not claiming on his insurance contract for a particular period.
Despite the common if not understandable perception to the contrary, such no-claim
bonuses are not no-fault bonuses so that any claim, even if not the result of the
insured’s own (negligent) conduct, will result in the forfeiture of the benefit. 24
14.13 The doctrine of laesio enormis did not apply to insurance and other aleatory
contracts at common law25 and the doctrine in any case no longer applies in South
African law. In principle, therefore, the insured has no complaint against the insurer
on the basis that the premiums charged are excessive. 26 The amount of premium is,
________________________
19 So, the insurance premium need not be profitable for the contract to qualify as one of
insurance, while the fact that it is unprofitable will not disqualify the contract from being one of
insurance: see again 1.17–1.21 for insurance in an economic and in a legal sense. See also Clarke
et al The Law of Insurance Contracts par 1.1F (not an essential element of insurance that the
premium be proportioned to the risk); but see Merkin et al Colinvaux par 1.003 (if the sum
payable by the insured is not linked to actuarial or risk considerations, that fact may of itself
indicate that the contract is not one of insurance, but if there is sufficient link between risk and
20 See, eg, Hollet v Nisbet and Dickson (1829) 1 Menzies 391 (premium rate of 3 per cent expressly agreed upon,
amounting on an insurance of £900 to a premium of some £27).
22 See, eg, Ralston, Estate v New York Life Insurance Co (1909) 26 SC 482, (1909) 19 CTR 808 where the life of
the applicant for insurance was considered below a proper standard but nevertheless
insurable if the premium was “loaded” by rating the applicant as older than his actual age and
23 See, eg, Calf v Jarvis & Others (1850) 1 Searle 1 (as result of the insured’s undertaking in a warranty to keep
no hazardous goods on his premises, the insurer reduced the rate of premium
24 As to the practice of providing insured with no-claim bonuses, see Hollely v Auto & General Insurance Co Ltd,
unreported (W), (2007) 10 Juta’s Insurance L Bul 267; Ngqono v Auto & General Insurance Co, unreported (EC),
(2008) 11 Juta’s Insurance L Bul 183 (the insured’s
misrepresentation induced the insurer to grant her a particular no-claim bonus and discounted
premium).
26 But see Butcher & Co v Hawes & Hedley (1859) 3 Searle 270 where agents were appointed to ship goods and
to insure them at current premium rates. The principal objected to the excessive rate
of marine insurance premium charged by the agents. In view of conflicting evidence and
discordant opinions as to the going rate of marine insurance premium, the court adopted an
( continued)
278
Premium
that the premiums (as also the benefits or other values) of such policies should be
premium rates or tariffs may fall foul of competition laws. Further, differentiation
14
between different risks on certain grounds resulting in differentiating premiums may
paragraphs
discrimination. 28
insurer during the currency of the contract and before the period of cover comes to
an end, for instance in the event of an increase in the risk, or on the insured
breaching one or other term in the insurance contract. 29 And, naturally the insurer
may do so on the renewal of an insurance contract on the basis that such a renewal
General
14.16 Whilst there is no common-law rule requiring prior payment of the premium, 31
the parties frequently, 32 if not always, stipulate either that no contract will come into
being, 33 or that the liability of the insurer will not attach, until a premium has been
paid. In the case of a continuing contract, the parties usually agree that the insurance
will come to an end should the premium not be paid by a specified time. 34 The
reason for such a term is obvious: insurers prefer not to run the risk first and only
14.17 A provision relating to the payment of a premium may appear in the proposal
form. 35 It may also be referred to for the first time at a subsequent stage, say in a letter
________________________
intermediary rate as a fair and reasonable one and reduced the rate charged by the agents
accordingly.
29 For a discussion of the German VVG art 40, see Lawsa Vol 12 Part 2 par 2 n 13.
insurance premium is payable in arrears: Van Niekerk Insurance Law in the Netherlands Vol II 740–
755; 14.35.
32 Cf British Oak Insurance Co Ltd v Atmore 1939 TPD 9; SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991
(4) SA 841 (A) 848.
33 Cf AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A).
34 Cf Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359 (C) 364; SA Eagle
Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A). In the latter case it was decided that
where payment is to be made monthly in arrears, a non-payment at the end of the month does
not exclude the liability of the insurer in respect of an insured event which occurred during that
month. Cf too Penderis & Gutman v Liquidators, Short-term Business, AA Mutual Insurance Association
35 Cf National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11 12 where the
proposal ran: “The liability of the [insurer] does not commence till this proposal is accepted
and the premium paid.” This was reiterated in the policy, which stated that the insurer agreed to
indemnify the insured “subject to and in consideration of payment” of the first premium.
279
concerned, or it may even appear for the first time in the policy itself. 36 In the latter
two instances, the introduction of the provision may constitute a counteroffer by the
insurer that must be accepted by the insured before it will become binding.
ensure that the insurer does not come on risk without having received a premium.
The nature of such a term depends on its wording and the interpretation that it must
14.19 One the one hand, the insurance contract may create a duty for the insured to
pay a premium and a corresponding right for the insured to claim payment of that
premium.
14.20 On the other hand, there may be no intention to create any obligation to pay a
the premium before the insurer exposes itself to risk. Three possibilities may be
distinguished. First, the parties may have intended payment of the premium as a
formality for the coming into being of the contract. Secondly, the parties’ intention
may have been to subject the duty of the insurer to a suspensive condition, namely
the payment of the premium by the insured. Thirdly, the parties may have intended
to qualify the duty of the insurer by a resolutive condition, namely that the ongoing
duty – to bear the risk – would expire automatically if the insured did not pay the
premium by a specified time. The position in each of these cases is examined in more
detail. 39
the insured to pay a premium, the insurer obtains a corresponding enforceable right
liability
the insurer’s duty under the – otherwise valid and binding – insurance contract. The
of the contract are made subject to the fulfilment of an uncertain event. In the case
________________________
36 Cf African Guarantee & Indemnity Co Ltd v Couldridge 1922 CPD 2 where the contract stated that the insurer
agreed to indemnify the insured “subject to the prior payment of the premium”.
37 See, eg, Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2005] JOL 15610 (SCA); 2006 (1) SA 488
(SCA) (whether payment of a premium is a suspensive condition or a duty upon the insured
depends on the parties’ intention); Boenor Trading (Pvt) Ltd t/a Swankers Menswear v Total
Insurance Co Ltd, unreported (ZHC), (2008) 11 Juta’s Insurance L Bul 66 (where the policy merely
declares that the insurer is to indemnify the insured “in return for the premium”, the payment
of the premium is not a condition precedent – ie, a suspensive condition – to either the
38 For a discussion of the position in Dutch law and English law, see Lawsa Vol 12 Part 2 par 3 n 8
and n 9.
39 See 14.21–14.23.
40 National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11; see also again 11.6–
11.8.
41 For the legal consequences of a failure to make payment in those circumstances, see further
280
Premium
on a party to fulfil the uncertain event referred to in the condition. 43 Thus, if the
uncertain event is the payment of a premium, there can only be a condition if the
liability of the insurer is dependent on the payment of the premium and if the
insured is not obliged to pay the premium. A suspensive condition of this nature is
14
paragraphs
insurer’s duty
14.23 A resolutive condition does not affect the enforceability of an obligation, but it
dissolves the obligation upon the happening of an uncertain event. In the case of
make the continued existence of the insurer’s duty dependent on the payment of the
premium. In consequence, should the insured fail to pay the premium by a specified
time, the obligation will be terminated automatically and without the need for any
election by the insurer. 45 Again, a proper condition exists only if the parties did not
14.24 Both Insurance Acts contain a number of provisions relating to the premium.
14.25 When a premium is paid in bank notes or coins, the recipient must give to the
payer a receipt containing certain particulars. 47
14.26 A insurer may enter into a long-term policy only if the statutory actuary is
satisfied that the premiums, benefits and other values are actuarially sound. 48 Such an
insurer may further not distinguish between premiums, benefits or other values of
different long-term policies unless the statutory actuary is satisfied that the distinction
________________________
42 See further Van der Merwe et al Contract General Principles 250 for the difference between an obligatory term
and a (potestative) condition.
43 See, eg, Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2005] JOL 15610 (SCA); 2006 (1) SA 488
(SCA) (if payment of the premium is a suspensive condition, non-payment means that the
contract remains inoperative; if the insured is obliged to pay the premium, non-payment
amounts to breach of contract entitling the insurer to claim payment of the premium).
44 For the legal conseqences thereof, see further Lawsa Vol 12 Part 2 par 6.
45 SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A) 849. Thus, a stipulation that the non-
payment of the premium will entitle the insurer to cancel the insurance contract would
appear to indicate that the insured was obliged to pay the premium, not that such payment was
intended to serve as a resolutive condition. See Matlala v Mutual & Federal Insurance Co Ltd,
unreported (T), noted in (2007) 10 Juta’s Insurance L Bul 237 (where this point was overlooked
46 LTIA s 1(1); STIA s 1(1). The doctrine of valuable consideration is, of course, not part of our law and not all
insurance contracts are bilateral and impose a duty on the insured to pay a premium:
48 LTIA s 46(1)(a).
281
14.27 For purposes of the validity of a long-term policy, 50 the payment of a premium
under such a policy to a person (receiving it) on behalf of a long-term insurer will be
deemed to be payment to the long-term insurer under that policy. 51 In the case of
short-term insurance, intermediaries may collect and deal with premiums only if
authorised to do so by the short-term insurer concerned. 52 The way in which
intermediaries must deal with the premiums is prescribed in the regulations. 53 For
purposes of the validity of a short-term policy, the payment of a premium under such
policy, other than a fund policy or a reinsurance policy, will be suspended until the
first or only premium has been paid or until arrangements to its satisfaction have
14.29 Both Insurance Acts also make provision for periods of grace for the payment
of premiums. 58
should occur at any particular time in relation to the period of cover. 59 That is a
Periods of insurance
14.31 In a contract for a single period of insurance, there is only one premium.
Consequently, only one date for payment has to be established. However, the parties
may, for the convenience of the insured, divide this single period of insurance into
shorter periods to enable the insured to pay the premium by way of instalments. In
such a case the due date for each instalment must be arranged in the contract.
Indemnity insurance is often for a single defined period of insurance, 61 but that is not
necessarily the case, 62 and in the final analysis it is a question of the parties’ intention.
________________________
50 But not for other purposes, such as determining whether or not the insured has performed
51 LTIA s 47(3).
52 STIA s 45.
55 STIA s 54(4).
57 LTIA s 51.
60 For the importance of such a contractual arrangement, see further Lawsa Vol 12 Part 2 par 4.
61 Cf O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co (1866)
1 Roscoe 372 381; Licences and General Insurance Co v Bassano 1936 CPD 179 187; Whyte’s
62 Cf SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A) 849; Penderis & Gutman v Liquidators,
Short-term Business, AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A); Homeplus
Investments (Pvt) Ltd v Kantharia Insurance Brokers (Pvt) Ltd, unreported (ZHC), (2009) 12 Juta’s
Insurance L Bul 49 (at issue was whether there was an agreement to pay the premium in full or to
( continued)
282
Premium
14.33 Where the contract is to endure for an indefinite period, the parties will, for
practical reasons, have to provide for consecutive periods of insurance and agree on
14
the premium for each period. Consequently, the dates of payment for each period –
paragraphs
or at least the way in which the dates must be determined – will have to be defined in 14.27–14.35
contract may also be arranged for a single period, for example, life insurance for the
by instalment amounts to the provision of credit by the insurer falling within the
Time for payment of premium where insured under duty to pay but no time for
14.35 If the insurance contract creates a duty to pay the premium but does not
specify a time for such payment, the premium is due after the expiry of the period of
insurance; the premium is payable in arrears. 68 Cover will commence as soon as the
________________________
do so by way of instalments over a particular period, the insurer conceding that the latter
63 Which may be relevant for a number of reasons (Van der Merwe et al Contract 270–274), including when
determining the recoverability of premium: see 14.65–14.82.
64 See Clarke et al Contracts par 13.12A, distinguishing between an insurance for a year at 12x for the year,
payable in monthly instalments, and an insurance for a year at 1x per month.
65 For life insurance, see Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359
(C) 364 where provision was also made for the possibility that such a contract requires periodic
renewal by the payment of a further premium. In Wood’s Trustees v South African Mutual Life
Assurance Society (1892) 9 SC 220, (1892) 2 CTR 170, life insurance premiums were payable
annually in advance, with the insured having the option, at a slightly increased rate, of making
payments half-yearly or quarterly in advance. The court held that on an interpretation of the
policy, the payment of a premium for the first half of any year did not keep the policy alive for
the whole year if the second instalment was not paid. The increased rate was not charged for the
risk the insurer incurred in insuring the life for the full period upon payment only of the first
half-period’s premium, but for the additional administration and loss of interest that were
involved.
67 34 of 2005. By virtue of s 8(2), an insurance contract is not a credit agreement, although a suretyship agreement
may be if the surety undertakes to satisfy upon demand any obligation of
transaction to which the Act applies: Geodis Wilson South Africa (Pty) Ltd v ACA (Pty) Ltd,
unreported (SGJ), (2010) 13 Juta’s Insurance L Bul 207. See further Birds Birds’ Modern Insurance
Law par 10.1.1 (the payment of insurance premiums by instalment may fall within consumer
68 See Hollet v Nisbet and Dickson (1829) 1 Menzies 391 (in the absence of an agreement to that effect, the
(marine) insurance premium is payable in arrears and neither is payment necessary to
establish the insurer’s liability nor is such liability suspended until payment; on the conclusion of
the insurance contract without any stipulation as to the payment of a premium, it must be taken
that credit has been given for such payment); SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4)
SA 841 (A) 846D where the common-law rule to this effect was confirmed. See also again 14.21–
14.26.
69 Kahn v African Life Assurance Society Ltd 1932 WLD 160 163.
283
14.36 Where a duty to pay a premium has indeed been created, the general
Time for payment of premium where insured under duty to pay and time for pay-
14.37 Where the insured is contractually bound to pay the premium and must do so
by a certain date, he will commit a breach of contract in the form of mora debitoris ex re
if he does not pay in time. Insurance contracts usually require payment by a certain
date in order to reverse the common-law rule that payment of the premium is due
only after an insurance period. 71 Whether the insurer may cancel the contract on the
ground of the insured’s failure to pay timeously depends on the general principles
14.38 An insurer cannot deny the insured’s claim on the basis that the premium was
paid after the occurrence of the loss, as long as it was paid before the expiry of the
14.39 Where payment of the premium has been laid down as a formal requirement
for the validity of the contract, or where the contract is subject to a suspensive
condition regarding payment of the premium, a time may be specified for payment.
However, the parties may also leave the matter open, in which case the person
requiring insurance cover may pay at any time within the contemplated insurance
period; but if he delays tendering the premium, the period of cover will be reduced. 74
grace
14.40 Insurance contracts for a fixed period – most indemnity contracts – often
contain a clause enabling the insured to renew the contract by paying a renewal
premium. Depending on the wording of the clause, it may be nothing more than an
offer76 by the insurer to renew the contract should the insured pay a renewal
premium. It is even conceivable that the insured could have been granted an option
to renew.
14.41 Because any offer from the insurer flowing from the insurance contract
depends on the existence of that contract, a renewal premium must in such a case be
paid before the term of the insurance lapses, unless the contract allows the insured to
pay the premium within an additional period of time. 77 This period may be described
________________________
70 See further Lawsa Vol 12 Part 2 par 11;Van der Merwe et al Contract 291–301.
71 AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A). However, in SA Eagle
Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A) the contract confirmed that the
72 See further Lawsa Vol 12 Part 2 par 12; Van der Merwe et al Contract 291–301.
73 Homeplus Investments (Pvt) Ltd v Kantharia Insurance Brokers (Pvt) Ltd, unreported (ZHC), (2009) 12 Juta’s
Insurance L Bul 49.
74 National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11 14.
75 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 396. In Southern Insurance Association Ltd
v Cooper 1954 (2) SA 354 (A) 360, the court observed that “[t]he original contract of
insurance was for a period of six months but it contemplated that the contract might be renewed
for further six monthly periods. It is clear from the terms of the contract . . . that . . . [the
insurer] was not bound to renew the contract upon a tender of the half-yearly premium.”
76 AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A) 417D.
77 Cf Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A) (personal accident insurance contract).
284
Premium
as a period of grace. The effect of a failure to pay a renewal premium is simply that
the insurance contract is not renewed. By not paying the premium, the insured does
not commit a breach of contract and the insurer is not required to make an election
new contract, albeit one on the same terms as the previous contract. 79 Accordingly,
14
the insured’s duty of disclosure will arise afresh. 80 It also implies, as a matter of
paragraphs
principle, that if a total loss has occurred before payment of the premium, renewal is 14.36–14.45
impossible. 81
of which the insurance will lapse if a renewal premium is not paid by a certain date.
importance to prevent the operation of the resolutive condition. The insured is often
allowed a period of time within which to pay the premium after the due date. This
14.44 The effect of such a provision may be that the resolutive condition will only
effect a dissolution of the obligations on the last moment of the period of grace. 83
The period of insurance is, in effect, extended to include the period of grace and a
loss occurring within the period of grace will therefore be covered even should the
premium remain unpaid. 84 Should the premium in fact be paid, the obligations are
insurance contract. 86
________________________
78 AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 339 (A) 414.
79 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 396; Southern Insurance Association Ltd v
Cooper 1954 (2) SA 354 (A) 361B.
81 Because insurance requires an element of uncertainty: see 5.91–5.104, 13.6–13.12; see also
82 Cf General Accident, Fire and Life Assurance Co Ltd v National British and Irish Millers’ Insurance Co Ltd
1914 CPD 586 600.
83 See, eg, Marnewicke’s Executor v South African Mutual Life Assurance Society (1895) 12 SC 43, (1895) 5 CTR
52 (the life policy provided that it would be void and the moneys paid in respect
of it absolutely forfeited if any premium was in arrears for one month; here the policy lapsed as
the half-yearly instalment of premium was only paid more than six months after it fell due and
84 But see Wood’s Trustees v South African Mutual Life Assurance Society (1892) 9 SC 220, (1892) 2 CTR
170 (on an interpretation of the policy, days of grace were not operative absolutely and not a
prolongation of policy but merely a window within which to revive a lapsed policy by payment of
the premium; the policy here did not stipulate a period of “real grace” within which it was kept
alive despite non-payment of the premium on the due date, the policy lapsing only on non-
payment during that period, so that its effect is the prolongation of the policy by advance of the
due date).
85 But that is not necessarily the case: see Southern Insurance Association Ltd v Cooper 1954 (2) SA 354
86 See SA Eagle Versekeringsmaatskappy Bpk v Steyn 1991 (4) SA 841 (A); Penderis & Gutman v Liquidators,
Short-term Business, AA Mutual Insurance Association Ltd 1992 (4) SA 836 (A) 841. Cf
also AJ Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A), although the
285
14.46 The LTIA makes provision for a period of grace in respect of long-term
policies other than fund policies or reinsurance policies. If the premium has not
been paid on its due date, the insurer must notify the policyholder of such non-
force for a period of 15 days after the due date (where two or more premiums are
payable at intervals of one month or less), or for one month after the due date
(where two or more premiums are payable at intervals of longer than one month), or
for such longer period as the parties may agree. 87 If the overdue premium is not paid
by the end of such period of grace, the policy must be dealt with as prescribed. 88
14.47 In some circumstances the policy remains in force for as long as it has a value
remaining after satisfying the insurer’s claim, after which it will lapse; 89 in other cases
it will remain in force until the payment of premiums is resumed, or the policy
14.48 Long-term insurers must have rules in place that satisfactorily prescribe a
sound basis on and methods by which long-term policies are valued or otherwise
14.49 Under the Policyholder Protection Rules made in terms of the STIA, 91 a short-
term insurer must ensure that a policy makes provision for a period of grace for the
payment of premiums of not less than 15 days after the relevant due date. In the case
of a monthly policy, this provision must apply with effect from the second month of
provides that an insurer may reject a claim because a premium was not paid on the
due date is void if payment was made during this period of grace, irrespective of
whether or not such payment occurred prior to the event giving rise to any claim. 93
Defence of reciprocity
14.50 The defence of reciprocity – the exceptio non adimpleti contractus – generally
applies to reciprocal contracts provided that the performances have to take place
14.51 Insurance contracts are seldom reciprocal, since they oblige only the insurer to
88 S 52(2).
89 See Schwerin v German Sick & Funeral Society,“Amicita” (1909) 19 CTR 434 where non-payment of
successive premiums or, here, contributions to the mutual insurer in excess of a specified
amount resulted in the forfeiture of benefits. See, on lapsing in general, Nienaber and Reinecke
90 S 52(3).
91 For a discussion of the equivalent provision in Dutch law, see Wansink et al Assers Handleiding tot de
Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere Overeenkomsten Deel IX Verzekering pars
92 Rule 7.5.
93 Rule 5.1(e).
95 See 5.78–5.82.
286
Premium
14.52 Unless the parties agree otherwise, an insurance premium must be paid in
legal tender, namely cash, either banknotes or coins. However, they frequently agree,
14
expressly or tacitly, that the debtor insured may pay the premium by means of a
paragraphs
14.46–14.57
by the courts between the situation where the contract creates a duty to pay the
premium and where there is no duty to pay the premium.
insured is responsible for the payment of the premium. To discharge this duty,
eventual payment must be made by the insured himself, a person acting in his name
and with his authority, or by a third party who pays the insured’s debt with the
the premium. 98
14.55 Should there be no obligation on the insured to pay the premium, it may be
paid by anyone wishing to achieve the desired result, be it to renew the contract or to
prevent it from lapsing. However, there should be clear agreement between the
person who pays and the insurer who receives the payment as regards the premium
14.56 Very often persons other than the insured may have an interest in paying, or
be obliged to pay, the premium in order to effect the insurance contract or to keep it
rights under the insurance contract; the seller of a thing insured by the purchaser
who has not yet paid the purchase price in full; 99 or the lessor of the leased property
insured by the lessee. 100 Nothing prevents such obliged or interested parties from
third-party payor and the payee insurer concerning the premium to be paid and the
contract and insured in respect of which it is paid. 101 There may even be an express
term in the insurance contract entitling a third person to pay the premium.
14.57 As between the insured and the third party, there may be an agreement
obliging the third party to pay the premium. 102 Whether the third-party payor has a
________________________
97 For further details on how the premium may be paid, see Lawsa Vol 12 Part 2 pars 18–21 and generally Schulze
2011 SA Merc LJ 64.
98 See
DF Projects Properties v H Savy Insurance Co Ltd, unreported (T), (2008) 11 Juta’s Insurance L
Bul 132 where several parties were named as insured in the policy schedule although the pre-
amble of the policy identified the insured who had applied for cover to the insurer as the party
liable to pay the premium. The court held, after an interpretation of the insurance contract
and by having regard to surrounding circumstances, that the parties had intended the insured
who had applied for cover to be the one liable to pay the premium.
99 Cf
101 In German law the insurer is obliged to accept premiums paid by an interested third party, eg, a beneficiary
who has acquired the right to the policy benefits: VVG art 34(1).
102 Eg, in the case of credit or solvency insurance, the persons whose non-payment or insolvency is insured
against may be obliged by the insured to pay the premium, while in the case of life in-
( continued)
287
right of recourse against the insured, in terms of the contract under which the
14.58 The premium should be paid to the insurer or to a person authorised by the
insurer to receive the premium. Such authority may be actual or ostensible, such as
when the insurer holds an agent out to have authority to receive premium payments
on its behalf by, say, issuing the agent with official receipts. 104
intermediary may present several problems, such as when the intermediary does not
pay the premium over to the insurer, or goes insolvent before he does so, or where
the insurer goes insolvent. In this regard much depends on the authority of the
intermediary and whether or not he receives the premium on behalf of the insurer. 105
14.60 By virtue of the LTIA, 106 for the validity of a long-term policy payment of a
premium under such a policy “to a person [acting, or receiving it?] on behalf of the
long-term insurer” will be deemed to be payment to the insurer under that policy.
14.61 In terms of the STIA, 107 a short-term insurer may authorise an independent
insurer concerned within prescribed periods. The intermediary must further provide
security as prescribed. For purposes of the validity of a short-term policy, the payment
Place of payment109
14.62 Payment of the insurance premium should be effected by the debtor insured
to the creditor insurer at the place the parties have expressly or tacitly110 fixed for this
purpose. The creditor insurer cannot claim performance at any place other than the
place determined for performance. The proper place for performance may be
make payment by post, delivery to the post of a correctly addressed letter containing
the proper instrument of payment constitutes payment at the proper place. 111
________________________
surance the beneficiary may have agreed with the insured to pay the premium or a debtor
whose life is insured may be obliged by the creditor insured to pay the premium; see further
103 Cf Van der Merwe et al Contract 449–450 as to the possibility of claims on the basis of mandate or
negotiorum gestio. See also Thorpe’s Executors v Thorpe’s Tutor (1886) 4 SC 488 (person advanc-ing or paying
premiums to keep a life insurance policy on foot has a lien on the policy and is
entitled to retain it until the amount of the premiums has been repaid to him); German VVG
104 See further 24.24, 24.56 on the authority of insurance agents and brokers respectively to collect and receive
premiums.
105 Idem.
106 S 47(3).
108 S 54(4).
110 In the absence of an express agreement on the matter, the place where the contract was
entered into, trade usage, previous dealings between the parties or similar factors may be an
indication of the proper place for performance.
111 Here, too, as in the case of prescribed or authorised payment by means of a cheque, stop order or debit order,
the insurer bears the risks involved in such method of payment: see again 14.62.
288
Premium
premium must be paid, the general principle applies that the debtor insured must
seek out the creditor insurer to pay the premium. That means payment at the
14
paragraphs
14.57–14.69
G. RETURN OF PREMIUM
General
reclaimed have not yet received the attention of South African courts. General
principles should govern this issue. In applying those principles, the possibility that
14.66 Under English law, 114 the guiding principle concerning the return of
premiums is that if the insurer ran no risk, the insured is entitled to a return of the
premium. The principle is based on the fact that the consideration for the premium
has failed totally. 115 Under English law, further, the premium is generally not
recoverable in the case of fraud or illegality on the part of the insured, even though
14.67 According to South African law, the question whether or not an insurer must
law have not been adopted in South African law. A measure of caution should
accordingly be observed when guidance is sought from English law on the refund of
insurance premiums. 117 As usual, the general principles of South African law relating
to the return of performance rendered or supposedly rendered in terms of a contract
14.68 The question whether a premium must be refunded may arise in various
14.69 If a premium has been paid for an insurance contract that is void for a lack of
consent or for any other reason, or if a premium has been paid in the mistaken belief
that a contract has been concluded, the premium must be restored. 118 This rule is
________________________
112 In German law, the policyholder’s place of residence is the place of payment of the insurance premium or, if it
is a commercial policy, the place of his business if different from his place of
114 Merkin et al Colinvaux pars 8.019–8.034; Clarke et al Contracts par 13.12; Birds Birds’ Modern Insurance
Law pars 10.1–10.2. See also the Marine Insurance Act, 1906 s 84(1) and (2), reflecting the common-law
principles relating to the return of the premium for a failure of considera-
tion.
115 See further Lawsa Vol 12 Part 2 par 25. Under English law, a consideration is required to bind the parties to a
contract at law; it is a requirement for the validity and hence enforceability of
any contract, including an insurance contract. The only exception is in the case of contracts,
116 See further Lawsa Vol 12 Part 2 par 25. As to forfeiture, see 14.94.
117 For Dutch law, see Lawsa Vol 12 Part 2 par 25.
118 This flows from general principles: see 7.4–7.10 for the requirement of consent for a valid (insurance)
contract. See also Potgieter v New York Mutual Life Insurance Society; Vermaak v New
( continued)
289
subject to special rules if the contract is void because of illegality. 119 The appropriate
remedy for recovery of the premium in these circumstances is the condictio indebiti.
14.70 If the obligation to pay the premium does not come into operation, the
premium is not payable, for example, where the contract covers the insured for an
overseas journey but the journey is never undertaken. 120 The appropriate remedy for
14.71 Under this head should also come cases where the insured erroneously
overpaid the amount of premium actually due to the insurer; the excess may be
recovered.
Voidable contract
insured the premium or premiums received under that contract: the contract is, after
all, avoided ab initio. That should be the position whether the insured’s
should the insured avoid an insurance contract for the insurer’s misrepresentation.
14.73 According to English insurance law, 123 an insured who did not have and never
repayment of the premium. 124 This is an application of the general principle that if
the insurer has never been at risk, the premium must be returned on grounds of a
total failure of consideration. However, if the insured had, but then lost, his interest,
he may not recover the premium because the insurer had been on risk. The position
14.74 In certain circumstances the same result may follow in South African law on
the application of general principles. Thus, if the insurance contract has been
concluded to protect a particular interest which both parties erroneously thought was
supposition that such an interest exists. If the supposition turns out to be wrong, the
contract fails. Consequently, any premium paid in terms of the contract is an undue
________________________
York Mutual Life Insurance Society (1900) 17 SC 67 (no refund of premium on ground of mis-
119 7.56–7.60.
120 Cf Grotius Inleidinge 3.24.16.
121 In English law it is said that the premium is returnable in this case on the ground that the risk has never
attached: Merkin et al Colinvaux par 8.025. However, in South African law the contract is merely voidable and
until avoided by the innocent party, it remains valid so that the risk
122 See again Lawsa Vol 12 Part 1 par 237 where it was argued that the English rule preventing a recovery of the
premium by the insured in the case of his fraudulent conduct (as to which see,
eg, Merkin et al Colinvaux par 8.022) may be in conflict with the general principles of our law.
124 Cf the Marine Insurance Act, 1906 s 84(3)(c); Routh v Thompson (1809) 11 East 428, 103 ER
1069 (the premium is recoverable for an absence of interest as there was no fraud or illegality
on the part of the insured), referred to in Queensland Insurance Co Ltd v Banque Commerciale Afri-
caine 1946 AD 272. In cases where the existence of an insurable interest is required by statute,
125 The reason being that an interest is required at the inception of the policy by statute and that the absence of an
interest at that time (but not a subsequent loss of interest) therefore renders
290
Premium
payment. 126 The same holds good where the contract is subject to a suspensive
condition that a certain interest will arise, for example that the insured will become
possibility of reconciling the English rule with the general principles of South African
law seems remote. All the requirements for a valid contract have, after all, been met.
14
It cannot be said, for example, that performance by the insurer is impossible because
paragraphs
the performance of an insurer is to pay a sum of money or to reinstate the object of 14.69–14.78
the risk on the occurrence of the event insured against. 128 Performance, as such,
inequitable to hold that in these circumstances the premium is not returnable, the
reason being that where no specific interest has been insured, the insured can claim
on any interest that exists when the event insured against takes place. 129 In other
words, the insurer at least runs the “risk” that the insured may, prior to the
occurrence of the loss and within the period of cover, obtain an insurable interest
condition, unless the insurance is intended to be retrospective. 131 Thus, the insurer
may undertake to compensate the insured if his vehicle is damaged. If the object of
the risk has already been destroyed, such a condition cannot be fulfilled. The
Consequently, the contract is of no force and effect and if the premium has already
been paid, it must be restored. 132 The condictio indebiti is the appropriate remedy to
Breach of contract
14.77 If an insurer cancels the insurance contract on the ground of the breach of an
affirmative warranty by the insured, the parties must be restored to their previous
positions. The insured may therefore recover the premium paid. By contrast, if the
warranty, cancellation does not operate retrospectively but only for the future and
14.78 The position in the case of a breach of the insurance contract by the insurer
cancel the contract and does so, he is entitled to a return of the premium paid by way
of restitution. 134
________________________
127 3.71.
131 5.91–5.94.
132 This is also the position in English insurance law, by virtue of the principle that if the insurer was never at risk,
the premium must be returned.
133 See further 15.32–15.34 as to the breach of affirmative and promissory warranties.
291
Over-insurance
14.79 Under English law, in the case of marine insurance, an insured who is covered
for an amount in excess of the sum that he can rightfully recover in the event of total
premium. 135
14.80 Unless a mistake has been made in the calculation of the premium, this
proposition seems doubtful for South African law. An example of a mistake relevant
for this purpose is where the premium for liability insurance depends on the number
of vehicles used by the insured during the period of insurance and a greater number
of vehicles is mistakenly taken into account. Other than that, the fact that because of
over-insurance, whether by double insurance or not, the insured was not entitled to
recover, either at all or in full, from any one of more of the insurers involved, does
not mean that the premium or premiums, or any part of it or them, are recoverable:
the insurer or insurers were, after all, on risk. In that sense, therefore, over-insurance
Contractual provisions
occurrence of a particular event, return the whole or part of the premium paid by the
example, when the insurer or insured exercises a right to terminate the insurance
breach of a warranty by the insured. Such clauses could be penalties in terms of the
________________________
135 See the Marine Insurance Act, 1906 ss 84(3)(e) – referring to over-insurance under an unvalued policy – and
84(3)(f) – referring to over-insurance by double insurance. There is no possi-
bility of apportionment in the case of non-marine insurance as all the insurers have been on
risk: Merkin et al Colinvaux pars 8.032–8.034, 11–045, pointing out that the marine rule is an
137 For a typical example, see Klempman v Law Union & Rock Insurance Co Ltd 1957 (1) SA 506 (W).
Cf also the Marine Insurance Act, 1906 s 83; Merkin et al Colinvaux par 8.019.
138 Roome v Southern Life Association of Africa 1959 (3) SA 638 (D).
139 15 of 1962; see s 1 (as regards breach of contract, ie, warranty) and s 4 (as regards misrepresentation).
292
15
Warranties1
A. General
....................................................................................................................... 293
E.
F. Conclusion
................................................................................................................. 317
15
A. GENERAL
paragraphs
15.1 In few areas of South African insurance law has the influence of English 15.1–15.3
insurance law been as pervasive and as alien as in the connection with insurance
warranties. For a proper understanding of South African law, how it has developed,
and how it may be reformed in future, it is therefore necessary to start with English
law. 2
15.2 According to the traditional view of insurance warranties in that system, at least
representations he made to the insurer are accurate, or that certain duties will be
performed.
fundamental term3 which entitled the insurer to cancel the contract as from the
________________________
2 As to warranties in English insurance law, see Clarke et al The Law of Insurance Contracts pars 20.1–20.7F;
Merkin et al Colinvaux’s Law of Insurance pars 7.021–7.055; Birds Birds’ Modern
3 It was usually explained that an insurance warranty broadly corresponds to a condition – ie, a vital or essential
term, entitling cancellation and not merely damages – in other types of
contract, eg, contracts of sale. Thus, the English law of warranties taken over in South African
law was already variance with the general principles of the law of contract in that system: Merkin
( continued)
293
moment the breach occurred. The insurer was entitled to cancel the insurance
contract notwithstanding the fact that the content of the warranty may have been
totally irrelevant to the risk (that it may have concerned an immaterial matter) or
that the breach of the warranty may not have caused or contributed in any way to the
occurrence of the event in respect of which a claim was brought (that it had no causal
connection to the loss). Upon a breach of a warranty, the insurer had to elect
whether to uphold or to cancel the contract. It was, therefore, open to the insurer to
15.4 The traditional view on the effect of a breach of an insurance warranty, was
rejected by the House of Lords in Bank of Nova Scotia v Hellenic Mutual War Risks
Association (Bermuda) Ltd, The Good Luck. 4 According to this decision an insurer is, in
liability as from the date of the breach and therefore for losses occurring after the
breach. The simple reason for this, the court stated, was that the fulfilment of a
from liability and there is therefore no need or indeed room for the insurer to
15.5 Despite some difficulties with this approach, 6 and ample scope for
distinguishing the decision, 7 it is now clear that English courts have accepted that it is
of general application. 8
15.6 For a South African lawyer, this decision raises several questions. Does a
obligation for the insured to fulfil the contents of the warranty? If so, does a breach
with the description of the risk, given that the insurer is not required to exercise an
________________________
et al Colinvaux par 1.001, identifying the status of warranties as one of the important differences
between the law of insurance contracts and the general law of contract; Lowry et al Insurance
Law: Doctrines and Principles 219, observing that “[t]he terminology adopted in [English]
insurance law to categorise terms is curious and confusing to those schooled in general contract
law”.
4 [1992] 2 AC 233 (HL).
5 The traditional view was in line with the general principles of the English law of contract and regarded an
insurance warranty as the equivalent of a “condition” in contract law generally in
that both are vital of fundamental terms of the contract; according to the new view, a warranty is
“more like an exception to the risk than a condition in the usual contractual sense”: Birds Birds’
6 Eg, breach of a warranty with its automatic terminating effect, it appears, can logically no longer be waived by
the insurer (except in advance by an appropriate term in the insurance contract),
although it may still in suitable cases be estopped from relying on it. Cf Lowry et al Doctrines 239–
243 discussing the “waiver-estoppel dichotomy”, 473–478; Clarke et al Contracts par 20.7A
tentatively concluding that “it now [after the decision in The Good Luck] appears that the nature
of waiver of breach of warranty is that it is not waiver [by election] all but [waiver by] estoppel”;
7 The decision in The Good Luck involved a marine insurance contract, a promissory or continuing warranty, and
the interpretation of the Marine Insurance Act, 1906 s 33(3).
8 Ie, that it applies equally to non-marine insurance contracts and to affirmative warranties that arise the inception
of the contract: cf Merkin et al Colinvaux par 7.039; Birds Birds’ Modern
294
Warranties
term describing the risk, it would be difficult to distinguish between a warranty and
other terms describing the risk or a term describing an exception to the risk. 10
Suppose an insured “warranted” that the insured motor vehicle would only be used
for personal purposes. On occasion he uses the vehicle for business purposes. If the
15
terminated when the insured drove the vehicle for business purposes. Conversely, if it
paragraphs
were a term describing the risk, the vehicle would not be covered while it was being
15.3–15.8
used for business purposes, but the continued existence of the insurance cover would
not be affected by such use.
15.7 The nature and effect of an insurance warranty under English law may be
However, it should be borne in mind that according to South African law neither a
creates a positive duty for the insured to fulfil an obligation. They simply control the
condition, for instance that the contract will be discharged if the insured vehicle is
used for any purpose other than private matters, the contractual obligation will be
discharged automatically upon fulfilment of the condition, that is, when the vehicle is
used for non-private purposes. On this basis it would indeed be possible to explain
why, in the earlier example, the insurance contract is terminated by the operation of
the “warranty”, and why it is not terminated if the term described is an exception to
the risk.
15.8 “Warranty” and “guarantee” are well-known concepts in the general South
African law of contract. 12 They are strict contractual terms13 in that the parties intend that the undertakings given
in them must be honoured, come what may.14
on the seriousness of the breach or on whether the parties have expressly or tacitly
agreed that the innocent party may resile upon such a breach. 15
________________________
9 In other words, can a warranty be regarded as a proper condition precedent to the liability of the insurer? Clarke
et al Contracts par 20.1 suggest (quoting The Good Luck) that in some cases the
insured may be required to prove fulfilment of the warranty as would be the position in case of a
11 See again 9.14–9.17 for the difference between obligatory and non-obligatory terms. The latter includes
suppositions and (suspensive or resolutive) conditions.
12 Van der Merwe et al Contract General Principles 256–257.
13 That is, consensual terms or incidentalia of a contract. They should therefore be distinguished from so-called ex
lege “warranties” that are naturalia of certain types of contract. Examples of the
latter include the warranty against eviction and the warranty against latent defects in contracts of
sale, and the implied warranty of authority given or implied by an unauthorised person
15 Ie, on whether the breach is a material breach (or one that goes to the root of the contract, or relates to a vital,
material or essential term of the contract) or where the contract contains an
agreement for cancellation (a lex commissoria): Van der Merwe et al Contract 380, 398–415. See also Masterspice
(Pty) Ltd v Broszeit Investments CC 2006 (6) SA 1 (SCA) pars [33]–[35].
295
15.9 In spite of the existence of terms know as “warranties” in the South African law
of contract, South African courts chose to turn to English law when they had to
decide on the import and effect of what was called “warranties” in insurance
contracts.
15.10 In 1916, in Lewis Ltd v Norwich Union Fire Insurance Co Ltd, 16 the Appellate Division declared that a
warranty in an insurance contract is a statement or
stipulation upon the exact truth or the exact performance of which, as the case may
be, the validity of the contract depends. Once the meaning of a warranty has been
ascertained, so the court explained, the warranty must be complied with exactly,
whether or not it is material to the risk. The court went so far as to say that strict
liability. 17 This somewhat cryptic18 exposition has since been explained and applied in numerous decisions. 19
15.11 It is clear that South African courts have adopted not only English terminology
but also many of the English rules on insurance warranties. To this there is a
to which there has not been any deviation from the traditional view in that system as
15.12 Furthermore, the legislature introduced a measure in 1969 that resulted in the
position in South Africa deviating drastically from the English position, a measure
that was repeated in new legislation in 1998 and then further refined in 2003. 21
Purpose of warranties
15.13 Insurance warranties are contractual terms that, broadly speaking, serve one of
two purposes, both concerned with the risk the insurer takes over from the insured.
15.14 First, they seek to provide the insured with a more favourable alternative than
contractual representation by the insured, usually in connection with the risk. Or,
secondly, they seek to give the insurer some measure of control over the risk that it
runs, by imposing certain duties on the insured after the conclusion of the contract
aimed if not at reducing then at least at controlling that risk. The former aim is
warranties. 22
________________________
16 1916 AD 509.
17 515.
19 Eg, Norwich Union Fire Insurance Society Ltd v SA Toilet Requisite Co Ltd 1924 AD 212 223; Kliptown
Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A) 106G;
Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E); Qilingele v SA Mutual Life Assurance
Society 1993 (1) SA 69 (A) 73F (“[s]trict observance [of a warranted representation] is a pre-
condition to liability under a contract of insurance founded thereon”); SA Eagle Insurance Co Ltd
v Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) 124 (referring to “the common-law
rule that a warranty, being an essential or material term, must be strictly complied with; that if it
is breached, the insurer is entitled to repudiate the claim whether or not the undertaking is
material to the risk and even if non-compliance has no bearing on the actual loss that takes
place”); Botha’s Trucking v Global Insurance Co Ltd [1999] JOL 4496 (T); 1999 (3) SA 378 (T)
382E.
22 See further on the function, definition and creation of warranties, Lawsa Vol 12 Part 2 pars 35–
37.
296
Warranties
15.15 Reforms introduced by the South African legislature23 have severely restricted
15
paragraphs
no longer decisive whether or not the term is a warranty in the technical sense as 15.9–15.20
15.16 But even though the importance of the question whether a particular term in
promissory warranties, which do not relate to a representation, fall outside the scope
lawful cancellation on the ground of breach of a warranty, since in this regard the
breach of an insurance warranty is not treated in the same way as the breach of a
15.17 The nature of the obligation created by an insurance warranty has not yet
enforceable obligation in favour of the insurer, but merely provides the insurer with a
defence in the event of its non-performance. 24 Put differently, the insurer cannot
demand that the insured comply with the warranty, but may merely avoid liability on
the insurance contract in the event of its breach. The existence of the contract is at
no stage in jeopardy. It would appear, then, that such terms merely qualify the risk
run by the insurer, but under no circumstances do they provide the insurer with a
cause of action.
15.19 According to the latest English view25 on warranties, it would appear that a
warranty, likewise, does not encumber the insured with a duty to comply but provides
the insurer with a way out of the contract. Should the insured not comply with the
assumption under South African law, while a promissory warranty in that system may
15.20 The view taken by South African courts that a breach of an insurance warranty
________________________
24 See, eg, Möller 1976 TSAR 59 68. See further, on the role of warranties in civilian systems, Lawsa Vol 12 Part 2
par 37 n 1.
26 See, eg, Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T); Associated
Manganese Mines of SA Ltd v Claassens 1954 (3) SA 768 (A), as commented on in AJ Shepherd
(Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A) 416; Resisto Dairy (Pty) Ltd v
( continued)
297
corresponding right on the part of the insurer to enforce the obligation. On this
for complaint should the insurer cancel the contract because of the insured’s non-
debt created by the warranty is subject to the normal rules relating to prescription.
For this purpose it appears that the debt created by the warranty is not an
independent debt but forms part of the consideration for the insurer’s duty to
perform. The debt is therefore reciprocal and will not become prescribed before
B. TYPES OF WARRANTIES
warranties cover a wide array of issues. They are divided mainly into affirmative
warranties and promissory warranties, not only because of the way in which they are
that he has not been involved in an accident in the last five years, or that he is in
past or the present, to what happened before or is the position at the time the
contract in which they are terms was concluded. The continued correctness of the
certain act or that a given state of affairs will exist in the future. For instance, an
therefore relate to the future, to a time or period after the conclusion of the
insurance contract.
15.25 The term “promissory” as a special term is a misnomer, given that all
warranties are promissory, that is, all involve an obligation or promise to perform. 33 It
________________________
Auto Protection Insurance Co Ltd 1963 (1) SA 632 (A); Bates and Lloyd Aviation (Pty) Ltd v Aviation
Insurance Co, Bates and Lloyd Aviation (Pty) Ltd v Aviation Insurance Co [1985] 2 All SA 916 (A);
30 There are also other differences, namely those relating to the time of breach: see 15.32–15.34.
31 Cf, eg, Maze v Equitable Trust and Insurance Co of SA Ltd 1938 CPD 431.
33 Cf Protea Property Holdings (Pty) Ltd v Boundary Financing Ltd, unreported (C), (2008) 11 Juta’s Insurance L
Bul 14. The Marine Insurance Act, 1906 s 33(1), eg, defines a warranty generally as “a
promissory warranty”, that is to say, a warranty by which the assured affirms or negatives the
existence of a particular state of facts or undertakes that something will or will not be done.
298
Warranties
performance of an act is the “iron safe clause”, which was frequently included in fire
insurance policies. In terms of such a clause, the insured undertook and “warranted”
that he will keep and maintain a complete set of books, showing a true and accurate
15
record of all business transactions and stock-in-hand, and that the books will be
paragraphs
locked in a fire-proof safe or removed to another building at night and at all times 15.20–15.30
15.27 The same issue may be covered by both an affirmative and a separate
promissory warranty. Thus, an insured may both warrant that he keeps a proper set of
books in an iron safe by making a representation to that effect, and also warrant by
an express term in the insurance contract that he will continue to do so during the
matter of construction, 37 depending on issues such as the language used to create the
warranty, 38 the purpose of the warranty and the cover provided by the policy. 39 A warranty may conceivably
even be both, that is, relate to an existing fact and to future
conduct.
“warranties of knowledge”, and “warranties of opinion”. The latter two, closely related
if not sometimes indistinguishable, are less severe than warranties of fact in that
compliance with them is tested not objectively but with reference to the insured’s
15.30 A warranty of fact is a warranty that a certain fact or state of affairs does or does
not exist. The warranty is breached if it turns out that the fact or state of affairs did
not or did exist, irrespective of the insured’s knowledge or opinion of that fact or
________________________
34 Cf Marine and Trade Insurance Co Ltd v Van Heerden 1977 (3) SA 553 (A) 559E. See Merkin et al Colinvaux
par 7.021 pointing out that to avoid confusion, the phrase “promissory warranty”
should be the collective expression for all warranties while the terms “present” and “continuing”
are best taken as referring respectively to those concerning present facts and those by which the
35 Cf, eg, Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103
(A). The warranty may be breached not only by the insured not keeping any books, or not
locking them in the safe, but by not keeping proper books: Abrahamson v Guardian Assurance Co
Ltd (1907) 24 SC 594, (1907) 17 CTR 955 where the books the insured produced after the fire
were not proper as they contained grave inaccuracies, unexplained erasures and were slovenly
kept and untrustworthy in other respects for the purpose of showing the amount and value of
the stock the time of the fire.
38 Eg, an answer to a question in the proposal form cast in the present tense will not readily be taken to amount to
a promissory warranty; clear terms may be required to import an element of
futurity.
39 Clarke et al Contracts par 20.5, explaining that a warranty is construed as being of a continuing nature only if
the words used admit of no other construction, or if the warranty would have no
299
insured’s knowledge or opinion a certain fact or state of affairs does or does not
exist. 40 The warranty is breached only if the insured incorrectly represented not the
fact or state of affairs, but his knowledge or opinion as to it, that is, if his knowledge
was otherwise than he held it out to be or if he did not hold that opinion. Put
differently, the insured has to lie, and not simply be wrong, before the warranty is
measure. 41
C. BREACH OF WARRANTY
Time of breach
15.32 An insurer is entitled to cancel the insurance contract as from the time of
breach of a warranty and is accordingly not liable for losses occurring after the
be true or correct is not true or correct at the time when it was made. Thus, if untrue
or incorrect, the breach has already occurred or occurs already when the contract is
concluded. In consequence, the insurer, should it cancel the contract, will not be
liable on it at all. A promissory warranty, again, is breached when the insured does
not perform what he had undertaken to do, and that may have occurred on, or only
occur after, the conclusion of the contract. Hence, an insurer who elects to cancel
the contract will not be liable for losses occurring after the breach, but only for such
15.34 There is breach of warranty only once the insured has actually breached the
term in question; a mere intention to do so, even if manifested, will not suffice. 43
Proof of breach
15.35 Breach of an insurance warranty constitutes breach of contract and the general
principles relating to breach of contract should also apply in that case. The burden of
proving a breach of warranty rests on the party alleging such breach, the insurer.
That is so whether the breach involves the untruthfulness of the insured’s pre-
________________________
40 Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T) 356–357; Roome v Southern
Life Association of Africa 1959 (3) SA 638 (D) 642 (where a distinction was drawn between
“true” in the “absolute sense of accurate” and “true” in the “moral sense”); Heslop v General
Accident, Fire and Life Assurance Corporation Ltd 1962 (3) SA 511 (A) 515H.
42 Rather, after the insurer had cancelled it and notified the insured of its election: see 15.66.
44 See, eg, Norwich Union Fire Insurance Society Ltd v SA Toilet Requisite Co Ltd 1924 AD 212 225; Gangat v
The Licenses and General Insurance Co Ltd, Gangat v SA National Trust and Assurance Co Ltd
1933 NPD 261; Pretorius v Aetna Insurance Co Ltd 1960 (4) SA 74 (W) 75; Kliptown Clothing
Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A) 106; Merchandise
Exchange (Pty) Ltd v Eagle Star Insurance Co Ltd 1962 (3) SA 113 (C); Auto Protection Insurance Co
Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) 354; Pillay v SA National Life Assurance Co Ltd 1991
(1) SA 363 (D) 365; cf also Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1963 (1) SA 632
(A) 645.
300
Warranties
15.36 The insurer has to prove the breach on a balance of probabilities, whether that
15
paragraphs
15.38 A relative warranty is framed in general terms and does not specify in detail 15.31–15.39
what is required of the insured. An absolute warranty, according to its tenor, leaves
no doubt as to what is required. The language of the warranty must in both cases first
be interpreted47 to ascertain its scope. Only then must the conduct of the insured be
assessed to ascertain whether or not he has complied with the provisions of the
warranty.
insured is required to comply with the warranty to a substantial degree. What may be
reasonable person. 48
________________________
45 In Everton v Compass Insurance Co Ltd, unreported (T), (2007) 10 Juta’s Insurance L Bul 111, the insured had
undertaken to keep the insured vehicle in a roadworthy condition as provided for
by the applicable legislation. The insurer proved that the vehicle was not roadworthy as tyre
tread at the time of the accident was less than the permissible limit. That sufficed, and the court
thought it irrelevant that the vehicle, with those tyres, was subsequent to the accident issued with
a roadworthy certificate by the statutory testing agency. But cf Swanepoel v Auto and General
Insurance Co Ltd, unreported (T), (2007) 10 Juta’s Insurance L Bul 44 (the insurer failing to meet
the burden of proof to establish that the condition of its tyres rendered a vehicle unroadworthy);
Witbooi v Leandra Transport CC, unreported, (WCC), (2010) 13 Juta’s Insurance L Bul 232 (as
“unroadworthiness” was in the policy defined with reference to the objective standard contained
in the applicable road-traffic legislation, the possibility of a strict interpretation against the
insurer was much reduced).
46 See, eg, Aviation Insurance Co of Africa Ltd v Burton Construction (Pty) Ltd 1976 (4) SA 769 (A) 775B;
Imprefed (Pty) Ltd v American International Insurance Co Ltd 1983 (3) SA 335 (A) 341H;
General Chemical Corporation (Coastal) Ltd v Interskei (Pty) Ltd 1984 (3) SA 240 (D); Fulton v Waksal
Investments (Pty) Ltd 1986 (2) SA 363 (T). As to the interpretation of warranties in English law,
47 For interpretation, see again ch 10. The leading case on the interpretation of (a warranty
contained in an iron safe clause in) an insurance contract, remains Kliptown Clothing Industries
(Pty) Ltd v Marine and Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A). The following are a few
of the multitude of other decisions in which the precise meaning of an insurance warranty was in
issue: Ehrig and Weyer v Transatlantic Fire Insurance Co 1905 TS 557; Morris v Northern Assurance Co
Ltd 1911 CPD 293; Lewis Ltd v Norwich Union Fire Insurance Co Ltd 1916 AD 509; National Bank of
SA Ltd v Royal Exchange Assurance Co Ltd 1917 WLD 100; Norwich Union Fire Insurance Society Ltd v
SA Toilet Requisite Co Ltd 1924 AD 212; Fouche v The Corporation of the London Assurance 1931 WLD
145 154; Gangat v Licenses and General Insurance Co Ltd, Gangat v SA National Trust and Assurance
Co Ltd 1933 NPD 261; Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353
(T) 360; Aviation Insurance Co of Africa Ltd v Burton Construction (Pty) Ltd 1976 (4) SA SA 769 (A);
Turdeich v National Employers’ General Insurance Co Ltd 1982 (2) SA 219 (C); Imprefed (Pty) Ltd v
American International Insurance Co Ltd 1983 (3) SA 335 (A); General Chemical Corporation (Coastal)
Ltd v Interskei (Pty) Ltd 1984 (3) SA 240 (D); Fulton v Waksal Investments (Pty) Ltd 1986 (2) SA 363
(T); Theodorides v AA Mutual Assurance Association Ltd 1986 (3) SA 906 (O); DS Yates t/a Double Y
Charters v Coin Security Group (Pty) Ltd, unreported (T), (1999) 2 Juta’s Insurance L Bul 134.
48 See, eg, Pretorius v Aetna Insurance Co Ltd 1960 (4) SA 74 (W); Auto Protection Insurance Co Ltd v Hanmer-
Strudwick 1964 (1) SA 349 (A) 356; Aetna Insurance Co v Dormer Estates (Pty) Ltd 1965 (4)
SA 656 (N) 659–660; C and B Motors (Pty) Ltd v Phoenix of SA Assurance Co Ltd 1973 (3) SA 919
(W) 923E; Kali v Incorporated General Insurances Ltd [1976] 2 All SA 443 (D); 1976 (2) SA 179 (D)
185; Aviation Insurance Co of Africa Ltd v Burton Construction (Pty) Ltd 1976 (4) SA 769 (A) 775;
Marine and Trade Insurance Co Ltd v Van Heerden 1977 (3) SA 553 (A) 559; Fulton v Waksal
( continued)
301
efficient condition, he is required to take the steps necessary to keep the vehicle in a
state that the ordinary reasonable person would consider adequate for the purpose of
negotiating the hazards normally encountered on the roads; the vehicle need not be
that he enjoys good health, the insured is merely required to show that he enjoys
reasonably good health, not that he was without any complaints at all. 50 Furthermore,
if an insured warrants that he will take all due precautions for the safety of insured
adequate. 51
15.41 Likewise, if no time has been stipulated within which the insured should
perform a promissory warranty, the insured must perform his obligation within a
reasonable time. 52 In cases of this nature the courts take the view that the insurer is
entitled to cancel the contract, whether fully or in part as regards a particular claim,
only if the insured fails to carry out the obligation within a reasonable time. 53
15.42 By contrast, if the warranty is, by its terms, absolute, that is, specific in its terms,
________________________
Investments (Pty) Ltd 1986 (2) SA 363 (T). In Kliptown Clothing Industries (Pty) Ltd v Marine and
Trade Insurance Co of SA Ltd 1961 (1) SA 103 (A) 109 the court interpreted the standard iron safe
clause, which lacks detail in certain respects, so as to require the insured to act in accordance
with proper accountancy practice. It may happen that the policy imposes a lesser obligation:
49 Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A). However, in Imprefed (Pty) Ltd v
American International Insurance Co Ltd 1983 (3) SA 335 (A) the court interpreted a warranty
requiring the insured to “maintain [the vehicle] in efficient condition” as an absolute warranty.
This case was applied in General Chemical Corporation (Coastal) Ltd v Interskei (Pty) Ltd 1984 (3) SA
240 (D) where, in a business insurance policy, the court took the view that a warranty according
to which the insured was to maintain the insured vehicle in an efficient and roadworthy
condition, required the insured to use a vehicle that was sufficiently efficient and roadworthy to
perform its allotted task and further also to examine the vehicle at reasonable intervals during
the journey. These two decisions lay down that the insured must see to it that the object
concerned is kept in an efficient condition and cannot simply be content with reasonable
measures to achieve the desired result. However, the meaning of “efficient and roadworthy
condition” was not pertinently in issue and it is clear that the general view remains that the
warranty in question is not absolute but flexible or relative and that an element of
reasonableness is required: Fulton v Waksal Investments (Pty) Ltd 1986 (2) SA 363 (T) 371E.
50 Beyers’ Estate v Southern Life Association 1938 CPD 8 16; Roome v Southern Life Association of Africa 1959
(3) SA 638 (D) 643D.
51 C and B Motors (Pty) Ltd v Phoenix of SA Assurance Co Ltd 1973 (3) SA 919 (W).
52 Norris v Legal and General Assurance Society Ltd [1962] 4 All SA 422 (C); 1962 (4) SA 743 (C); Russell and
Loveday v Collins Submarine Pipelines Africa (Pty) Ltd [1975] 1 All SA 341 (A); 1975 (1) SA 110 (A).
53 O’Flynn v The Equitable Fire Insurance and Trust Co, Joseph and O’Flynn v Commercial Assurance Co
(1866) 1 Roscoe 372 and the authorities mentioned in n 46 and n 47. In this respect insurance
law may be out of step with general contract law normally requiring a pre-cancellation notice of
54 Sacks v Western Assurance Co 1907 TH 257 259; Morris v Northern Assurance Co Ltd 1911 CPD 293
304; Lewis Ltd v Norwich Union Fire Insurance Co Ltd 1916 AD 509 515; National Bank of SA Ltd v
Royal Exchange Assurance Co Ltd 1917 WLD 100 108; London and Scottish Assurance Corporation Ltd v
Venter 1923 OPD 209 222; Norwich Union Fire Insurance Society Ltd v SA Toilet Requisite Co Ltd 1924
AD 212 222; Broli v London Assurance Co 1931 EDL 186; Fouche v The Corporation of the London
Assurance 1931 WLD 145 154; Beyers’ Estate v Southern Life Association 1938 CPD 8; Maze v Equitable Trust
and Insurance Co of SA Ltd 1938 CPD 431; Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA
376 (T); 1957 (1) SA 353 (T); Roome v Southern Life Association of Africa 1959 (3) SA 638 (D); Cole
v Bloom 1961 (3) SA 422 (A); Heslop v General Accident, Fire and Life Assurance Corporation Ltd 1962
(3) SA 511 (A); Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E).
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Warranties
affirmative warranty, nearly true is the equivalent of totally wrong; the statement
15.43 Thus, if, in the case of a promissory warranty, a particular time has been
stipulated within which the insured should perform the warranty, 56 the insured must
carry out his obligation within the time stipulated, or otherwise suffer the
15
paragraphs
15.40–15.45
Rectification of breach
insured has wrongly warranted that he has a driver’s licence, he cannot rectify his
temporary breach, rectified prior to the occurrence of loss, may not avail the
insurer. 59
General
15.45 A warranty imposes a strict and absolute duty on the insured to provide true
and correct information where such information was warranted to be true and
would do.
________________________
55 Cf Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3 EDC
271; Oblowitz Bros v Norwich Union Fire Insurance Society Ltd, Oblowitz Bros v Guardian Assurance Co
Ltd 1924 CPD 349 357; Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E) 241. However,
mere slip about a first name would, eg, not be held to vitiate an answer given, as long as the
answer was in substance true and unambiguous: Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA
56 Eg, if, as a “condition precedent” to the insurer’s liability (see again 15.31 as to whether that turns the term into
a vital term of the insurance contract), the insured is required to report a
theft to the police immediately ( Johnson v Incorporated General Insurances Ltd [1983] 3 All SA 255
(A); 1983 (1) SA 318 (A)), or if the insured is required to give written notice as soon as possible
after an event that may give rise to a claim ( Norris v Legal and General Assurance Society Ltd [1962]
4 All SA 422 (C); 1962 (4) SA 743 (C); Russell and Loveday v Collins Submarine Pipelines Africa (Pty)
57 Norwich Union Fire Insurance Society Ltd v SA Toilet Requisite Co Ltd 1924 AD 212 217.
58 Maze v Equitable Trust and Insurance Co of SA Ltd 1938 CPD 431 438. The reason is that he warrants that the
time of the commencement of the insurance (or least the time when the
representation was made to the insurer), he had such a licence. Obtaining one later cannot
59 At least if a causal link between breach and loss is required (as to which see 15.51–15.54), in which case
rectification may make such a causal link impossible. Thus, the breach of an
undertaking to keep the vehicle in a roadworthy condition during the currency of the insurance
(the insured wakes up one morning to find that the brakes of his insured vehicle have failed),
may be rectified prior to the loss, in which case the insurer will not be able to cancel the contract
and avoid liability merely because, some stage during the period of insurance, the vehicle had
not been in a roadworthy condition. In English law, given the automatic cancellation of the
303
to innocent mistake, 60 inadvertence, 61 false information supplied by others, 62 a lack of knowledge, 63 or the
fault of a third party. 64 Likewise, it is not relevant whether the insured acted in good or bad faith, that the breach
did not actually increase the risk,
that the insured had no control over its breach, or that the insured remedied it prior
to any loss. It is also not required that the insured be aware of the creation, existence
warranty nor the absence of fault66 on the part of the insured provides any
15.47 The English position67 that a warranty is breached and (previously entitled the
insurer to cancel but now) automatically terminates the insurance contract even
though the warranty is not material to the risk nor its breach relevant to the loss
claimed, has been described as “controversial and out of line with the corresponding
15.48 Given these strict requirements for compliance, warranties have often been
the insurer as the drafter of the warranty69 is justified. Thus, compliance with relative
15.49 It is also possible that a warranty may in appropriate cases be held not to apply
to all the sections of a multi-section policy that provide different types of cover for
different subject matters, as is often the case with comprehensive insurance contracts,
________________________
62 Broli v London Assurance Co; Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353
(T) 358.
63 Beyers’ Estate v Southern Life Association 1938 CPD 8 (where the insured warranted that he was in good
health whereas he suffered from cancer, a fact that his doctor had concealed from him);
Roome v Southern Life Association of Africa 1959 (3) SA 638 (D); Heslop v General Accident, Fire and
Life Assurance Corporation Ltd 1962 (3) SA 511 (A). As to whether warranties as to health are of
64 Thus, the insured cannot escape the duty imposed by a warranty in his insurance contract by
entrusting the performance of the warranty to others: Oblowitz Bros v Norwich Union Fire Insurance
Society Ltd, Oblowitz Bros v Guardian Assurance Co Ltd 1924 CPD 349 354.
65 Unless that means that because of the absence of not only actual but also constructive knowledge on the part of
the insured, the warranty was not in effect a term of the insurance contract:
66 Cf Imprefed (Pty) Ltd v American International Insurance Co Ltd 1983 (3) SA 335 (A); Labuschagne v Fedgen
Insurance Ltd 1994 (2) SA 228 (W) 237C (“it matters not that the insured innocently
69 That is so whether the warranty is an actual term in the insurance contract or is based on a question posed by
the insurer in its proposal form.
70 See 15.36–15.43.
71 As to terms describing or delimiting the risk, see 13.45–13.51, Lawsa Vol 12 Part 2 par 36. See further Merkin
et al Colinvaux pars 5.021, 7.034 (“suspensory provisions”); Clarke et al Contracts
par 20.1E; Birds Birds’ Modern Insurance Law par 9.8. Of course, while such terms may clearly
merely describe or delimit the risk (see, eg, Botha’s Trucking v Global Insurance Co Ltd [1999] JOL
4496 (T); 1999 (3) SA 378 (T), reversed on appeal in Global Insurance Co Ltd v Botha’s Trucking
2001 (4) SA 1347 (T)). See further Lawsa Vol 12 Part 2 par 44 n 12.
304
Warranties
and would entitle the insurer, in the event of breach, to avoid only the relevant
section to which the breached warranty applied and not the contract as a whole. 72
Clearly, a warranty contained only in one section or schedule of the policy, rather
than in a part of it containing terms of general application to all sections, may more
15
paragraphs
15.46–15.52
15.50 At common law, it was irrelevant that the warranty concerned a matter not in
any way affecting the risk covered by the insurance contract in question. 75 This
position has now been altered and materiality is now required by statute, at least in
15.51 Following English law, South African courts have held that to rely on the
breach of an insurance warranty it is not necessary to establish that the breach was
causally connected with the event insured against and hence that it caused or
requires the insured to lock all doors and windows when not at home, a breach
occurs if the insured neglects this duty on a particular occasion, even if the doors and
windows are in fact locked when the loss (by theft facilitated by breaking the
windows, say) occurs, 78 or even if the fact that they are not locked at that time is in no
way connected with the loss (caused by fire, say) which would have occurred in any
case.
15.52 It is open to question whether this result should be regarded as equitable79 and
________________________
72 See, eg, Merkin et al Colinvaux par 7.042 discussing the divisibility of the policy, and the divisibility of the
warranty between co-insured; Birds Birds’ Modern Insurance Law par 9.7.
73 Thus, a warranty as to the installation and maintenance of a burglar alarm in a schedule dealing with cover
against theft, if breached, may not entitle the insurer to avoid liability for loss by fire
75 SA Eagle Insurance Co Ltd v Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) 124H. For English
law, see Merkin et al Colinvaux par 7.041.
77 Calf v Jarvis & Others (1850) 1 Searle 1 (the court not commenting on the argument for the insured that it was
relevant that the breach of warranty did not cause the loss); Gordon v
Transatlantic Fire Insurance Co 1905 TH 146 (irrelevant that the insured’s breach of warranty by
not keeping books in an iron safe did not cause the insured’s loss nor was detrimental to the
insurer given that the books, although not kept in a safe on the premises – the insured did not
have one there – were kept away from the premises and were not destroyed by the fire); SA Eagle
Insurance Co Ltd v Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) 124H.
78 Cole v Bloom 1961 (3) SA 422 (A); Fulton v Waksal Investments (Pty) Ltd 1986 (2) SA 363 (T) 365.
79 In Forsikringsaktieselskapet Vesta v Butcher, Bain Dawes Ltd and Aquacultural Insurance Service Ltd
[1989] 1 Lloyd’s Rep 331(HL) 335 the absence of any requirement of a causal connection
between breach and loss was described as “one of the less attractive features of English insurance
law”. See also Merkin et al Colinvaux par 7.041; Birds Birds’ Modern Insurance Law par 9.1 n 7
questioning the continued value of freedom of contract as a justification for the rule.
80 Van Bynkershoek Observationes tumultuariae obs 1290 and obs 2493; Van Bynkershoek Quaestiones Juris
Privati 4.6 and 4.9; Van der Keessel Praelectiones 3.26.6 (155, 157). The difference in this
regard between English law, on the one hand, and Continental systems, including Roman-Dutch
law, on the other hand, is readily apparent if, first, the decision on the seaworthiness of a ship,
referred to by Van Bynkershoek in obs 1290 and Van der Keessel’s example of the manning of a
( continued)
305
condition. If the warranty is broken because the vehicle’s tyres become badly worn,
and it is involved in an accident because the driver lost control in wet conditions,
there is clearly a link between the breach of the warranty and the subsequent loss. In
such a case, doubtlessly, the insurer will be able to rely on the breach to cancel the
contract and to avoid liability for the loss. But should the vehicle be stolen from
where it is parked, its unroadworthy condition is totally unrelated to the loss. 81 Under
English law, the insurer would be able to avoid liability for the loss because of the
15.54 It is possible that a causal nexus, or indeed also materiality, or at least some
insurance contract may limit the insurer’s rights on a breach of warranty to cases
Waiver
15.56 Compliance with an insurance warranty may be waived by the insurer, or the
insurer may waive, or be estopped from relying on, a breach of a warranty. 84 Put
differently, the insurer may waive either the warranty or the breach of the warranty:85
in the former case the insurer cannot rely on the warranty and hence non-
compliance does not amount to a breach; in the latter case it cannot rely on the
15.57 Such waiver may be by means of a term in the insurance contract itself. 86
the proposal for an insurance contract – that is, in the case of breach of an
affirmative warranty – the question arises what the position would be if the contract
were to be renewed87 and if, by the effluxion of time, the incorrect original answer
________________________
ship, are compared to the decision in De Hahn v Hartley (1786) 1 Term Rep 343, 99 ER 1130; and
if, secondly, the decision referred to by Van Bynkershoek in obs 2493 on the duty to sail with a
convoy is compared to the decision in Hibbert v Pigou 1783 3 Dougl 224, 99 ER 624. See further
Van Niekerk Insurance Law in the Netherlands Vol II 955–991, especially 986; Van Niekerk 1999
81 Discerning thieves may even for that reason not have stolen the vehicle earlier.
83 Marine Insurance Act, 1906 s 34(1); Merkin et al Colinvaux par 7.045; Clarke et al Contracts pars 20.6B2
(expressing doubts about the application of this defence to impossibility in the case of
84 For waiver and estoppel, see 22.92–22.117. The position in English law after the decision in The Good Luck
(see 15.4–15.5) must now be approached with extreme caution.
86 Eg, a term stating that the insured will be “held covered” a, or an additional, premium to be agreed in the event
of a breach of warranty, or in the case of an indisputability clause in a life
policy in terms of which the insurer undertakes not to dispute claims otherwise than on the
ground of fraud.
87 See also 8.33, Lawsa Vol 12 Part 1 par 206 for good faith and the renewal of the insurance contract, and for
misrepresentation and renewal, respectively.
306
Warranties
has become correct or, even worse for the insured, the answer originally correct has
become incorrect. 88
15.59 Insurance contracts other than life insurance are ordinarily concluded for a
single period of insurance. Renewal of an existing policy for a further period, say by
new insurance contract. 90 It entirely replaces the contract that has expired, although
15
it is invariably concluded on the same terms as the old one. 91 Where the original
paragraphs
contract is based on a proposal containing questions with answers warranted by the 15.53–15.62
insured, the insured must upon renewal be considered to have answered the
questions afresh, namely, as part of a new proposal. 92 For the purpose of enquiring
renewed contract, the correctness of the insured’s warranted answer must therefore
15.60 In English law there is authority for the view that warranties based on
15.61 This principle cannot be applied to a life insurance contract or any other
continuing insurance contract since, on the faith of the original representations, the
insured is given rights which the insurer cannot take away or alter during the
15.62 It has been suggested that the validity of an insurance contract depends upon
the proper performance of the warranties contained in it and that the observance of
________________________
88 Eg, in year one the insured incorrectly represents that he has not had an accident in the past year as he had.
When the contract is then renewed for another year, invariably on the same
terms as before (including his warranty as to the absence of accidents in the past year), the
representation is no longer incorrect as the past accident is now one that happened two years
ago, and not in the past year. The opposite is, of course, also possible: a correct representation
in one year may become incorrect in the next year.
90 Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 396, 399. In Jordan v New Zealand
Insurance Co Ltd 1968 (2) SA 238 (E) 242E, the court observed that the case before it was “not a
case akin to lease where there is tacit renewal by payment of further rent. The period of cover is
in fact an indefinite one, subject only to payment and acceptance of the premium annually.”
This contract before the court was a simple motor insurance policy and this observation appears
to be in conflict with Whyte’s Estate v Dominion Insurance Co of SA Ltd and with general principles.
See also Hollard Insurance Co Ltd v Leclezio 1999 (4) SA 130 (N) 135I.
93 See the discussion on Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 396 and Jordan v New
Zealand Insurance Co Ltd 1968 (2) SA 238 (E) in Lawsa Vol 12 Part 2 par 49 n 7.
307
a warranty is a condition precedent to the insurer’s liability. 96 In the same vein it has
been said that breach of warranty will avoid the insurance contract. 97
15.63 This way of expressing the effect of a breach of a warranty is rather cryptic. It
obscures the fact that in South African law98 the contract is neither voided or
warranty, but that in appropriate circumstances the insurer as the innocent party
of a warranty is nothing other than a breach of contract which gives rise to the
normal remedies; it cannot serve as the basis for a condictio indebiti. 100
Appeal observed, pertinently even if probably obiter, that the breach of a warranty in
an insurance contract does not render the contract automatically “void”, but merely
entitles the insurer an election to cancel the contract and so to avoid liability for a
claim (arising after the breach) brought against it on that contract. It further agreed
that old authorities defining a warranty as a statement or stipulation upon the exact
misleading”. 102
contract, where the insurer is entitled to cancel the contract in its entirety, is that the
contract is regarded as cancelled with retrospective effect from the moment the
breach occurred. This means that if breach of an affirmative warranty has occurred,
the insured is not entitled to claim for any loss in terms of the contract. 103 Where an
insured is in breach of a promissory warranty, all the claims arising prior to the
breach are fully recoverable, while claims arising after the breach may be avoided by
the insurer. 104 This seemingly holds true even if the claims arose after the breach but
15.66 However, these consequences cannot be reconciled with the general principles
of the law of contract105 in terms of which cancellation of a contract takes effect only
when the guilty party is informed of the cancellation. There seems to be no reason
why insurance law should not be brought into line with the general principles of
________________________
96 Cf,
eg,
Sacks v Western Assurance Co 1907 TH 257 260 (but see 259); Lewis Ltd v Norwich Union Fire
Insurance Co Ltd 1916 AD 509 515. These statements simply followed and referred as authority
97 See,
eg,
Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co (1883) 3
EDC 271. The use of terminology such as “void” or “voidable” is, of course, common in our law
in the case of mistake and misrepresentation, but not in connection with breach of contract.
(Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 (1) SA 399 (A) 415.
100 Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T) ; 1957 (1) SA 353 (T).
101 [2005] JOL 15610 (SCA) ; 2006 (1) SA 488 (SCA) 493. The court here thought that the terms
in question which pertained to premium payment, although called “warranties”, were not in re-
ality warranties.
102 For the contrast beween cancellation for breach and rescission for misrepresentation, and
103 For the effect of misrepresentation, see 8.132–8.147, Lawsa Vol 12 Part 1 par 191.
104 Cf Sydmore Engineering Works (Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 (1) SA 478 (W). See also
Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA
105 For the general principles, see Van der Merwe et al Contract 343–357.
106 See Reinecke “‘Conditions’ en ‘Warranties’” 96 for further arguments on this point.
308
Warranties
requires a decision by the insurer to cancel the contract and a notice to the insured
that the contract has in fact been cancelled. The notice may be given in any way
therefore brought about by a declaration of intent by the insurer and the sanction of
the court is not required, although a court may be asked to decide whether or not the
contract has been cancelled lawfully. However, a contracting party may request
15
paragraphs
15.62–15.72
15.68 The insurer may exercise its right to cancel at any time and it need not await a
claim from the insured in order to deny its liability in terms of the contract. Once the
insurer has lawfully cancelled the contract in its entirety, it is entitled to recover what
it has performed, 109 including a return of the policy. 110 In turn, of course, the insurer must restore what it has
received. 111 However, it is not a prerequisite for a valid
cancellation that the insurer tenders the return of the premium. 112
15.69 The insurer loses its right to cancel the contract on the ground of breach of a
15.70 Should an insurer purport to cancel the contract where it has no right to
Introduction
at all on the risk insured against under the contract in question. 115 This gave rise to a
suggestion that many policies were not worth the paper on which they were
printed. 116
kind, are created, 117 very often sets a trap for the unwary and uninformed insured. 118
________________________
107 Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T).
108 The advantage of such a step is that it avoids the possibility of committing breach of contract in the form of
repudiation.
109 Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA 376 (T); 1957 (1) SA 353 (T). The condictio indebiti is
not available in these circumstances, but the insurer is entitled to claim restitution.
110 Colonial Mutual Life Assurance Society Ltd v De Bruyn 1911 CPD 103.
111 Yorkshire Insurance Co Ltd v Ismail 1957 (1) SA 353 (T) 361. For the effect of fraud in the form of intentional
misrepresentation on rescission, see 8.97, 8.132–8.147, Lawsa Vol 12 Part 1 par 191
115 Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E).
116 Boberg 1966 SALJ 220.
118 In John v North British and Mercantile Insurance Co (1902) 19 SC 414, (1902) 12 CTR 771, eg, the insured
in an application for fire insurance on goods left unanswered – observe, he did not answer “No” – a question in the
proposal form as to whether any risk of his had been declined or
cancelled by any other insurer. In the body of the policy subsequently issued to and accepted by
the insured, there appeared conspicuously and underlined with red ink that the insured was
“not insured in or declined by any other company”. The court held that the words in question
constituted a clear warranty that was binding on the insured, despite the fact that he was a for-
( continued)
309
15.73 There was also a time when, in England, the opinion was held, despite
criticism, 119 that reputable insurers did not avail themselves of a mere technical
defence to defeat an honest claim and that there was therefore no real need to
15.74 In South Africa it became evident that some insurers did not abide by this
moral principle but insisted on strict adherence to the terms of the insurance
contract. 121 This led to statutory intervention in 1969 with the insertion of section
63(3) into the Insurance Act. 122 When the latter Act was repealed in 1998, the
provisions of section 63(3) were taken over and re-enacted, without any amendment
as to substance, 123 in section 59(1) of the LTIA and in section 53(1) of the STIA. In
15.75 In its current form section 59(1)(a) of the LTIA and section 53(1)(a) of the
STIA provides:125
policy, whether entered into before or after the commencement of this Act, . . .
(ii) the obligation of the [long-term or short-term] insurer thereunder shall not be
disclose information, whether or not the representation or disclosure has been war-
to be likely126 to have materially affected the assessment of the risk under the policy
concerned at the time of its issue or at the time of any variation thereof.”
15.76 The aim of the measure, it has been said, is “to protect claimants under
________________________
eigner, not well versed in the English language, and had presumably accepted the policy sub-
ject to the warranty in ignorance of the fact that the warranty had phoenix-like arisen from the
proposal form and now appeared in the policy itself. The warranty had been broken because
the insured had in fact had a previous claim, even though, on a true interpretation, his state-
ment (or rather, non-statement) in the proposal form did not suggest otherwise: his “answer”
may equally well have been taken to mean that he did not understand the question or did not
119 See, eg, Joel v Law Union and Crown Insurance Co [1908] 2 KB 863 (CA) 885.
120 Cf Colinvaux 5 ed (1984) par 6.15. The statement was not repeated in later editions.
121 Cf Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E), where the insured’s incorrect representation
as to his age was actually to the advantage of the motor-vehicle insurer; he held
himself out to be younger and hence, in the context of motor-vehicle insurance and with the
age bracket in question, to pose a greater risk than he actually did (see Lawsa Vol 12 Part 2 par
49 n 7).
122 27 of 1943. This section was added to the Insurance Act by the Insurance Amendment Act 39 of 1969 s 19,
which came into force on 25 April 1969.
123 In Joubert v ABSA Life Ltd 2001 (2) SA 322 (W) 327B it was observed that earlier authority on s 63(3) may be
applied equally to the equivalent measure in the LTIA as there was no material
124 By the Insurance Amendment Act 17 of 2003 ss 19 and 35 respectively, which largely retained the format of
the existing measures but added a statutory formulation of the test for materiality
to be applied. The statutory measure is also discussed, somewhat more broadly, in 8.107–8.115.
125 The minor differences between ss 59(1)(a) and 53(1)(a) are not relevant for present purposes.
126 Insurance Act 27 of 1943 s 63(3) read: “unless the incorrectness of such representation is of such a nature as to
be likely to have materially affected the assessment of the risk”.
127 Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A) 74B.
310
Warranties
technique, the measure is “no model of clarity” 128 and, as both the courts and
academic writers point out, does not go far enough and is in need of fundamental
reconsideration and revision. 129 This is still the case even after the attempt at improve-
Retrospective effect
15
paragraphs
15.78 The statutory measure has expressly been given retrospective effect. The 15.73–15.80
consequences that such retrospective effect may have had for claims based on short-
term insurance contracts concluded before section 63(3) of the Insurance Act and its
successors were proclaimed, need not be considered, since any such claims must have
must still exist, unaffected by prescription, 131 under long-term insurance contracts
concluded prior to the introduction of the statutory provision. In these cases the
retrospective effect of the measure means that the claims cannot be defeated on
Representations
15.79 The way the legislature chose to go about preventing unfair reliance by
remedy at all132 on account of any representation made to the insurer which was not
true, whether or not it was warranted to be true, unless the representation was
material. 133
15.80 The insured cannot contractually waive the protection afforded by the
measure134 and the measure therefore overrides any agreement between the parties to
the contrary. 135
________________________
128 Above; Clifford v Commercial Union Insurance Co of SA Ltd 1998 (4) SA 150 (SCA) 158C 159A (“imprecise
legislation”).
129 Eg, Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 371; SA Eagle Insurance Co Ltd v
Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) 126E–F; Clifford v Commercial Union
Insurance Co of SA Ltd 1998 (4) SA 150 (SCA) 159A; Van Niekerk 1991 SA Merc LJ 114; Van
Niekerk 1999 TSAR 584 591–592; Reinecke 2001 SA Merc LJ 70; Havenga 2001 SA Merc LJ 281.
131 Prescription starts to run only when a debt is due: Prescription Act 68 of 1969 s 12(1). See also 22.66–22.73.
132 It is clear that the insurer can claim neither cancellation of the contract nor damages. This may be deduced
from the fact that “the policy shall not be invalidated” [sic] and that the obligation
of an insurer in terms of it “shall not be excluded or limited” and “the obligations of the poli-
134 This is the effect of the opening words “[n]otwithstanding anything to the contrary in con-
“conditions precedent” will likewise be nullified. The concept “policy” is not defined in either
the LTIA or STIA other than in terms of the types of policy covered by these two Acts. It must
probably be taken to refer to the broader notion of insurance contract generally, and to in-
clude not only the policy itself but also other documents such as the proposal form and en-
dorsements. The previous Insurance Act s 63(3) referred in this regard to the policy “or any
135 See, eg, Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 366G (the effect of the statutory
measure was to trump a term in the insurance contract that the insurer was entitled to
avoid all liability under the contract on the basis of false information it regarded as relevant);
Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A) 73I (the provision excludes any
contractual right which an insurer may have to avoid liability on the basis of any misstatement
by the insured); Theron v AA Life Assurance Association Ltd 1995 (4) SA 361 (A) 376C.
311
15.81 The current legislative measures, 136 like their predecessor, 137 focus on
“representations” 138 and deal with warranties and conditions rather obliquely. They
refer to a representation which is not true “whether or not the representation . . . has
been warranted to be true”. The surprising and probably unintended effect of this on
15.82 To determine the scope of the statutory measure as regards warranties (ie,
statements of past and existing facts, or as embracing future eventualities. If the first
15.83 The basic meaning of the concept “representation” in the context of insurance
conclusion of the contract. 141 It is on the basis of the insured’s representations and
the insurer’s own knowledge that the insurer is able to estimate the risk involved and
to decide whether or not to accept the risk and, if so, on what terms and at what
premium. Representations by the insured usually refer to past or existing facts. Such
representations do not form part of the contract unless the insured has warranted
15.84 However, in its assessment of the risk, the insurer is guided not only by past
and existing facts but also by what may happen in the future: as far as the object of
risk as well as far as the insured’s conduct is concerned. It is therefore not surprising
that questions referring to the future are put to proposers for insurance and that
their answers are taken into account by insurers in their assessment of the risk. The
representation regarding the future. A representation can only form the basis of an
does not mean that such a representation cannot be the subject matter of a
by him in the proposal regarding his future conduct, for example that he will not
partake in dangerous sports, or that he will lock the insured motor vehicle in a garage
________________________
138 And after the 2003 amendments also on “non-disclosures”: see 15.93–15.96.
142 Ie, a person is not held liable merely because the representation regarding a future fact turns out to be
incorrect, although he may be held liable if the representation is no true account of
his own view. But see further Van der Merwe et al Contract 92; 15.29–15.31 as regards opinion
warranties.
312
Warranties
15.86 Even if the warranty does not result from a question and an answer in a
proposal form for insurance, but appears for the first time in the contract itself as a
containing the warranty, the insured represented that he would perform certain acts
in the future. By warranting that the act will be performed, the insured as warrantor
binds himself contractually to the effect that his representation will become true. A
15
paragraphs
15.87 Consequently, it may be argued, promissory warranties cannot as a general 15.81–15.92
rule be said to fall outside the scope of section 63(3) and its successors sections
15.88 Some of these arguments were considered but rejected in SA Eagle Insurance Co
Ltd v Norman Welthagen Investments (Pty) Ltd. 144 The Appellate Division held that in
unlike a term, does not become part of the insurance contract. 145 In the case before
the court, the promissory warranty was contained in one of the documents making up
the insurance contract146 and it was held to be neither a statement of fact nor even a
a proposal form signed by the proposer for insurance and addressed to the insurer
for its acceptance. In such a case the representation is clearly “made to the insurer” as
is required by the measure. In the present case the warranty was contained in the
policy and therefore emanated from the insurer that had stipulated in advance the
15.90 Accordingly, section 63(3) was held not to apply to the warranty and could
therefore not be relied upon by the insured when the insurer relied on its breach.
15.91 The result of this decision is that, as promissory warranties are not founded on
common-law effect. Therefore, it is not required that the facts or the subject matter
of such warranties must be material to the risk covered by the insurance contract.
15.92 Nevertheless, the effect of promissory warranties on the legal position of the
insured may still be reduced considerably if a causal link is required between the
breach of such a warranty and the occurrence of the event insured against. 148
________________________
143 See further Reinecke 1984 TSAR 95; Reinecke “‘Conditions’ en ‘Warranties’”.
144 1994 (2) SA 122 (A); for comments, see Reinecke 1994 TSAR 831.
145 South African Eagle Insurance Co Ltd v Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) 126.
The court also observed that this was the ordinary meaning of the word “representation”
and that it could not be given a wider meaning as legislation that cuts down common-law rights
(as did s 63(3) with insurers’ rights) has to be interpreted restrictively (126E).
146 It was taken up in what was referred to as a “memo” in the policy. The insured “warranted” that all insured
vehicles would be locked at all times outside business hours and that all keys would
be removed and kept in a locked safe. The warranty was breached in that the keys of the stolen
147 The court was not persuaded by the argument that by agreeing to the terms laid down by the
insurer, the insured had impliedly represented that it would comply with those terms; it had
“difficulty in seeing how the acceptance of an offer can be construed as a representation (in the
sense under consideration) that the offeree will perform his contractual obligations” (127F).
148 See 15.51–15.54 for the causal requirement. Whether the requirement of causal link would
have made any difference to the decision in South African Eagle Insurance Co Ltd v Norman
Welthagen Investments ( Pty) Ltd 1994 (2) SA 122 (A) is not clear. Although the warranty was
breached in that the stolen vehicle’s keys were not kept in a locked safe but merely in a cup-
board on the insured’s locked premises, the vehicle was in fact locked at the time of the loss
(124D). It does not appear from the report how the vehicle was stolen. If it was stolen without
( continued)
313
Non-disclosures
15.93 One of the refinements effected to the statutory measures under consideration
representations. Thus, the headings of the relevant sections were amended from
information”.
15.94 The relevant measures now also provide that an insurer would have no remedy
disclosure has been warranted to be true, unless the non-disclosure was material. 150
15.95 This addition was apparently made in an attempt to widen the scope of the
measures. 151
15.96 Apart from the fact that this addition overlooks the fact that ordinarily the
terms “misrepresentation” and “representation” 152 refer to and include both a positive
representation (a statement) and a negative representation (a non-disclosure), 153 it is
Materiality
15.97 Both Insurance Acts154 deprive an insurer of its common-law remedies for
to be likely to have materially affected the assessment of the risk under the policy
concerned” at the time of its issue or of any variation of it. Thus, the insurer will be
which has been warranted to be true, is material, 155 or if the failure to disclose
information, the disclosure of which has been warranted to be correct, is material. 156
itself, not to its untruthfulness or incorrectness. By contrast, the old section 63(3)
________________________
the keys, there was no causal link between the breach of the warranty and the loss; if it was sto-
len with the keys, such a causal link was in fact present.
149 By the Insurance Amendment Act 17 of 2003 ss 19 and 35 respectively which amended LTIA
151 And, it may be thought, to overcome the distinction drawn in Qilingele v SA Mutual Life Assurance Society
1993 (1) SA 69 (A) between positive and negative misrepresentations: see 15.100.
152 A “mis representation” is, of course, a delict, an unlawful incorrect representation, an incorrect representation
relating to a material fact; there is accordingly, no such thing as a misrepresentation relating to an immaterial fact,
just as there is no such thing as a lawful delict (“regmatige
onregmatige daad”). See again 8.17–8.19, 8.94–8.96 for an explanation of the requirement of ma-
153 And thus renders the new heading tautologous and wrong.
155 The decision in Labuschagne v Fedgen Insurance Ltd 1994 (2) SA 228 (W), to the effect that the insurer was
entitled to cancel the insurance contract for breach of an affirmative warranty without proving the materiality of
the insured’s misstatement in the proposal form, which was stat-
ed to form the basis of the contract, is therefore not correct. For some reason the court was not
referred to, nor did it consider, the effect of the then applicable Insurance Act 27 of 1943
s 63(3).
156 By requiring materiality for warranted representations (and non-disclosures), the legislature was, in a sense,
now requiring wrongfulness for a breach of an insurance warranty, just as
wrongfulness (in the form of materiality) had always been required for a reliance on misrepre-
sentation. See again 8.17–8.19, 8.94–8.96 for the equivalence in this context of materiality and
wrongfulness.
314
Warranties
be likely to have materially affected the assessment of the risk under the policy. The
effect, if any, of this subtle change has not yet been considered by the courts.
15.99 As far as the test for materiality itself is concerned, the amendments in 2003
sought to clear up a large measure of uncertainty that had arisen because of judicial
15.100 The position prior to the amendment in 2003, very briefly, 157 was as follows. It
15
paragraphs
was at first accepted that the reasonable person test for the materiality of facts or
true. 159 However, then, in interpreting the relevant measure, a distinction was drawn160
between cases where the ground for avoidance of the insurance contract is a failure
by the insured in his common-law duty to disclose material facts – where the objective
the truth of his representations founding the insurance contract and moreover did so
by way of warranty” 161 In the latter case a different test applied, namely a subjective
15.101 The application of two radically different tests162 to two situations not
distinguishable in principle, 163 created uncertainty164 and elicited cogent and justifiable judicial criticism. 165
Given this interpretation of the words “likely to have
materially affected the assessment of the risk”, it was clear that the measure had lost
________________________
157 For a more detailed analysis, see Lawsa Vol 12 First Reissue (2002) par 370. The position before 2003 may
still apply in Namibia: Channel Life Namibia (Pty) Ltd v Otto, unreported (Namibia SC),
158 Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality 1985 (1) SA 419 (A) 435H–I.
159 Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 367C–E (the legislation in question merely
altered the common law by requiring materiality also for representations warranted
to be true “[b]ut the materiality on which it insisted did not differ in essence . . . from the con-
cept of such [materiality] familiar to the common law” in the case of non-disclosures). See also
160 Theron v AA Life Assurance Association Ltd 1995 (4) SA 361 (A) 376E–I; Holtzkamp v SA Polisie
Versekeringsfonds, unreported (T), (1998) 1 Juta’s Insurance L Bul 55–58. See further Havenga
161 Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A) 74F.
162 The reasonable person test and the particular insurer test.
164 See, eg, Liberty Life Association of Africa Ltd v De Waal 1999 (4) SA 1177 (SCA) for an attempt to reconcile
the tests of the reasonable person and the particular insurer by formulating yet another test for materiality that
combined elements of these two tests.
165 See, in particular, the minority judgment in Clifford v Commercial Union Insurance Co of SA Ltd 1998 (4) SA
150 (SCA) 156. This criticism alluded to the apparent bias in favour of the insurer
inherent in a subjective test for materiality that was to apply in cases of positive misrepresenta-
tions; to the possible confusion of the elements of materiality and inducement; and to the fact
that the test drew a questionable distinction between positive representations (whether war-
ranted or not) and negative representations (non-disclosures), despite the fact that our law
draws no distinction in principle between the two. See also Van Niekerk 1998 SA Merc LJ 373.
166 The interpretation, it was said, did “not give effect to the purpose and import” of the measure: Clifford v
Commercial Union Insurance Co of SA Ltd 1998 (4) SA 150 (SCA) 156E; the purpose of
s 63(3) was “simply to detoxify the warranty by removing its potential for abuse, without outlaw-
ing its legitimate use” (157E) and “to improve the lot of the insured, not to worsen it or to give
with the one hand and to take away with the other” (158H).
315
15.102 In 2003, therefore, a statutory test for the requirement of materiality was
formulated in the following terms in section 59(1)(b) of the LTIA and section
168
prudent
representation or which was not disclosed, as the case may be, should have been
correctly disclosed to the insurer so that the insurer could form its own view as to
15.104 The test now statutorily laid down for materiality in all cases of
objective reasonable person test formulated in Mutual and Federal Insurance Co Ltd v
Defective as that test may be, 171 at least it applies now to all cases of misrepresentation
15.105 The insurer bears the burden of proving the materiality of a warranty, that is,
correct.
15.106 The LTIA and STIA173 provide for the further curtailment of the insurer’s
remedies in the case where the age of the life insured or insured has been incorrectly
stated to the insurer. These further measures are the successors of equivalent, but by
no means identical, measures in the previous Insurance Act174 and they provide for a
more severe curtailment of the insurer’s rights when an incorrect statement of age is
involved.
15.107 At common law an incorrect statement of age is clearly material to the risk
involved in certain insurance contracts, such as life and accident insurance contracts.
The requirement of materiality in section 59(1)(a) of the LTIA and section 53(1)(a)
of the STIA would therefore not have provided any protection for insured in such
cases. Provision has therefore been made for the adjustment, in appropriate cases, of
________________________
167 The minor differences between the two subsections are not relevant for present purposes.
168 It is not readily apparent if the addition of the word “prudent” to the reasonable person test adds anything to
the scope or meaning of the test.
171 Eg, the overtones of negligence inherent in the reasonable person test, while what is tested for here is not fault
but wrongfulness; the fact that in an attempt to be “super objective”, the test
has been plucked out of context and overlooks that what is tested for here is the materiality of a
representation “made to the insurer” not by any reasonable person or such a person in any situa-
tion, but by (a reasonable person in the position of) an insured. See further Van Niekerk 2004
SA Merc LJ 113, arguing that there is accordingly no difference between a reasonable person
172 Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 367A; Qilingele v SA Mutual Life Assurance
Society 1993 (1) SA 69 (A) 72I, 74C (the burden of proving the requisite elements
contained in the statutory provision and hence its right to avoid liability rests on the insurer);
Theron v AA Life Assurance Association Ltd 1995 (4) SA 361 (A) 377E; Clifford v Commercial Union
Insurance Co of South Africa Ltd 1998 (4) SA 150 (SCA) 155F; Liberty Life Association of Africa Ltd v
De Waal 1999 (4) SA 1177 (SCA) 1182C; Joubert v ABSA Life Ltd 2001 (2) SA 322 (W) 327B–C.
174 Insurance Act 27 of 1943 ss 49 (incorrect statement of age in a life policy) and 58(2) (incorrect statement of
age in a funeral policy).
316
Warranties
the policy benefits payable by the insurer. 175 The adjustment is either upwards or
15.108 In terms of section 59(2) of the LTIA and section 53(2) of the STIA, if the
age of a life insured under a long-term policy, 176 or of an insured under short-term
policies of accident and health, has been incorrectly stated to the insurer, the policy
15
benefits will, notwithstanding the provisions contained in subsection (1), be the same
paragraphs
as the benefits as if the age had been stated correctly. 177 However, if the nature of the 15.102–15.112
made for the registrar to direct the insurer to apply such different method of
F. CONCLUSION
Terminological uncertainty
15.109 Against the background of the South African law of contract, it does not seem
justified that English law on insurance warranties was adopted in South Africa.
amount of confusion.
15.110 Admittedly, the legislature has taken an important step forward by removing
is, to have some relevance to the risk taken over by the insurer.
Unsatisfactory features
15.111 Unfortunately the manner in which this was achieved was not in all respects
and by way of the law of misrepresentation, in the process the general principles
relating to the latter were largely ignored, and promissory warranties were not
brought within the scope of the legislative measures. The uncertainty that resulted
from the way in which the measures were formulated and interpreted as regards the
test for materiality, has now by further amendment been eliminated. Again, though,
warranties that are unsatisfactory and that require reform. These include the
________________________
175 The alternative method of leaving the policy benefits unaffected, but adjusting premiums, has not been
adopted. According to this method, the premiums actually paid under the contract
are adjusted to those that would have been payable if the age had not been misstated, and the
insurer is either permitted to recover from the insured any shortfall in premiums (in the case
176 As defined in LTIA s 1(1) sv “long-term policy”. The definition refers to assistance, disability, fund, health,
life and sinking-fund policies.
177 Cf also the position in German law where in terms of VVG art 157 the insurer’s liability is proportionally
adapted so that it corresponds with the benefit the agreed premium would have
secured had the correct age been stated. However, provision is further made for the possibility
of the insurer denying liability in full and avoiding the contract on account of non-disclosure if
it would not have concluded the contract at all had the age been stated correctly.
317
assumption that a causal link between breach of warranty and loss is not required; 180
the way in which warranties are created and then perpetuated when the insurance
fact in cases where the insured is aware of the facts he is made to warrant the
correctness of; the assumption that cancellation is the appropriate remedy in all cases
of breach of warranty and that lesser remedies, for instance based on the
proportionality principle, may not be more equitable in some instances; and the rule
However, one can only hope that when such further reform is undertaken, it is done
in conjunction with the law relating to misrepresentation and with due regard to the
180 This may be rectified by a proper investigation into and application of our common law.
318
16
insured’s claim1
A. Indemnity
insurance
.................................................................................................
319
E.
F.
A. INDEMNITY INSURANCE
16
General
paragraphs
16.1–16.2
indemnify an insured against loss proximately caused by the perils insured against.
This is the insurer’s basic obligation. The traditional view is to regard the insurer’s
16.2 This basic obligation is conditional upon the happening of the event insured
against. The corresponding right enjoyed by the insured may be described as the
insured for the actual loss suffered becomes vested. 2 This is separate obligation
stemming from but existing alongside the basic obligation. It may, for instance,
survive the cancellation of the basic obligation; 3 the right it entails may be ceded
________________________
1 This chapter corresponds to Lawsa Vol 12 Part 1 pars 347–375; see also 11.9–11.16 on the nature of the insurer’s
obligation.
2 Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 513
(A) 519I.
3 Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd above.
319
to indemnification. More than one such claim may arise during the period of the
insurance.
examined.
• any suspensive conditions to which the contract may have been subject, must have
been fulfiled5 and, in particular, the peril insured against must have occurred; 6
• the peril insured against must have occurred during the currency of the contract; 7
• the loss suffered must have been proximately caused8 by the peril insured against.
16.5 If all these conditions have been fulfiled, it may be said that the event insured
16.6 The burden of alleging and proving these requirements normally rests on the
insured. 9 The insured must “bring his claim within the four corners of the promise
made to him”. 10
16.7 In pursuing his claim to an indemnity, the insured will have to observe any
special terms which regulate the institution and enforcement of claims against the
insurer. 11
16.8 If the insurer fails to pay a valid claim in terms of an insurance contract, the
insured has a right to recover money from the insurer. In principle the insured
claims specific performance, 12 although the possibility is not excluded of the claim
being formulated and recognised as one for damages for breach of contract as a
16.9 In the case of indemnity insurance, the claim in English law is one for
unliquidated damages for breach of contract – a claim arising, it is said, from the
________________________
5 Cf
Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1963 (1) SA 632 (A).
8 See 13.74–13.99 as to causation. Where the event insured against has been formulated generally (eg, an all-risks
contract covering loss from whatever source), it must nevertheless be established
that the loss was caused by a n uncertain external event: see again 13.54–13.63 as to all risks
insurance.
9 Eg, the burden of proving that the risk has materialised and that the event insured against has occurred, normally
lies with the insured. However, where an exception to the risk (in contrast to
a qualified promise) has been formulated, the burden of proving that the exception applies rests
on the insurer: see again 13.45–13.51 as to the exceptions to or qualifications of the risk and
10 Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) 334B.
12 His claim is therefore a claim on the contract: Walker v Santam Ltd 2009 (6) SA 225 (SCA).
13 On the issues involved, see Van der Merwe et al Contract General Principles par 11.2.1. Whether the insured’s
claim is based on the insurance contract for specific performance, or on breach of the
insurance contract for damages, may have jurisdictional consequences: see Ndlovu v Santam Ltd
2006 (2) SA 239 (SCA) (in the former case, the place of contract, the location of the property
insured and where the loss occurred are relevant; in the latter case the place of breach is
relevant); and cf Dial Direct Insurance Ltd v Padarath, unreported (KZP), (2010) 13 Juta’s Insurance
320
insurer’s failure to prevent the insured from suffering loss or damage by paying an
indemnity14 – rather than, as in Scots law, one for specific performance of the
undertaking to indemnify. 15
16.10 In consequence, the insurer’s debt becomes due for purposes of prescription16
16.11 Also, the insured’s claim is limited to the amount of indemnification payable
16
under the insurance contract, damages not being awarded for any further loss the
paragraphs
insured may have sustained because of the insurer’s failure to pay damages at all or
16.2–16.14
damages, is recoverable. 19
16.12 Interest is awarded from the date of the insured’s or the claimant’s20 written
demand21 or when his summons was served on the insurer, as by then the insurer
would have been furnished with all the information reasonably required to consider
whether it should meet the insured’s claim for an unliquidated amount. 22 However,
the parties may agree, even tacitly, on the date from when interest is to run23 and they
16.13 In the case of indemnity insurance, the quantification of the insured’s claim
indemnify the insured against loss or damage proximately caused by the peril insured
against. 25
________________________
14 Clarke et al The Law of Insurance Contracts par 30.7A; Birds Birds’ Modern Insurance Law par 15.1.
15 However, the nature of the insurer’s liability in the case of its non-payment of a valid claim is not settled in
English law and reform may be on the cards: Merkin et al Colinvaux’s Law of Insurance
17 Eg, on the loss of or damage to the object of risk in the case of property insurance (even if then no claim has
been made or the fact or extent of the insurer’s liability have not yet been
established), or on the insured incurring a legal liability to a third party which has been
established, in the case of liability insurance. Cf Clarke et al Contracts par 30.7A1, pointing out
that contractual terms concerning the claims process may and usually do postpone the insurer’s
obligation to pay.
18 For some English and Dutch insights, see Lawsa Vol 12 Part 1 par 349 n 1.
19 Van der Merwe et al Contract pars 11.5.4, 11.5.5. As to the insurer’s performance by payment, see further 22.6–
22.11.
20 See David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA) (third-party claimant’s entitlement to
interest).
21 Masango v Lloyds of London, unreported (W), (2004) 7 Juta’s Insurance L Bul 169.
22 Chem Alum (Pty) Ltd v Mutual and Federal Insurance Co Ltd, unreported (D), (2006) 9 Juta’s Insurance L Bul
132; Mutual and Federal Insurance Co Ltd v Chemalum (Pty) Ltd, unreported (N),
(2006) 9 Juta’s Insurance L Bul 263 (where interest was held to run not from the (earlier) date of
the insured’s demand, but only from the (later) date on which summons was served on the
insurer for only then was the insurer furnished with sufficient information upon which it could
act and settle the insured’s claim); Springgold Investments (Pty) Ltd v Guardian National Insurance
Co Ltd 2009 (3) SA 235 (D) (the court has a discretion to allow interest to run from an earlier
23 SASRIA Ltd (Formerly SA Special Risks Insurance Association) v Certain Underwriters at Lloyds 2002 (4) SA
474 (SCA).
24 Mutual and Federal Ltd v Rumdel Construction (Pty) Ltd 2005 (2) SA 179 (SCA) (whether the insured’s
interest claim was settled when the quantum of his loss was settled).
321
16.15 To bring his claim within the four corners of the promise made to him, and so
to render that promise enforceable, an insured will first of all have to prove that he
suffered loss or damage. In order to prove loss or damage in the insurance context,
the traditional approach in (English) insurance law is usually to require the insured
to show that he had an insurable interest at the time of the occurrence of the event
insured against and that this interest had been adversely affected by the insured peril.
The insured must also prove to what extent his interest has been impaired; this, then,
16.16 It has been suggested that there is a close relationship between insurable
insurance, closely resembles its counterpart in the general law of damages, to such an
extent that one may conceivably do without the notion of an insurable interest when
it comes to determining loss or damage. There is one proviso, though, namely that
meaning of “loss or damage” contractually. In this regard, then, one may postulate,
the insured’s loss or damage, while in the general law of damages a defendant pays
process of being developed in the law of insurance. The meaning and implications of
the requirement of insurable interest in this regard have already been considered. 27
virtue of the terms of the contract. Contracts covering all loss resulting from the
insured peril are not unknown, but insurance usually covers only specific losses.
Hence, the law of insurance employs a special, rather than a general, notion of loss or
damage. Insurance contracts usually cover only loss suffered as a result of the physical
destruction of or damage to the object of risk to the extent of the insured’s interest in
16.20 Property is often insured against “loss, damage or destruction”. The latter two
terms refer, respectively, to a partial loss to and a total loss of the insured property.
16.21 A partial loss is a loss that is not total. A partial loss may involve damage to the
object of risk, or the disappearance or destruction of a part of it: a total loss of a part
is a partial loss.
16.22 A total loss includes the complete destruction of the object of risk and also the
situation where the object has been so extensively damaged that it ceases to be an
object of the kind insured; when it ceases to exist in specie. 29 For instance, where a
house is burnt down and only a ruin (as opposed to a damaged house) remains, or a
car is so damaged in an accident that only a wreckage (as opposed to a damaged car)
________________________
26 See again 3.33–3.37. See also Clarke et al Contracts par 28.2: “As regards the measure or assessment of loss, . .
., the rule of indemty in insurance contract law is analogous to that found
29 This is also the position in Dutch law: see Wansink et al Assers Handleiding tot de Beoefening van het
Nederlands Burgerlijk Recht. 7: Bijzondere Overeenkomsten Deel IX Verzekering par [414].
322
remains, the loss may be total. Where the object is not so seriously damaged that it is
no longer an object of the type insured, and is indeed incapable of being repaired
but it is merely uneconomical to repair, there is probably not a total loss in law30 and
16.23 Sometimes property is not insured against “loss” generally, but against “loss by
theft”. In this context, it seems, 32 theft includes theft by false pretences or deception,
at least in circumstances where no voluntary transfer of ownership takes place.
16
paragraphs
16.24 However, if property is sold and possession and ownership is voluntarily 16.15–16.28
transferred to the buyer but the seller cannot recover the purchase price from him,
say because the cheque he took as payment has been dishonoured and the buyer has
disappeared with the property, the loss would be a loss of the proceeds of the sale
and not a loss of the property as such; 33 this, it may be thought, is no different from
the situation where the seller was paid in cash and immediately afterwards robbed by
a third party. In the same way, where the insured buys goods that are later discovered
to have been stolen and that are then repossessed by the true owner, the insured
loses the money paid for them rather than the goods themselves.
16.25 If the insured succeeds in proving patrimonial loss or damage for which the
16.26 Indemnification takes the form of a substitute for the loss suffered and may be
the payment of a sum of money to the insured to restore him as closely as possible to
________________________
30 The notion of a total loss in an economic sense – a constructive total loss – is known only in (the English law
of) marine insurance: see further Lawsa Vol 12 Part 2 pars 292, 295.
31 Eg, Nteo v Patel, unreported (T), (2006) 9 Juta’s Insurance L Bul 34 (post-collision (salvage) market value of
vehicle established to be 24 per cent of its pre-collision market value); Eyer v
Three Lions Parts CC, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 171 (proof required not
only of value of vehicle before loss or damage, but also of value afterwards, even if then it not
economically repairable); Blaauw v Veenman, unreported (WCC), (2012) 15 Juta’s Insurance L Bul
repair). See further on total and temporary loss, Lawsa Vol 12 Part 1 par 353.
32 The specific wording of the insurance contract may be decisive here. It may provide cover
against (loss by) theft generally, or only against certain kinds of theft (eg, accompanied by
violence or forcible entry, or burglary), or may exclude certain kinds of theft (eg, theft by
deception or stealth, or theft while the property is left unattended). See further Merkin et al
Colinvaux pars 19.045–19.053, 10.022 who point out that the “dependence of insurance law upon
the intricacies of the criminal law may on occasion have surprising results” (par 19.049). See also
33 De Wet v Santam Bpk 1996 (2) SA 629 (A) 639; Merkin et al Colinvaux pars 10.001–10.002; Birds Birds’
Modern Insurance Law par 13.7.5.
34 See generally Clarke et al Contracts pars 29.1, 30.1, 30.3; Merkin et al Colinvaux pars 10.012, 10.040; Birds
Birds’ Modern Insurance Law par 15.3.
35 The fact that, in order to achieve such reinstatement or replacement, the insurer pays money to a third party it
engaged to effect the repair or replacement, does not alter the fact that it
indemnified the insured directly by reinstatement and not indirectly by the payment of money.
323
16.29 Where the insured is indemnified in money, he may deal with the money
or replacement37 unless he has agreed to do so. 38 And that applies even if he has been indemnified by the
payment of money on the basis of reinstatement value. 39
16.30 However, contracts frequently contain a clause that entitles the insurer to
make a choice between indemnifying the insured in money and, depending on the
circumstances, either reinstating the object of the risk to its former condition or
replacing it by a similar object. This option enables the insurer to protect itself
that may be cheaper than paying the insured a sum of money, 41 and to discourage
fraud on the part of a cash-strapped insured who would destroy or damage insured
property to obtain finances. Once the insurer has made its choice, it is irrevocable. 42
INDEMNIFICATION
Introduction
16.31 Indemnity insurance contracts nearly always contain one or more clauses
limiting, or resulting in the limitation of, the amount of indemnification the insured
may claim from the insurer in the event of a loss. They result in the insurer’s liability
being limited to less than a full indemnification for the insured’s loss or damage. 43
Sum insured
limits the liability of the insurer to a specific amount, which is termed the sum (or
amount) insured. 45 However, such a limit is not necessary and insurance without a
16.33 In many forms of insurance, such as property insurance, the sum insured is
one of the factors, if not the main factor, with reference to which the premium is
________________________
37 See Estate Stanford v Cohen 1906 CTR 156 where it was pointed out that the insurer cannot recover money
paid under an insurance contract on the ground that it has not been spent on
reinstatement.
38 This obligation may be owed towards the insurer under the insurance contract or towards a third party such as a
lessor, or a seller on installment terms, or a mortgagee: see Van Niekerk 1983 MB
165. See also, eg, G and C Shelf 103 (Pty) Ltd v Chemical Specialities (Pty) Ltd 2012 (4) SA 335 (KZD)
for an example of a rather intricate arrangement between lessor and lessee as regards the
employment of the insurance money towards the repair of the leased and insured property.
40 Also when several interests in the same property are insured, the value of such interests may in total exceed the
value of the property, so that it will be more economical for the insurer or
insurers involved simply to repair or replace the property rather than to pay each insured a
monetary indemnification.
41 The insurer may be able to negotiate special prices with the repairers of or dealers in items of property like
those it insures.
42 See further Lawsa Vol 12 Part 1 par 354. For reinstatement, see further 22.26–22.61.
43 Merkin et al Colinvaux par 1.009: “The assured will not . . . always receive a perfect indemnity”.
44 For the position in life and other non-indemnity insurances, see 16.169, Lawsa Vol 12 Part 2 pars 321–322.
45 See further Clarke et al Contracts pars 28.1A, 28.8; Merkin et al Colinvaux par 1.009; Wansink et al Assers pars
[410]–[418].
46 The absence of a sum insured does not mean that the insurer’s liability is limitless as the insured cannot recover
more than an indemnity for his loss.
324
16.34 The sum insured is the maximum amount the insured may recover from the
insurer in terms of the insurance contract. 48 Thus, if the insured’s motor vehicle is
worth R250 and it is insured for (ie, the sum insured is) R200, 49 the insured can
16
paragraphs
16.35 However, the sum insured is not necessarily the amount that may be recovered 16.29–16.38
in all cases. Thus, if the insured’s motor vehicle is worth R250 and it is insured for
R250, but it is only damaged and the partial loss amounts to R100, the insured cannot
recover the sum insured but only R100. Likewise, if the insured’s motor vehicle is
worth R250 and it is insured for R300, 51 the insured can recover only R250 should the
vehicle be stolen. 52
16.36 Therefore, the insured recovers the amount of his loss, or the sum insured,
16.37 The same applies to liability insurance. 54 If the insured has liability cover in an amount of R500, and then
incurs liability of R600 or R400 towards a third party, he
16.38 The sum insured does not apply where the insurer elects to indemnify the
insured not by payment, but by reinstatement. The insurer cannot reinstate only as
________________________
47 That will be when the sum insured and the value of the insured object of risk corresponds and there is neither
over- nor under-insurance: Wansink et al Assers par [413] as to “voldoende
respectively.
48 O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co (1866) 1
Roscoe 372 (an insured is entitled to be restored in his financial position before the loss, if to
do so does not cost more than the total amount of the insurance); Luxor Paints (Pty) Ltd v
Heritage Insurance Brokers, unreported (W), (2007) 10 Juta’s Insurance L Bul 53 (unless otherwise
specified, the sum insured mentioned in the policy is the maximum limit of the insurer’s liability
50 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61 (under the ordinary form of
policy (in the absence of an average clause), the insurer is liable for the full amount of
the insured’s loss not exceeding the sum insured and it must pay or make good the damage as
51 The insured’s vehicle is therefore over-insured: see further 23.1–23.5. To avoid the insured becoming under-
insured, the insurance contract may provide for the “automatic” periodic
adaptation of the sum insured (and, of course, the corresponding premium), eg, in line with the
52 Wetzlar v General Insurance Co (1884) 3 SC 86 (the insured claimed the sum insured of £1 000 for the
destruction of his property by fire; held, as the value of the property insured was only £750,
the insured was entitled to judgment for that amount only); JNG Express (Pty) Ltd v Botswana
Insurance Co Ltd, unreported (Botswana CA), (2009) 12 Juta’s Insurance L Bul 28 (on the total loss
of over-insured property, the insured cannot recover the sum insured but only the value of the
property).
53 Ivanov v Santam Ltd, unreported (W), (2007) 10 Juta’s Insurance L Bul 4 (in terms of a clause in the insurance
contract, the insured was entitled to the sum insured or to the reasonable market
value of the insured vehicle, whichever was the lesser; at issue was whether the market value was
54 Coetzee v Attorneys’ Insurance Indemnity Fund 2003 (1) SA 1 (SCA) (the costs and expenses incurred by the
claimant were specifically in cluded in the contractual limit of the indemnity (the sum
insured) under the liability insurance contract, irrespective of whether the claimant was the
insured in terms of the insurance contract or a third-party claimant by virtue of s 156 of the
Insolvency Act).
325
far as the sum insured will go. 55 Likewise, in appropriate cases the insured may be
addition to the sum insured. 56 And if the insurer has to pay interest in addition to an
the sum insured, or the agreed value of the object of risk, or both. Thus, if a ship is
insured for and agreed to be worth R500, that may mean that the maximum amount
recoverable under the contract is R500 and also that the value of the ship with
reference to which the extent of the insured’s loss or damage must be determined, is
R500. Ordinarily, though, the sum insured is merely the ceiling or cap on the amount
recoverable and will not convert an unvalued policy into a valued policy. 58
16.40 Unless the insurance contract provides otherwise, the insurer is liable for any
number of successive insured losses occurring during the period of cover, even
though in total those losses exceed the sum insured. Thus, unless otherwise agreed,
the sum insured is the maximum amount recoverable for each loss. 59 The payment of
the sum insured therefore does not imply the termination of the insurance cover.
Thus, if a motor vehicle is insured for R250, and is involved in two successive
accidents during the period of cover in which it is damaged in amounts of R200 and
R160, the insured can recover for both; if the damage in the second accident is R260,
16.41 However, insurance policies may specify that the sum insured applies to all
losses occurring during the period of cover. The insurer is then liable for any number
of successive insured losses during the period of cover, but not in total for more than
the sum insured. The sum insured is the maximum amount recoverable for all losses
and once paid or exhausted, the insurance cover terminates. Thus, if a motor vehicle
is insured for R250, and is involved in two successive accidents during the period of
cover in which it is damaged in amounts of R100 and R60, the insured can recover
for both; if the damage in the second accident is R200, he can recover only R150 in
respect of it.
16.42 Further, insurance policies may stipulate a limit per occurrence (accident) or
per claim or per consignment, with or without a (larger) global limit for the whole
period of cover.
16.43 A rateable proportion clause takes effect in the event of double insurance60
and provides that, when there is “other insurance” covering the same loss, the insurer
________________________
58 See further Homeplus Investments (Pvt) Ltd v Kantharia Insurance Brokers (Pvt) Ltd, unreported (ZHC),
(2009) 12 Juta’s Insurance L Bul 49; Van Niekerk 2009 TSAR 801. As to valued policies,
59 Clarke et al Contracts par 28.1A (“there is a presumption in favour of full indemnity [and the]
ceiling is applied to each separate loss”); Merkin et al Colinvaux par 10.032–10.037. This is made
apparent in Dutch law too where the sum insured (“verzekerde som”) is said to be the maximum
recoverable for each individual occurrence (“eenzelfde voorval”) or loss: see Wansink et al Assers
par [410], who explain that there is a system of “automatische reinstatement” in that successive
losses are in each case indemnified up to the limit of the sum insured.
326
will be liable not for the full amount of the insured’s loss (subject to a smaller sum
insured), but only for its proportionate share of the loss. The insured can therefore
recover a full indemnification for his loss only by claiming on all the insurance
paragraphs
requires the insured to bear a proportion or percentage of each and every loss. It may 16.38–16.49
provide, for instance, that “in no case shall the insurer pay more than two-thirds of
the . . . value . . . of the property hereby insured . . . and the insurance is only granted
on the condition that the whole sum insured under each item is not more than two-
16.45 The purpose of this clause is to ensure that the insured retains a very real
interest in the preservation of the object of the insurance by not being able to recover
a full indemnity against his loss. 64 The term is therefore usually formulated or
interpreted in such a way that the insured is not allowed to insure the proportion of
Average clause
marine insurance contracts65 for the application of the average principle in the event
16.47 The effect of an average clause is that in the event of under-insurance, the
insured does not recover a full indemnity (up to the limit of the sum insured)
because the insurer’s liability is limited to a rateable proportion of the insured’s loss. 66
16.48 If the insurer elects to reinstate the object of risk, it is not entitled to invoke an
average clause to require the insured to pay a proportional share of the cost of
reinstating. 67
Excess clause
16.49 A further clause limiting the insured’s recovery from his insurer to less than a
full indemnity for his actual loss, is the excess clause, 68 common in property and
liability insurances. 69 The excess clause serves to discourage small claims and so to
avoid for the insurer the relatively high administration costs involved with such
________________________
61 As to rateable proportion clauses, see 23.19.
62 As also generally in Roman-Dutch law: see Van Niekerk Insurance Law in the Netherlands Vol II 1231–1246.
63 Steyn v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96 101; see also Zeeman v
Royal Exchange Assurance 1919 CPD 63. As to under-insurance, see further 23.54–23.66.
64 Steyn v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96 104.
65 Average applies automatically in the event of under-insurance in terms of a marine insurance contract: see
further 23.61–23.66; Lawsa Vol 12 Part 2 par 303.
67 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61. As to reinstatement, see further
22.26–22.61.
68 Not to be confused with the excess clause aimed at subordinating or limiting an insurer’s liability in a situation
of double insurance: see further 23.19.
69 See Clarke et al Contracts par 28.8B; Merkin et al Colinvaux par 10.030; Wansink et al Assers par
[419] (who point out that the excess (“eigen risico”) clause limits the maximum sum insured “aan
de onderkant”).
327
claims, and also to encourage the insured to exercise a measure of care in avoiding
losses. 70
16.50 The excess clause requires the insured to bear a specified first amount or part
of a loss (the excess, deductible or retention) himself, for instance the first Rx or the
16.51 This means that the insured can claim nothing if the loss is equal to or less
than the excess, but if his loss exceeds the amount of the excess, the insured is
entitled to a full indemnity (subject to the sum insured) less the amount of the
excess. Thus, if the excess is R500, and the insured’s loss is R400, nothing is
16.52 The result of the excess clause is to make the insured his “own insurer” to the
extent of that excess. This is only so in a metaphorical sense and the insured is
neither an actual insurer nor to be taken as such for purposes of, say, double
insurance. 72
16.53 Further, the result of an excess is often expressed as requiring the insured to
“pay” the amount of the excess. 73 Again, this is not to be understood literally: the
insured merely bears that portion of his loss himself and is not required to pay it to
the insurer. 74
16.54 It is a question of interpretation whether the excess applies to each and every
successive loss. 75
16.55 In the event of the insured’s loss having been caused by the third party who is
liable to compensate him for it, the insured will, despite the insurer’s exercise of its
right of subrogation, be entitled to recoup the amount of his excess from any
recovery obtained from the third party. 76 Likewise, should the insured receive
________________________
70 As a result insurers may charge a higher excess for higher risk groups; see, eg, Mngqibisa v S 2008
71 Insurers often allow the insured to request a higher excess than that allowed by the standard policy.
73 See, eg, Botswana Insurance Co Ltd v Mazwi, unreported (Botswana HC), (2007) 10 Juta’s Insurance L Bul
171 (where the excess was described as “the first amount payable by the insured in terms of
the policy” and the insured as bearing “the burden to pay the excess to his own insurer”); Walker
v Santam Ltd 2009 (6) SA 225 (SCA) (where the excess was described as “the first amount
74 At least not by the clause or in terms of the insurance contract itself. However, the insurer and insured may
subsequently agree that the insured has to actually pay the insurer the amount in
question where, eg, the insurer has fully paid a third party for the repair of the object of risk; the
insured may alternatively also be required to pay the amount in question directly to the third-
party repairer.
75 See David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA) (apportionment of the excess over several
third-party claims); Springgold Investments (Pty) Ltd v Guardian National Insurance Co
Ltd 2009 (3) SA 235 (D) (excess of R25 000 per incident and as the damage was caused by a
single incident, only one such excess was to be deducted from the amount of the insured’s
claim).
76 See, eg, CGU Insurance of Zimbabwe Ltd v Chiduka (ZHC), (2007) 10 Juta’s Insurance L Bul 106 (for a
fundamentally defective appreciation and application of the principles of subrogation in
connection with an excess); Botswana Insurance Co Ltd v Mazwi, unreported (Botswana HC),
(2007) 10 Juta’s Insurance L Bul 171 (whether the insurer was entitled on the basis of subrogation
to recover the amount of the excess from the third party and, if so, whether alone or as part of
the general compensation for the insured’s damage); SBV Services Ltd v Kogana, unreported
(ECP), (2011) 14 Juta’s Insurance L Bul 101 (the insurance payment the plaintiff received from
the insurer as indemnification for his loss is res inter alios acta in determining the liability or
extent of the liability of the defendant to pay damages for that loss, so that full compensation was
recoverable, including the plaintiff’s excess). As to subrogation and the excess: see further
18.61,18.67.
328
compensation from the third party before the insurer has paid him an indemni-
fication under the policy, the amount of the excess must first be deducted for the
benefit of the insured from the amount he received before the balance can go
towards reducing the insurer’s liability on the basis of the beneficial effect of an
indemnification aliunde. 77
Franchise clause
16
paragraphs
16.56 A clause closely related to the excess clause is the franchise clause, common in 16.49–16.63
marine insurances. 78
16.57 The franchise clause allows the insured to claim only if his loss exceeds a
16.58 This means that the insured can only claim if his loss exceeds the stated
amount or percentage, but once it does, he can recover a full indemnity for his loss
(subject to the sum insured). Thus, if the stated franchise amount is R500, and the
insured’s loss is R400, nothing is recoverable; 79 if his loss is R1 500, he can recover the
full R1 500. 80
losses, in which case they may in the absence of an agreement to that effect not be
added together to overcome the franchise limit, or part of a single loss, so that they
may be added together to make up the required franchise amount.
D. MEASURE OF INDEMNITY
Quantification defined
16.60 The question of the quantification of the insured’s loss or damage arises after
the event insured against has occurred and all the requirements for the insurer’s
liability have been met. At this stage the physical loss or damage suffered by the
insured must be translated into monetary terms. This is the field of quantification or
assessment of loss.
16.61 The problem of expressing the insured’s loss in monetary terms does not arise
the object of risk, or where the loss takes the form of a loss of a sum of money.
rights, expectancies or any other interests that may be the object of insurance. 81
16.63 Where a liability is the object of the insurance, the amount of the insured’s
liability, it may again be necessary to place a value on certain assets, namely a third
party’s assets that were lost or affected in respect of their value and for which the
________________________
78 Clarke et al Contracts par 28.8C; Merkin et al Colinvaux par 10.030 (who call a franchise clause “a specific
form of deductible”); Wansink et al Assers par [419].
79 In this instance, franchise clauses have the same effect as excess clauses.
80 It is here, where the loss exceeds the relevant (excess or franchise) amount, that excess and franchise clauses
differ.
81 See 3.6–3.8 for a description of the concept “assets” as the object of insurance.
82 As to the application of the indemnity principle to liability insurances, see further 25.34–25.40.
329
16.64 A total loss, expressed in monetary terms, is the insurable value of the property
lost or destroyed. In cases of partial loss, again, the proportion of such loss (the
proportion of damage) must be determined and that proportion of the insurable
value is then recoverable. 83 In policies providing a full indemnity, the insured can
recover up to this limit – that is, the insurable value or the proportion of the
insurable value but more often than not the insurer’s liability is contractually limited
Principles of quantification
16.65 The question how to quantify or assess an insured loss is fraught with
they may largely be surmounted by concluding either a valued policy88 or a policy for
insured object before the insured event took place, subject to any limitations
16.67 This calls for a comparison between the “actual or real monetary value” 91 of the
affected asset or the insured’s interest in it92 before the event insured against and its
16.68 In the case of a total loss, at least in the actual sense where nothing of any
value remains of the object of risk, there is no actual comparison: the value of the
object immediately before the event is the only relevant value. In other cases, of
partial loss and of a total loss for purposes of the parties’ agreement, 94 the com-
________________________
86 Eg, Naude v Commercial Union Landboukundige Dienste (Edms) Bpk, unreported (O), (1999) 2 Juta’s
Insurance L Bul 140 (whether the assessment and reassessment (arbitration) of the insured’s loss
was binding on him); Musonzoa (Pvt) Ltd v Standard Fire and General Insurance Co (Pvt) Ltd [2002]
4 All SA 174 (ZHC) (where the assessment of the extent of the damage to an insured crop by the
insurer’s assessor was disputed by the insured and the dispute referred to arbitration).
88 For valued policies, see 4.18–4.24, 16.141–16.147, Lawsa Vol 12 Part 2 par 300.
90 Parham v Royal Exchange Assurance 1943 SR 49 52; Nafte v Atlas Assurance Co Ltd 1924 WLD 239.
92 Because the interest in the affected asset is in fact the object of the insurance in respect of which the insured
enjoys protection. Ordinarily, where the interest is an unlimited interest, it matters
not if the value of the asset or of the insured’s interest in it is determined. The position is
different, though, where the interest is limited; as to limited interests, see again 3.8 and further
16.121–16.131.
93 Eg, West Rand Steam Laundry Ltd v Waks 1954 (2) SA 394 (T); Isep Structural Engineering and Plating (Pty)
Ltd v Inland Exploration Co (Pty) Ltd 1981 (4) SA 1 (A).
94 As to the parties agreeing that a loss is to be regarded as total, see Lawsa Vol 12 Part 1 par 353.
95 Nafte v Atlas Assurance Co Ltd 1924 WLD 239 246; Palmer v President Insurance Co Ltd [1967] 2 All SA 112
(O); 1967 (1) SA 673 (O) 678. Cf also, eg, Lock v Northern Insurance Co (1886) 7 NLR 33
(the insurer is liable also for any increase in the duties and the cost of transit incurred in respect
of the insured goods as it was bound to pay their value at the time of the loss).
96 Na fte v Atlas Assurance Co Ltd above 247. Cf also, eg, Jones v Stewart (1878) 3 Roscoe 18 (in the case of a
loss at the Cape of goods bought in England, the market value of the goods at the
( continued)
330
16.69 Consequently, because values often fluctuate and differ from time to time, 98
the value of the asset at the time it was acquired by the insured (its cost price), as also
its value at the time the insurance contract was concluded or renewed, is irrelevant; if
its value has increased (or decreased) since its acquisition or its insurance, such
increase (or decrease) must be taken into account. 99 Also irrelevant is the value of the
item or similar items at any stage after the loss, or the likelihood of such values
16
paragraphs
16.70 Likewise, the value of assets at the place where they were acquired, or (except 16.64–16.75
in the case of goods lost in transit) to which they are consigned, is irrelevant if they
were lost elsewhere. Their relevant value is that at, or on the market closest to, the
16.71 The value to be taken into account is the value to the insured. 100 Thus, if the
insured intended to sell the insured property at the time of its loss, the basis of
assessment should be the market value of the property, but if he did not have that
16.72 However, no allowance should be made for mere sentimental value, 102 so that a
be worth much less than the insured may think it is or should be. The same is true of
any aesthetic value the object of risk may be considered to have. Likewise, no account
16.73 For insurance purposes the difference produced by a comparison of the value
before and the value after the loss or damage constitutes the insured’s maximum loss
in financial terms. This measure applies irrespective of whether the insured’s loss is
total or partial.
16.74 It is not uncommon for an insured to have more than one insurable interest in
the object of the risk, such as ownership, as well as an expectancy of profit that can be
realised, for instance, by selling the merchandise on a foreign market. Apart from any
positive interests that the insured may have in the object of the risk, the event insured
against may also give rise to a liability for him. Whether any particular interest is
16.75 If different persons have different interests in respect of the same object of risk
and these interests have been insured separately, each insured is entitled to claim up
to the full amount of the loss suffered by him, regardless of the amounts recoverable
by the other persons insured. 104 This may result in the various insured recovering by
________________________
Cape is the cost price of goods in England plus a reasonable percentage (15 per cent) for
freight charges and other expenses to the Cape over that cost).
97 This accords, broadly, with the general principle that market value as a measure of damages for breach of
contract is related to the time and place of performance: Novick v Benjamin 1972 (2)
SA 842 (A).
98 Ordinarily certain property (eg, motor vehicles) depreciate with time (and use), while others (eg, houses)
appreciate over a period of time. However, that is not always the case: a vehicle
may be so old that if properly looked after, it acquires an increased value as a vintage model,
99 Insurance does not protect the insured against a bad bargain, or favour him in the case of a good bargain: Clarke
et al Contracts par 28.2B.
101 This principle may be consonant with the subjective approach to damage, which our courts are said to support;
see again 4.7–4.9.
104 Given that different interests are insured, this is not an instance of double insurance: see further 23.13.
331
way of indemnification from their respective insurers a total amount exceeding the
16.76 The burden rests on the insured to prove not only the occurrence but also the
clouded by fine points of fact and of law, so that the position of the insured as
16.78 In a long line of decisions pertaining to damages for breach of contract106 and
delict, 107 the courts have taken the view that if loss or damage has been proved by a
plaintiff but, despite having put forward the best evidence at his disposal, he is unable
to prove the amount of his loss or damage with mathematical exactness, it is the duty
of the court to assist him and to assess the loss on the available evidence and to
allocate an amount as damages. In such a case, therefore, the insured does not
necessarily have to prove the amount of his loss on a balance of probabilities. 108
16.79 The same principles evidencing a robust approach have been applied equally
may be drawn between interests which, in relation to the value of the object of risk,
________________________
105 Eg, Nnewe’s Commercial Farm (Pty) Ltd v General Insurance Botswana (Pty) Ltd, unreported (Botswana
HC), (2008) 11 Juta’s Insurance L Bul 65; Jooste v Mutual and Federal Versekeringsmaatskappy
Bpk, unreported (T), (2008) 11 Juta’s Insurance L Bul 178; Walker v Santam Ltd 2009 (6) SA 225
(SCA).
106 Eg, Elias Syndicate v Leyds NO and Responsible Clerk of Doornkop (1897) 4 Off Rep 248; Esso Standard SA
(Pty) Ltd v Katz 1981 (1) SA 964 (A); Aaron’s Whale Rock Trust v Murray and Roberts 1992
(1) SA 652 (C). See generally Van der Merwe et al Contract par 11.5.1.
107 Eg, SM Goldstein and Co (Pty) Ltd v Gerber 1979 (4) SA 930 (A).
108 See De Klerk v ABSA Bank Ltd 2003 (4) SA 315 (SCA) (where the court drew a distinction between the
standard of proof required in the case of causation (the existence of a loss caused
by relevant conduct or event) and in the case of quantification (the amount of such loss); the
plaintiff has to prove causation on a balance of probabilities, but merely has to provide the best
available evidence on quantum and if such is not proven by that evidence, the court will make
109 Eg, Van Buuren and Co v Caledonian Insurance Co (1896) 3 Off Rep 52 (the issue of the extent of the actual
loss suffered by the insured was referred to an accountant for a report to the court,
so as to enable the court to give final decision on the amount recoverable by the insured from
the insurer); Droomer v Malmesbury Board of Executors and Trust and Fire Assurance Co (1908) 18
CTR 831 (holding that the insured’s books, although not so accurate and up-to-date that an
arithmetical calculation of the actual loss could be arrived at from them, but being the best evi-
dence of the loss the insured was able to supply, constituted satisfactory proof of the extent of
his loss); Mutual and Federal Insurance Co Ltd v Da Costa, unreported (T), (2006) 9 Juta’s
Insurance L Bul 39; Mutual and Federal Insurance Co Ltd v Da Costa, unreported (SCA), (2007) 10
Juta’s Insurance L Bul 142 (in accordance with the robust approach in proof of damage, exact
proof was not in all cases required from the insured and as long as the best available evidence
had been adduced, the court had to assist in arriving at an equitable estimate of the quantum of
damage); Jooste v Mutual and Federal Versekeringsmaatskappy Bpk, unreported (T), (2008) 11 Juta’s
Insurance L Bul 178 (in a case where, as a result of the type of vehicle insured, there is no offi-
cial guidance in the market of its reasonable and fair market value, the insured merely has to
present the best evidence available and to do so timeously); Eyer v Three Lions Parts CC, unre-
ported (GNP), (2011) 14 Juta’s Insurance L Bul 171 (in the absence of evidence as to the precise
value, the court has to estimate the measure of damages, but only if it was clear that the evi-
332
are unlimited110 and those which are limited. 111 Because of their special nature, expectancies are dealt with
separately. 112
interest
16.81 The insured may and very often does have an interest which, as object of the
insurance, 113 is unlimited in relation to the value of the object of the risk.
16
paragraphs
16.82 Persons with a full interest include bona fide possessors and persons either 16.75–16.84
liable for the destruction of the property or who bears the risk of its destruction. 114
Thus, a buyer to whom the risk in the property sold has already passed will have an
unlimited interest, 115 and a lessee who is to blame for the destruction of the leased
property will be entitled to recover up to the full value of the property from his
insurer. 116 Also, a mortgagee will have a full interest in the object of his security where
ownership, that is, title free from any burden relating to the property. Where the
principle diminish the value of his interest in the property, for instance where a
usufruct is registered against the title deed of a house. However, this is not necessarily
the case. Thus, where immovable property has been mortgaged or movable property
pledged, the owner retains an interest in the full value of the property, despite the
burden of the mortgage or pledge. The reason for this is that if the property is not
damaged, the owner may sell it for its full value, repay the mortgage debt and retain
16.84 In order to make the necessary comparison for quantifying the loss suffered by
a person with an unlimited interest, as is required by general principles, 118 the “true
________________________
113 For the difference between the object of the insurance and the object of risk, see again 3.6–3.8.
114 Eg, Afcol Manufacturing Limited v Afrifurn Industries CC, unreported (SCA), (1998) 1 Juta’s Insurance L Bul
103 (interest of a seller who was contractually obliged to insure the property
sold); Pienaar v Guardian National Insurance Co Ltd 2002 (3) SA 640 (C) (interest of a buyer in
property that turns out to be stolen); Foster v Mutual and Federal Insurance Co Ltd, unreported
(2000) (T), (2002) 5 Juta’s Insurance L Bul 31 (interest of a bona fide possessor in stolen proper-
ty); Mutual and Federal Ltd v Rumdel Construction (Pty) Ltd 2005 (2) SA 179 (SCA) (interest of a
contractor of road works that was in terms of risk-allocation provisions in the construction con-
tract liable as against the employer for the repair of damage); Raqa v Hofman, unreported
(WCC), (2009) 12 Juta’s Insurance L Bul 233 (interest of a lawful possessor or one having risk-
115 Eg, Smit v Saipem 1974 (4) SA 918 (A); Botha v Rondalia Versekeringskorporasie van SA Bpk 1978 (1) SA
996 (T).
117 Where an owner’s property is burdened by a lease, the value of his property subject to the lease may well be
lower than its value free from the lease. This will be relevant in case of total destruction of the property. If, as a
result of such destruction, the lease is discharged, the owner
loses no less than the full value of the property. If the lease remains in force, the loss is a loss of
the value of the property subject to the lease. Another method may be to allow an owner whose
leased property has been destroyed, to claim for the full value of his property, despite the exist-
ence of the lease, and to leave it to his insurer to exercise its right of subrogation and to en-
237.
333
16.85 The true value of an unlimited interest in an object of risk may be equated
with the “real and actual” 119 value of that object. A comparison will therefore have to
be made between the real and actual or intrinsic value of the object of the risk before
16.86 In the case of marketable commodities, the “real and actual value” of property
is usually represented by its reasonable market value. 120 The market value therefore
serves as a basis for calculating the real value of the property, but in case of a total loss
16.87 The concept of a market is not well defined in the law of damages.
16.88 Although it has been held that the “market” involved is not necessarily an
organised or formal market such as the stock exchange, 122 it is not clear what would in
fact be sufficient to constitute a market. It has, for instance, been found that a market
for particular shares existed where only two persons showed an interest in buying
those shares. 123 It has also been held that it cannot be expected from a person “to go
into all the highways and byways to seek out where these articles can be obtained,
16.89 The word “value” in the concept “market value” is commonly understood to
mean the amount an article will fetch or cost or, more neutrally, can be exchanged
for, on the market. 125 It is an objective, reasonable value, irrespective of the opinion
drawn between, from the insured’s point of view, selling value (what the article could
have been or is being sold for on the market) and buying value (what it would have
or will cost the insured to buy the article on the market). 126 Given that the insured has
________________________
119 Nafte v Atlas Assurance Co Ltd 1924 WLD 239 246; Parham v Royal Exchange Assurance 1943 SR 49
52.
120 Nafte v Atlas Assurance Co Ltd 1924 above. In Parham v Royal Exchange Assurance above 53 the court held
that the insured was entitled to recover the difference in respective market values,
where the insured car was affected by the destruction of a part that was then unprocurable.
Tender of the list price of the unprocurable part was regarded as insufficient to discharge the
insurer’s duty of placing the insured in the same position he occupied before the accident.
121 Nafte v Atlas Assurance Co Ltd above 247; Parham v Royal Exchange Assurance above 53.
122 Cf Desmond Isaacs Agencies (Pty) Ltd v Contemporary Displays 1971 (3) SA 286 (T) 287 where the court
remarked, for the purpose of awarding damages for breach of contract, that “[w]hen one
speaks of a market . . . the reference is not necessarily to an organised market like a stock ex-
change or a municipal produce market. It is a reference to any source to which the purchaser
might reasonably have gone, in the circumstances, in order to replace the goods which ought
124 Cf Wald v Disler 1918 CPD 305, as applied in Orda AG v Nuclear Fuels Corporation of SA (Pty) Ltd 1994 (4)
SA 26 (W) 86–87. See also, eg, Minister of Agriculture v Bluelilliesbush Dairy Farming (Pty)
Ltd, unreported (SCA), (2008) 11 Juta’s Insurance L Bul 126 (meaning of “fair market value” in
125 There is support both for the view that market value is what the property will fetch on the market as for the
view that it is represented by what it will cost on the market. See, eg, the following older decisions: Stephens v
Whitford 1903 TH 231 (the plaintiff may claim from the de-
fendant that the latter goes into the market and buys property, or that the plaintiff be placed in
a position to buy it himself); Re Estate Pretorius 1904 TS 65 (the market value of immovable
property is the price it is likely to realise if put up to open competition); Dickinson and Fischer v
Arndt and Cohn (1909) 30 NLR 172 (the market value of a commodity is the price at which it
126 In any market articles are sold to commercial dealers for less than they will, in turn, ask for it.
The difference in selling and buying value therefore represents the “market’s” profit. A similar
distinction may have to be drawn between a commercial or open, an auction, and a private
dealers’ price. Arguably the one favouring the insured with a higher price should be relevant:
see Clarke et al Contracts pars 28.2B, 28.3B; Wansink et al Assers par [420].
334
Vesting and quantification of insured’s claim
to be placed by the payment of the insurance money in the position that he occupied
before the loss or damage, it is arguably127 the buying value128 that is relevant: only an indemnity on that basis
will provide him with sufficient money to acquire an article
16.91 Of particular interest in this regard is that the value of an insured motor
vehicle is often determined by reference to its value in a list compiled for the motor
16
trade. In this list provision is made for – again from the insured’s point of view – the
paragraphs
trade-in (selling) value130 as well as the buying value of different types, makes and 16.85–16.93
years of vehicle. Insurers then pay the insured an amount in between these two
values. 131
or afterwards, between the parties that the insured will accept and is bound to an
indemnity based on that mean value, he may arguably recover on the basis of the
ordinary market value which, as has been contended, is what it will cost him to buy a
16.93 The market value of property is a factual question in every case and may be proved
by leading expert evidence, 133 also in the case of insurance claims. 134 It may also be deduced from an actual
sale of such property. 135 The original cost price of an object136
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127 As to this point, see also Merkin et al Colinvaux pars 10.015 (questioning the validity of the usual assumption
that market value is “the amount that the goods would have realised had they
been sold by the assured, not the (normally) greater amount that the assured would have to
expend to replace them”), 12.033 (as to the approach of the ombudsman in England in regard-
ing the market value of an insured vehicle to be the likely cost to the insured of acquiring a
128 The terminology in this regard differs according to the perspective: buying value from the
insured’s point of view is often termed selling or resale value: cf, eg, Birds Birds’ Modern Insur-
ance Law par 15.4, referring to market value after the loss of goods as their “second-hand or re-
sale value” and as being relevant “because it is the sum that it will cost [the insured] to obtain
equivalent goods”. According to Clarke et al Contracts par 28.3B, “[w]hen there is no market in
which substitute goods can be bought, . . . some other criterion of value, such as the price at
which the property could have been sold immediately before loss, must be sought”.
129 For a similar approach in German law, see VVG art 88, providing that unless otherwise agreed, the insurable
value of an item will be deemed to be the amount the insured must spend on the
130 Trade-in and selling value may not necessarily be the same, for dealers are usually willing to offer more by
way of trade-in than for a straight sale.
131 See Nteo v Patel, unreported (T), (2006) 9 Juta’s Insurance L Bul 34 where in establishing the difference
between the pre- and post-collision market value of an insured vehicle damaged beyond economical repair, the
pre-collision market value was proved to be the average of the dif-
ference between the trade value and the retail value of the vehicle at the time of the accident as
stated in the Auto Dealers’ Guide, regardless of any higher purchase price paid on the same day.
The post-collision (salvage) market value was established to be 24 per cent of pre-collision mar-
132 Thus, an indemnity based on selling value will leave the insured vehicle owner under-
compensated. In other cases, again, it may leave the insured over-compensated. Hence a motor
dealer who insures the vehicles on its floor cannot recover an indemnity based on their selling
133 Cf Erasmus v Davis 1969 (2) SA 1 (A) 12; SM Goldstein and Co (Pty) Ltd v Gerber 1979 (4) SA 930
134 Eyer v Three Lions Parts CC, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 171 (proof of the value of
the vehicle to be provided by expert evidence; such proof not only of the value of the
vehicle before the loss or damage, but also of the value afterwards).
135 Especially where the sale takes place by public auction: Erasmus v Davis 1969 (2) SA 1 (A) 11D; see also
Microutsicos v Swart 1949 (3) SA 715 (A); Taggart v Green 1991 (4) SA 129 (T).
136 Reed v Reed (1909) 23 EDC 244 (the “cost price” of article may mean the invoice price or the price it cost to
obtain the article, ie, invoice price plus charges for freight and insurance).
335
may go some way towards pointing to its market value, 137 at least in the case of fairly
new objects. But this is not conclusive evidence, because the insured may have paid
more or less than the market value when he acquired the property and also because
the market value may have fallen or risen since the object was acquired. 138
16.94 The parties may also agree on a specific method of calculating the (market)
16.95 In a large number of cases an application of the criterion of the market value
should produce satisfactory results. If an insured receives the market value for his lost
or destroyed property, he can enter the market and replace that property.
16.96 However, the market-value measure of loss displays several shortcomings and
render it unsuitable for all cases. The application of the market-value rule has in fact
met with similar difficulties in other branches of the law of damages where the courts
proper or realistic market value at all, 141 or there may simply be no market available at
the place of the loss. 142 The market value of other property, again, may not reflect its
16.98 The view has been expressed that in the case of a partial loss, a reliance on
of an indemnification based on the difference between the market value before and
after the damage may well not compensate the insured appropriately. 144
16.99 Thus, to restrict the assessment of the insured’s loss indiscriminately with
________________________
137 Cf, eg, Colonial Government v Nathan Bros (1892) 13 NLR 100 (the market value of goods lost is their prime
invoice cost, with customs duties and expenses of importation, and reasonable importer’s profits of 10 per cent on
all expenditure).
138 See Eyer v Three Lions Parts CC, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 171 (evidence of what
the vehicle had cost the owner plus profit was insufficient evidence of its undam-
aged value).
139 See Citibank NA, SA Branch v Paul NO 2003 (4) SA 180 (T) (such an agreement is not contrary to public
policy and the agreed or deemed (market) value determined as agreed is binding on
parties who are not, or no longer, entitled to rely on any real or actual (market) value).
articles, especially works of art. See, eg, Van Es v Beyer’s Trustees and Bosman (1884) 3 SC 9 (as
there was no market for the goods – seasoned wine casks – at the time of their loss, a compari-
son had to be made with the value of new casks); Cowan v Witwatersrand Gold Mining Co Ltd 1909
TH 273; Witwatersrand Gold Mining Co Ltd v Cowan 1910 TS 312 (as it was impossible to estimate
or establish the market value of the surface area for agricultural purposes where land was neg-
ligently flooded and topsoil washed away, recourse had to be had to another method; the
measure of damages had to be based on the cost of replacing the denuded area and repairing
the ravages of flood by soil of a similar and equal quality, including the cost of supervising such
replacement).
142 However, then the value of the goods can ordinarily be ascertained by taking their price at the place of
manufacture together with the transport cost to the place of loss.
143 Eg, in the case of old but serviceable articles, or in the case of furniture, clothes, and other items of personal
property. Cf also Nafte v Atlas Assurance Co Ltd 1924 WLD 239 248.
336
16.101 The most suitable method to be applied in any given case will clearly depend
on the circumstances of every case, especially the use the particular object has for the
insured, and the only immutable guidance is that to be had from the broad
16
paragraphs
16.93–16.105
interest
evidence of the necessary and reasonable cost of repairing, restoring and reinstating
the damaged property to its previous condition. The assumption is that, unless
special circumstances exist, an award of the amount of the cost of such repair will do
no more than place the insured in the financial position he occupied before the
loss. 147
16.103 The effect of adopting the cost of repair or reinstatement may be illustrated
as follows: if a house is insured and burns down, the insured is entitled to have it
repaired or rebuilt to its pre-fire condition, even if the cost of doing so, in theory,
exceeds the difference in its market value before and after the fire. In practical effect
the insured is restored to nothing more than his financial position prior to the fire.
Prior to the fire he had an undamaged house and after indemnification he still has
16.104 Support for this approach may be derived from the rule in the law of contract
though such cost may exceed an award in terms of the market-value measure,
provided only that repair is reasonable in the circumstances. 148 Suppose, in the earlier
example, that the insured house was partially damaged. On the basis of the
replacement measure, the insured can recover the cost of repair, even though he
cannot prove that the cost of repair equals the depreciation in the value of the house
16.105 The courts have accepted this method of proof in the law of damages and
also in the insurance context. 149 An insured may even bring proof of the cost of repair
in that the market value of his property has been diminished. 150
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145 This is recognised also in the general law of damages: see further 16.102–16.113. For a discussion of English
and Dutch law, see further Lawsa Vol 12 Part 1 par 360.
146 Alternative, that is, to establishing the difference between pre- and post-loss market values.
147 Erasmus v Davis 1969 (2) SA 1 (A) 9; Kali v Incorporated General Insurances Ltd [1976] 2 All SA 443 (D);
1976 (2) SA 179 (D) 191.
148 Schmidt Plant Hire (Pty) Ltd v Pedrelli 1990 (1) SA 398 (D).
149 Joubert v Santam Versekeringsmaatskappy Bpk 1978 (3) SA 328 (T) 332. Cf also Erasmus v Davis 1969
150 Joubert v Santam Versekeringsmaatskappy Bpk above 332. The reason for this is that quantification of the loss
is a factual question and is not achieved through the application of strict formulae
and rules of practice. See also Erasmus v Davis above 5. The contrary should also apply, namely
that where it is alleged that damage has been suffered to the extent of certain costs of repair,
proof of the actual diminution in value should be admissible to establish the amount of the
loss.
337
16.106 The insured bears the burden of proving that the cost and also the method of
expert evidence will be required, but also here the court will assist an insured unable
to prove the cost with mathematical precision by making an estimate of such cost, as
will be the need for or an entitlement to repair, the insured’s intentions and how
reasonable they are, 152 as also the fact that replacement or reinstatement will make no
16.108 Once the cost of repair has been proved and there is no evidence that the
cost of repair exceeds the actual diminution in value, or even that it exceeds the pre-
loss market value – so that an indemnification on that basis will result in over-
compensation – a presumption arises that the cost of repair represents the dimi-
nution in value. However, the insurer can rebut this presumption153 by proving the
actual diminution in value. In these cases, therefore, there exist such special
16.109 By contrast, under-compensation too may result from an award of the cost of
repair, such as when the repairs restore the property to its pre-loss condition but not
to its pre-loss value. 154 That may be avoided by invoking the primary market-value
method. 155
ited interest
alternative measure may have to be found to determine the true extent of the
insured’s loss.
16.111 The parties themselves often deviate from the market-value measure by
agreeing, expressly or even tacitly, that the insured will be indemnified on the basis of
the cost of a new or unused replacement article similar to the one insured. 156
________________________
151 See Helderberg Car and Propshaft Centre CC t/a Propshaft Centre v Nexor 519 t/a Protec Crane Hire,
unreported (ECG), (2012) 15 Juta’s Insurance L Bul 116 (documentary evidence (quotations
and invoices) have to be supported by expert evidence; in assessing the measure of delictual
damages with reference to the cost of replacement and repair, it is irrelevant ( res inter alios acta)
that the insurer regards the insured plaintiff’s loss as a total loss: Komichi v Tanner, unreported
152 Relevant, therefore, will be whether, eg, the insured owns the property as a dwelling (in which case it may
more readily be assumed that he would, if paid an indemnity, have it rebuilt, so that
the cost of rebuilding may be appropriate), or acquired it solely for purposes of rental or resale
(in which case market value may again be more appropriate). See further on the factors that
may be relevant Clarke et al Contracts par 28.2A; Merkin et al Colinvaux par 10.012.
153 See Erasmus v Davis 1969 (2) SA 1 (A) 12 where the court referred to a “weerleggingslas”, indicating that the
actual burden of proof (which in the insurance context lies on the insured) is not
155 In the final analysis, the cost of repair as an alternative method of proving a diminution in value must therefore
in appropriate cases yield to the primary method: cf Erasmus v Davis 1969
(2) SA 1 (A) 9; Joubert v Santam Versekeringsmaatskappy Bpk 1978 (3) SA 328 (T) 330; ISEP Struc-
tural Engineering and Plating (Pty) Ltd v Inland Exploration Co (Pty) Ltd 1981 (4) SA 1 (A) 8.
156 See, eg, Grand Central Airport (Pty) Ltd v AIG South Africa Ltd 2004 (5) SA 284 (W) for the interpretation of
such a replacement-value clause.
338
16.112 This is often the case with insurances on movables such as consumer goods
and it has been suggested that this method is perfectly acceptable, 157 especially if
account is taken of the fact that the parties may validly agree on physical
16.113 The value calculated on the basis of the cost of replacement may be termed
the replacement value and the applicable measure the replacement-value (or new-
16
paragraphs
16.106–16.117
Betterment
16.114 Admittedly, where either the cost of repair or replacement value is the basis
for indemnifying the insured against loss or damage, he may very often be placed in a
prior to the loss or damage. For instance, the insured may160 end up with an
equivalent but better article than the one he had: the rebuilt house may, although
similar in size, be sturdier and hence more valuable than was the old house before
the fire; the damaged vehicle may be repaired by the installation of new parts in the
place of old parts; the television set or laptop computer stolen may be replaced by a
kind for the benefit of having an old article reinstated to a condition better than its
for old” or discount for depreciation should be made for the betterment.
16.116 In the English law of marine insurance the rule exists that “where the
[insured] ship has been repaired, the assured is entitled to the reasonable cost of
repairs, less the customary deductions”. 161 The customary deduction in the case of
wooden ships, except on a first voyage, amounts (or amounted) to “one third new for
old”, so that the insured can recover only two-thirds of the cost of repairs. 162
16.117 No fixed allowance exists in non-marine insurance – or, for that matter, in
the law of damages – and the marine approach indeed appears to be too rigid for
general application. Any deduction to be made must depend on the facts of the
case, 163 need not be made with mathematical precision, 164 and may be made without recourse to the respective
market values. 165
________________________
157 See again 4.25–4.28. See also Birds Birds’ Modern Insurance Law par 15.4.2: “As the basic principle of
indemnity is only contractual, it can be contractually varied.”
160 Or may not, eg where the insured property is still brand new and unused when lost or dam-
aged.
162 See, eg, Bennett Law of Marine Insurance par 23.18, explaining that “[t]he one-third deduction served both
the indemnity principle and convenience”; Merkin et al Colinvaux pars 10.031,
24.103, pointing out that in terms of current insurances the insured “can recover on a new for
163 Nafte v Atlas Assurance Co Ltd 1924 WLD 239 248. However, it is not quite certain whether the court here
proceeded from the market-value or the reinstatement-value principle; the impression is given that deductions were
made from the market value of the relevant goods, but the
164 Merkin et al Colinvaux par 10.031: the “deduction for betterment is not a precise science and
. . . the courts will apply a broad brush approach”. This means that a deduction will not be
made if, eg, the insured has incurred other costs for which he has not claimed.
165 Eg, Abrahams v Kaiser Bros (1903) 13 CTR 184; Kaiser v Shenker and Co (1904) 21 SC 317.
339
no proper market value, may be to take the value of a new article, divide it by the
number of years of its normal life expectancy, and then to deduct from the new value
an amount to provide for the number of years which the old article has already
served.
16.119 The allowance for betterment therefore serves in many instances to reduce
16.120 However, it appears possible167 and acceptable168 for the insurance to be on the basis of replacement
value without any deduction for betterment having to be
made. 169
16.121 The preceding exposition assumed that the insured has an unlimited interest
16.122 However, the insured asset or interest affected by the event insured against
may be of a lesser value than a full interest based on ownership of the object of the
gagee, fiduciary, 172 usufructuary as well as the possessory interest of a lessee or other
16.124 A person with a limited interest may insure, even to the full value of the
respect and to the extent of his own interest. 174 The several statements in Lorcom
principle must be considered wrong: the mere fact that a non-owner – here, a
shareholder – has an interest in a particular object of risk does not invariably imply
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166 The notion is known also in civil-law systems: for German law, see VVG art 88, providing that the insurable
value of an item is the amount the insured must spend after the occurrence of the
event insured against to replace or restore the insured property to a proper condition (“neuwer-
tigem Zustand”), less the reduced value resulting from the difference between old and new (“un-
ter Abzug des sich aus dem Unterscheid zwischen alt und neu ergebenden Minderwertes”).
167 Or “tolerable, perhaps”, as Clarke et al Contracts par 28.3C have it. For American law, see Jerry
Understanding Insurance Law par 93[d].
168 In view of the fact that, should the insurer elect to reinstate rather than pay a monetary indemnity, “an element
of betterment is inherent [the] reinstatement”: Merkin et al Colinvaux par
10.044.
169 With respect to replacement, see Lawsa Vol 12 Part 1 par 363.
171 For examples of the interests insurable in terms of an indemnity insurance, see 3.87–3.128.
172 Cf Swart v Van der Vyver 1970 (1) SA 633 (A) where the buyer of fiduciary rights to a farm claimed damages
from the lessee of the farm, calculated on the basis of what it would cost to
put the farm in the condition in which it should have been returned. The court held that be-
cause the farm was not part of the buyer’s patrimony, a diminution in the value of the farm did
not affect him directly (642C). The cost of repair was therefore not recoverable as of right. The
court indicated three possible sources of loss for the buyer (641F), one of which was a diminu-
tion in the market value of the fiduciary’s right to use and enjoyment of the farm (649).
173 On the indemnification of limited interests: Clarke et al Contracts pars 28.1B, 28.2A; Birds Birds’
174 Otherwise where he insured his limited interest as well as the (unlimited) interest of another (eg, the owner) in
the same property, ie, where he insured the full value of the property in a
joint insurance or by means of a stipulation in favour of that third-party other: see 19.118–
19.140.
175 2013 (5) SA 42 (WCC), discussed in (2013) 16 Juta’s Insurance L Bul 73–103.
340
that that interest is unlimited and that the insured will or should be entitled to
16.125 Where several limited interests in the same property are insured separately,
each insured may recover to (but not beyond) the extent of his own limited interest,
regardless of the extent of the recovery of the other insured or whether, in total,
more is recovered from the various insurers than the value of the property con-
cerned. 176
16
paragraphs
16.126 Otherwise than in the case of an unlimited interest, the value of a limited 16.118–16.129
interest may not, as a matter of principle, be equated with the value of the object at
risk but has to be determined in the light of the circumstances of each case. The true
value of a limited interest is generally lower than the value of the object of the risk,
but there may be a direct correlation between the two values. 177
16.127 The general measure of indemnity178 must also be applied to cases where the
16.128 A comparison must therefore be made between the true value of the
insured’s interest before the event insured against and its value after the event. Two
16.129 Where a lessee claims indemnification from his insurer, the true value of his
limited possessory right179 in the leased property may in principle be equated with the
market-rental value180 of the property for the remaining period of the lease. 181 The lessee “has usually an
insurable interest in the premises commensurate with his
liability for rent” 182 and prima facie, the agreed rental may be taken as the market-
________________________
176 See Clarke et al Contracts par 28.1B, pointing out that “a particular insurance contract is concerned only with
the actual recoverable loss of the particular claimant”. It should be borne
in mind, though, that the one insured may, as third party, be liable to the other insured for the
loss of or damage to the insured property and that the insurer of that other insured then has a
right to be subrogated to its insured’s rights against the third-party insured. As to the types of
right an insured may have against a third party, see 18.30–18.33; as to who may, in this context,
177 Thus, the right of a lessee in the use and enjoyment of the property cannot equal the full value of the property
leased, but the value of his interest may increase in proportion to any increase
in the value of the leased property. Likewise, although a shareholder (even a sole, 100 per cent
one) in a company may insure property belonging to that company, and even do so to its full
value, the value of his interest in that property cannot simply be equated with the value of that
property and the insured held entitled to that value on the total loss of the property (as was
done in Lorcom Thirteen (Pty) Ltd v Zurich Insurance Co South Africa Ltd 2013 (5) SA 42 (WCC),
discussed in (2013) 16 Juta’s Insurance L Bul 73–103. That is so even though it may be difficult
to determine the precise value of the insured’s limited interest in the property and even
though insurers may be content simply to pay him the value of the property on its total loss.
179 A lessee may, of course, have an unlimited interest in the leased property, such as where he is liable as against
the lessor for, or to insure against any loss of or damage to it: see again 3.101–
3.106.
180 However, the reservations expressed above in relation to the market-value measure (see 16.59–
181 In the case of a long-term lease, or one for life, the insured lessee’s indemnity may approach or even equal the
market value of the property or the cost of reinstatement. More problematic is a
lease for an undefined period but subject to notice by the lessor: in that case the notice period
183 Thus, in Monumental Art Co v Kenston Pharmacy (Pty) Ltd 1976 (2) SA 111 (C) the court in a delictual action
allowed a lessee to claim from the wrongdoer the rent paid for the period of
the lease which had become useless as a result of the wrongdoer’s conduct. It should be ob-
served that if the insured leased the property at a rate lower than the market-rental value, his
possessory right should not be valued below the market-rental value, otherwise he would be de-
341
16.130 Hence, if the lessee is released from liability for the rent as a result of the
event insured against, his loss may usually be quantified as the difference between the
rent he has had to pay and the rent he will have to pay after the loss to lease similar
without the contract being cancelled, it appears that the difference between the
market-rental value of the possession without such disturbance and the market-rental
value subject to the disturbance may be the only method of calculating the lessee’s
loss.
16.131 The value of a mortgagee’s interest in property extends184 to the full amount
of the outstanding secured debt, subject to the market value of the object of his
security. Thus, a first mortgage bond for R600 over property worth R500 supports an
interest up to the market value of the property, namely R500. Once the outstanding
mortgage debt falls to below the value of the property, the amount of that debt at the
Quantification of expectancies
16.132 Where a legitimate expectancy or chance, 186 such as prospective profit, 187 is the object of insurance, the
real value of the expectancy before and after the event
16.134 First, an enquiry could be made into what a willing and able buyer would be
prepared to pay in order to acquire the expectancy. Such a price could be reliable
secure the expectancy as an indication of its value. Thus, where a trainer had agreed
________________________
184 This simply represents the maximum value of the mortgagee’s interest in the property con-
cerned. The actual indemnity that may be claimed from the insurer in a given case is limited by
the difference in the value of the property before the loss and its value immediately afterwards.
If the property has been reinstated by the mortgagor, the mortgagee can recover nothing, since
185 Merkin et al Colinvaux par 19.025. The mortgagee’s insurer will be subrogated to his right to be repaid the
outstanding balance by the mortgagor.
187 According to Merkin et al Colinvaux par 4.017, “[t]he only exception to the rule that [a mere]
expectancy [as opposed to a contingent interest] cannot found an insurable interest concerns
anticipated profits”. See also Clarke et al Contracts par 4.5N1, explaining that the subject-matter
(ie, the object) of insurance here is not the profit itself, not even the right to profit which may
be lost, but “the means of profit”. “This view”, he continues, “reflects the historical develop-
ment of profits insurance as an exercise in topping up the insurable value of goods.” However,
if there is no proprietary interest in the means of profit, the profit is “naked” and cannot be in-
189 Cf De Klerk v Absa Bank Ltd 2003 (4) SA 315 (SCA); Transnet Ltd v Sechaba Photoscan (Pty) Ltd 2005 (1)
SA 299 (SCA) (delict); SDR Investment Holdings Co (Pty) Ltd v Nedcor Ltd 2007 (4) SA
190 (C) (breach of contract); Dippenaar v Shield Insurance Co Ltd 1979 (2) SA 904 (A) where the
court was concerned with an action against an insurer for the loss of earning capacity. The
court regarded earning capacity as an asset in a person’s estate (917B) and remarked that the
monetary value of earning capacity which has been lost may be proved in a variety of ways, de-
pending on the facts of each case (917E). Thus, an existing employment contract may be and
was in fact treated as evidence of earning capacity (920C). In this case the object of the insur-
342
with the owner of a racehorse to stable, train and feed the horse in return for a share
of its future winnings in races, the trainer’s expenses may be regarded as a fair
expenses, the value of the expectancy could be equated with the expenses necessary
to keep it intact. 191 This would be an appropriate method only if the expenses could
16
paragraphs
16.137 If all these methods fail to produce a satisfactory result, the amount of the 16.130–16.140
expected benefits (such as profits) may be taken as the face value of the
expectancy. 193 This value must then be adjusted to suit the circumstances of the case.
16.138 Thus, an adjustment should be made to account for the fact that the benefits
are accelerated and in effect received earlier than would have been the case. 194
16.139 Likewise, an adjustment should also, where appropriate, be made for
uncertainties, that is, for the chance that the expectancy may not materialise. There
expectancy will materialise, 195 but a reasonable chance may vary from slight to very
probable. The better the chances are that the expectancy may materialise, the higher
its value will be. Uncertainties therefore detract from the value of an expectancy. For
this reason, a deduction should be made from the face value of the expectancy to
evidence may be of assistance, 197 but a court may often have to be satisfied with
16.140 If all attempts to arrive at a fair and reasonable valuation for the expectancy
________________________
191 Cf President Insurance Co Ltd v Mathews 1992 (1) SA 1 (A) 7C in connection with a delictual claim.
192 Hence, in Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 the husband insured goods in his
wife’s shop against fire. The goods belonged to his wife, but he was in control of
the shop. The spouses lived on the profits of the business and consequently the insured had an
expectation of gain if the business could be kept going. The goods were destroyed in a fire. The
court awarded the full value of the goods lost to the insured on the basis that it was in his inter-
est that the goods should be replaced exactly as they had been before the fire. The court did
not consider the possibility that the husband had actually insured not his own (limited) but his
193 Cf Dippenaar v Shield Insurance Co Ltd 1979 (2) SA 904 (A) 917A.
194 A method often employed in respect of the loss of future income (ie, periodic payments in the future) is the
annuity method. The present value of the expected income is determined, ie, a
sum of money sufficient, if invested, to produce future monthly payments equivalent to the
monthly income that the plaintiff would have had if the damaging event had not occurred: SA
Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A) 839. This method also applies to expected
197 Decisions concerned with damages for loss of earning capacity on the ground of delict are
instructive in this regard. See, eg, Santam Ltd v Beyleveldt 1973 (2) SA 146 (A); Dippenaar v Shield
Insurance Co Ltd 1979 (2) SA 904 (A); Southern Insurance Association Ltd v Bailey 1984 (1) SA 98
(A); President Insurance Co Ltd v Mathews 1992 (1) SA 1 (A); Griffiths v Mutual and Federal Insur-
ance Co Ltd 1994 (1) SA 535 (A); Bane v D’Ambrosi 2010 (2) SA 539 (SCA).
198 Cf Union and National Insurance Co Ltd v Coetzee 1970 (1) SA 295 (A); Shatz Investments (Pty) Ltd v
Kalovyrnas 1976 (2) SA 545 (A) 559; SDR Investment Holdings Co (Pty) Ltd v Nedcor Ltd 2007 (4)
SA 190 (C).
343
16.141 Because of the difficult burden of proof associated with a claim for
value of the object of risk and, hence, of an insured’s unlimited interest in it, or of a
16.142 An agreement to this effect could take place after the loss, 199 but it would suit an insured better to reach
an agreement on the value of the object of risk, or on a
method by which to determine that value, beforehand, say when entering into the
insurance contract.
16.144 Valued policies are common in marine insurance. 201 They are also employed
in the case of non-marine insurances of property or goods with values that fluctuate
or are difficult to evaluate, such as objects of art, antiques, or items with a strongly
personal value for the insured, or to incorporate profits expected from the insured
property itself. 202 Although some measure of over-valuation is permissible, 203 such policies are valid204 and
not considered in breach of the indemnity principle. 205
However, both over-valuation and under-valuation may, if known to the insured but
not to the insurer, be material facts that have to be disclosed to the insurer. 206
16.145 In a valued policy, the value of the object of the risk is determined by
agreement between the parties. Such a valuation relieves the insured of the burden of
proving the value of the object of the risk in so far as that value is part of the method
to determine the extent of his loss, but the insured must naturally still prove that he
16.146 Irrespective of when it was agreed, the agreed value of an object of risk is
conclusive as between the parties of its value at the time and place of its loss or
damage. The agreed value is decisive for total as well as for partial losses, 208 as also for
________________________
199 Eg, as part of a settlement agreement. In that case, though, no issue of any breach of the
indemnity principle can arise, even if the insured is seriously over-compensated: Wansink et al
Assers par [439], who point out that a valued policy (“voortaxatie”) seeks to avoid disputes or un-
certainty as to value and the measure of indemnity, while a post-loss settlement agreement seeks
200 The term “valued policy” does not imply that it is the policy that is valued, merely that a value has been placed
on the object or risk insured by it. An unvalued policy is also known as an
“open policy”.
201 For valued policies in marine insurance: see Lawsa Vol 12 Part 2 par 300.
202 As to the latter, see further, eg, Merkin et al Colinvaux par 10.020.
203 For the difference between English law and Roman-Dutch law when it comes to the binding
204 Citibank NA, SA Branch v Paul NO 2003 (4) SA 180 (T) (valued policies of insurance are valid and not
against public policy).
207 Likewise, it is still open to the insurer to refuse the claim on the basis that the insured did not have an
insurable interest: Merkin et al Colinvaux par 4.005.
208 In the case of a partial loss, a proportion of the indemnity calculated with reference to the agreed value will be
recoverable; this proportion is assessed with reference to the depreciation in the real
value of the object. Thus, if property, actually worth R180 but agreed to be worth and also insured
for R200, is damaged and actually worth R90 after the event, it is damaged to the extent of
(90/180 or) 50 per cent and that proportion of the agreed value of R200 will be recoverable, viz
R100. See further Merkin et al Colinvaux par 10.011; Clarke et al Contracts par 28.7 (“in the case of ( continued)
344
16.147 It should be observed, though, that in terms of a valued policy the parties
agree merely on the value with reference to which the insured’s indemnity must be
assessed, 211 not, or at least not directly, on the extent of the insured’s loss, or on the
event insured against. 212 Only in the case of total loss may the amount of the insured’s
indemnity be equated with the value agreed on, 213 and then only if his interest in it is
16
paragraphs
141–16.149
insurance, the insurer undertakes to accept the value of a new thing of a description
similar to the object of the risk as the basis for indemnifying the insured. Here,
risk, merely on the method by which its value should be determined. Although
initially suspect because of the breach of the strict indemnity principle that insurance
for replacement value may entail, today there are no public-policy objections to
may be thought, the indemnity principle still applies, but then not the strict or
________________________
partial loss, although the policy is valued, the actual loss in the sense of damage or depreciation
must be proved and the role of the agreed value is limited in that respect”).
209 In both cases, whether the insured has been fully indemnified is determined with reference to the agreed and
not the actual value of the object of risk, so that the insured cannot in the event
of under-valuation complain that he has not in real terms yet been fully indemnified: see fur-
210 Over- or under-valuation should be distinguished from over- or under-insurance. If property actually worth
R180 is agreed to be worth R200, it is over-valued, and if it is insured for R170 or
R210 it is also under-insured or over-insured, as the case may be. Thus, over- or under-
insurance is determined with reference to the agreed (and not the actual) value and the sum
Merkin et al Colinvaux par 1.009 make the point that insurers are more likely to object to un-
der-insurance than to over-insurance, given that in the latter case they earn their premium on
212 The agreed valuation is not necessarily the amount recoverable from the insurer. In this
respect, therefore, a valued policy differs from a policy of non-indemnity insurance where it is
possible to ascertain, in advance, what will be recoverable from the insurer in the event of the
occurrence of the event insured against. The statement of Jerry par 94 that “life insurance poli-
cies are ‘valued policies’ because the insurer pays whatever proceeds are stated on the face of
the policy” is therefore misleading as to the effect of valued policies. Likewise Birds Birds’ Mod-
ern Insurance Law par 15.8 who describes a valued policy as one where the parties agree conclu-
213 Thus, if property agreed to be worth R200 (and insured for R200) is totally lost, R200 will be recoverable. See
Lowry et al Doctrines 325, observing that the “agreed value of the item as specified will be the amount
recoverable in the event of a total loss”; Merkin et al Colinvaux par
1.009.
214 As to under-insurance, see further 23.1–23.5; for the difference between a valuation in and the sum insured by
a policy, see again 16.39.
216 See, eg, Ivamy Marine Insurance 6–7; Merkin et al Colinvaux pars 1.009 (who also observe that
“[c]onvenience alone is a sufficient reason why valued policies should be allowed by law”),
Contracts par 28.7 (stating that “[t]he principle of indemnity . . . is a matter of contract and it
may be altered by contract”). The analogy between the role of an agreed value and liquidated
damages clause has been noted: see Lowry et al Doctrines 325; Clarke et al Contracts par 28.7.
345
E. IMPUTATION OF BENEFITS
16.150 The occurrence of the event insured against does not always cause the
from such occurrence, something he would not have received had the event not
occurred. So, if his insured house burns down, the insured may receive an amount of
money by way of damages from the third party who is delictually liable to him in
damages for his loss, or an amount of money by way of the purchase price from the
third-party buyer of the house to whom the risk of damage to the house had already
passed in terms of the contract of sale between them, or a sum of money as a gift
16.151 This poses the question whether the beneficial consequences of the event
insured against must be set off against its harmful consequences when the liability of
the insurer to indemnify the insured is assessed. Must the amount of money the
insured received from the third party be taken into account in reducing or even
extinguishing the insurer’s liability to indemnify him under the insurance contract?
16.152 This question is not restricted to insurance claims but is common to all claims
for the compensation of loss or damage, for example on the ground of breach of
contract or delict. 217 Insurance may in fact be involved both as the external source of
the benefit and as the source of the compensation against which such a benefit may
16.153 In the absence of direct authority dealing with claims for an indemnity under
an insurance contract, the general principles of South African law must enjoy
preference over the principles of English insurance law. From local authorities it is
event inflicting the loss – that is, the delict or the breach of contract – must be
brought into account in assessing the extent of the plaintiff claimant’s loss or
damage. However, it is not clear which benefits will be taken into consideration and
on what basis a reduction of the extent of the compensationable loss or damage is
made.
16.154 Proceeding from the difference theory for determining loss or damage, 219 it
has been postulated that all benefits causally related to the event giving rise to the
insured loss must be taken into account in order to compute the net loss consequent
________________________
217 Cf Van der Merwe et al Contract 359; Neethling et al Delict 227–232 (“collateral source rule and
compensating advantages”); Santam Versekeringsmaatskappy Bpk v Byleveldt 1973 (2) SA 146 (A)
(delict); Hunter v Shapiro 1955 (3) SA 28 (D) (breach of contract); HK Outfitters (Pty) Ltd v Legal
and General Assurance Society Ltd 1975 (1) SA 55 (T) Bills of Exchange Act 34 of 1964 s 81); and
see also Van der Walt 1980 THRHR 1; Reinecke 1988 De Jure 221; Floyd 2003 THRHR 547.
218 Eg, an insurance payment by an insurer C to an insured claimant A may or may not be taken
into account in the reduction of the delictual liability of a wrongdoer defendant B, or the dam-
ages paid by the wrongdoer B to an insured claimant A may or may not be taken into account
in the reduction of insurer C’s liability to indemnify insured claimant A. Here we are con-
cerned with the latter situation. The former situation is relevant in determining whether and to
what extent the insured has any claim against a third party to which the insurer may be subro-
gated, involves the question of whether and to what extent insurance payments are res inter alios
acta as far as liable third parties are concerned, and is considered in ch 18.
346
upon the event. 220 Loss or damage must be established by comparing the total value
of a person’s patrimony before the occurrence of the harmful event with the total
value it would have had if the event had not occurred. Hence, there will be a loss only
if there is a negative difference between the two sums. This difference is described as
16.155 Accordingly, it is said that what a claimant has lost on the swings must be
compensated for by his gains on the roundabouts. 221 If this principle is taken to its
16
paragraphs
logical conclusion, all beneficial consequences of the insured event must be set off. 222 16.150-16.160
16.156 It has been suggested that the courts do no more than pay lip service to the
patrimony with the putative total value it would have had had the harmful event not
occurred. South African law rather proceeds from a different premise that has been
increased. 223 Adoption of the concrete approach enabled the courts to develop a
difference.
16.158 Whenever an actual, concrete loss has occurred, the fact that a benefit has
also resulted from the loss- or damage-causing event does not detract from the reality
that, in law, a real loss has occurred. Hence, benefits are not invariably to be taken
into account in order to establish whether there is loss or damage at all (as is
required by the theory of difference), but rather only for the purpose of calculating
16.159 If a benefit is in fact deducted, the conclusion is that the loss has been
fication” aliunde.
Indemnification aliunde
16.160 Indemnification aliunde225 refers to benefits or advantages the insured receives from third parties that
serve to diminish the loss he is also insured against and for
________________________
220 Van der Merwe and Olivier Die Onregmatige Daad in die Suid-Afrikaanse Reg (1989) 179–180, who rely on
Indrani v African Guarantee and Indemnity Co Ltd 1968 (4) SA 606 (D) 607–608 where it
was observed “that the material loss can only be ascertained ‘by balancing, on the one hand, the
loss to him of the future pecuniary benefit, and, on the other, any pecuniary advantage which
221 Cf Ranger v Wykerd 1977 (2) SA 976 (A) where the court referred to the “swings and roundabouts” principle.
222 If a benefit materialises after compensation has been paid, the supporters of this view would say that the loss
has been incorrectly calculated and paid and that the condictio indebiti should be
224 Eg, Santam Versekeringsmaatskappy Bpk v Byleveldt 1973 (2) SA 146 (A).
225 The reference to “indemnification” in this context should not be taken literally. Although the compensation
paid or payable by the third party may take the form of an indemnification (contractual compensation), that is not
necessarily the case; it may and will in most cases take the
347
16.161 Indemnification aliunde is closely related to subrogation226 in the sense that the benefits that may be taken
into account in reducing or even eliminating the
insurer’s liability under the indemnity insurance contract are also the same type of
apply for the reduction or extinction of the insurer’s liability on the grounds of
indemnification aliunde as do for the exercise by the insurer of its right of recourse
under the doctrine of subrogation: they apply, respectively, to the same type of
benefit or advantage obtained from and rights for such benefit or advantage existing
16.162 However, even if ultimately aimed at achieving the same objective as between
the insurer and the insured (enabling the former to obtain the advantage of such
benefits and preventing the latter from retaining both an or a full insurance payment
as well as the advantage of such benefits) – they are but different ways in which over-
16.163 Indemnification aliunde is relevant and operates before the insurer has made
any payment under the insurance contract: it serves to reduce or eliminate the
liability to make that payment; subrogation becomes relevant, at least at common law,
only after the insurer has made payment under the insurance contract. 228
16.164 The relationship between, on the one hand, indemnification aliunde and, on
the other hand, subrogation is clearly explained, if not then by employing that exact
terminology, 229 in the English decision in Burnand v Rodocanachi Sons & Co:230 “Where there is a contract of
indemnity . . . and a loss happens, anything which reduces or
diminishes that loss reduces or diminishes the amount which the [insurer] is to pay;
and if the [insurer] has already paid it, then, if anything which diminishes the loss
comes into the hands of the [insured] to whom he has paid it, it becomes an equity
that the [insurer] who has already paid the full indemnity is entitled to be recouped
16.165 Thus, if an insured receives a deductible benefit of say R100 from an external
source prior to receiving a full indemnification of R500 from his insurer, the insurer
is liable only for the balance over and above the deductible benefit received by the
insured, that is, only for R400. Payment of any greater amount to the insured would
be an undue payment.
16.166 By contrast, if the insured receives a deductible benefit of R100 after his full
________________________
226 So closely that the two are often treated together and without distinction under the rubric
“subrogation”. Ironically, the locus classicus in English law on subrogation, Castellain v Preston
(1883) 11 QBD 380 (CA), actually concerned an instance of the operation of the distinguisha-
229 The term “subrogation” became firmly entrenched in English insurance law only by the end of the 19th
century. An early use of the term “indemnification aliunde” occurred in Welford and
Otter-Barry’s The Law Relating to Fire Insurance (1911), in ch xxiv: “Subrogation and indemnifi-
cation aliunde”. The term was continued in use by ER Hardy Ivamy, eg in his General Principles of
right of recourse), and (the insurer’s procedural right of) subrogation. On these distinctions,
231 See Merkin et al Colinvaux pars 11.001 nn 11 and 12 (considering both aspects as part of subrogation),
10.004; Clarke et al Contracts par 31.1 (considering – but not actually using the
term – indemnification aliunde as one of the means, alongside subrogation, adopted by English
348
by the insurer, at the moment when it was made, was to any extent undue.
Nevertheless, in all fairness the insurer should be entitled to the advantage of this
benefit of R100. In the context of insurance, this result is achieved by the principle of
subrogation.
benefits received prior to the insurer’s payment to the insured under the insurance
16
contract.
paragraphs
16.161-16.174
16.168 As yet South African courts have not fully explained in what circumstances a
benefit would be taken into account on the grounds of justice and fairness. For
purposes of insurance law, some assistance may be derived from the doctrine of
subrogation which regulates the position after the insured has been indemnified by
F. NON-INDEMNITY INSURANCE
General
basic obligation on the insurer from which, on the occurrence of the event insured
against, a fresh obligation may be postulated. The sum insured becomes payable on
the occurrence of an event which can occur only once, such as death. Consequently,
16.170 In exceptional cases, however, there may be several claims, for example
16.171 The non-indemnity insurance contract may be to the effect that upon
occurrence of the event insured against, the insurer is to make periodic payments,
Vesting of claim
Depending on the true nature of this class of insurance, though, the term “loss” must
16.173 Likewise, the burden of alleging and proving these requirements normally
Enforcement of claim
claimant will have to observe any special terms which regulate the institution and
________________________
349
16.175 If the insurer fails to pay a valid claim in terms of an insurance contract, the
claimant has a right to recover money from the insurer. In the case of non-indemnity
insurance, the claim is ordinarily one for a liquidated amount, the sum insured, 236
and interest is recoverable for late payment. 237
Quantification of claim
16.176 Unlike the normal position with regard to indemnity insurance, the amount
money, namely the sum insured. 238 The sum insured (or sums insured, for various
instalments, and sometimes provision is made for profits to be added to the sum
insured. 239
________________________
236 Clarke et al Contracts pars 30.7B, 30.9A, pointing out that the claim here is for (a contract debt, the English
equivalent of) specific performance.
238 This is so, eg, in the case of insurance on own life, where the interest is unlimited (see again 3.154–3.155). By
way of contrast, the value of the benefits payable may not be fixed, eg, in the
case of insurances on the lives or persons of third parties (see Merkin et al Colinvaux pars 4.004,
18.008; Clarke et al Contracts pars 3.2, 3.6D) where the pecuniary value of the insured’s (lim-
ited) interest at the inception of the insurance is relevant, not the amount for which the insur-
239 In Potgieter v New York Mutual Life Insurance Society; Vermaak v New York Mutual Life Insurance Society
(1900) 17 SC 67, eg, the insured had failed to prove that the parties had agreed on the
payment of the sum insured with profits on survival, and without profits on earlier death (ie,
that parties had agreed to life endowment insurance and not to pure endowment insurance as
350
17
against insurers1
A. Appropriate
forum
....................................................................................................
351
A. APPROPRIATE FORUM
17
Overview
paragraphs
17.1 The vesting and contents of a claim for indemnification or satisfaction have 17.1–17.2
been considered earlier. 2 This chapter is primarily concerned with the institution and
the means of resolving and enforcing vested claims by insured or beneficiaries against
their insurers. 3 These matters are regulated by the common law and are generally
17.2 The primary means by which an insured is able to enforce a claim against an
performance of some of its terms, is by way of formal legal process. 4 That is likewise
true for the resolution of any other type of dispute that may arise between the
insured and the insurer. Any such dispute is to be determined according to the law,
________________________
3 What is said below about the formal aspects of claims by insured against their insurers are of course also and
largely true for claims by insurers against insured.
4 Cf
351
practice and procedure applicable to claims generally. 5 In principle, any claim that
the insured may have is capable of being enforced in a court of law of competent
jurisdiction at any time before the claim has become prescribed in terms of the
Prescription Act. 6
17.3 According to the now repealed Insurance Act, 7 the owner8 of a domestic policy9
issued after 1 January 1924 was entitled to enforce his rights under the policy against the
standing any contrary provision in the policy or any agreement relating thereto.
Furthermore, the owner was entitled to have a question of law arising from such a policy
decided according to South African law. 10 A similar measure of general application was
not repeated in either the LTIA or the STIA. The latter Act merely provides11 that any
claim against a Lloyd’s underwriter under a South African short-term insurance policy12
17.4 The position as regards the jurisdiction over claims on insurance contracts is
contracts coming before South African courts must be determined in accordance with
the general principles relating to the conflict of laws in respect of contracts. 14 Special
Arbitration16
17.5 The parties may choose to submit any dispute regarding the claim to
arbitration, especially when delay in the court process is anticipated or the absence of
parties to the dispute. The choice may have been exercised in the policy, or in a
ready for lancing. Standard arbitration clauses in policies are discussed shortly. 17
17.6 Arbitration in South Africa is governed in the main by the Arbitration Act, 18 but
insurance legislation also has some bearing on the matter. The provisions on
Policyholder Protection Rules, first promulgated in terms of the STIA in 2001, 20 but
17.7 The Arbitration Act itself does not define “arbitration” but a fairly orthodox
meaning of the term would be the submission, by agreement between the parties, of a
________________________
6 68 of 1969.
7 27 of 1943 s 63(1).
10 See generally Van Niekerk 1984 MB 87; Van Niekerk 1994 SA Merc LJ 26.
13 Cf, for an elaboration of some jurisdictional issues, Lawsa Vol 12 Part 2 par 336.
18 42 of 1965. The Act did not repeal the common law on arbitration, which therefore still has a complementary
role to play: for that, see Lawsa Vol 1 2 ed (2003) par 544. The common law is
19 27 of 1943 in s 63(1).
352
interested and impartial third party referred to as an arbitrator, 24 who was appointed
by the parties for the determination, by means of a formal award, of the dispute in
almost invariably provide that the proceedings are to be private and the award
paragraphs
proceedings, are the freedom in the selection of the tribunal, including the option of
freedom to formulate the terms of reference and hence to define the jurisdiction of
the arbitrator; 28 greater flexibility and informality and control in the management of
external review, in the result, be it with or without the provision of an internal appeal
17.9 Amongst other disadvantages are the fact that the parties have to fund the
process themselves, including the fees of the tribunal, which, while more costly, may
in the long run nevertheless prove to be more cost-effective; and, viewed from a
broader perspective, the fact that arbitration awards, being confidential and
science.
17.10 Arbitration agreements are not contrary to public policy in purporting to oust the
jurisdiction of the courts; they merely postpone the interposition of the courts inasmuch
as the courts, first, retain the power to set the arbitral award aside and the award,
Ombudsman schemes
17.11 Prior to the promulgation of the FAIS Act, 32 both the insurance industry
ombudsman schemes in South Africa, the Ombudsman for Long-term Insurance and
________________________
24 A prior association between the insurer and the arbitrator may have to be disclosed to the
insured should it reasonably raise doubts about the arbitrator’s impartiality and independence:
Musonzoa (Pvt) Ltd v Standard Fire and General Insurance Co (Pvt) Ltd [2002] 4 All SA 174 (ZHC).
25 Total Support Management (Pty) Ltd v Diversified Health Systems (SA) (Pty) Ltd 2002 (4) SA 661 (SCA) 24;
Telecall (Pty) Ltd v Logan 2000 (2) SA 782 (SCA) 786; Bidoli v Bidoli 2011 (5) SA 247 (SCA) par 14.
27 S 31.
28 Hosmed Medical Aid Scheme v Thebe Ya Bophelo Healthcare Marketing and Consulting (Pty) Ltd 2008 (2) SA
608 (SCA) pars 30, 35; Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews 2008 (2) SA 448
(SCA); 2009 (4) SA 529 (CC) pars 175, 195–201, 213–219, 225–236, 261; Aveng (Africa) Ltd
(formerly Grinaker-LTA Ltd) t/a Grinaker-LTA Building East v Midros Investments (Pty) Ltd 2011 (3) SA
631 (KZD) pars 12–14, 17; Umgeni Water v Hollis 2012 (3) SA 475 (KZD) par 7; Enviroserv Waste
Management (Pty) Ltd v Wasteman Group (Pty) Ltd [2012] 3 All SA 386 (SCA) par 28.
29 No external appeal and an internal appeal only if it is so agreed: cf Total Support Management (Pty) Ltd v
Diversified Health Systems (SA) (Pty) Ltd 2002 (4) SA 661 (SCA) pars 21, 28; Telcordia
Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA) par 50; Clarke v Semenya 2009 (5) SA 522
(W); Leadtrain Assessments (Pty) Ltd v Leadtrain (Pty) Ltd 2013 (5) SA 84 (SCA).
31 Cf Davies v South British Insurance Co (1885) 3 SC 416; Kantor Bros v Transatlantic Fire Assurance Co
(1892) 4 SAR 185; Ehrig and Weyer v Transatlantic Fire Insurance Co 1905 TH 117, 1905 TS 557.
32 37 of 2002. See also Nienaber and Reinecke Life Insurance par 3.21.
353
the Ombudsman for Short-term Insurance, were entirely voluntary and free from
governmental control. This Act created the office of the Ombud for Financial
financial advisers. 33 During that period there was considerable pressure, following a
similar move in the United Kingdom, to convert and integrate the industry’s two
voluntary schemes into a single state-controlled central body such as the office of the
Financial Advisory and Intermediary Services Ombud. That initiative was, however,
diverted with the passing of the Financial Services Ombud Schemes Act34 which, on
the one hand, recognised the value and existence of the voluntary schemes but, on
the other hand, created a statutory regime to exercise regulatory control over all
ombudsman schemes in the financial services sector and established a body, the
Financial Services Ombud Schemes Council, to which all such schemes have to apply
17.12 When it decides to reject a claim or dispute its quantum, an insurer is obliged35
to inform the insured, on pain of a penalty if it fails to do so, of his right to lodge a
complaint in terms of the Financial Services Ombud Schemes Act, 36 and of the relevant
provisions of that Act relating to the lodging of such a complaint. The existence of an
claim in a court of law or arbitration tribunal, but when he elects to lodge his claim
with an ombudsman, the insurer is obliged to deal with it in that forum. In joining a
voluntary scheme, the insurer submits itself in advance to the jurisdiction of the
in nature. Having heard the complaint and the insurer’s response, they normally
assume, at the outset, a mediating role in trying to orchestrate a fair and reasonable
solution to the problem, if one exists. But once that fails, they assume an adjudicative
function, generally clothed with the luxury of an equity jurisdiction, and giving rise to
has advantages over both litigation and arbitration. The most important of these are:
lodging a complaint; no obligation on the parties to obtain and pay for legal
representation; a process that is more informal and less daunting for the parties; an
evidence and procedure; fewer delays in bringing matters to conclusion and, if the
scheme allows for it, an equity jurisdiction that allows the ombudsman greater
world in South Africa are the Ombudsman for Long-term Insurance and the
33 Idem par 3.57 and see Lawsa Vol 12 Part 2 par 347.
35 17.52.
36 37 of 2004.
39 For the respective requirements for registration and their jurisdictions, powers, processes and procedures of the
Ombudsman for Long-term Insurance, see Lawsa Vol 12 Part 2 par 345;
Nienaber and Reinecke Life Insurance pars 4.1–4.57; and for the Ombudsman for Short-term
( continued)
354
17.16 According to general principles, and on the assumption that the insured – or a
claimant – is seeking specific performance against the insurer for payment in terms of
the insurance contract, he may, without prior notice or demand, issue summons
17
paragraphs
agreement to the contrary, it is not even necessary for the insured to notify the 17.11–17.18
insurer of the occurrence of a loss before instituting action; nor does the insured
have to complete and submit a formal claim form. Furthermore, apart from the usual
duties resting on a plaintiff once an action is brought, the insured is under no duty to
show his hand by furnishing the insurer with proofs and evidential material. And in
principle any claim that the insured may have against the insurer may be enforced at
any time before the claim becomes prescribed in terms of the Prescription Act. 41
Contractual requirements
contracts terms that have a bearing on the institution and resolution of claims on
insurance contracts. These terms impose a range of duties on the insured. The first
thing an insured may be required to do, is to give notice to the insurer of the
contract will require him to complete a formal claim form. 43 Even where the contract
is silent about the completion of such a form, an insured is usually requested to fill
out a form, but, in insisting on that, the insurer cannot unilaterally increase the
insured’s duties. 44 Together with, or separate from, any claim form, the insured may
have to follow up his original notice by providing the insurer with full particulars of
the happening of the event insured against and of the resultant loss. 45
17.18 Once a claim has been submitted, the insured may be under an obligation to
supply the insurer with such proofs and evidential materials as the latter may
require. 46 Insurance contracts usually restrict the period within which legal action
may be brought against the insurer. 47 Provision may also be made for arbitration. 48
The insurance contract may furthermore seek to improve the position of the insurer
________________________
Insurance, see Lawsa Vol 12 Part 2 par 346; Nienaber and Reinecke Life Insurance pars 3.85–3.89.
For the FAIS Ombud, see Lawsa Vol 12 Part 2 par 347; Nienaber and Reinecke Life Insurance pars
3.57–5.64; for the Statutory Ombud, see Lawsa Vol 12 Part 2 par 348; Nienaber and Reinecke Life
40 See Van der Merwe et al Contract General Principles pars 10.2.1, 11.2.1. However, a plaintiff who sues for
specific performance without having made a prior demand, runs the risk that, should
the debtor tender due performance in response to the summons, he will not be entitled to costs.
Mora interest may be claimed only if the insurer is in mora with its payment. See further Lawsa
43 Eg, Kannemeyer NO v The Sun Insurance Co (1896) 13 SC 451 460; Pe reira v Marine and Trade Insurance
Co Ltd 1975 (4) SA 745 (A) 753G.
44 Pereira v Marine and Trade Insurance Co Ltd above 753F. However, one should take account of the possibility
that a variation of the policy may have been effected by subsequent agreement
355
should the claim instituted by the insured be a fraudulent one. 49 Some of these
contractual duties are dealt with separately in the discussion that follows. Account will
absent, the tendency in the past has been to interpret terms of this nature as
law, 53 a term with such a provision is seldom by nature a suspensive condition in the
true sense of the word. 54 Rather, its effect is usually to create a contractual duty for
the insured. Where appropriate, it may limit the duration of a vested claim by means
If the provision creates a contractual duty for the insured, non-fulfilment of such a
duty is nothing other than a breach of contract, 57 giving rise to the normal remedies
17.20 Provisions of this nature are very often vital terms because of the importance of
the duties they create58 or because they expressly state that the insurer may refuse
liability in respect of a claim affected by them. 59 This means that upon a breach,
which ordinarily the insurer will have to prove, the insurer is entitled at least to reject
the relevant claim affected by the breach but not necessarily to resile from or
________________________
51 Cf, eg, Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) 750G.
52 See Clarke et al The Law of Insurance Contracts par 26.2G1 (explaining that in this interpretation, the purpose
of the term will be an important factor, and also observing the growing tendency of
the courts to require of insurers to make it absolutely clear by express terminology (eg, the use
of the phrase “condition precedent”) that they regard the term as sufficiently serious to justify
53 See Clarke et al Contracts par 26.2G; Merkin et al Colinvaux’s Law of Insurance pars 9.003 (for the effect of
breach of these procedural terms) and 9.004 (for the classification of such terms).
54 What was said in Norris v Legal and General Assurance Society Ltd [1962] 4 All SA 422 (C); 1962 (4) SA 743
(C) 745G, must be read subject to what was said in Resisto Dairy (Pty) Ltd v Auto Protection
Insurance Co Ltd 1963 (1) SA 632 (A) and what was confirmed in Pereira v Marine and Trade
Insurance Co Ltd 1975 (4) SA 745 (A) 752D. In Resisto Dairy, a distinction was drawn between
conditions proper and undertakings imposing a duty upon the insured. The expression
“condition precedent” to denote a material obligationary term must therefore be avoided in the
55 Eg, where the term states that the claim is to lapse a certain time after the insurer’s denial of liability; see
17.34–17.44.
56 Eg, where the term provides that the claim expires within a year from the happening of the
57 Cf Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A) 326B.
58 Cf, eg, Norris v Legal and General Assurance Society Ltd 1962 (4) SA 743 (C); Russell and Loveday v Collins
Submarine Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A) 149.
59 Cf Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd 1934 AD 458
(where the term provided that the policy did not cover loss of which the insurer had not had
notice within three days of its occurrence); Union National South British Insurance Co Ltd v
Padayachee 1983 (3) SA 246 (D) (where the term stated that no claim would be payable unless it
356
terminate the insurance contract as a whole. 60 If the provision limits the continued
existence or of a vested claim against the insurer, the claim simply expires if it is not
brought timeously, without it being necessary for the insurer to make an election. 61
17.21 Where the insurer repudiates the insurance contract, for example by denying
its validity or intimating that it is not going to meet a valid claim, and so commits a
17
paragraphs
breach of contract, and the insured does not resile from the contract but elects to 17.18–17.24
abide by it, some of the remaining unperformed obligations of the insured may be
compliance by the insured with any one or more of the duties imposed on him as
regards the claims process. 63 Thus, an insurer may by its conduct or otherwise accept
prevented from relying on any breach on the part of the insured of the relevant
term. 64
17.23 Arguably the often technical reliance by insurers on the breach of terms
regulating the claims process, especially in cases where the insured acted reasonably
and is blameless, provides good examples of the need for reform in this area of the
law. The need for such reform to alleviate the harsh consequences of forfeiture of the
insurance benefits in the event of non-compliance with terms regulating the claims
to give prior notice of any kind to the insurer, insurance contracts almost without
exception expressly impose on the insured a duty to give notice of some or other
occurrence. 66 The ostensible need for such notice is to allow the insurer to investigate
the circumstances that may give rise to a claim at the earliest possible time and under the
most favourable circumstances and also to ensure that immediate steps may be taken to
minimise its potential liability in the event of a claim. 67 A delay in notification, it has been
________________________
60 In English law, there is authority for the view that procedural conditions are conditions
precedent to the payment of the claim and not to the existence of cover itself: Clarke et al
61 This is the case where both a resolutive condition and a resolutive time clause are intended.
62 See in general Van der Merwe et al Contract pars 10.2.2, 10.3.2. See also 22.92–22.104 on whether these
principles may be explained on the basis of waiver. See further Lawsa Vol 12 Part 1 par
378.
64 See, eg, Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61; Hollander and Co v
The Royal Insurance Co (1885) 4 SC 66; Kannemeyer NO v The Sun Insurance Co (1896) 13 SC
451; Regent Insurance Co Ltd v Maseko 2000 (3) SA 983 (W) (insured to prove alleged extension of
time to issue summons in terms of time-barring clause on basis of waiver by insurer of its right to
reject claim).
65 See Napier NO v Van Schalkwyk 2004 (3) SA 425 (W), commented on in (2004) 7 Juta’s Insurance L
66 See generally Clarke et al Contracts pars 5.8E2, 17.4D4, 26.2; Birds Birds’ Modern Insurance Law par 16.6.
67 Cf, eg, Trollip v Southern Life Association (1907) 17 CTR 940 (notice of accident required within 21
days so that, in case of injury, insurer could send own medical doctor to examine insured); Norris
v Legal and General Assurance Society Ltd [1962] 4 All SA 422 (C); 1962 (4) SA 743 (C)745D.
357
said, may result in serious prejudice to the insurer. 68 However, it seems unlikely that
insurers these days as a rule ever take any steps prior to a formal claim having been
17.25 The precise content of the notice required depends on the term in question and,
occurrence of the event insured against (fire), or of loss of or damage to the object of
risk (fire damage to the insured house), or of any occurrence that may give rise to a
claim under the insurance contract (the sinking of a ship on which the insured cargo is
carried). In the case of liability insurances, again, notice may be required of the
occurrence of an event that may, or is likely to, give rise to a claim against the insured
(eg, injury to a third party). 69 Generally a notice must be sufficient to enable the insurer
17.26 Frequently the time for notice to be given is not specified, but general words are
used to express the urgency with which it must be given. Words such as “immediately”,
“forthwith”, “as soon as possible”, or “as soon as practicable” are employed in this regard.
Whether there is any practical difference between these terms is doubtful. 71 In such cases
the requirement. Thus, “as soon as possible” means as soon as is reasonably possible for
the insured in the light of prevailing circumstances and the position in which he found
himself, including his knowledge or ignorance of the occurrence – but not of term
first reasonable opportunity. In short, notice within a reasonable time after the
occurrence of the event is required73 and it depends on the circumstances of each case
________________________
69 See, eg, Snodgrass v Hart (Santam Ltd Third Party) 2002 (1) SA 851 (SEC) (a term requiring notice of “any
event which may result in a claim under this policy” from the insured claiming an
indemnity against a claim by a third-party passenger injured in an accident was held, on a broad
interpretation, to require notice of the accident and not (also) of the injuries sustained by the
third party in the accident; Guardrisk Insurance Co Ltd v Napier NO, unreported (W), (2007) 10
Juta’s Insurance L Bul 165 (interpretation of term in a reinsurance contract requiring the insurer
to advise the reinsurer of certain types of claim under certain conditions within a specified time
of itself having been advised of “such claim”); Thompson v Federated Timbers, unreported (KZD),
70 Cf Russell and Loveday v Collins Submarine Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A) 149–151.
See further, on the means and methods of giving notice, Lawsa Vol 12 Part 1 par 380.
71 But not impossible: it may well be that words such as “immediately” require a more prompt
notice than “as soon as possible”: cf Collen v AA Mutual Insurance Association Ltd 1954 (3) SA 625
(E) 629H.
72 Otherwise the insured may be required to notify the insurer “immediately” and before, say,
calling the fire brigade or the ambulance: Clarke et al Contracts par 26.2E3.
73 Hean v General Accident, Fire and Life Assurance Corporation Ltd 1931 NPD 215 221 (“‘immediate’ in the
clause means reasonably immediate having regard to the circumstances of the case”); Collen
v AA Mutual Insurance Association Ltd 1954 (3) SA 625 (E) 629H (“so soon as possible” accepted
to mean “so soon as is reasonably practicable in all the circumstances”); Sleightholme Farms (Pvt)
Ltd v National Farmers Union Mutual Insurance Society Ltd 1967 (1) SA 13 (R) 17C (“forthwith”
Employers Insurance Co Ltd 1978 1 PH A17 (C) (“as soon as possible” means “as soon as is
reasonably practicable in all the circumstances”); Kali v Incorporated General Insurances Ltd [1976]
2 All SA 443 (D); 1976 (2) SA 179 (D) 186; cf also O’Flynn v Equitable Fire Insurance and Trust Co,
Joseph and O’Flynn v Commercial Assurance Co (1866) 1 R 372 376; Radar Holdings Ltd v Eagle
Insurance Co Ltd, unreported (ZHC), (1999) 2 Juta’s Insurance L Bul 46; Standard Products
(Zimbabwe) (Pvt) Ltd t/a Cellphone World v Commercial Union Insurance Co of Zimbabwe Ltd,
unreported (ZHC), (2008) 11 Juta’s Insurance L Bul 60 (notice of loss “as soon as possible” means
unreported (KZD), (2011) 14 Juta’s Insurance L Bul 7 (duty on insured to notify insurer of event
that may give rise to a claim under a liability insurance contract “as soon as reasonably possible”
means that notice is required of the event as soon as reasonably practicable under all the
circumstances).
358
what a reasonable time will be. 74 By contrast, the time for notice may be specified by
stipulating a particular period of time – a number of days – within which notice must be
given. In such cases, it seems, there is much less room for an interpretation in favour of
called for. 75
17.27 A term requiring the insured to notify the insurer of the occurrence of an event is
generally construed as a vital term, even in the absence of words empowering the insurer
17
paragraphs
expressly to refuse a claim on breach of the term. 76 The term is regarded as a “condition 17.24–17.29
precedent” in the English sense of the word. 77 Accordingly, where the insured has failed
to give notice within the time specified or, if no time has been specified, within a
reasonable time, the insurer is entitled to refuse the claim, irrespective of whether or not
the insurer has suffered any actual prejudice as a result. Strict compliance will be
17.28 An insured need not prove that he has given proper notice, but an insurer
wishing to deny liability for non-compliance with a term requiring notice must plead and
prove the absence of proper notice as a defence. 80 The insurer may extend the time
within which the insured must give notice or may in appropriate circumstances be held
17.29 The duty to notify the insurer of the occurrence of a particular event may only be
one in a string of procedural duties imposed on the insured. 82 Insurance contracts may,
________________________
74 In Royal Mutual Insurance Co (Pvt) Ltd v Mubaiwa 1990 (4) SA 177 (ZH), eg, notice given 18 days after the
accident was held not to have satisfied the requirement that it be given “immediately”.
And in Paintech CC v SA Eagle Insurance Co Ltd, unreported (W), (2004) 7 Juta’s Insurance L Bul
221 the fact that the theft of the motor vehicle was discovered on 22 December and only
75 See Guardrisk Insurance Co v Ltd v Napier NO, unreported (W), (2007) 10 Juta’s Insurance L Bul 165 (a term
in a reinsurance contract requiring the insurer to advise the reinsurer of a claim
immediately or at the latest within 30 days of itself having been advised of such claim).
76 Cf Hollander and Co v The Royal Insurance Co (1885) 4 SC 66; Norris v Legal and General Assurance Society
Ltd [1962] 4 All SA 422 (C); 1962 (4) SA 743 (C); Russell and Loveday v Collins Submarine
Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A) 147–149; Royal Mutual Insurance Co v Mubaiwa 1990
77 See in this regard 11.6–11.8, 17.19–17.20; Kali v Incorporated General Insurances Ltd [1976] 2 All SA 443
(D); 1976 (2) SA 179 (D) 188.
78 Eg, the insured may quite reasonably only have discovered the loss or injury of which notice is required after
the expiry of the period after its occurrence during which notice had to be given
458 where the insured was required to notify the insurer within three days of the occurrence of a
loss and where the court held that notice within three days of the insured’s first becoming aware
of the loss did not suffice. Cf also, eg, Sleightholme Farms (Pvt) Ltd v National Farmers Union Mutual
80 Cf, eg, Russell and Loveday v Collins Submarine Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A); Johnson v
Incorporated General Insurances Ltd 1983 (1) SA 318 (A); Snodgrass v Hart (Santam Ltd Third Party)
2002 (1) SA 851 (SEC); Lesotho National General Insurance Co Ltd v Ever Unison Garments Lesotho
(Pty) Ltd, unreported (Lesotho CA), (2010) 13 Juta’s Insurance L Bul 229.
82 See generally Clarke et al Contracts par 26.2F; Merkin et al Colinvaux pars 9.016–9.017
(considering the “variety of post-notification of loss obligations” that may be imposed on the
insured); Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7:
Bijzondere Overeenkomsten Deel IX Verzekering par [300], referring to the insured’s duty of notification and his
duty of providing particulars and proof as part of his general duty to provide
359
for instance, impose further duties83 on the insured to submit a formal claim, 84 or to provide the insurer with full
and further particulars of his loss, or with proofs and
combined. 86
17.30 This may mean that several distinguishable periods are involved. For instance,
possible and also – and in contrast – full details in writing of a claim may be required as
soon as is practicable. 87 Or a term may require that a claim must be lodged within a
specified period after the expiry of a “waiting period” which commences on the
17.31 The scope of the duty or duties imposed on the insured will, as always, depend
particulars will be required that are relevant to the accident, loss or damage for which
the insured claims or intends to claim. 89 The term is not necessarily breached by the
particulars provided to the insurer being inconsistent with that given to someone else
17.32 As regards proofs, the insured may, at his own expense, have to forward all
relevant papers, letters, summonses and other documents to the insurer as the latter
may require. 91 Or the insured may have to notify the insurer of an impending
prosecution or inquest in respect of the occurrence which has given rise to a claim
________________________
83 Cf, eg, Gordon v Transatlantic Fire Insurance Co 1905 TH 146, where the term in question provided that as
soon as circumstances permitted, the insured had to present his claim for the loss
sustained, which claim had to contain a detailed statement of all articles or materials damaged or
destroyed, and in evidence of which the insured had to furnish all documents, proofs and
84 Cf, eg, Irving v Sun Insurance Office 1906 ORC 24 for a term requiring the insured to deliver to the insurer a
formal claim in writing for any loss or damage within 15 days of a fire).
85 Previously, insured were sometimes also required to make a statutory declaration of the truth in addition to a
giving notice and providing proof of their loss. See Wetzlar v General Insurance Co
(1884) 3 SC 86 (holding that the English law as to statutory declarations in case of fire insurance
was not part of the law of the Cape Colony and had no equivalent local statutory basis).
86 Eg, the formal claim may be required to contain further particulars and proofs.
87 See Lesotho National General Insurance Co Ltd v Ever Unison Garments Lesotho (Pty) Ltd, unreported
(Lesotho CA), (2010) 13 Juta’s Insurance L Bul 229. Cf also Ehrig and Weyer v Transatlantic Fire
88 Yankelowitz v SA Mutual Life Assurance Association, unreported (C), (2000) 3 Juta’s Insurance L Bul 74 where
the disability policy required that the insured “must lodge a formal claim . . . not more
than 4 weeks after the expiry of the waiting period” and where the latter period was defined as “a
period of absence . . . from service equal to 6 consecutive months calculated from the
commencement of the life assured’s absence from work”; Bulldog Hauliers (Pty) Ltd v Santam
Insurance Ltd 1992 (1) SA 418 (W) where full details of a claim was required within 30 days of the
89 Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) 753; cf also Moritz v Hirst and Hirst and
Co (1881) 2 NLR 75 where the insured was permitted to except to the insurer’s plea
that he had to give an account containing all particulars before he could claim on his insurance
his version of the circumstances surrounding the loss to the police and his version to the insurer
contained inconsistencies as to detail but none as to issues pertinent to the validity of his
insurance claim).
91 See Union National South British Insurance Co Ltd v Padayachee 1985 (1) SA 551 (A) 556I–557A where the
clause read: “On the happening of any destruction or damage the insured shall at his
own expense . . . give to the [insurer] such proofs, information and sworn declarations as [it]
may require.”
360
under the policy. 92 The failure to provide “satisfactory evidence” prior to the
institution of legal action may, despite the insured then being able to provide such
proof and succeeding in his actions, result in an order of costs against him. 93
17.33 Terms of this nature tend to be rather wide in scope, which renders them
proofs required of the insured may be no more than those he can reasonably be
17
expected to give under the circumstances. However, although a breach of such terms
paragraphs
may in appropriate circumstances be waived by the insurer, 95 they are again usually 17.29–17.35
17.34 The period within which a claim on an insurance contract must be brought, is
usually regulated in the insurance contract. The effect of such contractual regulation is
almost universally to shorten the statutory period laid down for the prescription of
debts. 97 The contract may, for instance, stipulate that the insurer is not liable for loss or
damage after the expiration of a certain period from the happening of the loss, unless
the claim is the subject of a pending action or arbitration. 98 The most common example
is a clause that provides that an action must be instituted within a certain period after the
with prescription100 but is a substantive plea on the merits. 101 The basis102 of the defence is
________________________
92 Cf the term in Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A) 326C.
93 Marillac Bros v Equitable Fire Insurance and Trust Co (1862) 1 Roscoe 22.
94 Cf, eg, the approach of the court below in Padayachee v Union National South British Insurance Co Ltd 1983
(3) SA 246 (D) 252.
95 Cf
Myburgh and Co v Protecteur Fire Assurance Co (1878) 8 Buchanan 152, (1878) 3 Roscoe 18;
Hollander and Co v The Royal Insurance Co (1885) 4 SC 66; Kannemeyer NO v The Sun Insurance Co
(1896) 13 SC 451; Bulldog Hauliers (Pty) Ltd v Santam Insurance Ltd 1992 (1) SA 418 (W) (a term
requiring the furnishing of particulars within a specified period of time was only waived by an
insurer’s repudiation of liability on other grounds where such repudiation occurred before the
96 Cf,
eg,
Vink, Estate v New Zealand Insurance Co (1905) 22 SC 470 (term requiring the insured
within 15 days of a fire to furnish the insurer with an accurate and particular account in detail
of any loss or damage was reasonable in a fire insurance and a condition precedent that must
be complied with before action may be brought against the insurer). Cf, though, Myburgh and
Co v Protecteur Fire Assurance Co (1878) 8 Buchanan 152, (1878) 3 Roscoe 18 (the fact that all the
books were destroyed in the fire excused insured’s non-compliance with its duty).
97 For the contractual variation of the statutory limitation period in English law (where the issue seems to cause
much less problems than in South African law): Merkin et al Colinvaux pars
9.040–9.041.
98 Cf
Union National South British Insurance Co Ltd v Padayachee 1985 (1) SA 551 (A) 552B where the
clause stated that “[n]o claim under this policy shall be payable . . . for any loss or damage after
the expiry of 12 months from the happening of such loss or damage unless the claim is the sub-
ject of pending legal action”. See also Estate Castles v Southern Life Association (1906) 23 SC 338;
Noah v Union National South British Insurance Co Ltd 1979 (1) SA 330 (T); Santam Insurance Ltd v
Cave t/a The Entertainers and The Record Box 1986 (2) SA 48 (A) 55B; K and S Dry Cleaning Equip-
ment (Pty) Ltd v SA Eagle Insurance Co Ltd 2001 (3) SA 652 (W).
99 Cf
Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A); Santam Insurance Ltd v Cave
101 Estate Jonker v Liverpool and London and Globe Insurance Co Ltd 1931 AD 340 351; Adriatic Insurance Co
v O’Mant 1964 (3) SA 292 (SR) 294; Cave t/a The Entertainers and The Record Box v Santam Insurance Co Ltd
1984 (3) SA 735 (W) 746 (this aspect was not affected by the reversal of the deci-
sion on appeal).
102 These terms usually make it clear what the effect of non-compliance will be and it has not yet been necessary
to pronounce on their true nature. Thus, in Estate Jonker v Liverpool and London
( continued)
361
either a resolutive time clause103 (where the claim lapses after a specific period of time),
or a resolutive condition (where the claim lapses a certain time after an uncertain event
such as denial of liability) which automatically extinguishes the particular claim. The
insured’s failure to commence action within a stipulated time may also amount to
rather than an obligationary term which compels the insured to institute action within a
certain time, depends on the intention of the parties as expressed in the contract.
However, it seems improbable that a duty to bring proceedings within a certain time will
readily be assumed to have been created, since an insured is under no duty to claim at
all.
17.36 If the insured is required to take some or other litigious step within a stated
period after the insurer’s rejection of his claim or denial of liability under the insurance
contract, the term in question becomes operative only after the insured has in fact
submitted a proper claim against the insurer104 and the insurer has actually
communicated to the insured a notice of the rejection of his claim105 or has generally
disclaimed liability for all future claims. The insurer’s denial of liability is effective for
this purpose even if it follows on an earlier acceptance of liability. 106 The insured is
relieved of his duty only if the insurer’s rejection of his claim amounts to a repudiation
of the insurance contract, which will be the case only if the rejection amounts to a
contract. 107
17.37 Sometimes the period within which the insured must take the required steps
towards the formal enforcement of his claim is stated to commence after a defined
“waiting period”. Thus, the insured may be required to institute legal action against the
insurer within four weeks after the expiry of a “waiting period”, defined in an accident
from the commencement of the life assured’s absence from work”. 108
17.38 A stipulation that, unless the claim is the subject of a “pending legal action”, the
insurer is not liable for loss or damage after expiration of a certain period from the
happening of the loss, requires the insured to take a litigious step beyond the making of
________________________
and Globe Insurance Co Ltd above 351 it was merely stated that it is “a question of contract pure
and simple”, and in Adriatic Insurance Co v O’Mant above 294E that “[t]he [insurer] invokes a
103 Cf Noah v Union National South British Insurance Co Ltd 1979 (1) SA 330 (T) 333A where the court spoke
of a “time bar”. This term has since become common, alongside “time-limitation
clause”.
104 Juriyasi v Global Insurance Co Ltd, unreported (ZHC), (2008) 11 Juta’s Insurance L Bul 62. If the insured’s
claim is, to the insurer’s knowledge, incomplete and, eg, not yet finally quantified, the
time-limitation clause does not operate: Smith v Santam Bpk 1996 (2) SA 334 (O); Van Rensburg v
105 Stuurman v Mutual and Federal Insurance Co of Namibia Ltd, unreported (Namibia SC), (2009) 12
Juta’s Insurance L Bul 100 (considering whether the insurer had communicated its notice of re-
jection of the insured’s claim so as to trigger the operation of the clause and so to enable insur-
er to reject liability in reliance on it, and whether the insured had by pre-trail agreement on the
rejection of the insured’s claim alone may suffice, even if the insurer undertook also to send a
“formal letter of rejection”: see Paulus v New National Insurance Co Ltd, unreported (T), (2006) 9
107 Hurwitz’s Trustee v Salamander Fire Insurance Co 1917 TPD 216 220; Hurwitz’s Trustee v Magdeburg Fire
Insurance Co 1917 TPD 443 446; Deacon v Royal Exchange Assurance Co Ltd 1927 SWA 107;
Bierman v Mutual and Federal Versekeringsmaatskappy Bpk 2004 (1) SA 205 (O).
108 See Yankelowitz v SA Mutual Life Assurance Society, unreported (C), (2000) 3 Juta’s Insurance L Bul 74.
362
a claim within the stated period. 109 Legal action is not pending where summons was
issued but not served on the insurer so that the summons lapsed. 110
17.39 If it is required that a “claim” be lodged within a specified period, the insured
must make a demand for indemnification in a particular amount on the insurer and not
merely give notice to the insurer that it is asserting its right to an indemnity. 111 If “legal
17
claim, the insured “begins action” not with sending or serving of letter of demand, but
paragraphs
only with the issue of summons. 112 However, no more is required than that summons be 17.35–17.40
issued and the process for recovery of the policy benefits be begun within the specified
period, not that proceedings may not be protracted beyond the period or that a
appropriate circumstances. Thus, the impossibility in determining the nature and extent
of the loss he suffered and in formulating a claim, may excuse the insured’s non-
compliance with a time-limitation clause, but only if the circumstances giving rise to the
impossibility are continuous throughout the period allowed by the clause for submitting
a claim114 and also, it may be thought, if the impossibility is objective. 115 Likewise the insurer may waive
compliance, or extend the period allowed for compliance, with the
time-limitation clause. 116 However, that is not always the case. Thus, the insured will not
successfully be able to allege an inability to comply with the clause by virtue of the
insurer’s requests for further information, particulars or proofs: the operation of the
clause is not suspended by such requests but the insured must take the necessary steps to
preserve his claim. 117 Likewise, non-compliance is not excused by the fact that the insurer
had repudiated liability on the ground of the insured’s alleged breach of an affirmative
________________________
109 Noah v Union National South British Insurance Co Ltd 1979 (1) SA 330 (T) 333.
111 Metcash Trading Ltd v Credit Guarantee Insurance Corp of Africa Ltd 2004 (5) SA 520 (SCA).
112 Commercial Association Co v Rainer NO (1896) 3 Off Rep 88. As to the meaning of “legal action”, see further
Lawsa Vol 12 Part 1 par 382.
114 See K and S Dry Cleaning Equipment (Pty) Ltd v SA Eagle Insurance Co Ltd 2001 (3) SA 652 (W), holding
that as there were periods during the time within which a claim had to be submitted
when it was not impossible for the insured to ascertain the fact and extent of his loss, the late
submission of his claim was not excused by such impossibility as existed, but was barred by the
clause in question.
115 See Seagull and Co (Insolvent Estate) v New Zealand Insurance Co (1906) 16 CTR 289, rejecting the
allegation that action was instituted but then abandoned by another person (the cessionary of
the policy) who had also retained the policy so that it was impossible for the insured to bring an
116 See, eg, Ledingham v Commercial Union Insurance Co of SA Ltd 1993 (2) SA 760 (C) where it was held that
the insurer could not be taken to have waived its right to rely on the time limit imposed by the insurance contract
for the institution of a claim, since the insured was unaware of
the existence of the time-limitation clause at the time of receiving the letter from the insurer
said to contain evidence of the alleged waiver. See also Regent Insurance Co Ltd v Maseko 2000 (3)
SA 983 (W) where the insured could not prove the alleged waiver on the part of the insurer. As
117 Cf Union National South British Insurance Co Ltd v Padayachee 1985 (1) SA 551 (A) 552B where the clause
stated that “[n]o claim under this policy shall be payable . . . for any loss or damage after
the expiry of 12 months from the happening of such loss or damage unless the claim is the sub-
ject of pending legal action” and the policy also provided that the insured was not covered un-
less he furnished the insurer with such proof, information and sworn declarations as the latter
may require. The court rejected an attempt to import into the contract an implied term that
the time-limitation clause would not take effect if the insurer requested further information
and a reasonable time for the supply of such information expired only after the period allowed
for the bringing of legal action.
363
warranty. 118 And equally, the insured’s insolvency and the appointment of a trustee do
not interrupt the running of the period allowed to the insured to take litigious steps. 119
disclaimer or denial of liability by the insurer have been dealt with in several cases120
where the insured claimed an indemnification from his insurer in respect of his liability
17.42 While in earlier times time-limitation clauses were generally regarded as fair and
reasonable and unobjectionable, 122 the dawn of the era of constitutionalism brought with
it a changed perception. Concerns were raised about whether the imposition on the
three years allowed by the Prescription Act124 did not infringe on, for instance, the
insured’s constitutional right of access to court. By way of example, in some legal systems
the case of insurance contracts, be shortened to the detriment of the insured or claimant
by means of a term to that effect, although an extension of the period is permissible. 125
judgments of the Constitutional Court in Barkhuizen v Napier NO. 126 The majority of the
unconstitutional and hence against public policy as such. It preferred to allow their
particular clause itself and its enforcement against the particular insured. The time-
limitation clause in question, allowing the insured 90 days after the rejection of his claim
________________________
118 See Venter v Certain Underwriting Agents of Lloyds of London 1994 (4) SA 657 (W), holding that while the
breach of such a warranty meant that the risk never attached and that the premium
had to be refunded, it did not mean that there was never a contract; the insurer was not disput-
ing the existence of the contract (or repudiating it), but was in fact relying on it and the clause
in question therefore continued to govern the making of a claim by the insured.
119 Estate Jonker v Liverpool and London and Globe Insurance Co Ltd 1931 AD 340.
120 For a discussion of some of the earlier cases, see Lawsa Vol 12 Part 1 par 382.
121 See, eg, Le Voy v New Zealand Insurance Co Ltd 1930 CPD 427; Sinovitch v General Accident, Fire and Life
Assurance Corporation Ltd 1946 TPD 692; Boshoff v South British Insurance Co Ltd 1951 (3) SA
481 (T); Van der Westhuizen v “De Zeven Provincien” Assuransie MaatskappyBpk 1959 (3) SA 690
(C).
122 See, eg, Vink, Estate v New Zealand Insurance Co (1905) 22 SC 470, holding that a term in a fire insurance
policy requiring the insured to institute action within six months after the occurrence of the loss was reasonable;
Estate Castles v Southern Life Association (1906) 23 SC 338, hold-
ing that a time bar of 12 months was fair and reasonable in accident policy and that an injured
person who allowed 12 months to pass without taking proceedings against the insurer, had to
123 There appears to have been no attack on the constitutionality of the notion of a limitation period as such, only
about the fact that insurers contracted for themselves a shorter period
than was allowed other creditors. On the constitutionality of the shorter (statutory) time-
limitation period applicable to claims against the Road Accident Fund, see Road Accident Fund v
Mdeyide 2011 (2) SA 26 (CC), holding that although the shorter period did limit the constitu-
tional right of access to court, this limitation was reasonable and justifiable and hence not un-
constitutional; the relevant factors justifying the limitation included the generous time-period
allowed (three years), the need for the proper administration of public funds, and potential
124 68 of 1969.
125 For Dutch law, see Wansink et al Assers pars [344] and [349], pointing out that this applies to all insurances,
not only when the insured is a consumer, and that Dutch policies therefore do
not contain time-limitation clauses and that, if they did, such provisions would be voidable.
126 Barkhuizen v Napier NO, unreported (T), (2005) 8 Juta’s Insurance L Bul 20; Napier v Barkhuizen 2006 (4)
SA 1 (SCA); Barkhuizen v Napier NO 2007 (5) SA 323 (CC).
364
by the insurer to commence litigation against it, was in principle reasonable, so the
majority thought, as it afforded the insured an adequate and fair opportunity to seek
judicial redress. In the present case there was no evidence before the court that the
circumstances of its conclusion rendered the clause manifestly unfair, or that the
circumstances and reasons for the insured’s non-compliance with the clause rendered its
17
17.44 However, two forceful minority judgments held out the prospect of such shorter
paragraphs
time-limitation periods being objectively and without more unconstitutional, irrespective 17.40–17.45
of their effect and operation in any particular set of circumstances. More particularly, a
long list of factors indicated to the minority that, objectively and without any further
before it, the shorter time-limitation period offended against public policy in the new
constitutional dispensation and that it should not be enforced. 127 The decision in
Barkhuizen v Napier NO128 impacted on the statutory regulation of the insurance claims
17.45 Rule 16 of the Policyholder Protection Rules (Long-term Insurance), 2004, 129 and
the equivalent but by no means identical rule 7.4 of the Policyholder Protection Rules
relating to claims and time limitation provisions for the institution of legal claims”. It
should be observed that the Policyholder Protection Rules (Short-term Insurance), 2004,
but not the Policyholder Protection Rules (Long-term Insurance), 2004, apply by virtue
________________________
127 These factors included: (i) the clause was buried in a voluminous standard-form document; (ii) it was not part
of the terms actually and voluntarily negotiated and agreed upon by the parties;
(iii) it was prepared with legal expertise on behalf of insurers who specialise in handling insur-
ance claims and routinely engage in litigation, for use on a general basis in relation to people
usually without legal expertise and who in the ordinary course of events could not be expected
to get a legal opinion on the document in which it appears; (iv) it wholly favoured the party
that drafted it and, eg, did not operate reciprocally by imposing a similar shorter limitation pe-
riod on insurers that wished to bring a claim against their insured; (v) it was not highlighted so
as to be visible for the insured and was not accompanied by a requirement that it be brought to
the insured’s attention at the moment of rejection of his claim when the time period it provid-
ed for began to run against him; (vi) it was for a time period of less than 10 per cent of that in
respect of which an ordinary contractual claim would prescribe in favour of creditors other
than insured; (vii) it was out of step with current statutory prescriptive periods, also in respect
of civil claims against state organs; (viii) the absence of any apparent legitimate purpose, given
that the insurer had already been given notice of the loss and the claim against it and been of-
fered the opportunity to investigate the claim and to preserve evidence for any possible trial;
(ix) it was insufficient to enable an insured to find litigation funds, appoint an attorney, cause
counsel to be briefed, and issue and serve summons; (x) the clause had the effect of significant-
ly limiting a right long recognised by the common law and now also constitutionally guaran-
teed, namely the right of access to court; (xi) non-compliance not only limited or qualified the
insured’s claim, but wiped it out altogether, enabling the insurer to keep the premium while
depriving the insured of the right to find out if he should in fact have been paid under the in-
surance contract; (xii) it was inflexible and not subject to express qualifications or a possible
extension of time in the event of any impossibility or difficulty of compliance or any other
sound reason for the insured’s non-compliance; and, finally, (xiii) the clause impacted in an
unbalanced way, not generally permitted in open and democratic societies, on the relationship
129 See GN R1129 in Government Gazette 26854 of 30 September 2004, as amended by GN R1214 in
Government Gazette 33881 of 17 December 2010.
130 See GN R1128 in Government Gazette 26853 of 30 September 2004, as amended by GN R1213 in
Government Gazette 33881 of 17 December 2010.
365
of their definition of “policy” only to personal lines policies, that is, policies of which the
17.46 These rules in the main impose a range of duties on insurers as far as the claims
process is concerned, duties that they either did not bear at common law or, not
surprisingly, did not impose upon themselves by the terms of their insurance contracts.
An insurer must accept, reject or dispute a claim or the quantum of a claim for a benefit
under a policy within a reasonable period after receipt of “a” (presumably “that” and not
“any”) claim. 131 This is only fair, given that the insured is ordinarily under a duty to
submit his claim to the insurer within a specified or determinable period of time after
the occurrence of the event giving rise to it. What is a reasonable period will naturally
depend on the circumstances of every case and, for instance, on matters such as the
nature of the loss and the complexity of the claim. The insurer should be given a
decision. The insurer’s obligation to decide, it seems, arises not only when it accepts the
claim or rejects it outright, but also when it accepts the claim but disputes merely an
17.47 In addition to its obligation to decide, the insurer must further within ten days of
taking any such decision, in writing, notify the policyholder of its decision. 133 This
additional obligation, of giving written notice to the insured134 is rather clumsy. The
insured therefore has the right to be notified of the insurer’s decision on his claim
within a reasonable period plus ten days after he had submitted it. How the insured will
be able to prove when, exactly the insurer decided – this, after all, is largely an internal
matter to which the insured will and need not be privy – and when, therefore, the ten-
day period begins to run, is not clear. Would it not have sufficed to oblige insurers to
17.48 The insurer’s notice to the insured of its decision must, when the claim is rejected
or its quantum is disputed (or, in the case of the short-term version, when the claim is
17.49 First, the insurer must give the insured “the reasons” for its decision to reject the
claim, to dispute the claim, 136 or to dispute the quantum of the claim. 137 The scope of this duty is not quite
clear. On a close reading it seems arguable that the insurer must not
merely give (a reason, or some of the) reasons, but (all) “the” reasons for its decision.
Also uncertain is the effect, if any, of this duty on the common-law position. Will it mean
that an insurer is not entitled to rely on reasons other than those of which it had notified
________________________
131 Policyholder Protection Rules (Long-term Insurance), 2004 rules 16.1(a); and Policyholder
opposed to disputing its quantum, is not recognised in rules 16.1(c) and 16.1(d); however, rules
7.4(c) and 7.4(d), as also rules 16.1(e) and 7.4(e), do mention disputing a claim in addition to
134 Assuming that the “. . ., in writing, . . .” refers not to the taking of its decision but to the notification.
137 At common law, it seems, the insured was not obliged to give reasons, and if it did, it was not bound to them
but could – albeit at the risk of attracting an adverse order as to costs – subsequently rely on (and plead) any other
reason as long as that reason existed at the time it reject-
ed the insured’s claim: see, eg, Shimi v Mutual and Federal Insurance Co of Namibia, unreported
(Namibia HC), (2009) 12 Juta’s Insurance L Bul 35. To what extent the statutory obligation to
give all the reasons (if that is indeed the scope of the duty) changes the common-law position,
366
the insured should litigation subsequently ensue? Is the insurer bound to the reasons it
gave? Or can it rely on other reasons, existing at the time or that would have been
of which the insured was not informed in the statutory notice? And if the latter, is there a
possibility that the insurer may in such subsequent litigation not be awarded its costs or
17
17.50 Secondly, the insurer must notify the insured that he may, within a period of at
paragraphs
least 90 days after the date of receipt of the notice, make representations to the insurer 17.45–17.52
in respect of its decision. The exact aim with this, presumably, is to enable the insured to
respond to either the insurer’s decision to reject his claim or to dispute its quantum, or to
the reasons the insurer gave for doing so, or to both those matters. If the insured does
indeed make representations to the insurer, the insurer must within 45 days of the
receipt of the representation(s), notify the insured in writing of its decision to accept or
reject the claim, or to dispute the claim or the quantum of the claim. 138
17.51 Where, despite the insured’s representations, the insurer confirms its decision to
reject or dispute the claim or to dispute the quantum of the claim, its notice to the
insured must, first, inform the insured of the reasons for the decision. 139 Presumably this
cannot refer to the reasons for rejecting or disputing the claim (of which it had or
should already have notified the insured), but to the reasons why it confirmed its earlier
decision despite the representations. In short, “decision” here must be taken to refer to
its decision to abide by its earlier decision to reject or dispute the claim. Therefore, it
(rejecting) the insured’s representations. The same may be said of the second matter
that its notice must contain, namely the facts that informed its decision, that is, its
decision, despite the insured’s representations, to abide by its earlier decision to reject or
dispute the claim. Thirdly, the insured’s notice – that is, the second one, in response to
the insured’s representations, must repeat the three pieces of information – as regards
shortly – contained in its first notice, the one notifying the insured of its decision to
17.52 Thirdly, the insurer must in its statutory notice inform the insured of his right to
lodge a complaint in terms of the Financial Services Ombud Schemes Act, 140 and of the
relevant provisions of that Act relating to the lodging of such a complaint. Would this
include telling the insured to which of the ombudsmen he should direct his complaint?
The insurer must inform the insured “in plain understandable language” (by which is
meant the same as with the phrase “in an easily understood manner” that is used
________________________
138 Rules 16.1(e) and 7.4(e). On the face of it, this is nonsensical. The insurer has already notified the insured of
its decision as regard his claim. The insured then makes representations. Surely
the insurer must respond to those representations specifically. It must notify and inform the in-
sured of its decision as regards those representations and cannot merely again notify the in-
sured of its decision as regards the claim. To allow the insurer to do that, would render the
insured’s right to make representations nugatory. However, rules 16.1(f) and 7.4(f) were ap-
140 37 of 2004.
141 In this regard it serves to remember that the receipt of a complaint by an ombudsman suspends the running of
either prescription in terms of the Prescription Act or a limitation period in
terms of an appropriate contractual provision until the complaint has either been withdrawn by
367
17.53 Fourthly, if the relevant policy contains a “time limitation provision for the
institution of legal action”, the insurer’s notice must inform the insured of that provision
and its implications for the insured. It must do so “in an easily understood manner”.
Thus, if there is a time-limitation clause in the policy, the insurer must not only draw the
insured’s attention to the clause in its notice rejecting or disputing the insured’s claim,
but it must also inform the insured of the implications of that clause. 142 The point of
departure seems to have been that such contractual terms are not unconstitutional, even
if they shorten the period the law allows the insured to institute legal action.
17.54 The view of the FSB, 143 it seems, was that even if such terms do impinge on the
insured’s right of access to a court (in the sense of shortening the period within which
he may commence litigation against the insurer), they are in principle justifiable and
reasonable, at least if they meet the additional requirements laid down. 144 Even though
there are numerous arguments in support of the view that this assumption is not
necessarily sound, not least of which those mentioned by the minority judgments in
Barkhuizen v Napier NO, 145 the legislature, by interpreting the various decisions in
insurers in their insurance contracts in detail, may well now have legitimised and
sanctioned a contract term that was arguably in principle not beyond doubt
17.55 Fifthly, if the relevant policy does not contain a “time limitation provision for the
institution of legal action”, the insurer’s notice must inform the insured of the
prescription period that will apply in terms of the Prescription Act and also of the
implications of that provision (which one?) for the insured. Again it must do so “in an
easily understood manner”. Possibly the insurer will have to state the period allowed by
17.56 Rules 16.1(d) and 7.4(d) deal with the instance where the insured’s claim is
rejected or disputed not by the insurer itself, but by another person on its behalf. In that
case that person must provide the insured with a notice informing him of the decision.
Again, one would assume, the decision has to be taken within a reasonable time after
receipt of the claim and the insured be informed within the next ten days. The notice
must not only contain the five pieces of information the insurer’s notice must contain, 147
but also the name and contact details of the insurer concerned as well as a statement
that any recourse or enquiries (including, one would again have to assume, any
7.4(g)–(j) then deal specifically with the question of time limitation and prescription.
First, as regards “time limitation periods for the institution of legal action” taken up in
policies issued before 1 January 2011. Such periods may not include in their calculation
________________________
142 The implications of and requirements for such time-limitation terms are dealt with in detail in rules 16.2(a)–
(d) and 7.4(g)–(j), and are considered shortly.
143 Under whose auspices the rules were drafted and amended; actually, they were proposed by the relevant
registrar after consultation with the relevant Advisory Committee.
146 In terms of rules 16.2(d) and 7.4(j), a debt is due for purposes of the Prescription Act 68 of 1969 s 12(1) after
the expiry of the period referred to in rules 16.1(c)(ii) and 7.4(c)(ii), that is,
after the expiry of the minimum period of 90 days after the insured had received the insurer’s
(first) statutory notice informing him of the rejection or disputation of his claim. Presumably,
being one of the “implications” referred to, the insurer will have to be inform the insured of
this as well.
147 Ie, the reasons for the decision, the right to make representations, the right to lodge a complaint to an
ombudsman, the presence of and implications of any time-limitation clause, and the effect of
prescription.
368
the period referred to in rule 16.1(c)(ii) or 7.4(c)(ii), as the case may be. Thus, a
contractual time-limitation period can commence to run only after the expiry of the
period of 90 days from the receipt of the insurer’s notice of rejection or disputation that
the insured must be allowed to make representations to the insurer. Secondly, as regards
“time limitation periods for the institution of legal action” taken up in policies issued
after 1 January 2011. Such periods may likewise not include in their calculation the
period referred to in rule 16.1(c)(ii) or 7.4(c)(ii), as the case may be. Further, they must
17
paragraphs
provide for a period of no less than six months148 after the expiry of the 90-day period in 17.53–17.60
17.57 The exclusion of the 90-day period from the period allowed to bring legal action
(the time-limitation period) is the result of the decision in Dealernet (Pty) Ltd v
Mamahlodi149 where it was held that the insured is entitled to make initial and further
representations within the 90-day period, so that process cannot be completed before
the expiry of 90-day period and so that that period cannot be abandoned or reduced.
17.58 To summarise. The various periods involved after the insurer had received the
• the insurer must then within ten days of coming to a decision notify the insured
of its decision;
• the insurer must allow the insured 90 days after the latter’s receipt of this notice
to make representations;
• if the insured makes representations, the insurer must within 45 days of receiving
• any time-limitation period provided for in the policy, commences after the expiry
of the 90-day period to make representations and must, in the case of new poli-
has to reply, the latter occurs in the “insured’s time”, that is, in the time-limitation period
he is allowed to institute legal action which period, in the case of new policies, must be a
minimum of six months. Effectively, therefore, in the case of representations, the time-
limitation period may – should the insurer use up the full 45 after the expiry of the 90-
day period to respond to them, as it is entitled to do – be as few as 135 days. Again the
question arises whether a minimum time-limitation period of six months (or even less, as
17.60 On the one hand, there would appear no compelling reason why insurers would
want or need to be sued within a period of time so much shorter than the three years
generally allowed to creditors by the Prescription Act. And in any event, it is for them to
establish that need, to show in what way they are different than all other debtors who
have to sit out the statutory prescription period of three years. Put in constitutional
terms, insurers bear the burden of proving the importance, purpose, nature and extent
between the impact of the limitation and its purpose. The insurer must show150 that the
limitation on the insured’s right of access to court is reasonable and justifiable under
________________________
150 As the Road Accident Fund had to do in Road Accident Fund v Mdeyide 2011 (2) SA 26 (CC), noted in 17.42
n 123.
369
17.61 On the other hand, the ordinary limitation period allowed by local policies, and
also the minimum limitation period now statutorily prescribed, is arguably neither a
generous period nor even sufficient in ordinary cases to enable an insured to not only
decide but actually to take the necessary steps to institute legal action. Time-limitation
clauses allowing a shorter period for litigation than that permitted by the Prescription
Act impinge seriously on the insured’s right to seek judicial redress. They are imposed
on insured in terms of contracts drafted by insurers that they have no choice but to
accept should they wish to be insured, as they often have to be. The shorter period
allowed is arguably neither in principle nor prima facie a reasonable and justifiable
limitation on the insured’s right of access to court and for that reason not constitutional.
seems, though, that even the legislature had some niggling doubt in this regard,
regulating them (merely softening their application to the insured) rather than
prohibiting them as unconstitutional either outright or at least prima facie and subject to
17.63 Even if the permitted time-limitation period provided for in a policy (entered into
before or after 1 January 2011) has expired, the insured may request a court to condone
his non-compliance with the clause. 151 The court may do so if it is satisfied, “amongst
other things”, that good cause exists for the failure to institute legal proceedings and
that the clause is unfair to the policyholder. Given that this applies to both old and new
policies, existing time-limitation clauses, not subject to the minimum of six months, may
likewise be declared unfair and the insured’s breach of them condoned. Despite the
apparent protection this very broad and open-ended provision provides to insured, it
should be borne in mind that the insured is presumably now burdened with proving the
unfairness of the clause to himself while the insurer does not, as in ordinary
constitutional litigation, have to establish its fairness either generally or to the particular
insured (the fairness, that is, of the limitation it imposes on the right of insured generally
17.64 For purposes of section 12(1) of the Prescription Act, a debt is due – and
prescription begins to run – only after the expiry of the 90-day period in which the
insured may make representations to the insurer. 152 Thus, the position if there is no time-
barring clause is brought in line with that governing such clauses; the prescription
period of three years begins to run only after the 90-day representation period.
17.65 Finally, it should be borne in mind that an insurer may not request or induce the
insured in any manner to waive any right or benefit conferred on him by the rules, and
that any such waiver will be void. 153 Thus, an insured may not validly agree to waive or
shorten any of the periods provided for in connection with claims and time-limitation
clauses. However, the opposite is not true. An insurer may, by its actions, or those of its
authorised representatives, in appropriate cases be taken to have waived the right to rely
________________________
370
Arbitration clauses154
submission of – all, or only certain155 – disputes between the insured and the insurer to
arbitration, 156 either generally or within a specified period of time, are not uncommon in
17
insurance contracts. 157 As a rule they provide that any or certain defined disputes are
paragraphs
condition precedent to the commencement of any action on the policy in a court of law.
17.67 A clause in any contract, including an insurance contract, that any dispute
proceedings in a court of law on a dispute falling within the ambit of the arbitration
that the insurer would have the exclusive option of having the dispute referred either
to a court or to arbitration. 158 That would also be so if the arbitration clause did not
allow for all differences to be referred to arbitration, but one-sidedly provided that only
the insurer would have the option of either going to arbitration or proceeding by way of
litigation, while the insured was bound to propose arbitration within a stated period of
time, with severe consequences upon non-compliance. 159 It was scant consolation that
such clauses were strictly interpreted, as applying only to disputes falling strictly within
their scope, 160 or that, in appropriate circumstances, an insurer could be held to have
Legislative intervention
17.69 The now repealed Insurance Act162 had therefore introduced certain limitations
on arbitration clauses in respect of domestic policies163 of insurance, 164 for instance restricting arbitration to
disputes relating to quantum only. However, the meaning of the
relevant provisions was obscure in several respects. 165 These provisions on arbitration
have now been replaced by measures in the Policyholder Protection Rules, 2004, as
________________________
154 17.5–17.10.
155 Eg, disputes as to the quantum, but not the fact of the insurer’s liability.
157 See generally Van Niekerk 1989 SA Merc LJ 347. See also Clarke et al Contracts pars 19.5A4, 26.3; Birds
Birds’ Modern Insurance Law par 16.10.
158 For a similar consideration in conjunction with English law, see Lawsa Vol 12 Part 2 par 340.
159 See, eg, Southern Life Assurance Society v Trollip (1907) 3 Buchanan AC 188 (holding “with extreme regret”
that the insurer’s liability had ceased and that all benefits under policy had
been forfeited as the insured had failed to make a written demand for arbitration within six
months after his accident); Scott’s Executors v Southern Life Association 1909 TH 223.
160 See, eg, London and Lancashire Fire Assurance Co v Imperial Cold Storage and Supply Co Ltd (1905) 15
CTR 673; Johnston and Moulton v Commercial Union Assurance Co Ltd (1892) 13 NLR 56.
162 27 of 1943.
165 See, eg, Ex parte Loudon: In re Drury Construction (Pty) Ltd v Incorporated General Insurances Ltd 1981 (3)
SA 1001 (D).
371
amended, promulgated in terms of the STIA, 166 and providing that a clause in a short-
term insurance policy would be void if and to the extent that it provides, expressly or
by implication, “that in the event of any dispute under the policy, the dispute can
term policy that the parties may, after a dispute has arisen under the policy, voluntarily
agree to submit such dispute to arbitration or, in the absence of such a provision, as
voiding any agreement between the parties to that effect. 168 On the face of it the measure
that disputes arising under it can be resolved only by means of arbitration. Thus, while
the short-term insurer cannot by a term in the policy commit the insured in advance
and irrevocably to arbitration, the parties may seemingly, after a dispute has arisen,
agree to arbitration as the agreed method of dispute resolution. The restriction only
policies. The reason for the distinction is not immediately apparent. It may well be
thought that arbitration clauses, especially in consumer insurances, require closer and
Time-limitation clauses
17.71 Time-limitation clauses providing for the institution of legal proceedings within a
stated period of time after the insurer’s rejection of the insured’s claim169 often also
make provision and allow a further period for and in the event of arbitration. 170 The
interaction between such clauses and arbitration clauses may involve intricate questions
of interpretation. 171
17.72 It may be an issue between the parties whether an arbitration clause can be
invoked by either party when the existence or continued existence of the insurance
contract containing the arbitration clause is being assailed by reason of, for instance,
a wrongful repudiation, or a material non-disclosure, or the absence of an insurable
interest or fraud. According to English statute law, 172 an arbitration clause covering
the main dispute is an independent undertaking in its own right which remains
insurer that the claim made against it is fraudulent. 173 As a general proposition of law,
it needs, at least for South Africa, some refinement. 174 The issue, and in particular
whether it is open to a party to blow hot by invoking the arbitration clause and cold
________________________
166 S 55; see GN R1128 in Government Gazette 26853 of 30 September 2004, as amended by GN
169 17.34–17.44.
170 Eg, Santam Insurance Ltd v Cave t/a The Entertainers and The Record Box 1986 (2) SA 48 (A).
172 See Lowry et al Insurance Law: Doctrines and Principles 307, Birds Birds’ Modern Insurance Law pars 14.9,
14.10.
173 Cf, eg, Super Chem Products Ltd v American Life and General Insurance Co Ltd [2004] Lloyd’s Rep IR
446 (PC).
174 There are five considerations that potentially may be relevant, leading, depending on their permutations, to
different conclusions. Those considerations are: (i) whether the challenge is a
narrow one against the arbitration clause as such or more broadly against the main agreement
incorporating the arbitration clause; (ii) the severability of the arbitration clause; (iii) whether
the challenge is that either the arbitration clause or the main agreement incorporating the ar-
bitration clause is void (as opposed to be merely voidable or subject to cancellation); (iv) the
ambit of the arbitration clause; and (v) whether the party seeking to rely on the arbitration
372
17
paragraphs
Purpose
17.69–17.74
17.73 Fraudulent insurance claims are, of course, only part of the broader notion of
insurance fraud that may be committed not only by insured177 but equally by third
parties. 178 More particularly, clauses providing for the consequences of, and the insurer’s
rights in consequence of, a fraudulent claim by the insured179 on his insurance contract,
have become a feature of most insurance contracts. 180 In so far as the clause dealing with
resisted in terms of it may be refused on the merits, without recourse to the clause. 181
17.74 Depending on the wording and interpretation of such clauses, though, they may
seek to add to the insurer’s common-law rights, allowing it to avoid liability under
circumstances where, at common law, it would not have been permitted either to do so
law, that is, where a fraudulent claim is brought in terms of an insurance contract that
does not contain any contractual provision dealing with the effect of such claims. Before
________________________
176 The corresponding discussion in Lawsa is to be found in Vol 12 Part 2 pars 385–387 and, in relation to the role
of good faith on fraudulent claims generally, see idem pars 254–260, 9.38–
9.40.
178 See, eg, S v Landau 2000 (2) SACR 673 (W) (fraud by insurance broker to enable him to claim commission
from insurer); S v Koutandos 2002 (1) SACR 219 (SCA) (appropriate sentences for
criminal prosecution for theft and fraud involving “disappearance” of insured motor vehicles);
S v Cebekhulu, unreported (N), (2003) 6 Juta’s Insurance L Bul 27–29 (fraudulent scheme perpe-
trated in mortuary upon life insurers by intentionally misrepresenting identity and death of life
insured); Magagula v R, unreported (Swaziland CA), (2008) 11 Juta’s Insurance L Bul 58 (im-
prisonment without option of a fine an appropriate sentence in a criminal prosecution for in-
surance fraud); Pretorius v S, unreported (SCA), (2009) 12 Juta’s Insurance L Bul 130 (sentence
pairers of insured vehicles); Michele v S, unreported (SCA), (2010) 13 Juta’s Insurance L Bul 34
(appropriate sentence for fraud upon life insurer); Molete v Safety and Security Bargaining Coun-
cil, unreported (LC), (2010) 13 Juta’s Insurance L Bul 205 (fraud in connection with life and
personal accident insurance as insurance taken out by beneficiary on life of person at time al-
ready officially missing and who subsequently found dead in mysterious circumstances). See
further Van Niekerk 2000 SA Merc LJ 69 74–77; Van Niekerk 2003 JBL 223; Van Niekerk 2008
SA Merc LJ 280.
179 Or, indeed, by a claimant other than the insured himself, such as in the case of a claim by a beneficiary on a
life insurance contract.
180 On fraudulent insurance claims, see 9.39–9.40, Lawsa Vol 12 Part 1 pars 254–259 and pars 385–
387. See further Schulze 1990 SA Merc LJ 349; Visser 1991 SALJ 385; Van Niekerk 2000 SA Merc
LJ 69; Van Niekerk 2002 SA Merc LJ 575; Van Niekerk 2003 SA Merc LJ 285; Jacobs 2006 SA Merc LJ 524; Van
Niekerk 2007 SA Merc LJ 217.
181 See Lehmbecker’s Earthmoving and Excavators ( Pty) Ltd v Incorporated General Insurances Ltd 1984
(3) SA 513 (A) 523 where the question was left open whether a clause of this nature is merely
373
17.75 The burden of proving fraud on the part of the insured rests with the insurer. The
insurer must prove, on a balance of probabilities, 182 that the insured’s conduct amounted
claims clause itself. 183 The burden is an onerous one and South African courts have
observed that the point of departure has to be that fraud – the insured’s intention to
deceive and defraud the insurer – is not to be imputed lightly. 184 An insurer’s plea of
fraud requires strong proof185 and fraud on the part of the insured cannot be presumed,
17.76 An important element of fraud in regard to fraudulent claims is the intention187 to deceive the insurer by
misrepresentation188 or deception189 and to cause the insurer prejudice. 190 Thus, the mere intentional act of the
insured in, say, setting fire to his
house, even though it will exclude the insurer’s liability on other grounds, 191 is not yet
fraud. But if that is done with the intention of deceiving the insurer into paying out on
an insurance policy for a loss for which it is not liable – an intention that might only be
provable once the insured has instituted a claim for that intentionally caused loss – then
the insured’s conduct may be fraudulent for present purposes. Accordingly, there is in
claim having been brought and the required misrepresentation having been made in it.
17.77 Further, while the intention to cause prejudice is required, actual prejudice is not.
insured’s attempt to deceive the insurer was not successful as the insurer discovered or
had been alerted to the fraud and therefore refused to meet the insured’s claim. 192
would otherwise have made, may well suffice: the prejudice may simply lie in conduct
________________________
182 See Santam Bpk v Potgieter 1997 (3) SA 415 (O) 422–423, noting the contrast with the more onerous burden
of proving fraud beyond a reasonable doubt which applies in criminal cases. In
English law, it has been said that the more serious the insurer’s allegation of fraud, the greater
the quality and amount of proof required to sway the probabilities in the insurer’s favour; how-
ever no different degree of proof is required in civil cases involving fraud than in other civil
183 See, eg, Shein v Excess Insurance Co Ltd 1912 AD 418; Schoeman v Constantia Insurance Co Ltd 2003
(6) SA 313 (SCA); Duze v Auto and General Insurance Co Ltd, unreported (D), (2006) 9 Juta’s In-
surance L Bul 136; JNG Express (Pty) Ltd v Botswana Insurance Co Ltd, unreported (Botswana CA),
185 Lock v Northern Insurance Co (1886) 7 NLR 33; Nafte v Atlas Assurance Co Ltd 1924 WLD 239 241–
242. If the insurer does not rely on fraud, the court will decide the matter on the basis that no
fraud was involved even if the circumstantial evidence suggests otherwise: O’Flynn v Equitable Fire
Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co (1866) 1 Roscoe 372.
186 Van Buuren and Co v Caledonian Insurance Co (1896) 3 Off Rep 52.
187 In the form of either direct intent ( dolis directus) – knowing the representation to be false – or recklessness (
dolus eventualis) – not caring whether it is true or false. A mere negligent (careless) false representation in his
claim cannot amount to fraud on the part of the insured.
188 Either by positive conduct (eg a misstatement in the claims form) or omission, either expressed or implied,
and either about the past (eg, how loss occurred, the extent of the loss) or the future (eg, that the insurance
payment will be employed in replacement or repair of the lost or
189 See, eg, Lock v Northern Insurance Co (1886) 7 NLR 33 (a claim is fraudulent only if the insured wilfully and
intentionally represents his loss to be more than it is).
190 Two intentions are relevant here: the intention to deceive and the intention to cause prejudice; together they
form the intention to defraud.
191 For the effect of the insured’s intentional conduct, see 13.125–13.132; for arson 13.149.
374
17.78 The insured’s fraudulent claim may not only have consequences in civil law,
either on the liability of the insurer, or on the validity or continued validity of his
insurance contract, or on his own liability for damages, but may also in appropriate
circumstances amount to the crime of fraud and render him liable to criminal
prosecution.
17
paragraphs
17.79 While there is little doubt about the pre-contractual operation of the duty of good 17.75–17.82
faith in the context of insurance contracts, 193 there is less clarity about the possibility and
scope of a continuing duty of good faith during the existence of the insurance
contract. 194 What seems clear, though, is that the principles pertaining to and the
conduct (eg, his false representation in the proposal form) cannot simply be transposed
and applied to his fraudulent conduct stante contractu (eg, his false representation in the
claim form). 195 And in any event, as far as disclosure of material facts relating to the risk
is concerned, 196 the duty of good faith comes to an end upon the conclusion of the
insurance contract for the insurer does not require to assess the risk – as opposed to the
17.80 One consideration which has been raised though, and which may constitute an
instance or aspect of the duty of good faith attaching to an insured during the existence
refuse payment should the insured bring a fraudulent claim. Although the matter of
fraudulent claims is almost invariably regulated by a term in the insurance contract, 198 it
is the position at common law and therefore in the absence of such a clause that is
17.81 For purposes of considering and explaining the effect of a fraudulent claim on
the insurer’s liability at common law, it may be useful to distinguish three broad
17.82 First, the fraudulently fabricated or unfounded insurance claim, say when the
insured claims for a loss that never occurred, or for a loss that he intentionally caused
himself, or for a loss that he knows will not be paid by the insurer should it know the
truth about the circumstances of its occurrence. 199 Here the insured attempts to impose
a liability on the insurer that it would, in the absence of his fraud, not have incurred at
________________________
194 See 9.32–9.40 and, generally, Havenga 1996 SA Merc LJ 75; Merkin and George 1998 SA Merc LJ
135.
195 See, eg, the confusion in this regard in Duze v Auto and General Insurance Co Ltd, unreported (D), (2006) 9
Juta’s Insurance L Bul 136 and in Ivanov v Santam Ltd, unreported (W), (2007) 10
Juta’s Insurance L Bul 4–16. For criticism, see generally Van Niekerk 2007 SA Merc LJ 217. And cf
Schoeman v Constantia Insurance Co Ltd 2002 (3) SA 417 (W) (a claim form is not a declaration so
that the terms in an insurance contract relating to incorrect representations by the insured in
197 See Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) 756 where it was observed that “the
purpose and rationale of the precontract duty of disclosure could hardly apply after
the conclusion of the contract”; Videtsky v Liberty Life Insurance Association of Africa Ltd 1990 (1)
SA 386 (W) 389H, 392B–D, suggesting in passing that the duty of disclosure does not apply be-
199 Eg, by falsely pretending that his property has been damaged during the currency of the policy: see
Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3)
SA 513 (A).
375
all; to obtain a benefit that he would not have been entitled to at all were it not for his
fraud.
17.83 Secondly, the fraudulently exaggerated claim, when the insured claims for more
than he is entitled to by either exaggerating the value of that what was lost or by
including in his loss items not actually lost or not lost with the other items. Here the
insured attempts to claim more from the insurer than it would otherwise have been
liable for and to obtain a larger benefit than he would have been entitled to otherwise. 200
17.84 Thirdly, the valid claim accompanied by fraudulent means or devices, when the
insured’s claim is fully valid but he perpetrates a fraud – often a petty fraud in the form
of falsifying information or documents – under the incorrect impression that the fraud is
reaching a favourable settlement, or even merely to expedite the payment of his claim. 201
Here, objectively speaking, the insured does not attempt to claim anything from the
17.85 Although the fraud relevant in the first two examples is often, following English
law, referred to as “material fraud”, 202 in the sense of fraud causally relevant to the loss
(or “loss”) the insured claims for and to the insurer’s decision to pay, 203 caution should
be exercised in this regard so as not to confuse204 the materiality referred to here with
the materiality or unlawfulness in the sense of relevance to the risk required of pre-
17.86 When it comes to the effect of a fraudulent claim on the insurer’s liability in the
absence of an express provision in the insurance contract regulating the matter, there is
a marked difference in the approach of English law and South African law.
17.87 In English insurance law205 the effect at common law – that is, in the absence of a contractual regulation of
the position – of fraud on the part of the insured is to defeat
________________________
200 Similar would be the case when the insured believed he had suffered a loss, or a loss in a
certain amount, claimed for it, and then subsequently discovered that he had either not suf-
fered any loss at all or a smaller loss, but then fraudulently fails to inform the insurer of the
201 Eg, being under the incorrect impression that he will not be covered if his own negligence in any way
contributed to his loss (see again 13.111–13.113 for the true legal position), the insured fraudulently misrepresents
the circumstances giving risk to his loss ( Strydom v Certain Un-
derwriting Members 2000 (2) SA 482 (W)); or realising that a medical declaration submitted in
support of his (valid) insurance claim has through an oversight not been signed by the author,
the insured forges the latter’s signature ( Videtsky v Liberty Life Insurance Association of Africa Ltd
1990 (1) SA 386 (W)); or, in an attempt to facilitate his claim, the insured fraudulently repre-
sents the cause and nature of his loss and that an inspection of the damage by a loss adjustor
was not possible ( Springgold Investments (Pty) Ltd v Guardian National Insurance Co Ltd 2009 (3)
SA 235 (D)). Even more extreme in this regard would be when an insured fraudulently con-
ceals facts irrelevant to the loss or his claim because he finds them embarassing: Clarke et al
203 See, eg, Strydom v Certain Underwriting Members 2000 (2) SA 482 (W) 486, observing that the insured’s
fraudulent statement in his claim form “did not affect the [insurer’s] position to its
205 Clarke et al Contracts par 27.2 (note, in particular, the distinctions drawn there between the three elements or
requirement of insurance fraud: that it must be objectively “substantial”, that
it must be from the insured’s point of view be “willful” (ie, intentional), and that it must from
the insurer’s point of view be “material”); Merkin et al Colinvaux pars 9.020–9.036; Birds Birds’
Modern Insurance Law par 16.12; Lowry et al Doctrines 173–177. See also Van Niekerk 2000 SA
Merc LJ 69 78–80.
376
his claim in its entirety. 206 The purpose of this rule, Draconian though it has been
fraudulent insured and to serve as an incentive to honesty. 207 Although it is also required
that the fraud or falsehood must be “substantial”, 208 that does not mean small in any
employed in support of an otherwise valid claim; it means that the fraud itself must be
serious and not legally irrelevant or de minimis and therefore, in a legal sense, not fraud
17
paragraphs
at all.
17.82–17.89
17.88 In short, in English law fraud of any type in connection with an insurance claim –
that is, whether the claim is a fraudulently fabricated claim, a fraudulently exaggerated
claim or merely a valid claim accompanied by fraudulent means – taints, and therefore
results in the forfeiture of, the insured’s entire claim. 209 Should the insurer have paid
and only discover the fraud later, it may recover payment from the insured. However,
earlier (non-fraudulent) claims remain unaffected and the payment under them not
recoverable, from which it appears that the insurer is possibly not also entitled to avoid
the relevant contract itself retrospectively for a fraudulent claim. Although not yet finally
settled, it does appear possible, though, for the insurer in appropriate circumstances,
such as when the fraud is “material” or relevant to the loss or the insurer’s decision to
pay, to avoid the contract prospectively and so to avoid liability for subsequent or future
17.89 In Roman-Dutch law211 the point of departure is that an insured can derive no
benefit from his fraudulent claim. 212 Thus, the insured cannot claim more by reason of
his fraud than he is actually entitled to. 213 As a result, the causal effect of the insured’s
fraud is relevant. A further principle involved here is that although it amounts to a civil
wrong, the civil law cannot be relied on to punish the insured for such fraud as he may
have been guilty of; South African common law is characterised by the non-punitive
________________________
206 This is so partly on the basis that the duty of the utmost good faith survives beyond the conclusion of the
insurance contract, and partly on the basis of principles of public policy. It has also
been suggested that the duty not to make a fraudulent claim may be supported by a term im-
plied by law
207 A further justification is that the fraudulent insured must not be allowed to think: if the fraud is successful, I
will gain; if it is unsuccessful, I will lose nothing: Clarke et al Contracts par 27.2C1.
209 The principle of public policy referred to in this regard is fraus omnia corrumpit (fraud infects the whole
transaction): idem par 27.2C1.
210 Possibly on the basis of a breach of the duty of continuing utmost good faith and if the fraud amounts to
“material fraud” (as opposed to mere “fraudulent devices” employed to promote an
211 In modern Dutch law, the fact that the insured acted with the intent to defraud the insurer by misleading it may
result in the serious consequence of the forfeiture of his claim, except in so
far as the misleading of the insurer does not justify such forfeiture: Wansink et al Assers par
[314]. Thus, in suitable cases of what is termed partial fraud (“partieel bedrog”), such as where
not the whole claim but only a part of it is fraudulent, complete forfeiture may not be justified,
although the point of departure remains complete forfeiture (idem par [315]). However, the
insurer’s burden of proof as to the fraud is onerous while the insured bears the burden of prov-
ing the fact that complete forfeiture is not justified in the circumstances (idem par [317]). The
insured’s fraud entitles the insurer to terminate the insurance contract prospectively (idem par
[318]).
212 See Van Niekerk Insurance Law in the Netherlands Vol II 993–1012; Van Niekerk 2000 SA Merc LJ
213 In a sense this is no more, or at least produces no different result, than an application of the indemnity
principle (in the case where the insured suffered no actual loss) or of the principle
of public policy that an insured can derive no benefit from its own wrong (in the case where
377
And finally, it should not be forgotten that one of the civil remedies available to the
insurer is a delictual claim against the insured for damages for such loss as his fraud may
17.90 If these principles are applied to the three types of fraudulent claim
distinguished earlier, 214 the result, very briefly, appears as follows: in the case of a
fraudulently fabricated claim, the insurer is not liable for anything and the insured’s
insurer remains liable for the insured’s actual loss but incurs no liability for the
exaggerated part of it; and in the case of the valid claim accompanied by fraudulent
means, the insurer’s liability remains unaffected as the insured’s fraud is merely
incidental and causally irrelevant to his loss or the insurer’s liability. In all of these
cases, though, the insurer may claim damages from the insured for any loss his fraud
may have caused it. And, of course, in all of them the insured may be prosecuted
criminally for his fraudulent conduct, irrespective of its causal relevance to his loss or
African courts seem to have accepted that it was in principle no different from
English (common) law, namely that the insurer has the right to reject the insured’s
claim as a whole if any fraud is involved216 and may also cancel the insurance contract
itself prospectively. 217 Thus, in one early local decision the fraudulent exaggeration of
fidei. 218
17.92 The first indication of a change occurred in Videtsky v Liberty Life Insurance
Association of Africa Ltd. 219 Despite pertinently refusing to take South African common
law as a starting point, 220 the court rejected the contention that under our law a term
could be implied in an insurance contract to the effect that if a claim was in any
respect fraudulent, or even if, as here, fraudulent means were employed to support
an otherwise valid claim, the insured would forfeit all benefits. There was no need for
such a term to be implied, the court thought, because insurers could, and usually do,
protect themselves by means of an express fraudulent claims clause. 221 And it also
rejected the insurer’s contention not to be liable at all by holding that the fraud in
question – the fraudulent means – had not been directed towards inducing the
insurer to pay something it was not in any event obliged to pay. However, the court
said nothing, and was in truth not required to say anything, about whether in all
other cases the insured’s fraud would absolve the insurer from all liability, or merely,
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215 Something that occurred relatively rarely, given the prevalence of fraudulent claims clauses.
216 For the rejection of the insured’s entire claim, see further Clarke et al Contracts par 27.2C1.
217 See, eg, Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3)
SA 513 (A) 523C–F.
218 South African Fire Insurance Co v Dunstan (1894) 1 Off Rep 272.
219 1990 (1) SA 386 (W). See further Schulze 1990 SA Merc LJ 349; Visser 1992 SALJ 385; Van Niekerk 2000 SA
Merc LJ 69 83–85.
220 Videtsky v Liberty Life Insurance Association of Africa Ltd above 390–391. By contrast, the court in the old
decision in Spencer v London and Lancashire Insurance Co (1884) 5 NLR 37 did, and came
to the conclusion that at common law (and in the absence of an express clause on the matter),
the insured’s fraud rendered him liable for all costs and damages and loss of profit suffered by
the insurer, besides the possibility of a penalty being imposed on him by the authorities.
221 Videtsky v Liberty Life Insurance Association of Africa Ltd above 391–392.
378
17.93 In Strydom v Certain Underwriting Members, 222 which likewise concerned a valid claim accompanied by
fraudulent means in the form of a false statement as to the
cause of the insured’s loss, 223 the court held that the statement was not “material” as it
did not affect the insurer’s position to its prejudice. The insurer was therefore held
liable, 224 but the court expressed its disapprobation of the insured’s conduct by
17
17.94 After the court below had implied the term regarding fraudulent claims that
paragraphs
the court in Videtsky had not seen fit to do, 226 the court in Schoeman v Constantia
227
17.89–17.96
Insurance Co Ltd provided some much needed clarity. The decision involved a
fraudulently exaggerated claim. The insurer had rejected the insured’s request to be
paid out the undisputed part of her claim and refused to pay out anything at all,
relying solely on the insured’s fraudulent misrepresentation in her claim form as the
insurance contract apparently did not contain the standard fraudulent claims clause.
17.95 Distinguishing the issue before it from pre-contractual fraud and also from
what has here been termed a fraudulently fabricated claim, the court commenced by
observing that in our common law “[f]orfeiture of the entire claim does not appear
clearly as one of the available sanctions”. 228 In the event of fraud the insured was
merely denied the opportunity to derive any benefit from it, was liable to compensate
the insurer for any loss or expenditure his conduct may have caused it, and was liable
to be prosecuted criminally.
17.96 After contrasting the harsh consequences of the penal rule of forfeiture
applied in English insurance law, it held against the implication of a term to that
effect by law. 229 The anti-penal nature of South African civil law, of which the court
named several examples, 230 militated against such an implication and there also did
not appear any “compelling social need for the adoption of such a doctrine [of
forfeiture] as an incident of the common law”. 231 Several other factors pointed to the
same conclusion, including the fact that insurers could easily protect themselves by
the insertion of an express term dealing with fraudulent claims, and the availability of
costs, criminal prosecution, and a delictual claim for damages by the insurer.
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223 Incorrectly thinking his loss would not be covered if it was informed of his own negligence, the insured gave
the insurer an untrue version of how the loss had been caused.
224 More specifically, its reliance on the forfeiture provision in the fraudulent-claims clause present in the
insurance contract in this case was rejected. The court thought that it would be condon-ing a breach of the duty of
good faith on the part of the insurer if the insured’s claim were to
225 See also Santam Bpk v Potgieter 1997 (3) SA 415 (O) 424D–E.
226 See Schoeman v Constantia Insurance Co Ltd 2002 (3) SA 417 (W), holding that, following English law (in
the court’s view settled since Videtsky; for a contemporary analysis, see Clarke et al 2002
SA Merc LJ 64), a term relating to fraudulent claims had to be implied in insurance contracts to
the effect that any claim made fraudulently or involving any fraud (“a claim tainted with fraud”:
426E) would provide the insurer with complete defence to such a claim and would result in the
insured forfeiting all benefits under contract; however, the insured’s false representation had
to be “material”, as was the case here. See for criticism Van Niekerk 2002 SA Merc LJ 575;
227 2003 (6) SA 313 (SCA). See further Van Niekerk 2003 SA Merc LJ 285.
229 It likewise rejected the implication of such a term as a tacit, consensual term.
230 Including the fact that with other contracts a fraudulent attempt to exact a greater payment from the debtor
than is due does not result in the debtor being relieved of the obligation to pay
that which is actually due, despite the fact that all contracts require good faith from both par-
ties.
379
claim232 did not result in total forfeiture: she could still recover an indemnity for the
items she had actually lost and that valid part of her claim was unaffected by her
fraud. Consequently, an insurer is not liable for a fraudulently fabricated claim or for
the exaggerated part of a fraudulently inflated claim but will, despite the insured’s
fraud, remain liable for the genuine part of an exaggerated claim, as well as fully for a
valid claim merely accompanied by fraudulent means. The fact that there is fraud
involved in an insurance claim therefore does not entitle the insurer to avoid all
liability for the claim in question, thus penalising the insured for his fraud. 233 If any
punishment is to be imposed for the fraud, that is a matter for the criminal law and
17.98 But what, then, of the insurance contract itself as opposed to a claim in terms
of it? Could the insurer in reliance on the insured’s fraud-infected claim avoid the
17.99 This issue was addressed in SA Eagle Insurance Co Ltd v KRS Investments CC. 234 At issue was the effect,
at common law, of the insured’s fraud in respect of one claim, on
the insurer’s liability for another valid claim on the same insurance contract. 235 The
court held that the insurer did not have the right to terminate the insurance contract
with retrospective effect from the date of the attempted fraud; rights and duties that
followed in the Schoeman case and observed that a retrospective avoidance of the
insurance contract would likewise operate punitively. In passing the court expressed
the view that the insurer may be able to rely on the insured’s fraud to terminate the
insurance contract prospectively, though. 236 This right, it thought, was based on the
insured’s breach of his duty of good faith towards the insurer. 237 If correct, and there
appears to be no pertinent reason why it is not, this view adds another arrow to the
insurer’s quiver: even though it cannot in all cases of fraud avoid all liability to pay
the insured’s claim, it can rid itself immediately of the fraudulent insured by
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232 The minority of the court found that her exaggeration, although conscious, did not in itself, and had not been
proved to, amount to fraud.
233 In Springgold Investments (Pty) Ltd v Guardian National Insurance Co Ltd 2009 (3) SA 235 (D), the court
summarised the current position in our law: in the absence of an express term, a term resulting in the forfeiture of
all benefits because of any fraud on the part of the insured in the
making of the claim is not implied; our law does not recognise the rule of English law in ac-
cordance with which the insured is effectively penalised by the insurer for employing fraud in
235 The valid claim here was not an earlier claim but a subsequent one that had already been
submitted, become vested and accrued when the insurer refused payment of the earlier fraudu-
lent one and sought to avoid the contract.
236 Such a cancellation would therefore not affect valid claims that had already accrued to the insured before the
insurer exercised its right of cancellation.
237 Even if only obiter, this is significant as there has, as yet, been no clear pronouncement on whether the
insured’s broader duty of good faith continues after the conclusion of the contract: Morris v Northern Assurance
Co Ltd 1911 CPD 293 305–306; Papas v The General Accident, Fire
and Life Assurance Corporation Ltd 1916 CPD 619 636; Zeeman v Royal Exchange Assurance 1919
CPD 63; Nafte v Atlas Assurance Co Ltd 1924 WLD 239; Oelrich v General Accident Fire and Life As-
surance Corporation Ltd 1928 OPD 105; Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorpo-
rated General Insurances Ltd 1984 (3) SA 513 (A). On the continuing duty of good faith, see also
9.32–9.40.
238 In Swart v Mutual and Federal Insurance Co Ltd, unreported (WCC), (2009) 12 Juta’s Insurance L
Bul 242, the court, referring to the KRS Investments decision, merely observed that it was for the
insurer to prove the existence of a term, whether implied by law or tacit, in the insurance
contract to the effect that, on pain of forfeiture of all benefits, the insured at all times during
( continued)
380
17.100 The issue of fraudulent claims is almost invariably dealt with by means of
fraudulent claims clauses. By such clauses insurers initially sought to confirm and
possibly clarify their rights, or, at least, the rights they thought they had. Now that the
common-law position has been settled, the clause almost invariably seeks to confer rights
– of forfeiture and cancellation – on insurers that they do not have at common law. 239 In
fact, one of the reasons advanced why there was no need for the introduction in South
17
paragraphs
African law of an implied term conferring forfeiture rights on insurers in all cases where 17.97–17.102
a claim is tainted by fraud, is because insurers can relatively easily protect themselves. 240
17.101 The usual clause provides that the insured will forfeit all benefit under the
insurance contract if any of his claims is in any respect fraudulent. 241 Sometimes the
insurer is also entitled to cancel the insurance contract in such a case. A clause providing
for the forfeiture of benefits under the insurance contract enables the insurer in
appropriate circumstances to recover from the insured the benefits it has mistakenly
17.102 Whether a particular fraudulent claim – say a valid claim merely accompanied by
fraudulent means, under circumstances where the fraud cannot induce the insurer to
pay anything it is not in any event obliged to pay; that is, fraud that is not causally related
to the insured’s loss – will fall within the scope of the clause, depends on its wording and
interpretation. In one decision, 243 where fraudulently exaggerated claims and valid
claims accompanied by fraudulent means were included within its scope, the court held
that the forfeiture widely provided for – “all benefit under this policy shall be forfeited” –
operated only prospectively, from the time of the fraudulent claim as opposed to from
the time of the conclusion of the contract, so that “valid claims previously made and
accrued to the insured in terms of the policy [are] taken to be unaffected by the
forfeiture provisions”. 244 In another decision245 it was held that a valid claim for the actual
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currency of contract had to display and act in good faith towards it. It also observed, with refer-
ence to the Schoeman decision, that there were “formidable and overwhelming authorities”
against the implication of such a term and further that the insurer had not established unex-
pressed consent between the parties on the issue of forfeiture. In any event, the insurer also
had to prove that the insured had breached such a term by acting fraudulently, in this case by
leaving the scene of the accident before the arrival of the police or emergency services.
239 It is a moot question whether the clause could validly reduce the insurer’s rights (not that that is likely to
happen) but such a reduction may well render the clause against public policy in so
far as it entitles the insured to obtain any benefit from his fraud. For further arguments in this
regard, see Clarke et al Contracts par 27.2C1 (parties can make the consequences of the in-
sured’s fraud more severe, but will not be allowed to prescribe leniency such that a court might
240 See, eg, Videtsky v Liberty Life Insurance Association of Africa Ltd 1990 (1) SA 386 (W) 391; Schoeman v
Constantia Insurance Co Ltd 2003 (6) SA 313 (SCA) 322.
241 See, eg, Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3)
SA 513 (A) 518–519 where the clause read as follows: “[I]f any claim be in any respect
fraudulent or intentionally exaggerated or if any fraudulent means or devices be used by the in-
sured or anyone acting on his behalf to obtain any benefit under this policy or if any loss or
damage be occasioned by or through the wilful act or with the connivance of the insured all
243 Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 513
(A).
244 Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd above 522.
Likewise, in Strydom v Certain Underwriting Members 2000 (2) SA 482 (W) it was held that while
the clause covered a valid claim accompanied by a false and fraudulent statement by the in-
sured as to the cause of the loss, the false statement was not “material” as it could not have in-
fluenced a reasonable insurer in its acceptance, rejection or compromise of the claim, nor did
381
loss of the insured motor vehicle accompanied by an allegedly fraudulent claim for the
loss of articles insured under a different section of the same policy, had to be considered
a single claim for purposes of the forfeiture provision in the fraudulent claims clause.
And even an attempted fraud with a view to a claim and made before it was lodged is
covered by a clause providing for forfeiture if fraudulent means or devices be used by the
insured to obtain any benefit. 246 The same may even apply to fraudulently incorrect
statements made after the submission of an honest and valid claim. 247
17.103 Clauses dealing with fraudulent claims may be cast in extremely wide terms
providing for the forfeiture of all benefits merely because the insured obstructed or
impeded the insurer in the exercise of its rights. In one decision248 where the clause was
that widely drawn, the insurer relied on a fraudulently fabricated claim by the insured
and was for that reason held not to be liable. However, the court expressed the view249
that even if the insurer had not been able to prove fraud on the part of the insured, the
latter’s failure to take reasonable steps to recover stolen insured property came within
17.104 South African courts have generally given effect to the forfeiture provision
contained in the fraudulent claims clause, even if the forfeiture was out of all proportion
to the impact, if any, of the insured’s fraud on his loss and the insurer’s decision to
accept liability for it. So, in South African Fire Insurance Co v Dunstan250 the fact that by virtue of a fraudulent
claims clause in the contract the insured’s fraudulently
exaggerated claim resulted in the forfeiture of the insured’s entire claim was not
considered an unacceptable and hard result. The insurer, relying wholly upon the
insured’s good faith, was entitled to protect itself and its shareholders by an appropriate
term in the contract, and the insured had to bear the stipulated consequences of his own
fraud. However, our courts have also questioned the acceptability of forfeiture of the
whole claim where only part of it was fraudulent, suggesting that there may be other
measures to prevent excessive claims by insured; 251 have said that a literal interpretation
produce startling results which could hardly have been intended”; 252 and have alluded to
the need for legislative reform to alleviate the “harsh and inequitable consequences” of a
17.105 It has not yet been considered whether clauses, such as the fraudulent claims
clause, that provide for the insurer’s release from liability and for the forfeiture to the
insurer of benefits to which the insured would otherwise – say in the absence of the
fraud, or the other condition provided for – have been entitled, fall within the ambit of
________________________
246 Papagapiou v Santam Ltd, unreported (SCA), (2006) 9 Juta’s Insurance L Bul 42, where the insured had
offered the insurer’s assessor money to inflate the damage to his property, an offer
the assessor had refused but reported to the insurer. The court pointed out that by virtue of the
wording of the clause, the fraud had to be linked to the insured’s conduct, not (necessarily) his
claim, and accordingly upheld the insurer’s decision not to pay the insured’s otherwise valid
claim.
247 Ivanov v Santam Ltd, unreported (W), (2007) 10 Juta’s Insurance L Bul 4, where, however, the insurer failed
to prove fraud in that the insured was claiming a benefit he knew he was not entitled to.
249 Santam Bpk v Potgieter above 423–424. The court’s reliance on the principle of the utmost good faith in this
regard seems misplaced; the insured after all was not proved to have acted fraudulently, in bad faith.
250 (1894) 1 Off Rep 272 274.
251 Edwards v London and Lancashire Fire Insurance Co (1896) 17 NLR 18.
252 Springgold Investments (Pty) Ltd v Guardian National Insurance Co Ltd 2009 (3) SA 235 (D) 243.
382
the Conventional Penalties Act. 254 Given the insurer’s common-law rights in the event of
the insured bringing a fraudulent claim – exclusion of liability only in so far as the fraud
is causally related to the loss claimed for, and a delictual claim for any loss it may have
suffered as a result of any fraud on the part of the insured – a forfeiture provision may
well qualify as a penalty stipulation255 and be subject to reduction, if necessary even fully,
to such an extent as may be equitable in the circumstances and having regard to the
17
paragraphs
17.106 There is, of course, also another dimension to the forfeiture provision contained 17.102–17.106
in the fraudulent claims clause. Not only does the insured forfeit “all benefit” under his
policy, but the “penalty” imposed on him, by the insurer, then goes to the insurer in the
by means of a widely drawn provision and in its own discretion, and challengeable by the
punished for his conduct and not receive that to which it would otherwise have been
entitled at common law, and that the penalty so imposed should then at the same time
________________________
254 15 of 1962. See, eg, Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) 371F where reference
was made to the Act in connection with the forfeiture of premiums to the insurer.
But cf Napier NO v Van Schalkwyk 2004 (3) SA 425 (W) 444 where application of the Act was
aggrieved party (s 4). In Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General
Insurances Ltd 1984 (3) SA 513 (A) 522, the court observed that forfeitures of this kind are
“nothing less than a penalty [and] it could be a penalty grossly and intolerably disproportionate
to the breach”.
256 S 3.
383
18
C. Subrogation
distinguished
.......................................................................................
396
E.
F.
I.
A. NATURE OF SUBROGATION1
18
Context
paragraph
18.1
18.1 The maintenance of the indemnity principle between insurer and insured may
be complicated by the involvement of a third party who is, compared to the insurer,
primarily liable towards the insured for compensation reducing the insured loss. In
this context, several possibilities may arise. 2 In all of them the main aim of the legal
principles involved is the preservation of the indemnity principle. All of them also
apply only in the usual situation where the insurer is and remains liable to indemnify
the insured against an insured loss even should a third party also be liable to
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1 The corresponding section to this chapter is to be found in Lawsa Vol 12 Part 2 pars 59–87 . See also in general
the somewhat dated but still fairly useful discussion in Van Niekerk Subrogasie.
2 See Clarke et al The Law of Insurance Contracts par 31.1 who refer to them as different ways in which over-
compensation of the insured is avoided.
3 Although it is possible that the insurer may be liable only for loss for which compensation from another source is
not recoverable, and although such cover may be cheaper, it is not usual and
such a limitation, it is submitted, will not be taken to exist in the absence of a clear agreement to
that effect. For the insured the risk in such a case is not only of a loss occurring but also that, if a
( continued)
385
18.2 Should payment by the third party in effect compensate the insured for his
insured loss before the insurer has paid him an indemnity, 4 the insurer’s liability to
18.3 Should the third party compensate the insured for his insured loss and the
insurer then pay the insured under the insurance contract without taking the third-
party payment into account, the insurer may in appropriate circumstances be able to
18.4 Should the insurer have paid the insured a full indemnity before any payment
by the third party, the insurer acquires the right, as against the insured, to enforce
the latter’s right to claim compensation from the third party. This right is referred to
as the insurer’s right of subrogation, which entails the insurer coming in the place of
the insured as regards such third party.
18.5 Should the insurer have paid the insured an indemnity and should the insured
then also obtain payment from the third party, whether or not as a result of the
exercise by the insurer of its right of subrogation, 7 the insurer, as a matter of law,
acquires a right of recourse against the insured. 8 This right enables the insurer to
recover from the insured so much of the insurance payment as, together with the
even though the third party has by that stage fallen out of the picture making any
“subrogation” or substitution of the insurer in the place of the insured as regards the
18.6 A related situation is where the insurer has paid the insured a full indemnity for
a total loss in circumstances where the object of risk is still in existence or where
remnants of it of some value still exist. In such a case the insurer acquires an
________________________
third party is involved, compensation for it may not legally or otherwise be recoverable from that
third party. The widespread existence of liability insurance may naturally reduce the latter aspect
4 Without an express provision to that effect, or unless the cover is only against loss for which compensation is not
recoverable from a third party, the insurer cannot demand that the insured
first seek to recover compensation from the third party. That is also the position in Dutch law:
Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere
5 Indemnification
7 Ie, whether or not the third party compensated the insured voluntarily or only after being sued either by the
insured or by the insurer exercising its procedural right of subrogation.
8 It should be observed that the same principles of unjust enrichment may underlie this right of recourse as
underlie the insurer’s recovery of an undue payment in the situation mentioned
Birds’ Modern Insurance Law par 17.3 as to “the two aspects of subrogation”; Clarke et al Contracts
par 31.1 observe that the doctrine of indemnification aliunde and the right of recourse are only
loosely associated with subrogation and are referred to as “incidentals” of subrogation; Merkin et
al Colinvaux’s Law of Insurance par 11.001 n 3 have it that the case where the insurer steps into
the insured’s shoes as regards the latter’s right of action against the third party “is the only true
instance of subrogation”.
386
Purpose of subrogation
payment from his insurer and compensation for his insured loss from a third party.
18.8 However, subrogation is not the only way in which the principle of indemnity
18
paragraphs
may be maintained in situations involving a liable third party. The third party could
simply have been released from his obligation to pay compensation to the insured in 18.2–18.12
situations where and to the extent that the latter is able to claim an indemnity from
his insurer.
18.9 Nevertheless, as a matter of legal policy, the third party is generally not released
from liability in such a situation but remains liable, to be sued by the insured or the
insurer exercising its right of subrogation. In effect the third party is considered to be
primarily liable to the insured when compared to the insurer; the liability of the
insurer is in other words seen as being of a subsidiary nature. 11 For this reason the
insurance payment, it is said, is res inter alios acta as far as the third party is concerned;
defendant’s liability, whether based on delict, 12 contract13 or enrichment, 14 but seemingly not when determining
an accused’s criminal liability. 15 Likewise irrelevant
a medical scheme benefit, 17 a pension, 18 a social grant, 19 or a grant from a social or publicly funded security or
compensation scheme. 20
delict, the policy consideration is strengthened by the perceived need to maintain the
third-party’s accountability for his wrongful conduct and to retain the deterrent effect
18.12 As between insurer and insured, the operation of subrogation is, of course,
________________________
11 This appears clearly from the fact that while the insurer may rely on the third-party
compensation in reduction if its own liability on the insurance contract, the third party cannot
rely on the insurer’s indemnification to limit his own liability towards the insured. As to
12 Eg, Ackerman v Loubser 1918 OPD 31 35; Millward v Glaser 1949 (4) SA 931 (A); Teper v McGees Motors
(Pty) Ltd 1956 (1) SA 738 (C) 742; Van Dyk v Cordier 1965 (3) SA 723 (O) 725A. Cf also
Mutual and Federal Insurance Co Ltd v Swanepoel 1988 (2) SA 1 (A) 8–9; Standard General Insurance
13 Eg, Roos v Rennie (1859) 3 Searle 253; Weber v Africander GM Co (1895) 5 Off Rep 251. The principle of
collateral benefits is not applicable where the claim is not for damages and based on
delict or breach of contract, but for specific performance in terms of a contract: Thomson v
14 Piskay v Autovermietung Savanna, unreported (Namibia HC), (2011) 14 Juta’s Insurance L Bul 97.
17 Eg, D’Ambrosi v Bane 2006 (5) SA 121 (C); Bane v D’Ambrosi 2010 (2) SA 539 (SCA).
18 Eg, Erasmus Ferreira and Ackerman v Francis 2010 (2) SA 228 (SCA).
387
desirable in this type of situation. 22 By reason of the insurer’s right of recourse, the
continued liability of the third party is therefore ultimately for the benefit of the
insurer and may, even if only indirectly, serve to reduce the cost of insurance by
allowing the insurer in such situations to recoup its “loss” from a source other than its
premium income.
Meaning of “subrogation”
18.13 In its literal sense the word “subrogation” means the substitution of one party
for another in some or other legal capacity, such as creditor. 23 In the context of
the insurer being placed in the position of the insured – stepping into the shoes of
the insured – as regards a liable third party. In this sense subrogation is simply a
procedural device in the service of the indemnity principle. It allows the insurer, as
against the insured, the right to take charge of the proceedings against third parties
who are liable for the loss to the insured; the proceedings are conducted in the name
of the insured24 and the insurer merely acts as dominus litis. This right of subrogation
18.14 Subrogation, in the sense in which the term is used in English common law,
does not involve any transfer of rights from the insured to the insurer, whether by
operation of law26 or by agreement. 27 The insured therefore remains the holder of his rights against the third
party. This has several consequences: in proceedings against
the third party, the insurer enforces the insured’s rights and does so in the insured’s
name; the third party can only meet its obligation towards the insured by paying the
insured himself or someone authorised by the insured to receive payment; and the
defences available to the third party are neither increased nor reduced by the
insured; it has no right against the third party. Subrogation involves only the insurer
and the insured and therefore has no bearing on the third party or its legal liability at
all. In the same way as the insurer’s actual payment to a plaintiff insured is res inter
alios acta as far as a third-party defendant is concerned, so too are a range of other
matters directly or even just indirectly involving subrogation: the existence of the
insured’s insurance contract, the potential liability of his insurer, the fact that the
insurer may or may not exercise its right of subrogation, the fact that the insurer may
“subrogation” or substitution at all. The right is one the insurer has against the
________________________
22 The insured could equally well have been allowed to draw the benefit of any third-party
compensation for his insured loss. Such compensation (and more specifically, the involvement
of a third party, the latter’s liability, and also the latter’s ability to pay such compensation) is
largely fortuitous. The insurer, rather than the insured, could have been made to bear the “risk”
of the absence of any, rather than to draw advantage from the existence of, third-party
compensation.
23 Eg, Motswagae v Rustenburg Local Municipality, unreported (NWM), (2012) 15 Juta’s Insurance L
Bul 122 for the employment of the term “subrogation” in this loose sense.
26 In civil-law systems, again, subrogation does involve the (automatic) transfer of the insured’s rights against
third parties to his insurer.
388
insured and it arises without reference to the third party who may, at the stage the
right becomes relevant, already have fallen out of the picture by having compensated
the insured.
18.17 In short, subrogation is a matter between the insured and the insurer. It is
concerned solely with the mutual rights and liabilities of the parties to the insurance
18
paragraphs
Adoption of subrogation29
18.12–18.22
subrogation was taken over in South African law from English law in 1918 in Ackerman
v Loubser. 30
18.19 Irrespective of whether or not such an adoption was justifiable, 31 and despite
merely of persuasive force, 32 the doctrine has been applied and developed in South
African law ever since and it is probably now too late to evict it from our insurance
law. 33
the case if only for reasons of legal certainty, 34 it becomes unnecessary to consider the
application in our law of alternative methods35 to attain roughly, but not in all cases
precisely, the same result. Such alternatives include the automatic transfer of the
insured’s rights against the third party to the insurer by the operation of law, or
affording the insurer an independent and direct right of recourse against the third
18.21 But while the doctrine of subrogation applicable in South African insurance
law is in essence that developed in English insurance law, it may be submitted that
not all later developments in that system are necessarily binding here. 36 In the same
vein, it may be submitted that South African law is not bound by explanations given
and accepted in English law for particular aspects of the doctrine of subrogation. 37
Basis of subrogation
18.22 The prevailing view in English law appears to be that the doctrine of
subrogation is based on a rule of equity and that it serves to avoid unjust enrichment
________________________
29 On the origin of subrogation, see further Lawsa Vol 12 Part 2 par 62.
31 Subrogation is not, or no longer, peculiar to insurance law: see again 2.15–2.26 on the adoption of English
insurance law.
32 See again 2.23 as to the legislation of 1977, which may arguably have as a result that
developments in English law as regards the doctrine of subrogation after 1977 are not or no
33 Cf, eg, Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 147 (SCA) 153H–I (considering the
doctrine “part of our common law”; Rand Mutual Assurance Co Ltd v Road
Accident Fund 2008 (6) SA 511 (SCA) 519A (stating that the underlying principles form part of
“the lex mercatoria (and not only of the English law of insurance)”).
36 Developments after 1977, when the binding nature of English insurance law in some local
jurisdictions was finally abolished, can arguably not be binding simply because of the earlier
37 Eg, the explanation of the insurer’s right of subrogation (and, more particularly, its right of recourse) with
reference to the notion of a constructive trust. Apart from the fact that the notion
of a constructive trust is unknown to South African law, there are more acceptable indigenous
389
of the insured at the expense of the insurer; it is an equitable doctrine not dependant
on any contractual basis. 38 The more traditional but now seemingly largely discounted
view is that subrogation flows from an implied term in the indemnity insurance
contract, a breach of which may entitle the insurer to claim damages from the
insured. 39
18.23 The two views may arguably be reconciled by taking them to explain the basis
18.24 In South African law the insurer’s right against the insured to have procedural
control over proceedings against a third party, it may be submitted, is based on an
implied term in the sense of a term implied by law as a naturale in all indemnity
insurance contracts. 40 Being an implied term in that sense, it would by its nature be
18.25 The insurer’s right of recourse, again, may arguably be explained on the basis
of unjust enrichment. 42 In the same way as an insurer may recover as undue the
payment of an indemnity made to the insured after the latter had received
compensation from the primarily liable third party, so too it may recover such
insured. However, this explanation has not found favour with all43 and it has been
contended that this aspect may likewise be based on a term implied by law into
of the insured at the expense of the insurer. Whatever the true position, in this case,
too, the parties may by a suitable contractual arrangement alter or obviate the need
for the insured’s right of recourse in at least some of the circumstances in which it
occurs. 44
18.26 Several aspects of the doctrine of subrogation, as taken over from English law
and as it is currently applied in South African law, are open to criticism. Arguments
may be raised either for the abolition or at least for some reform of the doctrine. 45
B. SCOPE OF SUBROGATION
18.27 Since the main purpose of the doctrine of subrogation is to prevent the
________________________
38 Clarke et al Contracts par 31.2A; Birds Birds’ Modern Insurance Law 322–324; Merkin et al Colinvaux par
11.002.
39 Clarke et al Contracts par 31.2B. The term, it appears, is in English law one implied from the parties’
unexpressed consent; in our law, therefore, a tacit (as opposed to an implied) term.
43 See, eg, the criticism expressed in Lawsa Vol 12 First Reissue (2002) par 377 n 5.
44 As to the insured authorising the insurer to receive payment directly from the third party, see 18.36.
45 These arguments are considered in detail in Lawsa Vol 12 Part 2 pars 82–83.
46 18.7–18.12.
390
indemnity insurance47 and without the need for any express provision in the
insurance contract, on the basis of an ex lege implied term and hence automatically.
reality and according to the parties’ intention they are instances of indemnity
insurance. 48 However, it may be submitted, the parties may agree, expressly or even
tacitly, 49 to grant the insurer rights of subrogation in situations where it would not
18
otherwise have had such rights, 50 or where its entitlement may have been doubtful. 51
paragraphs
18.29 In South African law, the application of the doctrine of subrogation is not 18.22–18.31
18.30 The types of right against third parties that come within range of the doctrine
of subrogation have been described in English law as “every right of the assured,
whether such right consists in contract, fulfilled or unfulfilled, or in remedy for tort
capable of being insisted on, or in any other right, whether by condition of otherwise,
legal or equitable, which can be, or has been exercised or has accrued, and whether
such right could or could not be enforced by the insurer in the name of the assured
by the exercise of or acquiring of which right or condition the loss against which the
________________________
48 Such as instances of life and accident insurance on the life or person of a third party, or of health insurance or
insurance of medical expenses: see Clarke et al Contracts par 31.3A; Merkin
49 Eg, the insurer may in exchange for the right to recover compensation from third parties, have reduced the
premium.
50 Cf Erasmus Ferreira and Ackerman v Francis 2010 (2) SA 228 (SCA) (express provision that where policy
benefit payable in respect of an accident caused by a third party who is legally liable to pay
the insured damages, the insurer would be entitled “to be indemnified” by the insured out of
any damages recovered from such a third party, to the extent of the benefit payable by the
51 Eg, medical schemes may be entitled to recoup payment from liable third parties either because the scheme is
by nature an (or a form of) indemnity insurance, or because of an express
provision to that extent in their rules: Rayi NO v Road Accident Fund, unreported (WCC), (2011)
52 But cf, eg, In re Cape of Good Hope Permanent Building Society (1898) 15 SC 323; Cape of Good Hope
Permanent Land, Building and Investment Society (Liquidators of) v Standard Bank (1899) 16 SC 325;
Langford v Moore (1900) 17 SC 1. For suretyship: Corrans v Transvaal Government and Coull’s Trustee
1909 TS 605; ABSA Bank Ltd v Scharrighuisen 2000 (2) SA 998 (C); Durandt v Federal Insurance Ltd
2005 (3) SA 350 (SCA); for statutory subrogation in terms of the Insolvency Act 24 of 1936
53 Cf Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827 (A) 838F.
54 Eg, the Attorneys Act 53 of 1979 s 50 (referring to the right as one to be “subrogated” to the rights and legal
remedies of a claimant against third parties; the Compensation for Occupational
Injuries and Diseases Act 130 of 1993 s 36(1)(b); the Road Accident Fund Act 56 of 1996 s 25;
55 Castellain v Preston (1883) 11 QBD 380 (CA) 388, referred to in Ackerman v Loubser 1918 OPD 31
34.
56 The contractual right to compensation from a third party with whom the insured has a
contractual relationship includes not only the right to claim damages for breach of contract (eg,
( continued)
391
compensate him for the insured loss. But an insurer is further also entitled to the
advantage of every other right of the insured, provided it serves as a total or partial
substitute for the insured interest; the right in question must accordingly have a
connection with the object of risk and with the insured’s interest in that object; it
must serve to diminish the insured loss and thus be one that would “advantage” the
insured and lead to an impairment of the indemnity principle if it were not taken
18.32 The classic example in this instance60 is of insured property or goods having
been sold and the risk in it – but not yet ownership61 – having passed to the third-
party buyer. If the property or goods are then lost or damaged, the insured seller is
entitled to an indemnity under his insurance contract and also to payment of the
purchase price from the buyer. The insurer, having paid an indemnity, is entitled
either to enforce the insured seller’s right to claim the price against the buyer or,
should the seller in the meantime have received the price, to exercise its right of
recourse against the seller. Analogous to the proceeds of a sale, may be compensation
18.33 Distinguishable is the case of proceeds of profit earned by the property such as
rent or freight, such being an “independent” right and not being part of the property
but capable of being insured separately. 63 Thus, if a ship has been damaged and her
insured owner is entitled to recover from the third party not only compensation for
the damage to the ship, but also for loss of freight, the insurer cannot claim to be
________________________
a lessee being obliged to compensate the insured lessor for breach of the lease), but also the
al Contracts par 31.4B. In the case of contractual indemnities, there is subrogation only if, in the
contractual scheme of indemnities arranged for or by the insured, the third-party indemnifier is
primarily liable as compared to the insurer who is an indemnifier of last resort only, which may
be the case when their respective liabilities of indemnification are appropriately layered; if not,
there may be contribution between them instead. As to the primary liability of the third party,
see 18.1; for the differences between subrogation and contribution, see 18.48, 23.48–23.53.
57 Ie, the right to claim damages from a third-party wrongdoer on the basis of delict.
58 Eg, the right to claim repayment from the third party on the basis of unjust enrichment: cf, eg, St Helena
Primary School v MEC, Department of Education, Free State Province 2007 (4) SA 16 (O) and
also St Helena Primary School v MEC, Department of Education, Free State Province, unreported (O),
(2009) 12 Juta’s Insurance L Bul 89; Piskay v Autovermietung Savanna, unreported (Namibia HC),
(2011) 14 Juta’s Insurance L Bul 97; Van Niekerk 2006 SA Merc LJ 508. A statutory right serving to
diminish the insured loss may likewise be subject to subrogation: Clarke et al Contracts par 31.4D.
59 See further Clarke et al Contracts par 31.4A; Merkin et al Colinvaux par 11.034.
60 And one taken from Castellain v Preston (1883) 11 QBD 380, an instance of where the court allowed an
indemnification aliunde to reduce the insurer’s liability where the insured, who had
sold the insured house, received the full purchase price prior to obtaining an indemnity from
61 For then the insured seller no longer suffers any loss by the loss or damage of the object (he no longer has an
“interest” in it at the time of loss) and is not entitled to any indemnification from
62 Cf Stearns v Village Main Reef Gold Mining Co Ltd (1905) 21 TLR 236 (CA).
63 Put differently, the insured would have earned the profit irrespective of the loss of or damage to the insured
property and is therefore not “advantaged” if it is not taken into account for
purposes of subrogation.
392
Gifts to insured
18.34 Where, after indemnification by the insurer, 64 the insured receives an amount
from a third party not in payment of some legal obligation to compensate the
insured, but as a gift or donation consequent upon the occurrence of the event
insured against, such a benefit could be subject to subrogation even though no right
to receive it may have existed at the time of the loss. 65 Relevant here, therefore, are
18
voluntary payments66 by a third party made in consequence of or in connection with
paragraphs
18.31–18.37
18.35 In order to qualify to be taken into account for subrogation, the gift must have
been made in reduction or diminution of the loss, that is, it must be a partial or total
substitute for the interest lost. The intention of the donor must be compatible with
benefiting the insurer as well and not the insured personally and only. 67 Only in
exceptional cases will the donor’s intention not be to benefit the insured alone68 and
therefore it may be thought that in the absence of any clear contrary indication on
the part of the donor, the intention may be presumed to have been not to benefit the
18.36 In the insurance context, the party entitled to a right of subrogation, which is a
right arising from the contract against the insured, is the insurer. From this it follows
that there is no right of subrogation for a “self-insurer”. 69 A reinsurer70 may have a right of subrogation against
its reinsured insurer in respect of the latter’s right
18.37 An insurer cannot invoke subrogation where the insured himself is personally
or vicariously responsible for the insured loss. This is so both because an insured has
no claim for compensation against himself, 71 and as that would in effect limit the
________________________
64 For the position where a gift is received prior to indemnification, see 16.160–16.167 as to
indemnification aliunde.
65 Relevant here, therefore, is only the one aspect of subrogation, the insurer’s right of recourse, and not (also) its
right as against the insured to proceed against the third party, the insured not
having any right to do so. The view that subrogation is confined to rights and not to gratuities
66 “Voluntary” payment in the sense of a payment not being due at all but gratuitous or ex gratia, and not
“voluntary” in the sense of a due payment made without the third party having to be
68 Thus, a payment by a parent to a child after a loss will clearly be intended to benefit the child –
even beyond any insurance payment – and not his insurer; the parent will in all probability not
intend his gift to reduce the insurer’s liability for, or the insured child’s entitlement to receive,
an indemnification under the insurance contract. The same may be said of compensation paid
by the third party in a commercial context. Then again, a gratuitous payment by a public or state
institution (say from a compensation fund) in the case of catastrophic losses (say caused by war,
government action, or natural disaster) may more readily, but not necessarily, be taken to have
been intended to benefit insurers (cf Stearns v Village Main Reef Gold Mining Co Ltd (1905) 21
69 But cf Gallant v Minister of Safety and Security, unreported (ECG), (2010) 13 Juta’s Insurance L Bul 15,
referring to a self-insurer’s possible right of subrogation. Cf also 18.37–18.38.
70 Given that a reinsurance contract is one of indemnity, whether it is a first-party indemnity insurance, or a third-
party indemnity (liability insurance): see further 23.25–23.74.
71 That much is further clear given that the action against the third party is conducted in the name of the insured.
393
scope of the insurance cover to loss not negligently caused by the insured himself. 72
In short, the insured himself cannot also be a third party for purposes of
subrogation. 73
18.38 Thus, where two motor vehicles belonging to the same insured collide, the
insurer of the one vehicle, having paid the owner an indemnity, cannot recover from
the owner for the negligent driving of the other vehicle, whether by the owner
himself or by someone for whose conduct he is vicariously liable, since the owner
18.39 The position becomes more complicated where the third party is a co-
insured. 75 This may happen in any one of a number of ways. A single contract
insuring the interest of A may also insure the identical interest of B; 76 or an object of
risk may involve the respective (proprietary, or proprietary and liability) interests of A
and B in and in respect of it. 77 Both co-insured may be named insured, or the one
may be a named and the other a (an unnamed, but identifiable) third-party insured. 78
18.40 It is submitted that where a policy was taken out solely in the interest of a third
party – that is, where the person taking out the policy is not also an (a named)
insured – there is no possibility of subrogation as such third party is the only insured.
18.41 Ordinarily the insurer also cannot be subrogated to rights against persons who
are insured by the very insurance contract which is the basis of the insurer’s right to
owners or the lessor and lessee of a particular property, and the object is damaged by
B’s negligent conduct, A may have a right to claim compensation from B, but the
________________________
72 As to the insurer’s liability for loss caused by the insured’s negligent conduct, see again 13.111–
13.124. If subrogation were allowed in this case, the insurer, having paid out an indemnity to the
insured with the one hand, would by the exercise of a right of subrogation take back in the form
of compensation with the other hand. See Merkin et al Colinvaux par 11.011 (“if the assured has
caused his own loss but nevertheless has a claim on the policy the insurer cannot seek any set-off
against the assured as wrongdoer”). Also, the insured is not enriched by the payment of an
indemnity at the insurer’s expense so as to allow the latter a right of recourse. Should the
insured’s conduct be intentional, the insurer is, of course, not liable to pay an indemnity in the
73 Clarke et al Contracts par 31.5C; Merkin et al Colinvaux par 11.024 who consider that the same principle does
not apply where the insured and the third party are different corporate entities in
74 Cf Simpson v Thomson (1877) 3 App Cas 279 (HL) (a collision between two ships belonging to the same
owner).
75 Co-insured is not necessarily synonymous with co-insurance (two or more insurers liable on the same insurance
contract), which should further be distinguished from double insurance (two or
76 A “joint policy”, insuring common identical interests in the same object of risk, eg, co-owners: Merkin et al
Colinvaux par 11.025. There is no co-insurance where the interests of two insured in
different objects of risk are covered in a single policy, such as where two motor vehicles are
77 A “composite policy”, insuring each insured’s own respective interest in or in respect of the same object of risk,
eg, insuring a contractor and subcontractor, a lessor and lessee, or a depositor and
depositee (bailor and bailee): Merkin et al Colinvaux par 11.025.
78 Eg, the owner A of the insured vehicle and all authorised drivers of A’s vehicle (cf Croce v Croce 1940 TPD
251 260), or contractor A and all its subcontractors. For third-party provisions in
indemnity insurance contracts, see 19.118–19.140; for English law, see Merkin et al Colinvaux par
11.031 as to subrogation immunity against a third party for whose benefit the policy was taken
79 Cf Clarke et al Contracts par 31.5D; Merkin et al Colinvaux pars 11.025–11.033; Birds Birds’ Modern
Insurance Law par 17.14 where the complexities are analysed in detail. For Dutch law, see
394
insurer is not entitled to the proceeds of that right because this would defeat B’s own
right to an indemnity from the insurer. 80 The same will apply should an insurer
covering A’s interest in goods as the consignor or owner seek to enforce the rights
that A may have against a third party B whose liability as carrier or depositee of the
goods for any loss or damage to them is covered by the same insurance contract. 81
18
paragraphs
18.43 There are several reasons, carrying varying weight in different circumstances, 18.37–18.45
against himself; the exercise of subrogation would deprive the co-insured of the cover
he is afforded by the policy if he were sued as a third party and that could not have
there is probably no right by one co-insured against the other co-insured to which the
insurer may be subrogated in the first place as the contractual relationship, if any,
between them may absolve them from liability for negligence, either expressly or by
circuitry of actions would ensue, the insurer paying A under the property section of a
comprehensive policy and then claiming in the name of A from B who would, in
turn, recover from the insurer under the liability section of the policy. 84
18.44 The insurance contract may contain an express provision that the insurer will
not exercise but waives any right of subrogation against particular named or
18.45 According to current law, subrogation will be available against members of the
insured’s family or household, his friends, or his business associates, provided that
the insured has a claim against such persons. The rights of an insured against his
________________________
80 Cf the decision of the court below in Bates and Lloyd Aviation (Pty) Ltd v Aviation Insurance Co, Bates and
Lloyd Aviation (Pty) Ltd v Aviation Insurance Co 1985 (3) SA 916 (A). See also Aviation
Insurance Co Ltd v Bates and Lloyd Aviation (Pty) Ltd, Bates and Lloyd Aviation (Pty) Ltd v Aviation
enforce the insured owner’s claim for damages against a liable authorised driver who caused
damage to the vehicle but whose liability is covered by an extension clause in the same contract.
82 For in such a case the intentional co-insured under a composite policy (see again 18.39 n 77) is not covered by
the policy (see again 13.125–13.132) but the innocent co-insured is, so that
subrogation to the right of the innocent co-insured against the intentional co-insured may be
possible. In the case of a joint policy (see again 18.39 n 76), the intentional conduct of either
party will exclude the insurer’s liability against both so that no question of subrogation can arise:
83 See Merkin et al Colinvaux par 11.026 as to risk allocation and (co-) insurance clauses in contracts between A
and B and as to whether they exclude the liability of B towards A.
84 Lowry et al Insurance Law: Doctrines and Principles 1 ed (1999) 204–205 explain that “[t]o allow rights of
subrogation where there are co-assured would merely be putting off the liability of the
insurer because the wrongdoer would be able to claim an indemnity under the same policy”; see
now also Lowry et al Doctrines 361–363. Clarke et al Contracts par 31.5D(d) observe that the
reason in English law for the reluctance to allow subrogation against a co-insured has shifted
from the need to avoid circuitry to an emphasis on the interpretation of the relevant policy.
85 This will be the position, eg, where the insurer insures more than one person interested in an aircraft and the
contract states, in a clause called a breach of warranty endorsement, that a
breach of warranty by one insured will not affect the other interested persons: cf the clause in
Aviation Insurance Co Ltd v Bates and Lloyd Aviation (Pty) Ltd, Bates and Lloyd Aviation (Pty) Ltd v
86 Cf Lister v Romford Ice and Cold Storage Ltd [1957] AC 55 (HL), commented on in Richard Ellis SA (Pty) Ltd
v Miller 1990 (1) SA 453 (T).
395
18.46 The insurer, having paid the insured, may exercise his rights against such third
parties even should the insured not have done so himself and even should the
insured desire that there be no action against them in his name. The only way in
which an insured can prevent litigation in his name, would be not to claim an
indemnity from his insurer in the first place in cases where there is a right against
such third parties, or, having claimed and received an indemnity, to offer to repay it
to the insurer in exchange for the latter not exercising its right of subrogation by
C. SUBROGATION DISTINGUISHED
involve a transfer of the insured’s rights against third parties to the insurer, whether
the third party in the name of the insured and not, as would a cessionary, in its own
involve a right of recourse, contribution is a right one insurer has against another co-
debtor and is exercised in its own name; subrogation is a right the insurer has against
the insured, in respect of the latter’s rights against primarily liable third parties and
the insurer exercises its right of subrogation in its own name against the insured, but
right to salvage. The insurer’s right of subrogation is the insurer’s right against the
insured in respect of the latter’s personal rights against third parties, while its right of
salvage is its right against the insured in respect of the latter’s real rights in the object
of risk. 93
________________________
87 See Cart Blanche Marketing CC v N and X Transport CC; In re N and X Transport CC v Cart Blanche
Marketing, unreported (ECG), (2012) 15 Juta’s Insurance L Bul 112 (withdrawal by subrogated
insurer of action in name of insured against a third-party business associate of the insured at the
89 Eg, it will forfeit the anonymity associated with subrogation as it will have to sue the third party in its own
name as cessionary.
90 Eg, judgment will not be for the insured himself (entitling him to recover and receive
compensation from the third party) and a cession to the insurer of only a part (the insured part,
say) of his his claim against the third party is not possible.
91 For the nature and basis of contribution, see 23.20–23.29; for a further discussion of the
distinction between contribution and subrogation, see 23.48–23.53; see further Van Niekerk
92 Contribution applies between co-debtors, eg between insurers or between the insurer and a
third party in a double insurance situation (see 23.13–23.15), where there are co-ordinate
obligations to indemnify or compensate the insured for his loss; subrogation, again, arises
between an insurer and the insured and concerns the latter’s right of action against a third party
who is liable to indemnify or compensate the insured against or for the same loss and whose
liability towards the insured is, compared to that of the insurer, a primary liability and not either
a secondary or a co-liability. In the case of contribution, the defendant is usually an insurer but
may also be a contractual indemnifier; in the case of subrogation the third-party defendant may
396
Introduction
18.50 There are several requirements that have to be met before the insurer’s right
may be altered by an express agreement between the parties in the form of a so-called
18
subrogation clause. 94
paragraphs
18.51 Because subrogation is a matter solely between the insurer and the insured, 18.46–18.55
and confers a right on the former only against the latter, 95 only the insured, and not a
third-party defendant, may raise as a defence the fact that one or more of these
18.52 Since the insurer’s right to subrogation is derived from the insurance
contract, 97 there can be no subrogation where the insurer has paid the insured for a
contract that is voidable, even if on the ground of fraud, is still payment in terms of a
valid and existing contract and the insurer’s right to subrogation is therefore beyond
doubt.
18.53 It is not clear whether an insurer may claim the benefit of subrogation where it
has made a payment in terms of a valid insurance contract when in fact it was under
18.54 If, on the one hand, the insurer has made an ex gratia payment in the
knowledge that the insured has no right to claim payment in terms of the contract –
for instance, where the loss was clearly not covered by the contract – it may be that no
18.55 If, on the other hand, payment is effected in the honest and reasonable belief
that there may be a duty to pay – for instance, the insurer may not consider it
worthwhile to contest the insured’s claim even though it may harbour doubts about
its validity – it may be suggested that the right to subrogation exists despite the fact
that the insurer may not have admitted any liability by such payment.
________________________
94 As to the contractual adaptation of the insurer’s common-law right of subrogation, see further 18.130–18.142.
97 Otherwise, though, at least in theory, where the right does not spring from an implied term in the contract but,
say, from equitable principles: see again 18.22–18.25
98 By virtue of an express term, the insurer may be entitled to subrogation before and hence
99 Despite the possible application of what is called the “volunteer principle”, it may be argued that as subrogation
concerns only the insurer and the insured, any payment by the insurer of a claim
by the insured under a valid insurance contract should entitle the insurer to exercise a right of
subrogation and so to prevent a breach of the indemnity principle operating between them. The
insured, having accepted an ex gratia payment, should not be entitled to raise its voluntariness as
a defence to the insurer seeking to exercise a right of subrogation. For analogous arguments in
Dutch law (where, however, subrogation is not a matter purely between insurer and insured, but
where a third party may raise the voluntariness of the insurance payment as a defence), see
397
everything due under the insurance contract in respect of the insured’s particular
claim. Thus, it must both admit and pay the claim101 or, should it be entitled and elect
to do so, reinstate or repair the lost or damaged object of risk properly. 102
18.57 Hence, a payment by the insurer on the condition that it must be repaid to the
extent that the insured recovers compensation from a third party, is in effect a
conditional loan or advance and not a payment under the insurance contract
entitling the insurer to subrogation. Likewise, in the case of where the insurer elects
not to pay but to have the damaged object of risk repaired, an improper
reinstatement will not entitle the insurer to claim subrogation to the insured’s right
against the repairer.
subrogation cannot be invoked to explain why an insured who has been indemnified
by a third party, or who has received a deductible benefit as a result of the occurrence
of the event insured against, is not entitled to claim from his insurer or to do so only
18.60 In addition to payment under the insurance contract of all that is due, it is
further required at common law before the insurer may exercise any right of
subrogation that the insurer’s payment should have indemnified the insured in full
and against all loss he may have suffered and in respect of which there may be a right
18.61 This is in fact an infrequent occurrence. First, by the terms of the insurance
contract itself, the insurer’s payment may provide the insured with less than a full
indemnity. There may, for instance, be provision for an excess106 or the sum insured
may be insufficient so that average may be applied. 107 Further, the insured may also
indemnification of the insured’s loss, it may be necessary to analyse the amount paid
to determine how much of it relates to that loss and how much does not but concerns
claims for other losses or for amounts not related to losses at all. 108
common law to enforce the insured’s right to compensation against the liable third
party. The insured himself remains entitled to do so. Likewise, it may be thought,
________________________
100 See generally Clarke et al Contracts par 31.3B; Merkin et al Colinvaux par 11.006. This is also a requirement
in Dutch law: Wansink et al Assers par [574].
101 Such payment need not be to the insured himself: see 22.19–22.22.
105 See generally Clarke et al Contracts par 31.3B1; Merkin et al Colinvaux pars 11.017–11.019; Birds Birds’
Modern Insurance Law pars 17.4.1, 17.6.
398
should the third party in these circumstances also pay the insured a compensation for
his loss – which likewise may or may not compensate the insured fully109 – it is
required that the insured must first be fully compensated before the insurer is
entitled to exercise its right of recourse. This is in accordance with the aim of
insurer: only once the insured has been fully compensated by a combination of the
payments he received from the insurer and the third party, does a need for
18
paragraphs
subrogation arise. 110 By the same token, subrogation should not operate to deprive 18.56–18.65
18.64 To illustrate these principles, suppose an insured suffers a loss of R2 000 and
the excess in terms of his contract amounts to R200, so that the insurer pays him R1
800. His claim against the third party then yields R400. Given that the
indemnification by the insurer together with the compensation received from the
third party over-compensated the insured, the insurer is entitled to recover the
amount of such over-compensation, namely R200, but no more. Had the insured
received only R200 from the third party, the insurer would not have been able to
recover anything from the insured on the basis of subrogation. 111 Thus, any payment
by or recovery from the third party goes, in the first place, towards making up the
insured’s shortfall under the policy. Only if and to the extent that there is a balance,
will the insurer have any right of recourse against the insured.
18.65 Unfortunately, as a result of the decision in Napier and Ettrick v Hunter, 112 these principles have been
thrown into considerable doubt, at least in English law. In that
case the court, on an interpretation of the insurance contract before it and without
considering the issue as one involving enrichment, came to the conclusion that the
excess was a part of the loss the insured had to bear as against the insurer,
irrespective of any third-party recovery. Thus, in the example above, the insurer
would on the basis of subrogation be entitled to recover R400 or R200 from the
insured, leaving the insured under-compensated by R200 in both cases. 113 According
to this view the recovery from the third party does not therefore go, in the first place,
towards fully compensating the insured, and only then towards the insurer to prevent
________________________
109 Eg, there may be contributory negligence, or a contractual or statutory limitation of the third party’s liability.
110 Merkin et al Colinvaux par 11.017 explain that two principles govern the allocation or distribution of a third-
party recovery between the insured and the insurer: first, the insured cannot be
deprived of an indemnity as a result of the exercise by the insurer of its subrogation rights; sec-
ondly, the insurer cannot recover more from the insured by means of its subrogatory right of
recourse than it has paid the insured under the insurance contract (see further 18.90–18.95).
111 The same principles will apply mutatis mutandis in a case of indemnification aliund e: the insurer’s liability
under the insurance contract will be R1 600 or R1 800 in the two situations in
question.
113 Should the insured first have recovered or received compensation from the third party, the
insurer’s liability under the insurance contract will be R1 400 or R1 600 in the two situations. In
accordance with the concrete perception of loss or damage, the insured suffered a loss of
R2 000 and the insurer has incurred a debt of R1 800 in respect of this loss the moment it oc-
curred. This debt has neither been paid by the insurer nor by the third party on its behalf. The
only reason why the payment by the third party has to be taken into account is because it is just
and equitable to do so in terms of the doctrine of the imputation of benefits, and it would only
be just and equitable to the extent that the insured would be over-compensated. There can be
no question of the insured having waived an entitlement to full compensation merely by having
agreed to an excess in terms of his insurance contract.
399
18.66 The position taken in Napier and Ettrick v Hunter, 114 also referred to as the
“recover down” principle, conflicts with the so-called “made whole” rule of American
law115 and with Canadian decisions116 and is not in accordance with the equitable view of subrogation as being
merely aimed at preventing a breach of the indemnity
18.67 It is submitted that the view in Napier and Ettrick v Hunter118 should not be followed in South African law,
119 but that the insured should be allowed a full
indemnity before the insurer becomes entitled either to exercise its procedural right
of subrogation or its right of recourse. Put differently, the insured should be able to
look to the third party for the amount of any excess or other shortfall the insurer may
not have indemnified in terms of the insurance contract. In short, an insurer must, as
it were, stand second in line after the insured as far as third-party recoveries are
concerned. 120
18.68 Nevertheless, it seems accepted in English law that, at least in the case of
marine insurance, the insured’s entitlement to a full indemnity does not apply where
there is under-insurance and the policy is subject to average. In such a case, on the
basis that the insurer and the insured are co-insurers, any third-party recovery is
apportioned to the respective parties in accordance with their respective liabilities. 121
18.69 This approach, like that in the case of an insurance contract subject to an
excess, is equally not above criticism. 122 The notion that the insured is “his own
________________________
115 As to the “made [or make] whole” rule, see Jerry Understanding Insurance Law par 96[d][1], explaining that
“[a]lthough one of the purposes of subrogation is to prevent the insured from
receiving a windfall at the expense of the insurer, the insured is entitled nonetheless to a full
recovery”, and 96[d][2], explaining that the “‘made whole’ rule requires, obviously, that the in-
sured be reimbursed first until the insured is reimbursed in full, with any excess going to the
insurer”.
116 See Clarke et al Contracts par 31.3B1 for the authorities, none of which involved an excess but were simply
instances of the insured also suffering uninsured losses.
117 See, eg, Clarke et al Contracts 31.3B1 describing the court’s approach as “starkly different” and as based on
an improper understanding of the intention with an (insurer-imposed) excess,
which is that, as far as the insurer is concerned, the insured should bear a portion of his loss
himself but not that he should do so even where such part may be compensated by a third par-
ty. Contra, Merkin et al Colinvaux par 11.006 n 41 who regard instances where the insured is
treated as his own insurer in respect of the uninsured loss (ie, where the policy is subject to an
excess, like the case where it is subject to average: see further 23.61–23.66) as exceptions where
“the subrogation recovery is to be apportioned between the insurer and the assured according
to their respective liabilities”, on the basis that a full indemnity is determined with reference
not to the insured’s total loss but with reference to what the parties regard as such in their poli-
cy; he concedes in par 11.017, though, that that approach is not immune from criticism. For
numerous examples, see idem par 11.018, for the position in case of insurance in layers, see par
11.019.
119 See further Schlemmer 1994 TSAR 854; Hart 1996 TSAR 741.
120 Although the mechanics are different (given the nature of subrogation as involving a transfer of rights), that is
also the position in Dutch law. The insured enjoys a priority on any third-party
recovery, not the insurer and neither is there a proportional sharing. This is achieved by
providing that the insurer may not exercise its right of subrogation (may not enforce the trans-
ferred right) to the detriment of the insured’s right to a full indemnification. As to what is re-
121 See Merkin et al Colinvaux par 11.019. The leading English decision on this point is The Commonwealth
[1907] P 216 (CA).
122 If both are applicable, the example used earlier will illustrate the consequences. Suppose an insured suffers a
loss of R2 000, that the excess in terms of his contract amounts to R200, that
he is under-insured as the sum insured on his policy is only R1 500 while the value of the object
( continued)
400
his insurer but must, as between himself and the insurer, bear a proportion of every
loss himself. 123 The average principle, it may be submitted, does not purport to
regulate the insurer’s share in any third-party benefits consequent on the insured’s
loss and any such benefits should be regarded as falling to the insured until there is
18
paragraphs
18.70 Again, the requirement of a full indemnity is frequently altered by an express 18.66–18.74
term entitling the insurer to exercise subrogation rights even though its payment, if
18.71 An insurer can claim subrogation only if the insured has a right against a third
party that is susceptible to subrogation. Put differently, the right must be one to claim
compensation from the third party for the insured loss, or a right that serves to
18.72 It is not required that the insured’s right against the third party must be an
enforceable or valid one. If it ultimately appears that the third party is not liable to
the insured, for reasons other than the insured’s unreasonable conduct, 126 it merely
means that the exercise of the insurer’s right of subrogation brought or will bring it
no positive benefits.
18.73 A final requirement for the insurer to exercise its right of subrogation is that
the right must not have been excluded by agreement with the insured. 127
18.74 Where the insured has been indemnified in full against all loss resulting from
the insured event and all the other requirements for subrogation have been met, 128
and the insured has unsatisfied rights of action against third parties in respect of the
loss, these rights remain vested in the insured, but by virtue of the doctrine of
subrogation the insurer is contractually129 entitled to enforce these rights on behalf of
the insured.
________________________
of risk is R3 000, and that provision is made in the policy (necessary if it is a non-marine one)
for average to be applied. Given his under-insurance of 50 per cent, the insurer will only be lia-
ble to pay him R1 000 of his loss, less the R200 excess, thus R800 in total. If he recovers R400
from a third party, R300 goes to the insurer and the insured is entitled only to R100 of it. How-
ever, if the insurer’s entitlement on the basis of subrogation is made subject to a full indemnifi-
cation of the insured also in instances where the policy is subject to excess and average, as it is
suggested the case should be, the insured will be entitled to the full R400 as that, together with
123 The insured cannot be an insurer in any real sense – he cannot conclude an insurance contract with himself –
and cannot be considered a co-insurer with his actual insurer: see again 18.36. As
401
18.75 While there is no transfer of the insured’s rights against the third party to the
insurer, 130 the effect of subrogation is to transfer control over the enforcement of
those rights to the insurer; 131 procedurally the insurer becomes dominus litis.
18.76 The insurer itself has no independent claim132 that it can pursue against the
third party. It simply enforces the claim of the insured for its own benefit. This
explains why, unless a cession has been effected, 133 proceedings must be brought in
the name of the insured134 and also why the insurer is entitled, as against the insured,
the litigation in the name of the plaintiff is being controlled by the latter’s insurer
and mainly, if not completely, for the insurer’s own benefit. And even if known, the
fact that the insurer is in fact the real claimant must be disregarded and is totally
18.78 So, the fact of subrogation or the involvement of a dominus litis insurer need
not be disclosed, alleged, pleaded or proved in an action by the insurer in the name
of the insured against a third-party defendant. 137 Also, the third party is not entitled to
security for his costs from the subrogating insurer, only from the insured in whose
18.79 The advantage for the insurer of being dominus litis is that it can ensure that an
action is in fact brought against the third party and that the proceedings are
conducted properly. Being dominus litis, the insurer is entitled to give notice of its
intention to sue the third party and to issue summons against him. 139 In consequence,
the status of the insurer appears to be nothing other than that of a person authorised
to represent the insured in enforcing his claim against the third party. Also for other
procedural purposes the insured remains, and the dominus litis insurer does not
become, the actual plaintiff: costs are awarded to or against the insured140 as is
________________________
130 For the difference between subrogation and cession, see 18.47.
131 Otherwise than is possible in the case of cession (cf Homes for SA (Pty) Ltd v Rand Building Contractors (Pty)
Ltd 2004 (6) SA 373 (W); Lawsa Vol 12 Part 2 par 69 n 3), the insured’s right to
claim and the procedural right to enforce that claim are separated.
132 Cf Lean v Van der Mescht 1972 (2) SA 100 (O) 108B.
133 Chi v Lodi 1949 (2) SA 507 (T); Lawsa Vol 12 Part 2 par 69.
134 Chi v Lodi above 511; Teper v McGees Motors (Pty) Ltd 1956 (1) SA 738 (C) 744E; Schoonwinkel v Galatides
1974 (4) SA 388 (T) 390A. An incorrect citation of the name of the insured may be allowed: Golden Harvest (Pty)
Ltd v Zen-Don CC 2002 (2) SA 653 (O).
135 On the insurer’s right to use of the insured’s name: Merkin et al Colinvaux par 11.011.
136 For the position of and defences available to the third-party defendant, see 18.117–18.129.
137 See Smith v Banjo 2011 (2) SA 518 (KZP), overruling the decision to the contrary in Nkosi v Mbatha,
unreported (KZP), (2010) 13 Juta’s Insurance L Bul 188; Ntlhabyane v Black Panther
Trucking (Pty) Ltd, unreported (SGJ), (2010) 14 Juta’s Insurance L Bul 26 (the insured, or the
subrogating insurer acting in the insured’s name, need not “prove subrogation”, nor exclude
possibility of cession, in an action against third party). Likewise, there should be no need for
the insured to state in pleadings that he is suing on behalf of an insurer that had indemnified
him: cf Tiego v Proctor, unreported (Botswana HC), (2009) 12 Juta’s Insurance L Bul 252. For
other procedural consequences: Merkin et al Colinvaux par 11.011 (no disclosure required
138 Airlink Cargo International (Pty) Ltd v Storgate Africa (Pty) Ltd, unreported (W), (2003) 6 Juta’s Insurance L
Bul 61–64; Storgate Africa (Pty) Ltd v Airlink Cargo International (Pty) Ltd, unreported
(SCA), (2005) 8 Juta’s Insurance L Bul 116; National Potato Co-Op Ltd v PriceWaterhouseCoopers Inc,
139 Cf Avex Air (Pty) Ltd v Borough of Vryheid 1973 (1) SA 617 (A).
402
interest; the third party cannot compel the insurer, but only the insured, to effect a
discovery of documents in its possession; and the insurer cannot subpoena the
18.80 There are also some disadvantages. Thus, should the insured cease to exist, it
will no longer be possible for the insurer to use its name, 142 or should it be unable to
trace the insured, the insurer may be unable to establish, when challenged, that it has
18
paragraphs
18.81 If the proceedings conducted by the insurer are successful, judgment is given 18.75–18.84
in favour of the insured and the third-party judgment debtor must pay his debt to the
insured. 144 Thereupon the insurer is entitled by the exercise of its subrogatory right of
insurer may also be permitted to sue the third party in its own name, unless the third
party would be procedurally prejudiced by such course of action. This view, a quite
and as it was taken over in South African law, is based on doubtful authority and
unfortunately the court did not consider the effect of the insurer’s proceeding in its
own name on the insured himself. For instance, the third party would then pay the
insurer directly, obviate the need for the latter to exercise any right of recourse, and
leave it to the insured to recover, in some way or another, any excess from the
insurer. 148
18.83 It may be suggested that the effect of this judgment should be restricted to the
situation facing the court there, namely that of a statutorily appointed insurer who
had paid the insured a full indemnity149 and that insurers should only then be
18.84 Despite the decision in Rand Mutual Assurance Co Ltd v Road Accident Fund, 151 a subrogating insurer is,
and remains, clearly entitled by the doctrine of subrogation to
________________________
141 However, in such a case the insured commits a breach of the insurance contract. As to the
143 Cf The MT “Yeros” v Dawson Edwards and Associates [2007] 4 All SA 922 (C) (attorneys acting against the
third party in the insured’s name only had authority from the insurer and there was
nothing before the court to indicate that the named plaintiff had as insured given the insurer
consent to the use of its name); Van Niekerk 2008 TSAR 575.
144 Cf Matsoakeletse v Klaas, unreported (Lesotho HC), (2010) 13 Juta’s Insurance L Bul 17 (in an action by a
subrogating insurer in the name of the insured plaintiff against a third-party defendant, judgment was given in
favour of the insured). Payment may also be made to someone,
such as the insurer, authorised to receive payment on his behalf. Such authorisation may be
145 18.90–18.95.
147 Cf, eg, Merkin et al Colinvaux par 11.011: “It has long been settled that a subrogation action must be brought
in the name of the assured and that the insurer is not permitted to bring the
149 In the case of the insurer having paid the insured a full indemnity, the whole recovery from the third party will
ordinarily belong to the insurer. But for the situation where there is a windfall,
see 18.92.
150 Van Niekerk 2007 SA Merc LJ 502; for a detailed criticism of the judgment, see Van Niekerk 2009 SA Merc LJ
555.
403
institute action and litigate against an alleged third-party wrongdoer in the name of
18.85 An insurer who is entitled and wants to take charge of proceedings against the
third party, must obtain the consent of the insured to the use of his name, something
the insured is under the doctrine of subrogation contractually bound to give, 153
provided that the insurer tenders a proper indemnity as to costs. A refusal by the
insured to permit the use of his name amounts to a breach of contract by way of
repudiation and specific performance should be available to the insurer. 154 Moreover,
the insurer will be entitled to claim damages or even rescind the insurance contract,
18.86 It should be borne in mind that where the insurer seeks to enforce its right of
subrogation, 156 which is a right it has against the insured, it will act in its own name.
That situation should not be confused with the one where the insurer, in the exercise
of that right, takes over control of proceedings against a third party to enforce the
18.87 Where the insurer is dominus litis, it has the discretion to decide whether or not
the insured’s claim against the third party should be enforced. 158 Should it decide to
proceed, it must not prejudice the position of the insured, for instance by not
enforcing the insured’s claim in full but recovering from the third party only what it
had paid the insured, 159 or by concluding an unreasonable settlement with the third
party. Any prejudice to the insured may result in the insurer being liable in damages
for breach of the insurance contract. 160
18.88 Should the dominus litis insurer decide against proceeding, it should allow the
insured to institute his action against the third party, should he wish, subject only to
the insured being obliged to account to it for such part of the recovery from the third
party that, together with the insurance payment, amounts to an over-compensation. 161
________________________
152 Ntlhabyane v Black Panther Trucking (Pty) Ltd, unreported (SGJ), (2010) 14 Juta’s Insurance L Bul 26.
154 Birds Birds’ Modern Insurance Law par 17.5, observing that should the insured refuse to allow his name to be
used, the insurer may, as an alternative to compelling it, bring proceedings against
the third party – presumably, by way of exception to the usual rule, in its own name (n 189) –
155 Ackerman v Loubser 1918 OPD 31 34 makes provision for damages only in such a case. However, it seems
that repudiation by the insured of this obligation justifies rescission by the insurer, with
the result that the insurer may avoid liability for the particular claim involved.
156 Eg, to compel the insured to consent to the use of his name, or to claim damages from the
insured for breach of his duties as regards the insurer’s right of subrogation.
157 Conceivably the two situations may coincide: the insurer may, eg, need to pursue the right
against the third party speedily in order to prevent prescription and also need to compel the
insured to consent to the use of his name. In such a case English law permits the insurer to
bring the action against the third party in his own name, joining the recalcitrant insured as a
159 This may prejudice the insured directly or indirectly: the former if the third party pays only that amount to the
insured and it, together with the insurance payment is still not enough to compensate the insured; the latter if the
third-party recovery together with the insurance payment
does over-compensate the insured, but he has been bypassed by the insurer receiving payment
directly from the third party and therefore not having to exercise a right of recourse against the
insured.
161 Eg, Ackerman v Loubser 1918 OPD 34. However, it is not always readily ascertainable from reported cases
who was in fact dominus litis and conducted the proceedings.
404
18.89 Should any of the requirements for subrogation not have been met, the
insured remains dominus litis. 162 This is likely to happen in most cases because of the
insurer’s payment under the insurance contract not having indemnified the insured
fully for all his losses. In consequence, 163 insurers usually incorporate clauses in their
insurance contracts entitling them to take charge of proceedings against third parties
even if their payment to the insured did not indemnify him fully and even if no
18
paragraphs
18.84–18.92
Right of recourse
18.90 Provided the requirements for subrogation have been met, the insurer has a
right of recourse165 against the insured if the insured has received a benefit from a
third party in respect or in reduction of the loss. 166 This right is a personal right
against the insured to account for the proceeds of a third-party recovery. 167 It does not
matter whether the third party made a voluntary payment, or only paid after
proceedings had been instituted against him by the insured or by the insurer acting
as dominus litis.
18.91 As explained earlier, 168 this right of recourse is limited to the amount by which
the insured, having received payment from the insurer under the insurance contracts
18.92 In one, probably rare, situation, there is a further limitation: the insurer may
not recover from the insured more than it had paid him out. Thus, if the insured
receives more from the third party in respect of his loss than what the insurer had
paid him, 169 such balance, surplus, or “windfall” logically belongs to the insured. 170
________________________
162 Cf Visser v Incorporated General Insurances Ltd 1994 (1) SA 472 (T) 476.
163 And also because of two further reasons. First, it is uncertain whether the insured, while still dominus litis, is
obliged to commence proceedings to protect the insurer’s interest. Secondly,
the insurer cannot prevent the insured from proceeding while he remains dominus litis, as long
as he undertakes to claim compensation for the full amount of his loss and not merely for the
165 If the requirements have not been met (eg, if there has not yet been payment under the
insurance contract), subrogation does not arise, but the insurer will be able to take account of
such indemnification aliunde to reduce or even extinguish its liability under the insurance con-
166 Ackerman v Loubser 1918 OPD 31 34; Chi v Lodi 1949 (2) SA 507 (T); 1956 (1) SA 738 (C); Van Dyk v
Cordier 1965 (3) SA 723 (O); Jonnes v Anglo-African Shipping Co (1936) Ltd 1972 (2) SA 827
(A) 838; Avex Air (Pty) Ltd v Borough of Vryheid 1973 (1) SA 617 (A); Schoonwinkel v Galatides 1974
167 And not, as is now the position in English law, a real right (an “equitable proprietary claim or charge”) on
those proceeds: see Lawsa Vol 12 Part 2 par 62 n 18.
169 Eg, because of currency fluctuations or inflation, or simply because the (legal) compensation recoverable from
the third party is calculated differently from the (contractual) indemnification recoverable from the insurer.
170 Logically because the insurer cannot claim more from the insured by way of its enrichment-
based right of recourse than the amount by which the insured has been enriched (which he
has) at the insurer’s expense (which he has not). This is also confirmed by the effect of such a sur-
plus recovery where there is no subrogation but where it is a case of indemnification aliunde
(see again 16.160–16.167). The insurer’s liability under the insurance contract can only be ex-
tinguished (and no more), on the basis that the insured suffered no loss; not having paid in
terms of the insurance contract, it is not entitled to claim any part of the third-party recovery
405
This limitation may be excluded by an agreement between the parties allocating the
18.93 After payment has been received from a third party, a process of settlement
between the insurer and the insured must take place, according to the rules of
insured, 173 the insurer has its subrogation-related right of recourse and the insured is
contractually174 bound to repay the insurer all or part of the amount the insurer had
18.95 Conversely where the proceeds of the insured’s rights against third parties are
lawfully in the hands of the insurer, 175 the insurer may be contractually bound176 to pay to the insured from the
recovery obtained from the third party an amount that
will result in the insured being compensated fully or as fully as is possible given the
Insured’s duties
18.96 The insured is under a general duty not to prejudice the insurer’s right of
subrogation, both as regards proceedings against the third party and as regards the
insurer’s right of recourse. This duty has several aspects, including the insured’s
________________________
171 See generally Clarke et al Contracts par 31.5B; Merkin et al Colinvaux par 11.017 who argue that a windfall
in the form of interest is “immaterial” and accrues to the insurer and the insured, to
be apportioned between them in relations to their respective interests in the recovery; Birds
173 Ordinarily, if proceedings are conducted in the name of the insured, judgment against the
third party is given in favour of the insured. Consequently, the judgment debtor must pay the
debt to the insured, with the result that the insured will ordinarily be the receiver of the pro-
ceeds. Payment to the insurer, even if dominus litis, will not satisfy the judgment debt. See again
18.81.
174 Assuming that this aspect of subrogation – the insurer’s right of recourse – is a naturale of an insurance
contract: see again 18.25. Otherwise, the insured’s obligation will be based on the
175 Eg, the insured may – either in an express subrogation clause or as part of the parties’ settlement agreement –
have authorised the insurer to receive payment from the third party on his
behalf, or the right of action may have been ceded to the insurer. In such a case, of course, no
176 Assuming that such a duty on the insurer and corresponding right for the insured have been
agreement: see again 18.136. As there is no question of the insurer’s right of recourse in this
case, it is irrelevant whether that right is a naturale of an insurance contract. At issue here is the
insured’s right of recourse. Should the insurer have received payment because it proceeded
against the third party in its own name by virtue of its right of subrogation, as was permitted in
Rand Mutual Assurance Co Ltd v Road Accident Fund 2008 (6) SA 511 (SCA), the insured’s right of
recourse may, again, be founded on some implied aspect of that doctrine. It seems that in Eng-
lish law, should the insurer receive from the third party an amount in excess of what it had paid
the insured, “then the insurers hold that surplus on trust for the insured”: Lowry et al Doctrines
368.
406
18.97 Although the insurer’s right to subrogation becomes enforceable only after the
relevant requirements have been met, that right vests upon conclusion of the
insurance contract and remains contingent or dormant until, say, the insured has
been fully indemnified. 178 Nevertheless, the insured must respect this dormant right
and refrain from acting in a manner that will prejudice any interest the insurer may
18
18.98 As far as the conduct of proceedings is concerned, it seems unlikely that the
paragraphs
insured, while still dominus litis and absent any initiative by the insurer, is obliged to 18.92–18.101
take any positive steps to commence proceedings to protect the insurer’s interest in
the outcome, for example to interrupt prescription or to prevent the third party for
18.99 However, where the insured does proceed, he is under a duty to do so for the
benefit of the insurer as well and not, for instance, to claim only compensation for his
uninsured losses. Thus, where the insured recovers only his uninsured losses (eg, his
excess) from the third party, a subsequent claim by the insurer exercising its right of
subrogation will be barred on the ground that a splitting of the insured’s claim
18.100 Also, unless there is an express term to the effect of the insurer being entitled
to debar such conduct, the insurer cannot prevent the insured from proceeding
against the third party while he remains dominus litis, as long as he undertakes to
claim compensation for the full amount of his loss and not merely for the uninsured
part should the insurer so require. 183 That is so even should the insurer wish or be
obliged, as against the third party or his insurer, not to proceed. 184
insured to take all necessary steps to protect the insurer’s rights. 185
________________________
178 But cf the rather curious observation in Merkin et al Colinvaux par 11.008 that after payment by the insurer of
all that is due under the contract but where the insured is not yet fully indemnified, “the insurer may commence
subrogation proceedings” in the insured’s name by insisting
that the insured lends his name to the insurer, “although the insured retains the right to con-
179 Cf Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 1147 (SCA) where the court decided that
factors influencing the insurer’s prospective right of subrogation have to be disclosed by the insured upon
concluding the insurance contract.
180 See Merkin et al Colinvaux par 11.008 for decisions proceeding on the assumption that the insurer does, prior
to having acquired an enforceable right of subrogation and as from the
conclusion of the insurance contract, have a limited and contingent albeit rather limited right
to ensure that its future subrogation rights are not prejudiced by the insured’s conduct. This
means that the insurer does not have to pay a full indemnity in order to have its right under the
181 Cf Clarke et al Contracts par 31.6A (one of the reasons for taking out insurance is to avoid the need to litigate
against a potentially liable third party); Merkin et al Colinvaux par 11.009. The
provisions of the standard subrogation clause usually entitle the insurer to become dominus litis
before payment of a full indemnity or even before any payment at all, so that this problem is
183 Clarke et al Contracts par 31.6B2; Merkin et al Colinvaux pars 11.010 (who discuss the possibility that the
position may be otherwise if the insured’s insistence on proceeding is unreasonable,
reckless, or in bad faith), 11.014, and 11.015 (pointing out that should the insured proceed on-
ly for his uninsured loss, “the principle that a cause of action may not be litigated twice” and
the plea of res iudicata will bar a subsequent action in the insured’s name for the balance).
407
18.102 Even after the insurer has become entitled to exercise its right of subrogation
and has become dominus litis, the insured is still obliged to co-operate and assist the
insurer, 186 for instance by allowing the insurer to litigate in his name.
18.103 Should the insured release the third party from liability after the occurrence
of the loss but before he has received a full indemnity from the insurer, 187 something
he may validly and effectively do188 at any time given that the right of action remains
vested in him, 189 his conduct may amount to breach of – an implied term in – the
insurance contract. 190 The same applies to a bad-faith settlement after he has received
a full indemnity and the insurer has become dominus litis. Indeed, any settlement by
the insured of his claim against the third party must take account of and protect the
insurer’s interests. 191 Should the insured therefore act in bad faith or unreasonably –
for instance in collusion with the third party – after the occurrence of the loss, such
conduct may constitute breach of his contract with the insurer and entitle the latter
to claim damages. 192 There may be a suretyship analogy in this case. 193
18.104 The insurance contract may contain an express provision prohibiting the
insured from negotiating with or in any way compromising his rights against third
parties.
18.105 It is not clear whether the insurer’s conditional right to subrogation entails a
duty for the insured prior to any loss not to act in such a way that the potential
liability of third parties to pay compensation for any loss of or damage to the object of
187 Eg, where, at the scene of the accident, the insured tells the third party that because he is insured, he will not
claim compensation from him. Cf Marx v Hunze, unreported (Namibia
HC), (2007) 10 Juta’s Insurance L Bul 176 (insured and third party entering into an oral agree-
ment the day after their accident that the third party would pay the insured his excess; held, it
was not proved that that agreement amounted to a full and final settlement of the insured’s
189 Merkin et al Colinvaux par 11.006, pointing out that the right to control proceedings carries with it the right to
reach a good-faith settlement with the third party for an amount less than
the full extent of the latter’s liability for the insured’s loss. This applies to both the insured and
190 See Birds Birds’ Modern Insurance Law par 17.8, who is critical of this “harsh” consequence for
“an innocent insured not aware of the intricacies of subrogation and tort actions” who may
“quite reasonably” release the third party; Lowry et al Doctrines 359 explain that a good-faith set-
tlement may merely mean “that if there is no collusion between the insured and the wrongdoer
and, in the circumstances, the settlement is reasonable, the insurers may find it difficult to show
191 Cf Visser v Incorporated General Insurances Ltd 1994 (1) SA 472 (T) where the insured, who was still
dominus litis, concluded a settlement with the third party in terms of which the insured was
compensated for the uninsured part of his total loss. However, the settlement was subject to the
insurer’s right to recover what it had paid the insured. The insured’s conduct was found not to
have been in breach of the insurance contract; Merkin et al Colinvaux par 11.042 (a settlement
reached between an insured who is not fully insured and the third party “is presumed to relate
192 Clarke et al Contracts par 31.6C2 (the insured’s “settlement does not prejudice the insurer, provided that the
settlement is indeed bona fide”); Merkin et al Colinvaux pars 11.008, 11.042.
193 Cf, eg, Bock v Duburoro Investments (Pty) Ltd 2004 (2) SA 242 (SCA) (involving the release of a surety
prejudiced by the conduct of the creditor in breach of his legal duty in dealing with the
principal debtor).
194 Eg, where the insured contracts for the carriage of insured goods on terms excluding or
limiting the carrier’s liability in respect of those goods (often by virtue of a so-called “benefit of
insurance” clause); or where the insured lends his insured vehicle to a friend on condition that
the latter will not incur any liability in respect of it. See further Merkin et al Colinvaux par
( continued)
408
18.106 It seems more certain, though, that if the potential right against the third
party has already been excluded or limited before the conclusion of the insurance
contract, there can be no question of any duty on the part of the insured as regards,
or prejudice of, the insurer’s – at that stage non-existent or not yet existing – right of
subrogation. 195 However, in appropriate cases the insurer may be able to avoid the
insurance contract for the insured’s failure to disclose that fact. 196
18
paragraphs
Insurer’s duties
18.102–18.109
18.107 The insurer who has become dominus litis is obliged not to conduct
proceedings against the third party in such a way as to prejudice the insured, for
instance by not enforcing the insured’s claim in full197 but recovering only what it had
paid out. 198 Again, the right to control proceedings entails the right to reach a good-
18.108 It may be that a dominus litis insurer has acquired the authority to enter into a
compromise or release with the third party that is binding on the insured. But it is
the duty of an insurer then not to prejudice the position of the insured, for example
by an unfavourable settlement.
18.109 The insurer itself may have agreed with third parties200 or their insurers201 not to exercise its right of
subrogation and to enforce the insured’s claim against such
agreements”, 202 the insurer can only give effect to them when it has become dominus
litis, and even then the insured should not be prejudiced, for instance by not being
________________________
11.041, pointing out that it is arguable that there is in such a case merely an increase in risk
195 Cf Commercial Union Assurance Co of SA Ltd v Golden Era Printers and Stationers (Bophuthatswana) (Pty)
Ltd 1998 (2) SA 718 (B) where the contract of lease excluded the lessor’s right of recourse
against the lessee. However, the contract of lease was concluded not only prior to the loss but
196 Cf Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 147 (SCA). See further Merkin et al
Colinvaux par 11.041, arguing that the duty is limited in so far as the insurer may be deemed
to be aware of exclusions or limitations that are common or standard-form in the trade relevant
to the risks insured (eg, carriage risks) and because “facts which diminish the insurer’s rights of
subrogation and salvage are prima facie immaterial and are required to be disclosed only where
197 Including, eg, the insured’s excess which the (insurer acting in the name of the) insured is entitled to recover
from the third party: cf, eg, CGU Insurance of Zimbabwe Ltd v Chiduka, unreported (ZHC), (2007) 10 Juta’s
Insurance L Bul 106; Botswana Insurance Co Ltd v Mazwi, unre-
ported (Botswana HC), (2007) 10 Juta’s Insurance L Bul 171; SBV Services Ltd v Kogana,
198 However, doing that may, at least in theory, not necessarily disadvantage the insured, given his right, as
against the insurer, to be fully indemnified before the insurer becomes entitled to any
200 Merkin et al Colinvaux pars 11.038–11.039; Birds Birds’ Modern Insurance Law par 17.15.
201 Eg, knock-for-knock agreements that were at one time operational in the motor-vehicle
insurance business between the insurer and the third party’s (liability) insurer and in terms of
which each had to bear its own insured’s loss: see further Merkin et al Colinvaux par 11.013.
202 Incorrectly because an agreement in which it waives its subrogation rights can only be entered into between
the insurer and the insured. As to the exclusion of subrogation by agreement between the insurer and the insured,
see further 18.140–18.142.
409
18.110 The insurer may also agree with the insured that it will not enforce its
subrogation rights and proceed against certain third parties, either generally or to
the extent that the third party does not have liability cover. 203
18.111 Since the insurer merely represents the insured in proceedings against third
parties and acts in the insured’s name, any costs awarded in favour of the third party
who defends the claim are recoverable by such third party from the insured and not
from the insurer. For this reason the insured may demand a proper indemnity
against costs before allowing the insurer the use of his name in proceedings against
the third party. Ultimately, though, the irrecoverable costs incurred in conducting
proceedings against the third party as well as costs awarded to the latter, like the
compensation and costs recovered from him, may be shared proportionally between
the insurer and the insured in the proportion in which they shared or would have
18.112 The doctrine of subrogation affords the third party no additional defences
against the insured’s claim, nor does it take away any of the defences he would have
had if there had been no subrogation at all. That is because subrogation, and all its
concomitant features, are exclusively matters between the insurer and the insured;
subrogation does not involve any transfer of the insured’s rights against the third
party. 205
18.113 However, this seemingly simple statement is often not borne in mind when an
insured brings a claim against a third party and the court is alerted to the fact that in
reality a subrogating insurer lurks, or may lurk, behind the insured. The position is
further exacerbated by loose terminology: the claim against the third party, when
“subrogation claim” or “subrogation proceedings”, giving rise to the notion that the
third party is in some way involved in the issue of subrogation: he is not. 206
18.114 It is trite that any payment the insured received from his insurer for a loss
is res inter alios acta as far as the third party is concerned; it is a collateral benefit that
does not reduce or extinguish the third party defendant’s liability towards the
18.115 But an insurance payment is but one – the most pertinent, frequently
occurring – aspect of the plaintiff’s insurance. Related aspects are likewise irrelevant
________________________
204 See further as to costs Clarke et al Contracts pars 31.4D–13.4F, 31.6B1, 31.6B3; Merkin et al Colinvaux pars
11.022–11.023.
206 The terms “subrogation claim” or “subrogation proceedings” strictly refer to a subrogation-
related claim or proceedings between the insurer and its insured, say when the insurer seeks to
compel the insured to consent to the use of his name in proceedings against the third party, or
410
and do not concern the third party at all, nor do they provide him with any
18.116 These aspects include: that the plaintiff is insured; that an insurance payment
may be made to him; that having paid him, his insurer may, or may not, exercise a
right of subrogation; that the insurer may, or may not, be entitled to exercise any
such right; that the plaintiff’s claim, in his name, against the third party is for the
18
benefit, or under the control, of the insurer; that the insurer will, or will not, exercise
paragraphs
a right of recourse against the insured plaintiff and, consequently, that the latter may 18.110–18.119
be overcompensated.
18.117 The third party retains all the defences he has against a claim by the plaintiff
if the latter were not insured and there were no insurer or potential insurer behind
the scenes. Thus, the third-party defendant may raise contributory negligence, or a
limitation or exclusion of his liability in terms of a contract between them, when sued
subrogation between the latter and his insurer and, thus, irrespective of whether the
insured’s claim is being brought by the insured himself or his dominus litis insurer. 209
18.118 In this regard, though, the existence of the plaintiff’s insurance, or even just
the availability of insurance for him, may be a factor to be taken into account in
18.119 There are numerous decisions in which insurance played a role in the
imposition of civil liability. 211 Its relevance is often seen when determining policy-
related issues, such as whether the third-party’s conduct was unlawful so as to render
contract between the third party and the insured in determining whether the parties
intended the insured’s cover also to enure to and thus to exclude the liability of the
________________________
208 But cf, eg, Rayi NO v Road Accident Fund, unreported (WCC) (2011) 14 Juta’s Insurance L Bul 20,
considering such aspects relevant in assessing the third party’s liability.
209 Commercial Union Assurance Co of SA Ltd v Golden Era Printers and Stationers (Bophuthatswana) (Pty) Ltd
1998 (2) SA 165 (B).
210 By the same token, the existence or availability of liability insurance for the defendant may likewise be a
factor, as may the relative cost of insurance cover, or arrangements between the
211 See generally Van Niekerk 1999 SA Merc LJ 514; Spier 2002 SA Merc LJ 462.
212 On the relevance of the ability to obtain insurance on the imposition of delictual liability (often for pure
economic loss): Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A);
KwaMashu Bakery Ltd v Standard Bank of SA Ltd 1995 (1) SA 377 (D); Jowell v Bramwell-Jones 1998
(1) SA 836 (W); ABSA Bank Ltd v Fouche 2003 (1) SA 176 (SCA); Fourway Haulage SA (Pty) Ltd v
SA National Roads Agency Ltd [2009] 1 All SA 525 (SCA); 2009 (2) SA 150 (SCA); Viv’s Tippers
(Edms) Bpk v Pha Pharma Staff Services (Edms) Bpk h/a Pha Pharma Security 2010 (4) SA 455 (SCA).
213 On the relevance of the ability to obtain insurance on the interpretation of contractual exemption clauses:
Government of the Republic of South Africa (Department of Industries) v Fibre Spinners and
Weavers (Pty) Ltd 1977 (2) SA 324 (D); Government of the Republic of South Africa (Department of In-
dustries) v Fibre Spinners and Weavers (Pty) Ltd 1978 (2) SA 794 (A); Transport and Crane Hire (Pvt)
Ltd v Hubert Davies and Co (Pvt) Ltd 1991 (4) SA 150 (ZSC); Goodman Brothers (Pty) Ltd v Rennies
Group Ltd 1997 (4) NSA 91 (W); Hotels, Inns and Resorts SA v Underwriters at Lloyds 1998 (4) SA
147 (SCA); Durban’s Water Wonderland (Pty) Ltd v Botha 1997 (3) SA 245 (N), Durban’s Water
Wonderland (Pty) Ltd v Botha 1999 (1) SA 982 (SCA); DS Yates t/a Double Y Charters v Coin Security
Group (Pty) Ltd, unreported (T), (1999) 2 Juta’s Insurance L Bul 134; First National Bank of Southern Africa Ltd v
Rosenblum 2001 (4) SA 189 (SCA); Drifters Adventure Tours CC v Hircock 2007 (2)
( continued)
411
liabilities under that contract in the event of the loss of or damage to that object.
18.121 Thus, where a lease imposes an obligation on the lessor to insure the leased
property and provides that any increase in insurance premiums will result in an
increase in the rental, it has been held that the contract prima facie excluded an
action for damages by the lessor214 against the lessee for loss or damage to the
property as the insurance would be intended to enure to the benefit of both parties215
18.122 Similar questions may arise in connection with a range of other types of
contractor and a third-party subcontractor, the latter was to be a joint insured under
employer’s insurance policy, the insured, or a subrogating insurer in its name, had
18.123 In the instances just mentioned, the third party’s defence arises from the civil
obligation (contract) between himself and the insured; it is a direct defence that may
be raised against a claim by (the insurer in the name of) the insured.
________________________
SA 83 (SCA); Masstores (Pty) Ltd v Murray and Roberts Construction (Pty) Ltd [2009] 1 All SA 146
(SCA); Page v First National Bank 2009 (4) SA 484 (E); Swinburne v Newbee Investments (Pty) Ltd
215 Commercial Union Assurance Co of SA Ltd v Golden Era Printers and Stationers (Bophuthatswana) (Pty) Ltd
1998 (2) SA 718 (B). Cf also DS Yates t/a Double Y Charters v Coin Security Group (Pty) Ltd, unreported (T),
(1999) 2 Juta’s Insurance L Bul 134 (effect on exemption of lessee from liability
for loss or damage by lessor’s obligation to insure and by lessee’s responsibility for deductible);
Fir and Ash Investments (Pty) Ltd v Cronje 2008 (1) SA 556 (C) (no inference of tacit terms in
lease that lessor obliged to insure leased premises, and that such insurance would be for benefit
of both lessor and lessee); Mutual Construction Co (Tvl) (Pty) Ltd v Komati Dam Joint Venture 2009
(1) SA 464 (SCA) (relevance of indemnity clause in lease); Firstrand Bank Ltd t/a Fiat Finance v
Smith, unreported (T), (2009) 12 Juta’s Insurance L Bul 136 (insurance arrangement not incor-
porated into or referred to in lease); G and C Shelf 103 (Pty) Ltd v Chemical Specialities (Pty) Ltd
2012 (4) SA 335 (KZD) (insurance payment received by plaintiff lessor not deductible collat-
eral benefit as far as defendant lessee is concerned where payment received in consequence of
insurance taken out in name of lessor and paid for by defendant lessee as obliged to do in
216 The insurance arrangement between the third party and the insured that excludes the former’s liability towards
the latter may, but does not necessarily, mean that in terms of the insurance
that is concluded they are co-insured. As to subrogation rights against a co-insured, see 18.39–
18.43.
217 See, eg, Zimoplast Industries CC v Vanguard Rigging (Pty) Ltd, unreported (T), (2006) 9 Juta’s Insurance L
Bul 29 (relevance in contract of carriage of insurance arrangement as to goods to be
carried and of carrier’s insurance of goods at expense of customer); Imperial Group (Pty) Ltd v
NCS Resins (Pty) Ltd [2007] 2 All SA 483 (SCA) (whether obligation to insure against fire in
warehousing contract gave rise to inference that risk of and liability for loss lay with party
obliged to insure); CDK Sekuriteit CC v Cookhouse Service Station CC, unreported (E), (2008) 11
Juta’s Insurance L Bul 226 (whether express, implied, or tacit term in cash-in-transit agreement
as to insurance cover to be taken out by security company for benefit of and to indemnify client
412
18.124 There are also other distinguishable instances219 where the third party may
have a defence. They include the case where the third party is a co-insured in the
plaintiff’s insurance contract220 or where the insurer intended to discharge the debt
of the third party by paying the insured an indemnity. 221 In these instances, where the
third party will have to prove the required intention on the part of the insurer, the
third party’s “defence” arises from the (insurance) contract between himself and the
18
paragraphs
insurer in the name of) the insured, but will take the form of a neutralising
18.120–18.127
“counterclaim” against the insurer (acting against the third party in the name of the
insured).
18.125 The third party may also raise as a defence against a claim by (or in the name
of) the insured any settlement or release by the insured plaintiff, whether before222 or
after223 the loss, and irrespective of whether, as between the insured and his insurer,
such a settlement or release may have been authorised or valid in terms of their
insurance contract. The reason is simply that the insured’s claim against a third party
subrogating insurer. It has been suggested that where an insurer has indemnified its
insured, and the latter is consequently no longer dominus litis, the insurer is not
bound by a settlement or release by the insured if the third party had knowledge of
18.126 The third-party defendant may be able to rely on an agreement with the
plaintiff’s insurer that the latter will not use the insured’s name to claim from him, or
releases him from liability, 225 or may even in appropriate circumstances, on basis of
stipulation to that effect in his favour, be able to rely on an agreement between the
18.127 Other defences that remain available to the third party when sued by – or in
the name of – the insured include227 a lack of locus standi on the part of the insured; 228
________________________
219 But potentially overlapping instances: the contract between the insured and the third party may both impose an
obligation on one of them to insure and so be taken to exclude the liability of
the one to the other, and have resulted in the insured and the third party being co-insured in
220 See again 18.39–18.43. In Croce v Croce 1940 TPD 250, eg, the insured plaintiff claimed damages from the
third-party defendant who negligently caused his damage. The action was really
brought for the benefit of the dominus litis insurer. The third party was in fact also covered by
the plaintiff’s policy by virtue of an extension clause in it. The court decided that the defendant
could raise the defence that, because of the terms of the contract between the plaintiff and his
221 Cf, eg, Ackerman v Loubser 1918 OPD 31 33; Teper v McGees Motors (Pty) Ltd 1956 (1) SA 738 (C) 742B;
Van Dyk v Cordier 1965 (3) SA 723 (O) 725B.
222 Eg, in a contract (of say, lease or carriage) between the third party and the insured.
223 Eg, in a settlement agreement between the third party and the insured.
224 Clarke et al Contracts par 31.6C1. Contra Merkin et al Colinvaux par 11.043 who argue that that will be the
case only if there had been a transfer of the insured’s right to the insurer, which
225 The more so where the insurer has the authority to enter into a compromise or release with the third party on
behalf of the insurer.
228 Cf Raqa v Hofman 2010 (1) SA 302 (WCC) (absent any locus standi on the part of the insured to claim
delictual damages, there is no possibility of the insurer in the exercise of its right of subrogation enforcing a claim
in the insured’s name against the third party). It is submitted,
though, that the plaintiff’s insurance is irrelevant in determining his locus standi; put different-
ly, the fact that the plaintiff may have an interest sufficient to support insurance (an insurable
interest) is not necessarily sufficient an interest to grant him locus standi; the existence of a right
( continued)
413
the prescription of the insured’s claim; 229 an arbitration or choice of law230 or choice of jurisdiction clause in his
agreement with the insured; and res iudicata or an
impermissible splitting of claims when part of the compensation due to the insured
proceedings. 231
18.128 The extent of the third party’s liability to compensate the insured is not
affected by the basis upon which the insurer indemnified or will indemnify the
insured in terms of the insurance contract. Hence, the fact that such indemnification
replacement value, 233 can in no way increase the third party’s liability. 234
18.129 Likewise, any counterclaims the third party may have against the insured
remain valid.
18.131 To a large extent subrogation clauses are merely declaratory of the common
law. In some respects, though, they do add to the rights of the insurer. 236 The scope of
18.132 First, the main purpose of a subrogation clause is to dispense with the
requirement, which is based on an implied term and thus capable of being done away
________________________
of subrogation against the insured does not necessarily confer a right of action on the insured
against the third party. See Paveley v Davidson, unreported (T), (2002) 5 Juta’s Insurance L Bul
115; Fourie v Ince, unreported (T), (2007) 10 Juta’s Insurance L Bul 116 (relevance, for locus standi of plaintiff to
claim for damage to insured motor vehicle, of fact that plaintiff, although not
owner, bore all risk in it and of fact that plaintiff had insured vehicle in own name, that his in-
surer had indemnified him, and that the action was being brought by a subrogated insurer in
plaintiff’s name); Van der Walt v Bosman, unreported (SEC), (2011) 14 Juta’s Insurance L Bul 17
229 Prescription begins to run not from when the insurer indemnified the insured, but from when the third party’s
debt towards the insured became due: Clarke et al Contracts par 31.5A3.
230 In this case the proper law of the insurance contract, even if determined by a choice of law clause in it, is not
relevant.
231 Avex Air (Pty) Ltd v Borough of Vryheid 1973 (1) SA 617 (A) 625H; Clarke et al Contracts par 31.5A4,
pointing out, eg, that property damage and personal injury arising from a single motor-vehicle accident may give
rise to different causes of action, and that the earlier proceedings
may specifically have been settled on the basis that a further recovery in respect of uncompen-
232 See again 4.18–4.24, 16.141–16.147, Lawsa Vol 12 Patrt 2 par 300.
234 See Wansink et al Assers par [577] for this point. Put differently, the subrogating insurer does not recover from
the third party what the insured is entitled to under the insurance contract
and what it had paid the insured, but what the insured is entitled to from the third party.
236 See generally Clarke et al Contracts par 31.2C; Merkin et al Colinvaux par 11.002; Birds Birds’
414
with by means of an express term, 237 that the insured must first be indemnified in full
before subrogation becomes fully operative and the insurer becomes dominus litis and
entitled to enforce the insured’s right against the third party. The measure is
common law. It empowers, but does not oblige, the insurer to conduct proceedings
in the name of the insured against a third party for the recovery of compensation for
the insured’s loss, irrespective of whether or not the insured has already been
18
paragraphs
indemnified fully238 and even before any payment has been made to the insured. 239 If 18.127–18.137
it were not for this type of clause, insurers would have been able to take charge of
18.133 It may be submitted that while a subrogation clause may entitle the insurer to
exercise its right of subrogation whether or not it had fully indemnified the insured,
that alone does not, in the absence of a clear indication to that effect, entitle the
insurer to proceed against the third party in its own name. 241
18.134 Secondly, such clauses put the authority of a dominus litis insurer to deal with
a claim against the third party, for instance by settling it, beyond doubt. 242 However,
this should not entitle the insurer to act otherwise than reasonably as regards any
18.135 Thirdly, a subrogation clause usually makes it clear that the insurer can
expect the insured to co-operate in the enforcement of his rights against third
parties, and even to take active steps in instances where the insurer would not have
been able to so require at common law. 243 If appropriately worded, the clause may be
of assistance to the insurer in requiring that the insured consent to the use of his
18.136 Fourthly, a subrogation clause may be worded in such a way that it authorises
the insurer to receive payment directly from the third party, thus obviating the need
for it to exercise its right of recourse against the insured. In this way the insurer can
protect itself against a loss of the third-party proceeds, or that portion of it to which it
is entitled, that may occur should payment be made to the insured and the latter
becomes insolvent or no longer has it when the insurer seeks to recover it. 244
18.137 Fifthly, a subrogation clause may specifically provide that the insurer, and not
the insured as at common law, will be entitled to any surplus that may be recovered
________________________
238 See, eg, Caplan v Saycell 1931 (1) PH A45 (C); Ackerman v Loubser 1918 OPD 31; Teper v McGees Motors
(Pty) Ltd 1956 (1) SA 738 (C) 742H. In Manley van Niekerk (Pty) Ltd (now Video Sound Studios (Pty) Ltd v
Assegai Safaris and Film Productions (Pty) Ltd 1977 (2) SA 416 (A) 420D the clause
provided as follows: “The company shall be entitled if it so desires . . . to prosecute in the name
of the insured at its own expense and for its own benefit any claim for . . . damages . . . against
any persons and shall have full discretion in the conduct of any proceedings . . . and the in-
sured shall give all such information and assistance as the company may require.” See further
239 Quaere, whether the insurer is entitled to rely on the aspect of the subrogation clause before it had admitted
liability for (part of) the insured’s loss.
240 Thus, in all the following cases it is evident that the insured had not received a full indemnity from the insurer:
Chi v Lodi 1949 (2) SA 507 (T); Quick v Goldwasser 1956 (2) SA 525 (SR);
Primich v Additional Magistrate, Johannesburg 1967 (3) SA 661 (T); Avex Air (Pty) Ltd v Borough of
Vryheid 1973 (1) SA 617 (A); Schoonwinkel v Galatides 1974 (4) SA 388 (T).
241 Cf Botswana Insurance Co Ltd v Mazwi, unreported (Botswana HC), (2007) 10 Juta’s Insurance L
Bul 171.
242 As to the insurer’s right to conduct proceedings against the third party, see 18.74–18.89.
415
18.139 Finally, subrogation clauses sometimes assist insurers in yet another way,
claim brought by a third party against the insured. 246 In this respect, though, the
clause is not concerned with subrogation in the true sense of the word, the
enforcement of the insured’s claim against the third party and the proceeds of that
claim. The issue seems to be treated in connection with subrogation only because the
insurer’s entitlement to control proceedings and the insured’s duty to co-operate are
18.140 The insurance contract may also contain an agreement between the insurer
and the insured that the former will not exercise its rights of subrogation in
18.141 If the intention is to benefit third parties or specific classes of third party, the
measure is acceptable. Should a claim be brought against the third party, he may, on
the basis that it amounts to a stipulation in his favour in the insurance contract, be
able to raise the insurer’s subrogation waiver as a defence. 248 In consequence, the
18.142 However, if the subrogation exclusion purports to benefit not the third party
but only the insured, namely by allowing the insured who has been indemnified by
his insurer to retain the proceeds of his claim against a third party, 249 the clause may
be objectionable. 250
Introduction
18.143 Closely related to the insurer’s right to subrogation is its right to salvage. Both
are aimed at preserving the indemnity principle between the insurer and the insured
and in preventing the insured from obtaining more than an indemnity for his loss at
________________________
246 Cf United Plant Hire (Pty) Ltd v Hills 1976 (1) SA 717 (A). For liability insurance, see 25.24–
25.83.
247 As to so-called “subrogation waivers” between the insurer and third parties or their insurers, see 18.126.
248 See, eg, Richard Ellis SA (Pty) Ltd v Miller 1990 (1) SA 453 (T) where the insurance contract excluded
subrogation against a partner and employee of the insured. In this case the court
found that there was a tacit term in the employment contract to the effect that the insured em-
ployer would not be able to claim from the employee to the extent that the employer was cov-
249 In such a case the third party cannot rely on the waiver, but will remain liable against the insured.
250 Eg, where the effect of the clause is to enable the insured to receive and retain both the
insurance payment from the insurer and compensation paid by or obtained from the third par-
ty. A contract containing such a clause would be tantamount to a wagering agreement since the
parties’ intention is not to provide a mere indemnity but to allow the “insured” to profit from
the occurrence of the event “insured” against in cases where third-party compensation is recov-
erable.
416
the expense of the insurer. However, they differ as to their scope of application and
18.144 The insurer’s right to salvage arises in cases of total loss. There is a total loss
18
18.145 At law there is a total loss, first, if the object of risk (and with it the insured’s
paragraphs
interest in that object) is totally destroyed to such an extent and in such a way that 18.138–18.147
there is nothing at all, or at least nothing of any value, left of the object of risk.
Secondly, there is legally a total loss if the object of risk has been damaged or has
value, it is no longer an object of the type originally insured. Thirdly, there is a total
loss at law if, although the object of risk is either merely damaged or even totally
undamaged, the insured has been deprived of his possession of it for a reasonable
time and recovery is unlikely, improbable or at least uncertain. 252 That will ordinarily
be the case where the object has been stolen and its whereabouts is unknown. 253
18.146 Apart from total losses at law, a loss may also, as between the parties to the
insurance contract, be a total loss if both agree that that is the case. 254 Whether there
is such an agreement will depend on the facts of every case and on current insurance
practices. 255
251 See Merkin et al Colinvaux pars 10.001, 24.083, Clarke et al Contracts par 16.2. As to loss and abandonment
in the case of marine insurance: Lawsa Vol 12 Part 2 pars 291–295.
252 Eg, M Zahn Investments (Pty) Ltd v General Accident Insurance of SA Ltd 1981 (4) SA 143 (SEC) 148C
(“[m]odern business insurance demands that an insured, after having taken reasonable
steps to trace his missing property, and a reasonable time having elapsed . . . should be entitled
to allege a ‘loss’ for the purposes of a claim under his policy”). A mere temporary loss with the
highly probable prospect that the object will be returned to the insured in due course, is not a
“loss” of the object, but at most a loss of its use: see De Wet v Santam Bpk 1996 (2) SA 629 (A)
640–642; Mehlape v Minister of Safety and Security 1996 (4) SA 133 (W) 135E. On the other hand,
absolute certainty as to the irretrievability of the object of risk, if that is ever attainable while the
object is still in existence, is not required as that may postpone the final determination of the
insured’s position if not indefinitely then quite possibly until after the expiry of the period of
cover.
254 Eg, if the insured object of risk is so badly damaged that the insurer agrees to regard it as totally lost and to
pay the insured accordingly. Both parties must agree, though, and the insured may,
eg, wish to retain the damaged object, reject the insurer’s offer of payment of a full indemnity
255 A loss may generally be regarded as a total loss by insurers if, eg, the cost of repairing the damaged object at
risk exceeds a certain percentage of its value when repaired. Cf, eg, Blaauw v
Veenman, unreported (WCC), (2012) 15 Juta’s Insurance L Bul 109, where there was evidence to
the effect that the seriously damaged insured vehicle was “written off” by the insurer in accord-
ance with standard insurance practice; its salvage value was 18 per cent of its market value.
256 In which case the value of the remains of the object of risk (the “salvage”) must be taken into account in
determining the amount of the insured’s indemnity; cf, eg, Nel v Oestrich (1885) 6
NLR 165 (the proceeds of a salvage sale of the goods remaining after the fire had to be paid by
the insurer to the insured unless the salvage was taken over by the insurer); Simon v Equitable
Marine and Fire Insurance Co (1892) 9 SC 455 (the insured was entitled to recover the sum in-
sured less the nett amount realised by the salvaged goods); In re Aachen and Munich Insurance Co
(1908) 29 NLR 481 (a tender by the insurer to the insured of the amount of the indemnity in-
economic sense257 and which entitles the insured to abandon the object of risk or
what may remain of it and to claim from the insurer an indemnity for a total loss.
18.149 The insurer’s right to salvage is concerned with those instances where the
insurer has paid the insured for a total loss but where the object of risk, or a part of it,
18.150 Where an insurer has paid the insured for a total loss, 259 that is, depending on
the circumstance of the total loss, entitled as against the insured to the remains of the
object of risk or to the recovered object as a whole. This right is referred to as the
insurer’s right to salvage and the corresponding duty imposed on the insured is the
18.151 Thus, if the insured property is damaged and the insurer pays the insured out
for a total loss, the insurer is entitled to the remains of the object of risk. Likewise, if
the insured property is lost or stolen and the insurer pays out for a total loss, it is
recovered. Such subsequent finding and recovery of the object of risk does not
render the settlement of the claim in any way voidable or capable of being reopened
at the option of either party; “the insurer however [becomes] entitled to the
18.152 However, the finding and restoration of the object of risk to, or its recovery
by, the insured prior to the insurer accepting liability to pay for a total loss, 262 means
________________________
257 And which may, in the case of non-marine insurance, amount either merely to a partial loss or to no loss at all.
As to the position in marine insurance in so far as constructive or presumed total losses are concerned: Lawsa Vol
12 Part 2 par 295.
258 Merkin et al Colinvaux pars 11.021, 11.066–11.067; Clarke et al Contracts pars 28.5, 31.1.
duty to abandon the object of risk to the insurer, the insurer’s right to salvage is also referred to
as its right to the abandoned object of risk or its right to abandonment. In Kaltenbach v Macken-
zie (1878) 3 CPD 467 (CA) 470–471 the court, in an appeal from the English Common Pleas
Division, observed that “abandonment” (ie, the insurer’s right to salvage and the insured’s cor-
responding duty to abandon) is not peculiar to marine insurance but is part of every indemnity
contract, and in Dane v Mortgage Insurance Corp [1894] 1 QB 54 (CA) 61 the court observed that
salvage “is an incident of every kind of insurance which is held by law to be a contract of in-
demnity”. This right of the insurer, whether marine or non-marine, to salvage or abandonment
should be distinguished from the marine insured’s right, in appropriate circumstances, to aban-
don the object of risk and to claim for a total loss ( Lawsa Vol 12 Part 2 par 293). In such circum-
stances, the insurer, having paid for a total loss, likewise has the right to salvage (or to the
that the insured’s abandonment confers upon the insurer a right of salvage.
261 M Zahn Investments (Pty) Ltd v General Accident Insurance of SA Ltd 1981 (4) SA 143 (SEC) 148C.
262 The remark idem that “[t]he subsequent finding of [the] property does not defeat [the
insured’s] claim”, must be understood to refer to the case where the property is found or re-
263 There may be a partial loss if the object is recovered in a damaged condition.
264 Thus, in Holmes v Payne [1930] 2 KB 301 it was held that on payment for a total loss, the insurer takes the
lost object of risk as salvage and that it is, in the absence of an agreement between the
parties to that effect, not entitled to demand that the insured keep the object when it is again
found and repay the insurance payment. The court held that there could be no cancellation or
reopening of the settlement reached between the insurer and the insured, eg, on the basis that
418
18.153 As with the right to subrogation, 265 the right to salvage is a natural
of the principle of indemnity which will occur if the insured is permitted to claim and
receive payment for a total loss and also to retain the object of risk or its remains. 267
18.154 In this regard the insurer’s right to salvage is closely related to its right of
18
paragraphs
subrogation. 268 For instance, the requirements for the insurer to exercise its right to
salvage may be thought to be largely comparable to those for the exercise of its right 18.147–18.155
the totally lost object of risk; 270 and an existing right of ownership on the part of the
agreement between the insurer and the insured at the time of settlement, may alter
the insurer’s right to salvage at common law272 or confirm273 that right and the ________________________
266 Put differently, the right to salvage is a naturale of an indemnity insurance contract. The view in Mutual and
Federal Insurance v Minister of Safety and Security, unreported (NGP), (2010) 13 Juta’s
Insurance L Bul 102 that the right “flows from the agreement of loss” is only correct in the sense
that the parties’ settlement agreement after a loss may confirm or alter certain aspects of the
267 This is recognised in the English Marine Insurance Act, 1906 s 4(2)(b) which provides that a marine insurance
contract will be deemed to be a contract of gaming or wagering where the
policy is made “without benefit of salvage to the insurer”; however, if there is no possibility of
salvage, as in the case of an increased value marine policy, the policy may be effected on such
268 Salvage is often treated as an integral part of subrogation and the terms are often used interchangeably as
synonymous. See, eg, Clarke et al Contracts par 31.1 (juxtaposing the insured’s
obligation “to transfer to [the insurer] some asset, including rights of salvage in the remains of
the insured property, or to make available to [the insurer] some right against a third party, in-
cluding rights of action”). Both are treated together in the Marine Insurance Act, 1906 s 79(1)
where it is provided that in the case of payment for a total loss of the subject matter insured,
the insurer first “becomes entitled to take over the interest of the assured in whatever may re-
main of the subject-matter so paid for”, and is secondly “thereby subrogated to all the rights
and remedies of the assured in and in respect of that subject-matter”. See also s 63(1) where
the effect of an abandonment to the insurer is stated to entitle the insurer “to take over the in-
terest of the assured in whatever may remain of the subject-matter insured, and all proprietary
269 18.50–18.73.
270 Thus, there is no salvage in the case of under-insurance or where there is an excess; but cf Merkin et al
Colinvaux par 11.068, Clarke et al Contracts par 28.5 for the possibility that the insurer and the insured may
become co-owners where average applies. For under-insurance and
271 Thus, salvage arises only where the insured is also the owner of the object of risk and not where he merely has
a limited interest in it, eg, where it is a possessor.
272 Eg, it may be provided that the insurer may exercise its right to salvage prior to either payment or to full
indemnification (eg, the right to take possession of the property may be made a pre-condition of payment); or that
the insurer reserves the option to return recovered goods to the
insured and to claim a repayment of the payment for a total loss made to the insured; or that
the insurer declines to take over ownership of the object of risk, but agrees to sell the salvage
on behalf of the insured, the latter at the same time agreeing to cede to the insurer his right to
payment of the price obtained for the salvage. For the contractual extension and alteration of
273 The view expressed in Clarke et al Contracts par 31.1 that in the absence of an agreement, express or tacit,
between the insurer and the insured, much of the law relating to salvage is “obscure”, is arguably somewhat of an
overstatement.
419
insured’s corresponding duties. 274 The insurer may likewise decline to exercise its
18.156 Nevertheless, the right to salvage is distinguishable from the right of sub-
rogation in that the latter is the insurer’s right against the insured concerning the
latter’s personal (eg, delictual or contractual) rights against third parties, 276 whilst the
former is the insurer’s right against the insured concerning the latter’s real right of
ownership in the object of risk or in the remnants of the object of risk (the “salvage”).
18.157 Further, while subrogation finds application in cases of total and partial loss,
right to claim the transfer of ownership in the object of risk or its remains from the
insured and, consequently, the right to claim such property from third parties. 277 The
insurer will in both instances bring such a claim for its own benefit and in its own
18.159 The exercise by an insurer of its right to salvage does not exclude or render
18.160 The exact way in which ownership is transferred in cases where the insurer
________________________
274 It may, eg, be provided that the insured is under a duty not to act to the detriment, but to assist with the
enforcement, of the insurer’s right to salvage. Thus, the insured may be required to
identify recovered property, or to assist the insurer in obtaining it from a third-party possessor,
or to allow the insurer access to the property if it is still in the insured’s possession.
275 Eg, where ownership of the object of risk involves uneconomical liabilities or costs.
277 Eg, Santam Bpk v Potgieter 1997 (3) SA 415 (O) 423F (observing that after the occurrence of the event
insured against – and the payment for a total loss – the insurer’s rights entail that it is entitled to take possession of
the insured property or to claim that it be delivered up to it); Out-
surance Insurance Co Ltd v Brabant Panel Beaters CC, unreported (T), (2007) 10 Juta’s Insurance L
Bul 75 (on payment for a total loss of the insured object, the insurer becomes owner and enti-
tled to bring a vindicatory action against a third party); Walker v Santam Ltd 2009 (6) SA 225
(SCA) (referring to the insurer’s right of salvage to any valuable remains of the object of risk
on the payment for its total loss and the corresponding duty on the insured to surrender such
remains); Mutual and Federal Insurance and Another v Minister of Safety and Security, unreported
(NGP), (2010) 13 Juta’s Insurance L Bul 102 (“the insurer’s right to salvage against the insured
entails a right to claim the transfer of ownership in the object of risk or its remains from the in-
sured and, consequently, the right to claim such property from third parties”); Hollard Insurance
Co Ltd v Wagenaar t/a Racedesigns, unreported (GSJ), (2011) 14 Juta’s Insurance L Bul 103 (on
payment of an indemnity to the insured owner for a total loss of the insured property, the in-
surer acquires ownership in such property when salvaged and becomes entitled to bring a vin-
279 Thus, the fact that the insurer paid the insured a full indemnity for a total loss, and took over ownership of the
object of risk or its remains, will not exclude the possibility of the insurer also
exercising a right of subrogation in respect of claims against a third party liable for the loss of
the object. And neither will the exercise of the right of salvage and the passing of ownership
entitle the insurer to act against the third party otherwise than by means of the exercise of its
right of subrogation, unless of course the insured has ceded to the insurer his right of action
against the third party. See further Lowry et al Doctrines 496–498. For Dutch law, see Wansink et
al Assers pars [416], [576] (subrogation does not include a vindicatory right in respect of or
ownership in the object of risk; a subrogated insurer has no entitlement to salvage; on the in-
sured object being recovered after indemnification, the insured has the option of repaying the
280 See further, eg, Sonnekus 1987 TSAR 267; Schlemmer (1991) 122–123; Schlemmer 1991 TSAR
420
18.161 In some instances ownership will pass with the delivery of the object of risk by
the insured to the insurer, accompanied by the required intentions, while in other
cases, where the insured is himself not or no longer in possession of the object of
ownership in the object of risk to the insurer281 and as a result to have ceased to be its
18
owner, at least if the insurer accepts that abandonment by the exercise of its right of
paragraphs
salvage. 282
18.155–18.163
18.163 As a result of the exercise of its right to salvage, the insurer becomes owner of
the object of risk. It may therefore deal with it as it sees fit, for example by selling it, 283
even back to the insured, 284 or by abandoning it so that it becomes res nullius. 285
________________________
281 But not to the whole world; the abandoned property does not become res nullius. One should therefore
distinguish this instance of what may be termed transferring abandonment from divesting abandonment. See
further Van Niekerk Insurance Law in the Netherlands Vol II 1272–
1278; Van der Merwe 1967 THRHR 330 334; Van Niekerk 2011 SA Merc LJ 300.
282 See, eg, Mayor and Corporation of Boston v France, Fenwick and Co Ltd (1923) 15 Ll L Rep 85 where the
sunken insured ship was abandoned by the insured to the underwriters and where it was
held (90) that the insured had divested himself of ownership in the object he had so aban-
doned and had ceased to be its owner; however, the point was left open (91) whether in such
cases where the insured exercises its right of abandonment (as opposed to the case where the
insurer exercises its right to salvage), the insurer automatically becomes the owner of the prop-
erty abandoned by the insured or whether, should it not wish to become owner, as it may wish
to do where ownership entails onerous obligations such as wreck removal, the property (the
abandonment of which the underwriter did not accept) remains the property of the insured or
becomes res nullius. See further Merkin et al Colinvaux par 24.096; Lowry et al Doctrines 498.
283 Cf Myburgh and Co v Protecteur Fire Assurance [Protecteur Insurance] Co (1878) 8 Buchanan 152, (1878) 3
Roscoe 18 (goods saved from premises damaged by fire were taken possession of by
the insurer and sold on the account of whom they may concern).
284 An insurer may be willing to sell a recovered object back to the insured for its salvage value, but does not
appear to be obliged to do so: Merkin et al Colinvaux par 11.067. Thus, once the insured has accepted an
indemnification on the basis of a total loss and in the absence of any fur-
ther agreement on the matter, he loses all rights to the object of risk or its remains. The
insurance contract may contain a term stating that the insurer should sell the object back to the
insured, or that, should it decide to sell it, it must give the insured a right of first refusal: see
285 See, eg, Salvage Association of London v SA Salvage Syndicate Ltd (1906) 16 CTR 225 where the insured
owners of sunken cargo had abandoned it to the underwriters and where the latter for
several years took no effectual steps to recover it. In determining the claims of salvors of the
cargo, it was held that as there was insufficient proof that the insured had abandoned the cargo
to anyone other than the underwriters, the latter had acquired the rights of the owners, but
that they could, in the absence of clear proof of an intention to that effect, not be said to have
421
19
third-party contract1
E. Third-party
provisions
A THIRD-PARTY CONTRACT
19
paragraphs
19.1 Insurance contracts were traditionally only concerned with the rights and duties 19.1–19.2
of the contracting parties, that is, the insurer and the insured. However, modern
insurance contracts, especially but not only life insurance contracts, increasingly
contain provisions with the purpose of creating rights for persons who are not party
to the conclusion of the contract and who can thus be described as third parties.
Such a contract2 is known as a contract in favour of a third party. 3 For the sake of brevity, a contract in favour of
a third party will be referred to as a “third-party
________________________
2 Strictly speaking it is a contract only when it stands on its own otherwise it could be a contractual term
(stipulation) which is part and parcel of an existing contract, eg a term in an insurance
contract or sale.
3 On contracts in favour of a third party generally: McKerron 1929 SALJ 387; May 1954 SALJ 380; De Wet
Ooreenkoms ten Behoewe van ’n Derde; De Wet and Van Wyk Kontraktereg en Handelsreg 103; Bouwer Regte
van Derdes; Sonnekus 1999 TSAR 594; Van der Merwe et al Contract General Principles par 9.2.5; Reinecke and
Nienaber 2009 Merc LJ 1; Nienaber and Reinecke Life Insurance in South
5 Cf
Mutual Life Insurance Co of New York v Hotz 1911 AD 556. Scott, 2012 (4) TSAR 801 suggests that
beneficiary nominations for death benefit under life policies are subject to exceptional rules.
423
favour of third parties and these uncertainties also affect the legal position of a third
19.3 Contracts in favour of a third party are known and given effect to in most legal
19.4 A contract in favour of a third party is a most useful and important mechanism
indemnity or non-indemnity insurance, and may well provide a basis for group-life
insurance. 7 Nevertheless, it seems that this instrument has not yet been exploited to
the full for the purposes of insurance and that further development lies ahead.
mainly due to practical considerations, for example that the proceeds of the policy is
directly and immediately payable to the beneficiary upon the death of the insured. 8
useful in that it can be utilised to cover the interests of third parties without having to
19.6 In terms of a third-party contract one person, called the stipulator or stipulans,
agrees with another, known as the promisor or promittens, that the latter will render a
performance to a beneficiary. The stipulans is usually referred to as the first party, the
promittens is the second party and the beneficiary is called the third party because he
is not a party to the conclusion of the contract. In the insurance context the stipulans
mostly is the insured while the insurer is the promittens.
19.7 The nomination of a third party may be revocable or irrevocable, 9 for ownership
instead of proceeds, 10 unconditional or conditional, 11 limited or unlimited12 and it may be for proceeds or for
cover. 13
contract appeared in Mutual Life Insurance Co of New York v Hotz. 14 A man took out a
policy on his own life and, in order to make financial provision for his father, he
agreed with the insurer that upon his death the proceeds of the policy were to be
19.9 According to the case law, a third-party contract “is not simply a contract
designed to benefit a third party; it is a contract between two persons that is designed
to enable a third person to come in as a party to a contract with one of the other
two”. 15 To this is added: “The mere conferring of a benefit is therefore not enough;
________________________
6 Cf the Contracts (Rights of Third Parties) Act, 1999 (c 31). In terms of this Act a third party may enforce a
contract in his favour (s 1(1)) as if he were a party to the contract (s 1(5)). The right
of the third party is subject to the terms of the contract (s 1(4)). Once the third party has
communicated his assent to the promisor, the parties to the contract may not rescind or vary the
contract in such a way as to extinguish or vary the third party’s entitlement, unless he consents
8 Hees NO v Southern Life Association Ltd 2001 (1) SA 943 (W); [2000] 1All SA 327 (W); [2000] JOL
10 19.90–19.94.
11 19.64.
12 19.75.
13 19.68–19.73.
15 Joel Melamed & Hurwitz v Cleveland Estates (Pty) Ltd; Joel Melamed & Hurwitz v Vorner Investments (Pty)
Ltd [1984] 2 All SA 110 (A); 1984 (3) SA 155 (A) 172A, where the court accepted a statement
to this effect in the minority judgment in Crookes v Watson 1956 (1) SA 277 (A) 291B–F.
424
what is required is an intention on the part of the parties to a contract that a third
person can, by adopting the benefit, become a party to the contract.” 16 The courts
have also emphasised that “[w]hat is required is an intention on the part of the
original contracting parties that the benefit, upon acceptance by the beneficiary,
would confer rights that are enforceable at the instance of the beneficiary against the
insurer ( promittens), for that intention is at the ‘very heart of the stipulatio alteri’”. 17
19
19.10 It has accordingly been decided that a life insurance contract which provided
paragraphs
for payment to the insured’s “executors, administrators and assigns” was in law a 19.2–19.12
contract for the benefit of the insured and not his wife and children even though the
on the part of the contracting parties that a third party, by adopting the benefit, can
become a party to the contract. Does this entail an offer by the original parties to
enter into a tripartite contract with the third party? 19 It seems highly unlikely, though
not impossible, that the intention of the original parties could be to involve the third
party in the conclusion of the founding contract, for example where a trust is created
for unborn children. 20 Or does it mean that an offer must be made to conclude a
second contract between the promisor and the third party? Yet another possibility is
that this requirement must be taken to mean that the stipulator and promisor must
have the intention to create a right for the third party by means of their original
contract, in other words, that the third party becomes a party not to their contract
but to the obligations created by that contract. 21 The answers to these questions
Lewensversekeringsmaatskappy Bpk23 a man insured his life and nominated his fiancée
for the proceeds of the policy. The insured died without having expressly revoked the
nomination. The fiancée first learnt of the nomination after the insured’s death and
then accepted it. The court decided24 that she had a right to the proceeds of the
nomination. The nomination could not be set aside on the ground of the rules
donation at all given that the insured had never entered into any agreement with his
fiancée.
________________________
17 Pieterse v Shrosbree NO; Shrosbree NO v Love 2005 (1) SA 309 (SCA) 313H. Cf Unitrans Freight (Pty) Ltd v
Santam 2004 (6) SA 21 (SCA) for a particular application of this requirement.
19 Cf Consolidated Frame Cotton Corporation Ltd v Sithole 1985 (2) SA 18 (N) 23 where the court distinguished
between a tripartite contract and a third-party contract.
21 Consolidated Frame Cotton Corporation Ltd v Sithole 1985 (2) SA 18 (N) 24F; Barnett v Abe Swersky &
Associates 1986 (4) SA 407 (C) 411; Kahn 1952 SALJ 53 56.
22 19.33–19.61.
24 Botes v Afrikaanse Lewensversekeringsmaatskappy Bpk above 23D. In Hees NO v Southern Life Association
Ltd 2001 (1) SA 943 (W); [2000] 1All SA 327 (W); [2000] JOL 5928 (W) the court
seemed to imply that the Botes decision was based on the supremacy of a third-party contract over
the rules governing donations. In fact, the court in Botes made it quite clear that there was no
donation at all and for that reason those rules did not apply.
425
19.13 However, a collateral agreement such as a donation between the stipulator and
the third party may well establish a link between the third-party contract and that
contract. 25
the third party but in his own name, although for the benefit of the third party.
19.15 The distinction between a third-party contract and a clause nominating a third
party as an adiectus causa solutionis is that a solutionis adiectus causa, unlike a beneficiary, is not intended to
acquire any rights under the contract. 26
contract upon the death of the stipulator insured is not payment out of assets belonging
policy has as yet not been attacked on the basis that it amounts to an illegal contract of
succession.
19.17 A third-party contract as such has been held not to amount to the donation of
a benefit. 28
19.18 To complete the life cycle of a third-party contract, the third party must accept
the benefit offered to him by the promisor. Acceptance may be express or tacit. 29 For
acceptance to be valid the third party must inform the promisor of his acceptance, 30
but the third party may be contractually exempted from this duty. Prior to acceptance
by the third party, the promisor is contractually bound only to the stipulator to
benefit the third party. 31 The existence of the obligation between the stipulator and
the promisor entails that the stipulator may restrain the promisor from doing
19.19 The right the original parties wish to create for the third party vests if and
when the third party accepts as against the promisor. 33 Therefore, unless the
________________________
25 19.112–19.117.
26 Cf Palmer v President Insurance Co Ltd [1967] 2 All SA 112 (O); 1967 (1) SA 673 (O).
27 Borman & De Vos v Potgietersrusse Tabakkorporasie Bpk 1976 (3) SA 488 (A) 507. The proceeds of the policy
do not vest in the insured prior to payment (delivery). Hence the insurer pays the
30 Mutual Life Insurance Co of New York v Hotz 1911 AD 556 567; Botes v Afrikaanse
Lewensversekeringsmaatskappy Bpk 1967 (3) SA 19 (W) 23.
32 Cape Produce Co (PE) (Pty) Ltd v Dal Maso NNO 2001 (2) SA 182 (W). The stipulator should also have locus
standi to ask for an order for specific performance against the promisor, in other
words, that he must tender performance to the third party: Arthur E Abrahams & Gross v Cohen
1991 (2) SA 301 (C) 312E but cf Byworth v Stephenson (1902) 19 SC 18. Cf also 19.129. It has not
yet been considered whether the third party would, before acceptance, have locus standi to
33 Mutual Life Insurance Co of New York v Hotz 1911 AD 556. However, in a case involving a beneficiary under a
life policy, the court ruled that prescription of the beneficiary’s right started
to run from the death of the insured life without reference to the date of acceptance, Danielz NO
426
beneficiary has accepted, the stipulator and the promisor may alter or cancel their
contract at will so as to change or revoke the nomination of the third party. 34 If the
beneficiary accepts, an obligation is forged between the third party and the promisor
with the result that the third party acquires a direct right against the promisor. 35
19.20 Acceptance of an irrevocable nomination may take place at any time before or
after the policy has become payable, but must take place within a reasonable time
19
which probably runs from the moment the policy becomes payable. A revocable
paragraphs
nomination cannot be accepted before the policy becomes payable and must take 19.13–19.25
place within a reasonable time afterwards. 36 Failure to accept within a reasonable time
beneficiary may accept on behalf of the beneficiary’s estate, provided the nomination
is irrevocable. 38
19.21 If the third party rejects the benefit, the third-party contract between the
stipulator and promisor comes to a natural end. 39 A third party may be disbarred
from claiming the benefit intended for him if considerations of public policy so
dictates, for instance where the unlawful conduct of the beneficiary caused the death
19.22 From the above it is clear that the third party acquires a full-grown right by
accepting the benefit. Whether this must be understood to mean that, prior to
acceptance, the third party does not even have a germ of a right is considered
below. 41
19.23 Although the courts emphasise that the third party must accept before he can
special significance where the proceeds of a life policy has been made payable to a
third-party beneficiary.
19.24 The stipulator (insured) is not entitled unilaterally to discharge the promisor
(insurer)42 unless such right had been reserved for him in the third-party contract. To
19.25 If a third-party beneficiary dies before accepting the benefit, his executor may
accept the benefit on behalf of the deceased estate, 43 unless the nomination was a
revocable one. 44 This is in spite of the fact that an ordinary offer expires on the death
________________________
35 McCullogh v Fernwood Estate Ltd 1920 AD 204 206; Botes v Afrikaanse Lewensversekeringsmaatskappy Bpk
1967 (3) SA 19 (W) 23F.
36 Thus, in the case of a nomination for proceeds in a life policy, the benefit cannot be accepted before the death
of the insured life (death benefit) or the maturity of the policy (endowment
benefit): PPS Insurance Co Ltd v Mkhabela 2012 (3) SA 292 (SCA). For a discussion of this case:
39 Nienaber and Reinecke Life Insurance par 18.59. For the consequences as far as the proceeds are concerned,
see 19.71.
40 Danielz v De Wet NO 2009 (6) SA 42 (C) dicussed by Sonnekus, 2010 TSAR 175.
41 19.23–19.32.
42 Mutual Life Insurance Co of New York v Hotz 1911 AD 556. Contra Scott 212 TSAR 801.
427
of the offeror or offeree. 45 Similarly, the death (in case of a natural person) or
extinction (in the case of a legal person) of the promisor does not prevent
19.26 If a life policy is made payable to a beneficiary the insured’s creditors cannot
attach the policy as long as the nomination stands because the policy is not payable to
the insured. 46
19.27 Should the insured’s (stipulator’s) estate be sequestrated, the beneficiary may
proceed to accept the benefit under a life policy unless the insured’s trustee has pre-
empted this right by revoking the nomination where he is entitled to do so. 47 Hence,
sequestration and the beneficiary receives the full benefit and not merely a
concurrent dividend.
19.28 If an insured nominated a beneficiary for the proceeds of his life insurance,
the policy will, pending acceptance, not fall into the joint estate of the insured and
19.29 A life policy with an unrevoked beneficiary nomination is not regarded, on the
death of the insured, as forming part of the estate to be administered by his executor.
It will therefore be unavailable for distribution to his creditors, for instance where a
maintenance claim is brought by a surviving spouse against the estate. 49 The policy
will revert to the insured’s estate only if the nomination has been lawfully revoked, or
19.30 A life policy made payable to a beneficiary may not be surrendered by the
policyholder without the consent of the beneficiary unless the nomination was a
revocable nomination.
19.31 Where the insured has nominated a beneficiary for the proceeds of his life
policy, the beneficiary will in principle be entitled to claim damages from the
promisor, the executor of the estate of the deceased insured, or the executor’s
attorney acting on his behalf, if after the insured’s death, they fail to apprise him of
performance undertaken by the promisor, even though the beneficiary has not yet
Different approaches
19.33 Various theories have been propounded to explain the phenomenon, and its
________________________
47 20.18–20.28.
48 In Hees NO v Southern Life Association Ltd 2001 (1) SA 943 (W); [2000] 1All SA 327 (W); [2000]
JOL 5928 (W) 949 the court said: “A policy subject to a nomination is subject to an encumbrance
which can only be removed by an express change of intention on the part of the insured.” And
again (949): “Encumbered property falls into the joint estate subject to such encumbrance.”
49 Oshry NO v Feldman 2010 (6) SA 19 (SCA) 45; Moonsamy NO v Nedcor Ltd NO 2004 (3) SA 513 (D).
50 Arthur E Abrahams & Gross v Cohen 1991 (2) SA 301 (C). Cf also Hutchison 2000 SALJ 186 and BOE Bank
Ltd v Ries 2002 (2) SA 39 (SCA) regarding the position of someone who has an
428
for a non-contracting third party. Controversy is rife both in the case law and
has been made payable to a third party because both the insured and the third party
19
acquires merely an expectation and no right at all unless and until he accepts the
paragraphs
benefit. 51
19.25–19.39
something for the benefit of the third party implies that on acceptance by the third
party, the promisor will have to offer performance to him, unless performance can
take place without any co-operation by the third party. 52 This offer will be an offer to
the third party cannot be forced to accept the offer, the promisor will discharge his
19.36 There are mainly three approaches, namely the two-contracts approach, the
Two-contracts approach
19.37 It has been pointed out that the courts define a contract in favour of a third
with one of the original contracting parties. 54 A fairly general interpretation is that
this means that the promisor must make an offer to the third party and that he must
keep open this offer for acceptance by the third party. 55 The promisor’s duty to make
the offer is owed to the stipulator and not to the third party.
19.38 The content of the offer is prescribed by the agreement between the stipulator
and the promisor, for instance that the promisor must pay the proceeds of a life
policy to the third-party beneficiary. It is not clear whether, in terms of this approach,
there is a duty on the promisor to inform the third party of the offer he is bound to
make. 56
19.39 In terms of this approach, the third party stands in the shoes of an offeree.
Should the third party in fact accept the offer, a second contract comes into being,
this time between the promisor and the third party. 57 As soon as the beneficiary
accepts the offer, the stipulator falls out of the picture. 58 The new contract in effect
________________________
51 The various theories, cases and constructions placed on contracts in favour of third parties are more fully
discussed by Reinecke and Nienaber 2009 SA Merc LJ 1; Nienaber and Reinecke Life
52 For the discharge of an obligation by performance, see Van der Merwe et al Contract par 13.2.
54 19.9.
55 Eg, Crookes v Watson 1956 (1) SA 277 (A); Hees v Southern Life Association Ltd 2000 (1) SA 943 (W) 951;
Wessels v De Jager 2000 (4) SA 924 (SCA). This perception is also widely supported in
academic circles: McKerron 1929 SALJ 387; Henckert 1995 THRHR 177 184; Sonnekus 1999
TSAR 594.
56 If it is an ordinary offer, one would certainly expect a duty that the offeror (or his authorised agent) must inform
the offeree because an “offer” which has not been made known to the
offeree is in fact not yet an offer at all. Malan 1976 De Jure 85 87 indicated that the conclusion of
a contract in favour of a third party operates as the offer even though it is not regarded as a
normal offer. This dispenses with the need to inform the third party of the offer, but it renders
57 Eg, Crookes v Watson 1956 (1) SA 277 (A) 286A–D, 287C–D, 281C–E, 304E–F.
429
replaces the old contract. The new substituted contract, and not the original contract
between the stipulator and the promisor, is the source of the third party’s rights
19.40 The two-contracts approach treats the relationship between the promisor and
the third party as if it stems from an ordinary contract between two contracting
parties. If this approach were correct, the second contract between the promisor and
the third party would, like any other contract, be subject to the ordinary principles of
the law of contract. The fate of each contract would have to be judged separately.
should be able to avoid the contract. If, for instance, an insurer undertook in a
should they incur liability by driving the insured vehicle, the insurer should be able to
assail the second contract if it could be shown that the authorised driver failed to
disclose, at the time of his acceptance of the benefit, his bad driving record.
19.42 By contrast, if the first contract had been induced by misrepresentation, the
insurer would have no basis to attack the second contract concluded with the third
party if the latter is free from misrepresentation. The same would hold good if the
insurer as promisor cancelled the contract between itself and the insured as
19.43 The two-contracts approach suffers from certain shortcomings. First, the
position of the third party cannot simply be equated with that of an ordinary offeree.
Ordinary offers lapse upon death of the offeror or offeree, while this is not, in the
case of an irrevocable nomination, the position should the stipulator, the promisor or
even the third party die. 59 Furthermore, it is probable that the third party will still be
able to “accept”, in spite of the fact that the promisor has pertinently refused to make
of the two-contracts approach is that it cannot provide a proper basis to afford the
stipulator60 are not preserved because he supposedly falls out of the picture.
One-contract approach
the stipulator and the promisor intend to create a third-party right against the
promisor by means of the very contract between the two of them. 61 No second
________________________
59 This aspect was not taken into account in Wessels v De Jager 2000 (4) SA 924 (SCA) where the court indeed
equated the third-party beneficiary with an offeree. Sonnekus 1999 TSAR 41 n 65
questions the rule that the executor of the beneficiary may accept after the death of the
beneficiary whether or not the nomination was irrevocable. The acceptability of this rule
62 There is no great clarity about what the third party is required to accept. It has, eg, been said that the third party
must accept the “benefit” and also that he must accept (adopt or ratify) the
original contract or stipulation in his favour. Accepting the original “contract”, “stipulation” or
“benefit”, in contrast to the acceptance of an “offer”, can be construed to mean that the third
party must accept the right the original parties intended for him.
63 The condition may arise ex lege or ex consensu. A condition is at issue because if the uncertain event does not
occur within the time allowed, the obligation falls away; and the condition is
suspensive because the right only becomes enforceable upon acceptance: contra Sonnekus 1999
430
intended obligation between the promisor and the third party. In the case of a
revocable benefit, two additional conditions obtain, namely that the stipulator does
not revoke the benefit before a valid acceptance can be made, 64 and that the third
19.45 So construed, acceptance does not involve the acceptance of an ordinary offer
resulting in a second contract, but rather denotes a unilateral juridical act necessary
19
to confirm and complete the right that the original parties intended for the third
paragraphs
party. 66 The requirement of acceptance furthermore ensures that the right of the 19.39–19.49
19.46 According to the one-contact approach, the only contract between the parties
is the original contract between the stipulator and the promisor. 68 This single
contract gives birth to at least two obligations, first, an obligation between the
stipulator and the promisor and, second, a conditional obligation between the
disappear from the scene after acceptance by the third party, because the stipulator
remains interested in the third party’s receiving performance from the promisor.
19.48 Assuming that acceptance by the third party is a suspensive condition which must
be fulfilled before his contingent right becomes enforceable against the promisor, the
third party derives at least an embryo of a right immediately upon the conclusion of the
contract in his favour. 69 There is, in other words, a right in the making or an “inchoate
right”, 70 or at least a very real legally recognised interest which is something more than a
mere expectation. This is borne out by the legal protection afforded to the third party
pending acceptance71 and there is no legal consideration why the third party must be
19.49 Seen from the perspective of a person nominated as a beneficiary in a life policy,
he acquires a right to the proceeds of the life policy subject to a suspensive condition
that he accepts the right, and, if it is a revocable nomination, that his nomination has
not duly been revoked, and also that he has survived the stipulator insured. Conversely,
from the perspective of the stipulator (insured) his right to the proceeds of the policy on
his life is subject to an obverse suspensive condition, namely that the benefit has either
been rejected by the third party or, in the case of a revocable nomination, that the
nomination has duly been revoked. In consequence, both the insured and the third
party are interested in the proceeds of the policy in that their rights are qualified by
________________________
65 In PPS Insurance Company Ltd v Mkhabela 2012 (3) SA 292 (SCA) the court decided that the executor of a
predeceased beneficiary could not accept the benefit on behalf of the estate. Cf
66 Consolidated Frame Cotton Corporation Ltd v Sithole 1985 (2) SA 18 (N) 24A.
67 Cf Arthur E Abrahams & Gross v Cohen 1991 (2) SA 301 (C) 311E.
68 In what some regard as the locus classicus, McCullogh v Fernwood Estate Ltd 1920 AD 204 206, the court
referred to acceptance of the stipulation and said that upon acceptance the third party
may enforce his action upon the contract itself (clearly the original one between the stipulator
and the promisor) though the vinculum iuris is between him and the promisor. Cf also Pieterse v
Shrosbree 2005 (1) SA 309 (SCA) par 10 where it is pointed out that the beneficiary’s right is
69 Van der Merwe et al Contract par 9.4.5 on the usual effect of a suspensive condition. Cf also First National
Bank of SA Ltd v Lynn 1996 (2) SA 339 (A) 355.
71 For the interim protection afforded to a third party, see 19.23 et seq.
431
may decline or fail to accept, the interest of the stipulator insured can be described as a
reversionary interest.
19.50 The view that there is only one contract or agreement is in line with the
19.51 Could the third party also be burdened by duties? It is generally accepted that
since the third party is required to accept the benefit if he wants to enforce it, he must
decide whether to accept or reject the proposed bundle of rights as well as duties. This
would be in conflict with the common-law principle that a contract in favour of a third
party can create rights for the third party but no duties.
disclosure on the third party when he accepts a right intended for him in a third-party
the insurer as promisor has committed itself. However, where the contract between the
avoidance of this contract would extinguish all the rights created by it, including any
right the third party may have acquired. The same holds good where the contract is
stipulator. Furthermore, the third party’s claim may be met with the defence that the
premium has not been paid. All of this follows from general principles.
19.53 An important advantage of the one-contract approach is that it provides a basis for
affording the third party adequate protection before acceptance because of the
conditional right or interest which he is taken to acquire upon the conclusion of the
agreement.
Hybrid approach
19.54 The approach which enjoys the most judicial support also involves two contracts,
19.55 In Pieterse v Shrosbree, 73 the court stated that in terms of a contract in favour of a third party the stipulator
(insured) requires the promisor (insurer) to make an agreed
offer to the third party, so that a contract may be concluded between the promisor and
the third party. The court spoke of an “agreed offer”, but did not throw any light on its
contents except to state that upon its acceptance the third party derives a right not from
the second contract, but from the original contract between the stipulator and the
promisor. The third party must therefore look to the promisor to render performance to
him. Moreover, the court confirmed that upon acceptance, the third party becomes a
19.56 It would seem that the “agreed offer” denotes an offer to invite the third party to
become a party to the original contract between the stipulator and the promisor. After
acceptance, the third party would presumably be in the same position as the one in
which he would have been if, from the start, he had participated as a contracting party.
This means that once the third party accepts the benefit under the contract, he also
19.57 If this interpretation of the court’s view is correct, the original contract has
contract between die promisor and the third party. In the latter case the stipulator is
________________________
432
substituted by the beneficiary and disappears from the scene. The function of the
second contract would then either be to change the original contract to a tripartite
contract or else to change the original contract so as to replace the stipulator with the
beneficiary.
19.58 The court in Pieterse v Shrosbree did not explain whether or not, prior to acceptance
of the benefit, a third party acquires any right, whether contingent or otherwise.
19
However, in Wessels v De Jager74 the same court stated that before acceptance of the
paragraphs
benefit, a beneficiary in terms of a life policy has nothing more than the power to accept 19.49–19.63
an offer addressed to him. Consequently, where the beneficiary was insolvent and
refused to accept the benefit on offer, his trustee could not lay claim to the policy by
19.59 In a subsequent decision, PPS Insurance Co Ltd v Mkhabela76 it was emphasised that prior to acceptance, a
third party has no vested right but merely an expectation
19.60 Unfortunately, the above mentioned decisions are not incisive but rather
superficial. They did not consider all the ramifications, such as whether their point of
view leaves room for any interim protection of the third-party beneficiary. Whether these
Conclusion
for all three approaches and there is as yet no leading case that squarely decides all the
burning issues. In the light of the protection to which a beneficiary is entitled to even
19.62 A third-party contract must comply with the usual requirements set by the law of
contract for the validity of contracts generally. Thus, the third party who is to benefit
from a third-party contract, must be described in such a way that he can be identified. 78 It
matter how wide, may be designated as beneficiaries, 79 provided it is done in clear terms.
19.63 The third party need not be in existence when the contract is concluded. 80 A
contract may, for example, provide that the insurer should pay the insured’s children yet
to be born. Such a third party could naturally acquire his right only after he has come
into existence.
________________________
75 The court’s conclusion in Wessels that prior to acceptance the insolvent beneficiary had no right of any kind,
whether contingent or otherwise, which could fall into his insolvent estate, was
strictly speaking not necessary for the decision because the beneficiary had rejected the benefit.
77 In Hofer v Kevitt 1996 (2) SA 402 (C) 407 the court also mentioned an “expectation”.
78 Otherwise the contract will be void for vagueness in terms of the general principles of the law of contract.
433
words are sometimes added which may be intended as merely descriptive of the
person intended to benefit, or as laying down a condition for the designation, for
example, where Mr A makes the proceeds of his life insurance contract payable to
“my wife Mrs A”. Whether a condition is intended, namely that Mrs A remains his
19.65 Where a spouse married in community of property wishes to alienate the rights
19.66 Whether the third party under a stipulation in his favour contained in an
insurance contract must possess an insurable interest, depends on the nature of the
benefit. If the third party is merely to receive the proceeds of a insurance contract, as in
the case of a third-party beneficiary under a life insurance contract, the contract itself is
supported by the insurable interest of the insured. Consequently, such a third party need
not have an insurable interest. 83 By contrast, if the benefit intended for the third party
is indemnification for a loss the third party suffered himself, he will have to prove his
loss and therefore can claim only if he has an own interest which has been infringed.
cover in favour of a third party, will be dependent on the insurable interest possessed by
19.68 In the context of insurance, provisions in favour of a third party may take various
forms. First, the intention may be to make the proceeds of the insurance contract
available to a third party. This means that the third party will be entitled to claim the
sum insured when due, provided all the requirements have been met. This type may be
insurance cover in the ordinary sense of the word to the third party and such a provision
19.69 A typical example of the first type of third-party contract is where a husband
makes the proceeds of his life policy payable to his wife. The proceeds of an indemnity
example where the proceeds of a fire insurance contract on the insured’s house is made
undertaking to offer “insurance cover” to a third party. This may occur in indemnity
________________________
81 Ex parte MacIntosh NO: In re Estate Barton 1963 (3) SA 51 (N); [1963] 3 All SA 221 (N), Botes v Afrikaanse
Lewensversekeringsmaatskappy Bpk 1967 (3) SA 19 (W).
82 For a discussion of the Matrimonial Property Act 88 of 1984 s 15(2)(c) and (9)(a), see Henckert 1994 TSAR 513
515. In Chetty v Investec Employee Benefits Ltd 2005 JOL 14183 (D), the court took
the view that the proceeds of a policy did not fall in the joint estate of the husband and his wife
and that for that reason the consent of his wife was not required for a cession of the policy. This
appointment as beneficiary of someone other than the spouse, see Mooi v SA Mutual Life
83 Morkel v London & Scottish Assurance Corporation Ltd 1927 CPD 202.
84 19.118–19.138.
434
19.71 The distinction between a nomination for proceeds and a nomination for cover is
of special significance if the nomination is refused. If the nomination was for proceeds
and the third party declined to accept, the rights under the contract do not simply
disappear into thin air but the proceeds must be paid to the insured as the stipulator, for
19
instance where the stipulator made his life policy payable to his wife but she declined to
paragraphs
accept. 86 The same result obtains where the beneficiary is disqualified from acceptance 19.64–19.77
19.72 If the nomination was for cover, the stipulator can in principle not demand that
the performance which should, in terms of the agreement, have been rendered to the
third party, must now be rendered to the stipulator himself. 88 In such circumstances the third-party contract
simply fails. Thus, if an insurance contract contains a provision
which indemnifies a third party against loss but he declines to accept, the insured cannot
claim to be paid the indemnification which would have been due to the third party had
he accepted.
19.73 In the life insurance industry a further distinction is drawn between a nomination
19.74 Depending on the terms of the contract between the insured and the insurer, the
instance of the stipulator. 90 This type of clause is commonly found in life policies. Most, if
not all, nominations in modern life insurance policies are revocable.
a life policy may provide that only 50 per cent of the policy proceeds must be paid to the
beneficiary or that only the death benefit (payable on the death of the insured life) and
not the endowment benefit (payable when the policy matures) must go to the
beneficiary.
19.76 Like any other contractual provision, a stipulation in favour of a third party may
be express or tacit.
19.77 A practice has developed to note or endorse the interest of a third party on an
insurance policy. 91 Thus, a lessee may have the interest of the lessor noted or endorsed
on the policy that the lessee had taken out in respect of the vehicle leased by him or a
bank may have its interest noted on the insured’s house-owner policy in order to secure
________________________
85 19.81–19.87. Cf Commercial Assurance Co v Kern 1944 EDL 215 where, in a motor-vehicle insurance
contract, the insurer undertook to pay the insured’s son a certain amount should he
89 19.88–19.94.
90 19.95–19.97.
91 Cf Marine & Trade Insurance Co Ltd v J Gerber Finance (Pty) Ltd 1981 (4) SA 958 (A); Stannic v Samib
Underwriting Managers (Pty) Ltd [2003] 3 All SA 257 (SCA); Stannic v Samib Underwriting
Agents & Guardrisk Insurance Co Ltd [2006] 3 All SA 314 (T); Barloworld Capital (Pty) Ltd t/a
Barloworld Equipment Finance v Napier NO 2006 (5) SA 384 (SCA). Cf also Dinnie (2005) JBL 32,
435
19.78 The decision in Marine and Trade Insurance Co Ltd v J Gerber Finance (Pty) Ltd 92
serves to illustrate the practice of noting an interest. In terms of an agreement of lease
between a lessor (a financial institution) and a lessee, the latter was obliged to insure, in
its own name and at its own expense, the object of the lease comprehensively and to
have the interest of the lessor as the owner endorsed on the insurance contract. The
insurance contract was concluded by the lessee without notation of the lessor’s interest.
The lessor then requested the insurer to note its interest, and this was done. A loss
occurred and the insurer paid an indemnity to the lessee without considering the
interests of the lessor. The lessee became insolvent. The court decided that the lessor
was entitled to payment afresh by the insurer and based its decision on the particular
19.79 The court did not dwell on the nature of the transaction between the insurer and
the lessor. Various possibilities present themselves. The lessor could, for example, have
joined the lessor as a co-insured. Or the lessor could have been nominated as a receiver
the contract so as to incorporate a provision in favour of a third party, the lessor. The
effect of this provision was that the insurer was to pay the proceeds of the contract
(namely, the amount claimable by the insured lessee) to the lessor, up to the amount of
its interest. The balance of the proceeds was intended for the lessee. This could only
have been the position if the lessor had authority to alter the policy, whether by virtue of
the terms of the lease or otherwise. 95 The action of the lessor could be regarded as an
19.80 The noting of the interest must be recorded in the policy whether initially or by a
subsequent alteration.
19.81 Insurance cover may be organised on a group basis, for instance debtor and
19.82 The most common form of group-life insurance provides life and disability cover
for the employees of a particular employer. These schemes are implemented in terms of
19.83 There is scant authority on the structure and effect of such schemes. 96
Consequently uncertainty is rife in various areas of group insurance, such as the duty of
________________________
93 Marine and Trade Insurance Co Ltd v J Gerber Finance (Pty) Ltd above 966. It transpired that it was common
practice in the insurer’s office to note on an insurance contract the interest of a “hire-purchase seller or lessor” and,
by virtue of such notation, to make payment to such seller or
lessor of an amount calculated in accordance with the provisions of the contract. In terms of this
practice, the lessee’s claim would not be paid until the owner, whose interest had been noted on
the contract, had no further interest in the vehicle concerned. The court found that the parties
94 A possibility mentioned, though not seriously considered, in Ruskin v British Aviation Insurance Co Ltd 1951
(4) SA 24 (W) 28.
95 If the third party’s interest had not been noted in the policy, he could not acquire any rights by informing the
insurer of his interests and the fact that the insured was obliged to have his
interests noted in the policy: Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v Napier
96 In English sources the topic also receives but scant attention: Clarke et al The Law of Insurance Contracts par
52.A. For South African law: Nienaber and Reinecke Life Insurance pars 6.29–6.33,
8.44–8.47.
436
disclosure and the role of insurable interest. A group scheme could be structured on the
basis of a third-party contract, but it would seem that most schemes shy away from
creating an enforceable right for the third party against the insurer.
19.84 In Sage Life Ltd v Van der Merwe97 the court considered whether a particular group-life scheme amounted
to a third-party contract. It was a decision on exception. The
court came to the conclusion that the contract before it was not a third-party contract
19
because the third party was not meant to step in as a party to the contract, whether as an
paragraphs
additional party or in lieu of one of the others. 98 In the court’s view only the scheme and 19.78–19.89
the insurer had rights and obligations arising out of the group-life insurance contract. 99
19.85 A group insurance such as this rests on an agreement between the leader of the
scheme (eg, an employer) and the members of the scheme (the employees) that the
leader will arrange insurance cover for the members (eg, life cover). The scheme leader
then contracts in his own name with the insurer as underwriter of the scheme to cover
the members of the scheme. The contractual relationships are forged between the
insurer and the leader as the insured. There is no contract or indeed any contractual
relationship between the members of the scheme and the insurer and consequently
members do not acquire any direct or other right against the insurer.
19.86 The members of the scheme stand in a contractual relationship only with the
insured leader of the scheme. In terms of the contract between the leader of the scheme
and his members, the leader must properly cover the interests of the members; observe
the terms of the insurance policy when recovering any benefits for the members; and
must pay over, without undue delay, to the member any benefit received from the
insurer that is intended for the member. 100 If the leader neglected any of these duties, he
19.87 The insured leader can be said to have an insurable interest because he is
contractually bound not only to insure for the benefit of the member but also to pay
over to the member the amount received from the insurer. The duty of disclosure, if
any, rests on the insured and not on the members of the scheme.
19.88 Life insurance contracts for the benefit of third parties usually take the form of
provisions requiring the insurer to pay the sum insured to a third party beneficiary, that
is, a nomination for proceeds as distinguished from a nomination for insurance cover.
19.89 Apart from nominations for proceeds and nominations for cover, the insurance
industry also recognises a nomination for ownership. 101 A further important distinction is
________________________
97 2001 (2) SA 166 (W). Cf also Connolloy v Southern Life Association Ltd, unreported (SECLD), (2001) 4 Juta’s
Insurance L Bul 9; Capital Alliance Life Ltd v Simonsen [2005] JOL 13913 (N). In is
not clear how the group scheme was structured in Pretorius NNO v Kaltwasser 1998 (1) SA 721
(A), where the member brought a direct claim against the judicial managers of the insurer.
99 168A.
101 19.90–19.94.
437
proceeds. A typical nomination for ownership provides that on the death of the insured
“all the rights under this policy will automatically transfer to the beneficiary”.
describe the relationship between an insured or policyholder and the rights flowing
from the insurance contract or policy. An insurance policy gives rise not to any real
rights, 103 but to personal rights which the insured or policyholder can enforce only
against the insurer. The phrase “nomination for ownership” therefore has nothing to do
with real ownership as such, but is at best convenient shorthand for describing the
situation where a policyholder seeks to provide for his succession as policyholder. 104
19.92 A nomination for proceeds caters for the common situation where the life insured
dies or the maturity date has arrived and the policy proceeds are to be distributed.
Conversely, a nomination for ownership caters for the uncommon situation where the
policyholder (ie the insured) dies but the policy nevertheless does not become payable.
This will be the case where the policyholder is not the life insured (as in case of
insurance on the life of another), the policy becomes payable on the death of the life
insured, and the policyholder dies before the life insured, Or where the life of the
policyholder as well as another life are insured, the policy reads that it becomes payable
on the death of the last surviving life insured, and the policyholder dies before the other
accepted by the nominee. Thereafter the “new owner” is simply substituted as the
ceding rights under the policy. If the “new owner” so agrees, he may assume liability for
any obligations under the policy. In effect the nominee for ownership is the third party
to a third-party contract in exactly the same way that the nominee for proceeds is the
19.94 A nomination for ownership is the exception rather than the rule.
revocable. A nomination is revocable if the contract reserves for the stipulator insured
the right to change or cancel the nomination without first obtaining the promisor
insurer’s assent, 106 whereas an irrevocable nomination is one which cannot be changed
________________________
103 A real right is a legal term denoting a person’s right to a material thing which can be maintained against all
others, eg, the ownership of my motor vehicle or my neighbour’s servitude
over my property.
104 This is more fully explained by Reinecke and Nienaber 2009 SA Merc LJ 1 pars 47 et seq.
105 Suppose a man takes out an endowment on his own and his wife’s lives (he is therefore the
policyholder), payable in ten years’ time or on the earlier death of the survivor of them, with
his minor children as the beneficiaries. He provides in the policy for the eventuality that should
he die first, his wife will succeed him as the new policyholder In short, if the policyholder dies
before maturity of the policy, the policy does not die with him (see also Nienaber and Preiss
2006 SA Merc LJ 291 299). On acceptance of the nomination, the wife would become the sole
policyholder until her death although her husband’s estate may be responsible for payment of
the premiums.
106 Ex parte MacIntosh NO: In re Estate Barton 1963 (3) SA 51 (N); [1963] 3 All SA 221 (N).
438
19.96 A nomination is irrevocable merely in the sense that the insured cannot modify or
cancel it, except in co-operation with the insurer. Such a nomination is therefore not
absolutely irrevocable and may nevertheless be cancelled or revoked, with the insurer’s
consent, as long as the third-party beneficiary has not yet duly accepted it. A nomination
19
becomes irrevocable in an absolute sense once the beneficiary has accepted the
paragraphs
19.90–19.101
19.97 In the case of an irrevocable nomination, acceptance may take place either before
contract payable upon death cannot be effective prior to the death of the insured,
because the insured has the right to change his mind any time before his death. 109
the insured to that effect, duly conveyed to the insurer. 110 Revocation of a revocable
nomination can take place any time prior to the due acceptance of the nomination by a
beneficiary. The beneficiary cannot validly accept before the policy becomes payable
whether on the death of the life insured or the maturity date of the policy. 111 The
insured does not require the beneficiary’s consent to revoke the benefit effectively, 112 nor
nomination in favour of another person, 114 and neither is a bequest of all the insured’s
property to a person other than the beneficiary. 115 By contrast, a bequest of the specific
policy may on the facts be construed as a revocation by conduct. 116 The surrender of a
19.100 Some life insurance policies contain provisions equating the cession of the policy
to a revocation of the nomination. Such a provision is binding. It is sometimes
contended, wrongly it is suggested, that any cession of a policy, even in the absence of a
must be brought to its attention. If a nomination is, for example, revoked in the
insured’s will, the revocation will only be effective as against the insurer if and when it
becomes aware of such revocation. If the insurer is not made so aware, it may discharge
________________________
107 Mutual Life Insurance Co of New York v Hotz 1911 AD 556; Dykman v Die Meester 2000 (1) SA 896
108 19.18–19.22.
109 PPS Insurance Company Ltd v Mkhabela 2012 (3) SA 292 (SCA); Reinecke and Nienaber 2009 SA Merc LJ 1
par 68.
111 19.20.
112 Such revocation may be in breach of a collateral agreement between the insured and the
113 Except where formalities are prescribed for the revocation of a nomination: Reinecke and
114 Hees NO v Southern Life Association Ltd 2001 (1) SA 943 (W); [2000] 1All SA 327 (W); [2000] JOL
5928 (W).
117 19.109–19.111.
118 Idem.
439
its debt119 under the policy by paying the proceeds in good faith to the ostensible
beneficiary.
19.102 Policies frequently require that a notice of revocation be given in writing and
that it must reach the insurer before the death of the life insured. 120 In principle these
19.103 The obvious purpose of a formality of this nature is to protect the insurer in
the event of disputes about the rightful claimant. The requirement of notice in
writing should therefore be seen as having been inserted for the sake of proof. It is to
19.104 An insurer is free to waive formal notification. This may happen in advance, in
which case a subsequent informal notification of revocation will suffice, or it may happen
19.105 Should an insurer who has not waived formal notification but who is fully aware
of an informal but genuine revocation and does not dispute it, be permitted to thwart
the will of the insured by sheltering behind the formal requirement of notice in refusing
beneficiary, but after his divorce from her he bequeaths this policy in his will to his
parents. Although his policy required him formally to inform the insurer of a revocation,
he neglected to do so. On his death, his ex-wife claims the proceeds, at which time the
insurer becomes aware of the provisions in the deceased’s will. It is suggested that in
principle preference should be given to the insured’s true intention rather than the
prescribed formality. 121 In the event of competing claims, the insurer would, after all, be
entitled to withhold payment and use available procedural measures such as a payment
19.106 The insured as original policyholder will be entitled to revoke or change the
nomination while he is still the policyholder. It is an issue whether any of his successors
________________________
120 Hees NO v Southern Life Association Ltd 2001 (1) SA 943 (W); [2000] 1All SA 327 (W); [2000] JOL
5928 (W)
121 In Wolmarans v Du Plessis 1991 (3) SA 703 (T) the court held that the clause in question was merely
“directive” and not “imperative”; the clause implied no more than that written notice
prior to the insured’s death was but one of the ways in which a nomination could be changed
or revoked. Hence a nomination could also be revoked by bequeathing the rights under the
contract to a person other than the original beneficiary. To achieve this, it is not necessary, so
the court suggested (708E), that the insurer must formally waive the requirement of written no-
tification. The decision was criticised and rejected in Hees NO v Southern Life Association Ltd 2001
(1) SA 943 (W); [2000] 1All SA 327 (W); [2000] JOL 5928 (W), mainly on the ground that the
insurer could be prejudiced; cf also Henckert 1995 THRHR 177. In Wolmarans v Du Plessis the
insurer was aware of the testamentary disposition and the court did not suggest that an insurer
would incur liability where it paid in ignorance of a prior informal revocation. Cf also Moonsamy
122 Reinecke and Nienaber 2009 SA Merc LJ 1 par 58; cf Jordaan NO v Lustig 2008 JOL 22218 (W) where the
insured took out a business policy and nominated his partner for 60 per cent of the
proceeds. The insured and the beneficiary agreed to cancel the nomination. The policy re-
quired written notification of the cancellation of a nomination. On the insured’s death, the
beneficiary claimed the part of the proceeds from the insurer on the basis that the nomination
had not been cancelled formally. The court ordered payment of the policy proceeds to the ex-
440
nomination for ownership, or a cessionary if he cedes. 123 If the policy provides that
until there is proper acceptance “the policy can be dealt with as if no beneficiary has
speaking not be required and would, if given, simply make assurance doubly sure.
19.107 The basic principle is that the right to revoke or change, like any other right,
19
vests in the policyholder’s successor in title. That would be true for all the successors
paragraphs
in title mentioned above, except the executor. 124 It is the function of an executor not 19.101–19.112
to follow his own whim, but to administer the deceased’s estate in conformity with the
intention and wishes expressed by the deceased. Consequently the executor of the
estate of the deceased insured policyholder, or any successor in title who acquires the
nomination of the deceased. On the other hand a revocation by the executor may be
19.108 A beneficiary under both a revocable and irrevocable nomination in a life policy
is protected to a certain extent in case of the sequestration of the estate of either the
Surrender of, or cession of rights under, life policy subject to beneficiary nomination
by conduct.
19.110 The right to the surrender value of the policy is an alternative right to the
proceeds of the policy on maturity. 126 A revocable beneficiary nomination, creating for
the beneficiary either no right at all or at best only a conditional right, depending on
which approach is adopted, will not, prior to acceptance of the benefit by the
beneficiary, prevent the insured from surrendering the policy. If the nomination is
irrevocable, any attempted surrender by the insured would be of no force or effect. After
acceptance the position changes. On acceptance, the beneficiary’s right to the proceeds
of the policy supersedes the right of the insured. Only the beneficiary would then have
19.112 Although a third-party contract stands on its own feet, 128 there often is a
________________________
124 The point is discussed in greater detail by Reinecke and Nienaber pars 70 et seq.
125 20.18–20.28.
127 21.24–21.26,
128 19.12–19.13.
441
between the stipulator insured and the third-party beneficiary, such as a donatio inter
vivos. A man may, for instance, offer to designate his fiancée as beneficiary in terms of
a life insurance contract to be concluded by him. If she accepts this offer, a contract
of donation comes into being in terms of which she is entitled to claim that her
fiancé takes out a life policy and nominates her as beneficiary. If he complies by
taking out a policy in which she is nominated as beneficiary, he fulfils the contract of
donation between them. If he fails to do so, or does so but subsequently revokes her
obligatory agreement. Thus, an insured may take out a life policy in favour of a
specific person and thereupon agree with the beneficiary that his nomination will
serve, for instance, as a donation of the proceeds of the policy to the beneficiary131 or
to secure a debt owed to the beneficiary. If the third party accepts this offer, an
obligationary agreement is concluded in terms of which the third party is, as between
him and the insured, entitled to the proceeds of the policy as a donation or for
purposes of security.
19.115 Since the underlying or collateral transaction is intended to regulate the
relationship between the insured as stipulator and the beneficiary, the relationship
between them should be assessed in terms of the underlying contract. 132 The
beneficiary should only be entitled to the benefit under the third-party contract in
accordance with the terms of the underlying or collateral contract between himself
and the insured. Hence, where a party has for instance been nominated as a
stipulator and the beneficiary should be assessed in terms of the donation. 133 Likewise
where the nomination was intended to secure a debt owed by the stipulator to the
beneficiary, the beneficiary should be entitled to the proceeds of the policy only if
the debtor defaults and only in so far as the proceeds are necessary to discharge the
debt.
19.116 In Ex parte Calderwood: In re Estate Wixley134 the Zimbabwean High Court took the contrary view that
where an invalid donatio mortis causa preceded a nomination in
a life insurance contract favouring the donee, the third-party contract, being the
“paramount contract”, takes precedence. According to the court the same reasoning
successorium. This reasoning has been recommended for our law135 but it is clearly
________________________
131 Cf Curtis Estate v Gronningsaeter 1942 CPD 531. The insured nominated his wife as beneficiary and
delivered the policy to his wife and thereby concluded a donation.
132 This follows from general principles, Hahlo 1967 Annual Survey of South African Law 60–62. Cf Jordaan v
Lustig 2008 JOL 22218 (W) where the stipulator and the beneficiary agreed to cancel
the nomination and the court held that the beneficiary had no claim under the nomination.
133 Curtis Estate v Gronningsaeter 1942 CPD 531. The parties’ marriage ended in divorce. The court decided that
the revocable nomination must be considered as having been revoked as a result
of the common-law rule that a gift between husband and wife is presumed to have been re-
voked by divorce where there was no bona gratia between the parties. The insurer was aware of
the circumstances. Subsequently the rule in Curtis was qualified to apply only to donations
made out of sheer liberality, Ex parte MacIntosh NO: In re Estate Barton [1963] 3 All SA 221 (N);
135 Davis Gordon and Getz on The South African Law of Insurance 333.
442
19.117 As far as the relationship between the beneficiary and the promisor (insurer)
which has not been properly revoked, discharge his liability by paying the beneficiary,
provided the insurer is unaware that the beneficiary is not entitled to the benefit by
virtue of the underlying contract between the insured and the beneficiary. If the
third party receives payment from the insurer in spite of the fact that he is not
19
paragraphs
19.113–19.123
declaring that the insurer will not only indemnify the insured against liability to third
parties, but also any person who drives or uses the insured motor vehicle with the
insured’s consent. This indemnification is subject to certain provisos, such as that the
authorised driver must observe all the applicable terms of the contract as though he
19.119 The professed indemnification extended to the third party is subject to the
following qualification: “Unless otherwise provided, nothing in this policy shall give
any rights to any person other than the insured. Any extension providing indemnity
to any person other than the insured shall not give any rights of claim to such person,
the intention being that the insured shall claim on behalf of such person. The receipt
insurance contract first arose for decision in Croce v Croce. 136 The court construed the extension clause as a
third-party contract137 and required an acceptance of the benefit
by the third party, that is, the authorised driver. 138
19.121 The decision has been criticised. 139 Two objections have been raised: first, that the insured and the insurer
did not intend to create a right for the authorised driver,
and, secondly, that the insured owner has no insurable interest in the contingent
19.122 The question whether an intention to benefit a third party was present, is
Unfortunately this matter was not fully discussed by the court in Croce v Croce. 140 In
support of the decision in Croce it has been suggested that the standard extension
clause does not in fact deny the authorised driver a right to indemnification, but
merely, in its proviso, lays down a procedure that must be followed in order to
enforce that right, namely that the claim must be brought by the insured. 141
again arose for decision in Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co
________________________
138 265.
139 Kahn 1952 SALJ 53; Davis Gordon and Getz 445. A Rhodesian court chose not to follow it: Old Mutual Fire
& General Insurance Co of Rhodesia (Pvt) Ltd v Springer 1963 (2) SA 324 (SR).
443
Ltd, third party). 142 Relying on Croce v Croce, the court took the view that an owner of a motor vehicle has an
insurable interest in the liability of the authorised drivers of his
vehicle and found that on the facts the owner wished to insure himself under the
extension clause. 143 According to the court there was no privity of contract between
the authorised driver and the insurer144 and neither was there an agreement between
the insured and the driver. 145 In the eyes of the court, the position of the third party
or authorised driver was simply that until the insured intervened on his behalf, the
driver has no enforceable right against the insurer. For all practical purposes he is
not insured. Should the insured intervene and claim on his behalf, he is fully
covered. The rights then accrue to the authorised driver, but he has no locus standi in
iudicio to enforce them. 146 The court took the view that in Croce the insured owner of the vehicle had exercised
his rights under the extension clause and that for that
reason the driver was held covered. This had not happened in the present case and
therefore the court held that the extension clause did not give rise to any third-party
rights.
19.124 It is difficult to determine with any certainty the legal basis of the decision in
the Refrigerated Trucking case. It is not clear why the rights under the extension clause
would accrue to the authorised driver if the insured owner himself had an own
insurable interest and had in fact, as the court stated, insured himself. Again, if rights
do accrue to the authorised driver as explained by the court, it is not clear what their
source is. If the court had a third-party contract in mind, it would have been
superfluous to refer to any insurable interest on the part of the insured owner. The
enquiry should rather have been whether the driver had an insurable interest.
Moreover, the court emphasised that no right had been created for the driver to
accept the benefit stipulated by the insured. 147 This would exclude a third-party
before the third party can acquire any rights under a third-party contract. This leads
to the conclusion that the court could not quite make up its mind. 148
19.125 In McClain v H Mohammed & Associates149 the court recognised that the extension clause in a motor-
vehicle insurance contract amounted to a contract in
favour of a third party, but that the right of the third-party authorised driver could
19.126 The nature and effect of the motor-vehicle extension clause came to a head
in Unitrans Freight (Pty) Ltd v Santam Ltd. 150 The court concluded that the parties did not intend to create an
enforceable right for the third party and therefore it could
benefit was not an issue. The court nevertheless decided that the insurer had a duty
________________________
142 1996 (2) SA 361 (T). The question in this case was whether a party who enjoyed protection in terms of a
particular contract in respect of his liability towards third parties, was doubly insured
on account of the fact that he also fell under an extension clause in another contract.Cf further
Reinecke 1996 TSAR 784; Schulze 1997 SA Merc LJ 64; Woker 1996 SA Merc LJ 392.
143 Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd, third party) above 373D.
144 373H.
145 374B.
147 373I.
148 See also Coertzen v Gerard 1997 (2) SA 836 (O), discussed by Reinecke and Van der Merwe 1997
149 [2003] 3 All SA 707 (C); Van Niekerk 2004 SA Merc LJ 286.
150 2004 (6) SA 21 (SCA); Reinecke 2012 TSAR 342. This decision also involved the application of the
Insolvency Act 24 of 1936 s 156: 21.61–21.73.
444
to indemnify the third party. This duty was owed not to the third party, but to the
insured. In coming to the conclusion that the insurer had a duty to indemnify the
third party, the court relied on the view151 that the qualification of the extension
clause was of a procedural nature and not intended to excuse the insurer from
liability.
19.127 If there was no third-party contract in favour of the authorised user of the
19
insured vehicle in Unitrans two questions arise. First, whether the insured could claim
paragraphs
from the insurer indemnification of the third party and, if so, whether such a claim is 19.123–19.132
based on an own insurable interest in the liability of the authorised driver. Secondly,
whether the authorised driver had a claim against the insured forcing him to sue the
19.128 The question whether the insured had an insurable interest in the liability of
the authorised driver was raised but not fully considered in Unitrans. It is suggested
that the owner of the vehicle as a matter of principle lacks any such interest. After all,
any liability incurred by the authorised user does not financially affect or concern the
insured. Consequently the insured cannot claim indemnification of the third party
on the basis that he has an insurable interest in the liability of the third party.
19.129 Although the insured does not have an insurable interest in the liability of the
authorised user, it is true that the insurer has a duty towards the insured to indemnify
the authorised users of the vehicle. This is because the insurer has undertaken
towards the insured to indemnify such third parties and it is suggested that the
insured can claim specific performance of that undertaking. A claim for specific
performance, at the instance of the insured, would entail that the insurer be ordered
to indemnify the authorised user of the insured vehicle. Still, the insured cannot
claim that such indemnification be paid to himself for his own benefit but only that it
19.130 The second question (viz whether an authorised user of the insured vehicle
can force the insured to assist him with a claim against the insurer) cropped up in
Jacobs NO v Braaff. 152 The court below took the view that the extension clause
amounted to a contract in favour of a third party, but that the right intended for the
third party could only be enforced by the insured and that the insured was only
bound to enforce the authorised driver’s claim if he had undertaken such a duty
towards the driver. 153 The court held that no such agreement was proved and it is
19.131 On appeal the Supreme Court of Appeal did not express an opinion on
whether or not the court below had interpreted the extension clause correctly as
being a contract in favour of a third party. 154 The only issue was whether the owner
had agreed with the authorised driver that he would institute a claim on his behalf
against the insurer. The court held that a tacit agreement of such nature had been
established and ordered the owner to submit a claim to the insurer for the
19.132 Unitrans can be seen as a step forward. 155 At least it recognised that the current extension clause is not a
nullity and that it creates a duty for the insurer to
________________________
151 Expounded by Chaskalson 1963 Annual Survey of South African Law 382–383.
TSAR 819.
445
satisfactory and in accordance with the result that would have obtained had the
19.133 It nevertheless is a pity that the court did not cut the Gordian knot by
party. Admittedly the standard extension clause is clumsily drafted. Initially it creates
the impression that a right is conferred on the third party, but subsequently this is
apparently denied. However, this denial is not absolute, for the insured is in the
proviso required to sue “for and on behalf of” the third party. This he could not do if
the third party had acquired no right at all. Thus, an ambiguity is created. The clause
presents a typical case for interpretation in conformity with the rules of construction
19.134 The proper interpretation of the clause seems to be that it expresses, or at the
very least implies, the intention on the part of the insured and the insurer to create a
right for the authorised driver, subject only to the qualification that the right must be
enforced by the insured. Acceptance of the benefit will also have to be made through
the insured.
a third party most if not all the problems associated with the clause can be resolved.
First, the issue of insurable interest will present no problem. Since the extension
clause does not purport to indemnify the owner but the authorised driver, there is no
reason for the owner to show any insurable interest in the liability of the third party.
After all, the third party clearly has an insurable interest: he is the one who suffers the
loss, and he is the one who must eventually be indemnified by the insurer. 157
Secondly, where a claim lays against a third party who is insolvent, it would only be
possible to correctly apply section 156 of the Insolvency Act158 if the extension clause
19.136 Assuming that a third-party contract is involved, can the third party enforce
it? The wording of the extension clause makes it plain that the insurer does not wish
to have any dealings with the third party but that the insured must act as go-between
between them. It is stated that the insured can claim “on behalf of the third party”
and that payment to the insured will discharge the insurer. From this can be inferred
that it is the intention of the policyholder and the insurer that the policyholder will
act as the agent of the third party. On its own this provision cannot carry much, if
any, weight but if the third party learns of the extension clause and informs the
thereby concluded between the policyholder and the third party. In terms of this
expressly or tacitly to accept on his behalf the benefit from the insurer; to claim on
his behalf the benefit; to receive on his behalf payment from the insurer; and to pay
over to him the proceeds of the claim. So construed it seems the extension clause can
produce satisfactory results but this construction has not yet been raised in a court of
law.
________________________
446
authorised driver in respect of liability for damage to the insured’s vehicle and injury
followed, 161 while in another the court decided that the extension clause did purport
to provide an indemnity against liability of the authorised driver towards the insured
19
paragraphs
19.132–19.140
19.139 Clauses dealing with the protection of third parties are often found in public
liability, aircraft, 163 fire, house-owners’ and construction insurance contracts. Thus, a
house-owner’s insurance contract may provide that the goods of members of the
19.140 The rights of such third parties are usually subject to the same procedural
apply. 164
________________________
163 Cf Bates & Lloyd Aviation (Pty) Ltd v Aviation Insurance Co, Bates & Lloyd Aviation (Pty) Ltd v Aviation
Insurance Co 1985 (3) SA 916 (A) 929G.
164 19.118–19.138.
447
20
A. Terminology
..............................................................................................................
449
E.
F.
20
A. TERMINOLOGY
paragraphs
20.1 An insurance contract creates a right or rights for an insured as a party to the 20.1–20.3
indemnity contract. The term “policy” strictly speaking means a document evidencing
an insurance contract but it is used in this chapter, for the sake of convenience, to
OF SOLVENT INSURED
contract) it can be postulated that the insured acquires a right to the proceeds of the
policy on the happening of the event against. It is a contingent right. This is the
position both where the policyholder is the life insured and where the life of a third
person is insured.
20.3 The “proceeds of the policy” encompass the sum insured plus bonuses or, in the
alternative, its surrender value if provision is made for it in the policy. This right to
surrendered or ceded. If a cession is effected, the cessionary acquires from the cedent
the suspended right which the insured had to the proceeds during his life.
________________________
449
South African Insurance Law
20.4 The right to the proceeds of a life insurance contract is the very right which
creditors of the insured may attach in order to satisfy debts owed by the insured
value by virtue of its terms, it may readily be converted to money. If not, the policy
20.5 In Hees NO v Southern Life Association Ltd2 the court took a somewhat different approach to the nature of
the rights produced by a life insurance contract. It said: “It
is important to maintain a clear distinction between the insured’s rights flowing from
an insurance contract and the entitlement to the monetary proceeds thereof. Prior to
its maturity date, the proceeds of the contract do not become assets in the joint
estate. The insured does, however, have certain rights under the contract, eg to
surrender it or to obtain a loan upon it. Those rights would have formed part of his
assets and would therefore have fallen into the joint estate [in the event of a marriage
in community of property]. But the contract itself3 and the monetary proceeds
20.6 The eventual monetary proceeds produced by the policy admittedly do not fall
in the insured’s estate before delivery for exactly the same reason as a movable
bought by a buyer does not form part of his estate before delivery to him. However,
this does not imply that the insured does not acquire during his lifetime a suspended
20.7 The nature of the rights produced by a life insurance contract once again came
took out policies on his own life and nominated his wife as the sole beneficiary. She
instructed an outsider to assault her husband and he died in the process. On the
grounds of public policy, the wife was held incapable of benefiting from the
non scripto – and neither could she inherit from her husband. 6 The wife contended
that she had a half-share in the policies by virtue of the fact that she was married in
community of property to her husband but the court did not uphold this contention.
20.8 According to the court the proceeds of the policies did not exist or fall into the
joint estate prior to the insured’s death. Until his death, explained the court, there
was no certainty that a claim could be made at the time of his death. The insured
could, for example, have surrendered the policies on the day before he died. Upon
the husband’s death, the joint estate terminated ex lege. This led the court to the
conclusion that it was only on the insured’s death that rights in respect of the death
benefits accrued. Therefore the joint estate did not have a claim to an asset that arose
after the joint estate had been terminated by the insured husband’s death. From this
followed that the wife did not have a claim, by virtue of her half-share in the joint
________________________
2 2000 (1) SA 943 (W); [2000] 1 All SA 327 (W); [2000] JOL 5928 (W).
4 948. The court inter alia relied on Ex parte MacIntosh NO: In re Estate Barton [1963] 3 All SA 221
(N); 1963 (3) SA 51 (N) 56A–C where it is said: “The policy was not an asset of the deceased,
though its proceeds would have fallen into his estate if no beneficiary had been appointed . . . It
was only the deceased’s rights under the policy to surrender it or obtain a loan upon it, which
formed portion of his assets.” The reason why the policy did not fall into the insured’s estate was
6 Van Niekerk 2009 SA Merc LJ 126; Wood-Bodley 2010 SALJ 30, 2010 SALJ 224.
450
20.9 The court’s analysis cannot be supported. Just like any other claim against a
third party, the rights under the life policies were assets that fell into the joint estate
of the husband and his wife on conclusion of the contracts. Admittedly the monies to
be paid under the policies were not yet part of the joint estate prior to the death of
the insured life, but the right to claim these monies vested in the joint estate. This is
illustrated by the rule that the husband required the consent of his wife if he wanted
to revoke or change a beneficiary. 7 For the same reason the proceeds of the policies
20
paragraphs
would have fallen into the joint estate had the husband surrendered them. The claim
20.4–20.13
to the proceeds is not a new claim that arose after the death of the insured husband,
but payment of the proceeds is simply performance of the obligations under the
policies.
20.10 In short, the right to claim the proceeds of a life policy is a right that vests on
conclusion of the contract although it can only be enforced at a later stage. This is
the right that may be sold and ceded and which may be attached by creditors of the
However, in terms of the LTIA certain policies are partially protected against
creditors. 8
INSOLVENT INSURED
20.11 Upon sequestration of a person’s estate, his estate first vests in the master and
subsequently in his trustee. Except to the extent that a policy is protected by the
LTIA9 the right to the proceeds of a life policy payable to the insured will be available
20.12 The trustee of his insolvent estate may realise the policy in the following ways:
by claiming the sum insured if the policy has become payable; by surrendering the
policy it if it has acquired a surrender value; or by selling the policy. Once the policy
has been realised, the proceeds must be distributed amongst the creditors of the
20.13 The LTIA11 provides limited protection of policy benefits derived from certain
long-term policies. 12 The protection is in favour of the “person” who is entitled to the
benefits, provided it is his life, or the life of his spouse, that is insured under the
policy. The “person” must be understood to mean the insured to the exclusion of a
________________________
7 Matrimonial Property Act 88 of 1984 s 15(2)(c). However, in Chetty v Investec Employee Benefits Ltd 2005 JOL
14183 (D) the court also took the view that the proceeds of a life policy did not fall in
the joint estate but belonged to the insured and that for that reason the husband did not need
8 S 63; 20.13.
9 S 63; 20.13.
10 24 of 1936.
11 S 63.
451
20.14 The requirements for this protection are that the policy must be a life,
assistance, disability or health policy; 14 that the life insured or his spouse must be the
person entitled to the benefits under the policy; and that the policy must have been
20.15 Such a protected policy does not form part of the insured’s insolvent estate
and cannot during his lifetime be attached or subjected to execution under a court
judgment. The proceeds of the policy will also upon the death of the insured not be
available for the purpose of the payment of his debts, provided that the insured is
survived by a spouse, 15 child, step-child or parent and the policy benefits devolve on
them.
20.16 The protection of the policy benefits and assets acquired by these benefits is
limited to an aggregate amount of R50 000, or such other amount as prescribed from
time to time. As far as assets acquired by the proceeds of the policy assets are
concerned, it lasts only for a period of five years from the date on which the policy
20.17 Provision is made for the selection of protected policies to be realised as well as
A SECURITY CESSION
insured’s creditors cannot attach it or its eventual proceeds since the policy is not
payable to the insured. 17 The creditors can only lay claim to the policy or its proceeds
if the beneficiary has failed to accept the nomination, rejected the nomination, or if
20.19 The question whether the right of an insured under a life insurance contract
with an as yet unaccepted nomination falls in the insured’s estate upon the
20.20 According to both the two-contract and the hybrid approach to the
otherwise, to the proceeds of the policy. At best he has a mere expectation. 20 Thus, if
the insured’s estate is sequestrated, the policy should according to this approach
20.21 By contrast, if the one-contract approach were followed, the position would be
different because the beneficiary is afforded a contingent right to the proceeds of the
________________________
14 LTIA s 1(1).
19 19.28–19.34, 19.45–19.51.
452
20.22 Two situations need to be distinguished in this regard: the position where the
policy has become payable before or during the sequestration of the insured’s estate,
20.23 As to the first situation, in Warricker NNO v Liberty Life Association of Africa Ltd21
20
paragraphs
three policies on the life of the insured were made payable to a beneficiary. The
estate of the insured was sequestrated and then he died. The beneficiary accepted the 20.13–20.27
benefit before the trustee could either surrender or revoke the benefit, something
the trustee was entitled to do given that the benefit was a revocable one. It was
contended that the policies fell into the insured’s insolvent estate. However, the court
held that the third-party beneficiary had a contingent right and that the intervening
sequestration did not prevent him from validly accepting the benefit even though the
policyholder changed the nomination after becoming insolvent. The policy therefore
did not remain lodged in the insured’s insolvent estate as if no one other than the
insured had any right to it. The beneficiary was entitled to the full benefit and not
20.24 In Pieterse v Shrosbree & Others; Shrosbree v Love22 the court likewise decided that a beneficiary may,
after the sequestration of the insured’s estate, accept the full benefit
in terms of the policy and that section 6323 of the LTIA does not confer on the trustee
20.25 In short, sequestration of the insured’s estate does not prevent the beneficiary
from acquiring a full-blown right by accepting the nomination while it stands. This
may be explained on the basis that a beneficiary derives a contingent right from a
contract in his favour. Naturally, if the nomination was revocable, the insured or his
surrendering the policy. 24 If the nomination has been duly revoked, the policy will
revoke it26 with the result that nothing prevents the beneficiary or his trustee from
accepting the benefit.
20.26 The second situation is where the policy has not yet become payable before or
during the sequestration of the insured’s estate. If the nomination is revocable and
the insured’s estate is sequestrated, the trustee will as always be entitled to revoke the
nomination and deal with the policy in the ordinary course of business. The matter is
obfuscated if the nomination is irrevocable and the policy only became payable a
long time after the sequestration. The right of the beneficiary to accept in good time
cannot be ignored and neither should the reversionary interest27 of the insured be
ignored. The beneficiary will in all probability accept in these circumstances and that
would be the end of the matter. Otherwise the policyholder’s reversionary interest in
the policy can be treated as a contingent right in terms of the Insolvency Act. 28
20.27 Where the estate not of the insured but of the beneficiary is sequestrated, it
cannot be disputed that the beneficiary or his trustee retains the capacity to accept an
________________________
23 For a discussion of the protection afforded by the LTIA s 63, see 20.14–20.18.
24 Warricker v Liberty Life Association of Africa Ltd 2003 (6) SA 272 (W) 277.
26 16.86–19.88.
27 19.49.
28 The definition of “property” in terms of the Insolvency Act s 2 includes contingent interests.
453
the beneficiary’s trustee would acquire a right to the proceeds. However, should the
beneficiary have rejected the benefit at any stage, his trustee would be unable to
20.28 As far as the rights of creditors to attach a life policy encumbered by security
cession are concerned, the position of a security cessionary is dealt with below. 30 If the
claim of the security cessionary has been satisfied, any remaining balance will be
20.29 A creditor who has obtained judgment against a solvent insured may attach his
rights from an indemnity policy in order to lay claim to the proceeds payable where a
loss has already occurred; or to lay claim to all future losses covered by the policy; or
20.30 If a policy has been attached by a creditor, it naturally does not imply that the
creditor could claim under the policy for a loss resulting from an infringement of his
own interest.
________________________
30 21.27–21.46.
454
21
insurance contract
A. Cession
....................................................................................................................... 455
A. CESSION
21
Definition
paragraphs
21.1 Cession is an act of transfer. 1 It comprises an agreement which provides that the 21.1–21.3
transferred, 4 for instance the right to the proceeds of a life policy or the insured’s
conditional right to indemnification. The cedent must have the intention to transfer
the right – the animus transferendi – to the cessionary and the cessionary must have the
rights and duties like a contract for the sale of an article. It is an example of a real
corporeal thing.
21.3 Cession of a right should therefore not be confused with the contract that may
underlie it. The underlying contract contains the supplementary terms relating to the
cession. The underlying contract may, for instance, be a sale creating a duty to
transfer the right in issue in return for a price. More often than not, the obligationary
________________________
2 Wilcocks v Visser & New York Life Insurance Co 1910 OPD 99 102.
4 Cf
5 Cf
Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A) 331G.
455
21.4 A cession may be effected without the concurrence or even the knowledge of
the debtor.
21.5 Only rights may be transferred by cession and not, for instance, “insurance
contracts” or “insurance policies”. When it is said that a policy has been ceded, it must
be understood as short for saying that the rights under the policy have been ceded.
21.6 Rights such as the right to the proceeds of a life policy are normally freely
transferable, but transferability may be excluded by statute, 7 at common law, or by
agreement.
cedendo. In such a case the rights under the policy cannot be ceded without the
21.8 There is no doubt that a policyholder may in principle cede his right to the
proceeds of his long-term policy, whether before or after the materialisation of the
risk. 9
21.9 The rights under an indemnity policy should likewise be alienable. However, it
has been suggested that in the event of a cession by the insured before the
occurrence of a loss, the consent of the insurer must first be obtained. 10 It is said that
the insurer has a common-law right to object on the basis that the personality of the
21.10 This view cannot be supported. 11 The right which is ceded is the insured’s
conditional right to be indemnified if he suffers a loss when the event insured against
takes place. The insurer is put at no greater risk than any other debtor in the event of
a cession without his consent and is adequately protected by the rule that the
cessionary takes the right subject to all the defects and limitations attached to it.
21.11 Like any creditor, an insured may not split a claim by ceding part only of a
21.12 A rather common clause in policies requires the insured to give notice of an
intended cession and states that the cession will take effect only upon registration of
________________________
7 Eg, in terms of the Pension Funds Act 24 of 1956 s 37A a retirement annuity policy is not capable of being
“reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be
liable to be attached”.
8 Van der Merwe et al Contract General Principles par 12.3.5.3 point out that generally not much is needed to
prove that the debtor has an interest in the prohibition.
9 Cf
Morkel v Holm (1882) 2 SC 57 where the court held accordingly in a case concerning a cession
10 Davis Gordon and Getz on The South African Law of Insurance 270, referring to Northern Assurance Co Ltd v
Methuen 1937 SR 103 112, 114; Fouche v The Corporation of the London Assurance 1931 WLD
11 The decisions referred to by Davis in this context deal with the substitution of the insured: 22.64–22.65.
Although he concedes the merit in this criticism, he maintains that it does not
apply to fire insurance where it is always necessary to obtain the consent of the insurer to
cession, as such a contract is considered a contract of personal indemnity between the insurer
and the insured. However, there seems to be no ground for distinguishing between fire
insurance and other forms of (indemnity) insurance: they all are “contracts of personal
indemnity” in that the insurer undertakes to pay an indemnity for the loss suffered by the
456
21.13 In a case dealing with competing cessions of rights under the same contract,
the court expressed the view that a cessionary, who is prior in time, has priority over a
later cessionary of the same rights who happens to have been the first to give notice
to the insurance company. 13 However, if the insurer pays in good faith to the second
21.14 For the validity or completion of a cession, it is not necessary that the
21
paragraphs
delivered to the cessionary. 15 However, the delivery of the document may be of 21.4–21.20
evidentiary value and it may well be conclusive evidence in the case of competing
cessions. 16
Consequences of cession
21.15 The effect of a cession is that the ceded claim vests in the cessionary and
nothing remains with the cedent. The cessionary is the (new) creditor and as such he
21.16 Thus, where the insured has ceded a vested claim in respect of a loss suffered
by him, only the cessionary is entitled to claim compensation for that particular loss,
but the insured can claim for any future losses he may suffer. If the insured has ceded
indemnity, the insured can claim neither for the particular loss nor for any future
loss.
21.17 The principle that the cessionary becomes the creditor upon cession of the
right is subject to the equitable rule that a debtor who performs in good faith to the
21.18 It is a fundamental principle of cession that the cessionary takes the right as it
is, with all its privileges but also with the defects and defences attached to it. This rule
contract usually creates a variety of duties that must be fulfilled if the insured’s claim
is to be enforced, for example, payment of the premium and following the proper
claims procedure. Thus, it has been decided that if the insured cedent had
surrendered his policy prior to the cession, a purported cession of the policy was
worthless. 18
21.19 Having ceded his right, the insured is not released from his contractual duties
but remains liable to the insurer; the duties resting on the insured do not pass to his
cessionary, for instance the duty to give notice of a loss. 19 Non-fulfilment nevertheless
provides the debtor insurer with a defence to the claim brought by the cessionary.
21.20 The insured cedent has no duty towards his cessionary to keep up the policy,
for instance by paying the premiums due on it, unless he has expressly or tacitly
undertaken to do so. 20 By the same token, the cessionary does not owe the insured
________________________
13 Mackenzie v Mutual Life Insurance Co of New York & Bilbrough 1906 TH 116.
14 22.11.
17 Stannic v Samib Underwriting Managers (Pty) Ltd [2003] 3 All SA 257 (SCA); Momentum Group Ltd v Van
Staden [2009] 4 All SA 218 (SCA); 2010 (2) SA 135 (SCA).
457
cedent any duty to pay the premiums, unless it has been agreed otherwise. This
applies even where the insured cedent has ceded the policy for security purposes. 21
right. 22
rights under an indemnity contract does not enable the cessionary to claim for any
loss he may sustain. If, for instance, the insured has transferred the insured motor
vehicle as well as his rights under the policy to the buyer, neither the insured nor the
21.23 The buyer will only become the insured if, by virtue of a delegation, the
obligation to indemnify the insured seller is replaced by a new obligation with the
buyer as the new insured. 24 From then on the buyer will be regarded for all intents
and purposes, rights as well as duties, as the new insured and the obligation of the
insurer will be to indemnify the new insured, not for any loss that the original insured
may suffer on account of his interests, but for the loss the new insured may incur in
21.24 Most life insurance policies contain a provision that the appointment of a
beneficiary will automatically lapse if the policyholder should cede the policy.
The better view, it is suggested, 26 is that the cessionary is simply substituted for the
policyholder as the holder of the ceded rights. Unless the cessionary revokes the
nomination, the nomination remains intact despite the cession and the beneficiary
21.26 This applies equally to both out-and-out cessions and security cessions. 27 In case of a security cession, the
policyholder retains a so-called reversionary interest which
means that on payment of the secured debt the cessionary is obliged to account to
the policyholder for the amount by which the proceeds of the policy exceeded the
amount of the debt. Any balance after payment of the secured debt should be subject
21.27 Not only rights under non-indemnity insurance contracts but also those under
21.28 The legal nature of a cession in securitatem debiti is controversial, 29 but such a cession must now be taken
to be in the nature of a pledge unless the parties have
________________________
22 Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A) 331G.
23 3.72–3.76, 3.82–3.86.
24 22.64–22.65.
29 Van der Merwe et al Contract par 12.5.3; Scott 1987 THRHR 175; Reinecke 1992 TSAR 677; Nienaber 2004 SA
Merc LJ 83; but cf Scott 2012 SA Merc LJ 323.
458
agreed to an out-and-out cession subject to a pactum fiducia. 30 This means that the
ordinary pledge. 31
21.29 The pledge construction may be interpreted to mean, 32 on the one hand, that
the security cession leaves the cedent with the mere skeleton of his personal right to
performance by the debtor33 and, on the other hand, that the cessionary acquires a
21
limited right to the same performance due by the debtor to the cedent.
paragraphs
21.30 So construed, a security cession is not a complete cession but amounts to the 21.20–21.35
performance owed by the cedent’s debtor. Provided this is borne in mind, it would
21.31 While the cessionary’s (pledgee’s) right lasts, the cedent cannot sue the debtor
for performance and neither can the debtor (who has notice) validly perform to the
cedent. Moreover, the cedent is not entitled to surrender the ceded policy and he
must fulfil all his contractual duties, for instance, the giving of notices. 35 The
cessionary is, in other words, the true creditor at least for the time being, but this
does not mean that the cessionary (pledgee) may terminate or compromise the
21.32 The personal right of the cessionary is protected in the event of the insolvency
of the cedent, because the cedent retains no power to recover the debt while the
21.33 Once the secured debt has been discharged, the “cession” falls away and the
right of the original creditor is ipso iure fully restored. No re-cession is required. 37
21.34 The pledge construction of a security cession apparently allows the courts to
tolerate an agreement between a life insurer and its insured in terms of which the
insurer takes the policy as security for a loan granted to the insured. 38
out cession, for then the policy must lapse on account of merger. 40 The correct
________________________
30 Johnson v Incorporated General Insurances Ltd 1983 (1) SA 318 (A). See also Grobler v Oosthuizen 2009 (5)
SA 500 (SCA).
33 This has been referred to as “a reversionary right” or “reversionary interest” and it is also said that the creditor
retains the bare dominium of his right: Bank of Lisbon & SA Ltd v The Master 1987
(1) SA 276 (A) 294I. The cessionary must deal with the ceded right like a bonus pater familias
and the cedent may take action to protect the ceded right, The cessionary may also not
compromise the ceded right without having been authorised by the cedent: In re Retmil Financial
34 Because it relates to a performance and not to a thing ( res). A distinction should therefore be drawn between a
pledge in terms of the law of things and a pledge according to the law of
obligations. The former creates a real right and the latter a personal right which is no less
effective. This construction of a security cession avoids the inelegantia iuris of having to speak of a
right to a right. However, Scott 1987 THRHR 175 179 suggests that a real right in favour of the
pledgee is created over the personal right which is the object of the security.
36 Truck & General Insurance Co (Pty) Ltd v Simrak Trucking 2005 JDR 0007 (SCA).
37 Grobler v Oosthuizen 2009 (5) SA 500 (SCA). This goes to show that there was no actual transfer to the
“cessionary”.
38 Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807 (A).
459
position seems to be that the insurer can take such a policy into safe custody on the
understanding that the insured would be restricted to further deal with it, for
21.36 When not the insurer but a third party insists on the security cession of a long-
term insurance policy, the provisions of section 44 of the LTIA must be observed.
21.37 When the debtor41 is in default with the repayment of the debt, the security
may be realised – cashed in – by the security cessionary. That, after all, is the very
purpose of a security cession. Should the ceded debt (eg a policy) become payable
before the secured debt, the cessionary may receive payment and retain the proceeds
in trust. However, the proceeds of the ceded debt may not be applied towards
payment of the secured debt before it becomes due unless the parties have agreed to
this effect. 42
21.38 In principle realisation of a policy may take the form of a claim for payment
from the insurer on the maturity or surrender of the policy; the taking of judgment
against the debtor and the sale in execution of the policy; or the on-cession of the
21.39 In each of these instances the security cessionary would be obliged to account
to the cedent for any surplus on the proceeds. If there is no surplus, the debtor
21.40 It would seem that if the policy has become payable or if it has acquired a
surrender value, the cessionary may cash the policy without approaching the court. 44
Where the right to the proceeds of the policy is not yet ripe for enforcement, say
because the policy has not reached maturity or does not permit of immediate
secured debt. He may then sell the ceded rights in execution of judgment and apply
the proceeds in satisfaction or reduction of the secured debt. Any surplus must be
21.41 A “parate executie” clause, entitling the security cessionary to sell the policy
without recourse to the court, will be enforceable provided the terms of the
agreement are not unconscionable or incompatible with public policy, for instance by
entitling the creditor to determine the fact of the debtor’s default, or by authorising
the creditor to seize the debtor’s property without the court’s sanction. 45
21.42 A pactum commisorium, that is, an agreement that in the event of the debtor’s
default the creditor (pledgee) may keep the security as his own property, is
unenforceable. However the parties may agree that the property pledged could be
taken over at a just price to be fixed at the time the debt fell due. 46
21.43 When an insurer is aware of a security cession by the insured, it should take
particular care that it does not make payment to the wrong party, for example, to the
________________________
41 Who would normally but not necessarily be the policyholder because the policyholder may also cede his policy
as security for someone else’s debt.
42 The cessionary will be liable for interest for the period from payment until the secured debt becomes due, In re
Retmil Financial Services (Pty) Ltd, Case no 18779/12 (WC) par 38.
45 SA Bank of Athens Ltd v Van Zyl 2005 (5) SA 93 (SCA). Cf also Nienaber 2004 SA Merc LJ 83 where the issue
is debated.
460
security cessionary if the debt has in the meantime been repaid, or to the
21.44 The position becomes more complex where the policy is made payable to a
nominated beneficiary48 and the policy is then ceded in security to, for example, a
bank. When it is the policyholder who cedes the policy, the bank’s right to its
proceeds is no stronger than the policyholder’s own right to the proceeds of the
21
policy. 49 In particular the bank would only have a viable claim if the nomination is
paragraphs
21.35–21.49
21.45 It has been decided that where a policy has been employed as security, the
policyholder can cede his right to the balance of the proceeds of the policy as security
for yet another debt. 50 Successive pledges are therefore possible, in accordance with
the idea that the pledgor (cedent) retains “dominium” of the right. 51 A person who
has taken a policy as security may not deal with the policy in disregard of the
21.46 May a security cessionary on-cede the ceded right to a further party in the
chain without the consent of the original cedent (the policyholder)? The law on the
point is debatable but the better view, it is suggested, is that every security cession,
B. ASSIGNMENT OF DUTIES
21.47 The word “assignment” is generally used to denote a transfer of both rights
and obligations. However, the precise meaning of assignment depends upon the
21.48 In the law of contract, the word “assignment” is nowadays used in a more
restricted sense to denote a transfer of a debt to a new debtor akin to the transfer of a
right by cession to a new creditor. 55 In what follows the word will be used in this sense.
21.49 An assignment in this limited sense does not create a new obligation, but only
and the substituted debtor but the consent of the creditor is required. This consent
________________________
47 Nienaber 2004 SA Merc LJ 83 par 12. For a security cession involving indemnity insurance and the issue
whether the insurer had (constructive) knowledge of the cession: Stannic v Samib
Underwriting Agents & Guardrisk Insurance Co Ltd [2006] 3 All SA 314 (T).
48 19.109–19.111.
51 Cf also Bank of Lisbon & SA Ltd v The Master 1987 (1) SA 276 (A) 294I for the view that a pledgor may
employ his reversionary right in securitatem debiti.
54 Simon v Air Operations of Europe AB 1999 (1) SA 217 (SCA) 228I. The use of the word differs from that in
English law where it may indicate a cession of an insured’s right; see Clarke et al The Law
of Insurance Contracts par 6.1, distinguishing between the assignment of the subject-matter of
insurance, the assignment of the right to recover under an insurance contract, the assignment of
the entire insurance contract, and the conclusion of a new insurance contract between the
461
South African Insurance Law
may be given either in advance56 or by way of ratification in arrears. Thus the parties
may agree, with the consent of the insurer, that a new premium payer will take the
assignment of, for instance, an insured’s duties does not mean that the new insured
acquires any rights under the policy, unless the assignment is accompanied by a
cession of the insured’s rights. If an accompanying cession has been effected, the
cessionary acquires the same rights which the cedent previously had.
in its limited sense – does not amount to a delegation because the parties do not
21.52 The concept of assignment in the limited sense described above, does not
21.53 Policies, particularly endowments and sinking fund policies, are sometimes
21.54 A viable market for the sale of second-hand policies is well established in South
Africa, 61 but it has of late lost much of its allure due to the introduction of a new tax
regime. 62
21.55 A policy cannot be sold once payment of its surrender or maturity value has
been made. 63
21.56 Both the LTIA64 and the STIA65 provide that transactions transferring all or any part of the insurer’s
business require the approval of the high court.
21.57 An arrangement between insurers whereby a liability of the insurer towards its
policyholders is to be substituted for the liability of another insurer towards such
________________________
57 Cf Northern Assurance Co Ltd v Methuen 1937 SR 103 112, 114; Fouche v The Corporation of the London
Assurance 1931 WLD 145 157.
58 22.62–22.65. The confusion is likely as assignment may also bear the wide meaning of novation (a new,
replacing agreement between the same parties) or delegation (a new, replacing
60 For a case involving the purchase of second-hand endowment policies, Securefin Ltd v KNA Insurance &
Investment Brokers ( Pty) Ltd [2001] 3 All SA 15 (T).
61 Some insurers maintain separate resale departments or subsidiary companies facilitating the on-sale of existing
policies by acting either as agents for policyholders or as cessionaries in their own
right.
62 Since October 2001, capital gains tax is applicable, with certain exceptions, to disposals and part disposals of
second-hand policies, even on the death of the new owner. On the tax aspects, see
63 On the sale of second-hand policies, see Nienaber and Reinecke Life Insurance pars 29.1–29.8.
64 S 37.
65 S 35.
462
unless the relevant registrar is satisfied that the policyholders have been or will be
made aware of the nature of such substitution and have signified their consent to it in
writing. 66
affecting not only the duties of the insurer towards its policyholders but also the
21
rights of the insurer against its policyholders. Normally all the parties involved will
paragraphs
have to agree to the substitution, but the legislature did away with this requirement 21.49–21.65
and insisted instead on judicial approval.
21.59 When application is made to a court for the approval of a transaction, 60 days’
prior notice must be given to the registrar and must be published in the media at
least 30 days before the application. 67 This enables interested parties to file objections
21.60 Subject to certain requirements, the court may approve the transaction68 and if
estate.
property, the rights and duties under the policies would become joint assets and
liabilities. For instance, a husband who has insured his vehicle will be able to claim in
full on behalf of both spouses for damage to the insured vehicle in spite of the fact
that by reason of his marriage in community of property, his personal interest in the
vehicle has been reduced by 50 percent. By the same token, life policies taken out by
one of the spouses before their marriage in community of property, will become the
21.63 If an insured dies, his indemnity policies will by operation of law be transferred
to his executor. 70 Subject to the terms of the policies, the policies will continue to
21.64 Long-term policies will usually either become payable on the death of the
insured policyholder or will come to an end before death, for example in the case of
a disability policy. However, it is conceivable that a life policy may continue after the
death of the insured, for instance where a life other than that of the insured has been
insured. In such a case the policy will on the insured’s death fall into his estate and
the terms of the policy will continue to regulate the relationships. It is furthermore
conceivable that a nomination for ownership has been made in a case of this nature.
21.65 On insolvency of the insured, his policies will not come to an abrupt end but
his rights and duties under them will be transferred to his trustee, together with all
________________________
68 LTIA s 39; STIA s 38. The transaction must, inter alia, not be contrary to the interest of the policyholders.
463
his other assets and obligations. The trustee will have to deal with them in accordance
with the Insolvency Act and subject to the provisions of the LTIA.
another person (the insured) in respect of any liability incurred by the insured
towards a third party, the latter shall, on the sequestration of the estate of the
insured, be entitled to recover from the insurer the amount of the insured’s lia-
bility towards the third party but not exceeding the maximum amount for which
21.67 In accordance with the common law, a third party who suffered a loss at the
hands of the insured will have to claim damages from the insured and if the insured
goes insolvent, the third party will have no more than a concurrent claim against the
insured’s estate. He will have no direct claim against the insured’s liability insurer.
21.68 The effect of section 156 is that if the insured’s estate is sequestrated, the third
party may recover directly from the insured’s liability insurer the full amount owed by
the insured to him, subject to the sum insured. Does this amount to a transfer by
nonetheless confers upon the third party no greater rights than those enjoyed by the
insured”. 73 According to the court the section “. . . does not transfer to, nor vest the
existing rights of an insolvent [insured] in the third party” but it “. . . rather creates a
new and distinct cause of action for the third party, on the sequestration of the
insured, as a means to recover from the insurer precisely what the latter owes the
21.70 If a third party relies on section 156, he is required to prove that the insured
has incurred a liability towards him, the third party; that the insurer is liable towards
the insured for that debt of the insured; and that the estate of the insured has been
sequestrated. 75
insurance contract against liability towards a third party – liability insurance – and not
21.72 It is suggested that if a person is insured with an insurer which in turn insured
its liability with a reinsurer, the primary insured will be entitled to claim, by virtue of
________________________
71 24 of 1936. On s 156, see Van Niekerk 1999 SA Merc LJ 59; Jacobs 2010 SA Merc LJ 608; Van Niekerk 2010
SA Merc LJ 453; Van Niekerk 2012 SA Merc LJ 449.
73 Par 17. See also Coetzee v Attorney’s Insurance Indemnity Fund 2003 (1) SA 1 (SCA); Le Roux v Standard
General Versekeringsmaatskappy Bpk 2000 (4) SA 1035 (SCA).
74 Par 17.
75 David Trust v Aegis Insurance Co Ltd & Another 2000 (3) SA 289 (SCA); Coetzee v Attorney’s Insurance
Indemnity Fund above.
76 Venfin Investments (Pty) Ltd v KZN Resins (Pty) Ltd t/a KZN Resins, unreported (SCA), discussed by Van
Niekerk 2010 SA Merc LJ 453.
464
section 156, directly from the reinsurer in the event of the sequestration of the
reinsured. 77
rather extended interpretation to section 156. The insured, O, took out a motor-
vehicle policy containing the usual qualified extension clause. 79 O authorised the use
of the vehicle by a third party, DK. DK incurred vicarious liability towards U for the
21
loss caused by its driver. DK was insolvent and U, relying on section 156, sought to
paragraphs
recover its loss from the insurer. The claim was rightly upheld but the court’s 21.65–21.79
21.74 The court explained that “[w]hat the section requires is only that the insurer is
contractually bound to indemnify the person who is liable to make good the loss (in
this case the third party). Moreover, the section does not apply only where it is the
insured (the person who contracted with the insurer) who has incurred that liability
to the plaintiff, for it applies expressly whenever the insurer is obliged to indemnify
any person in respect of the liability that is the subject of the claim.” 80
21.75 The view of the court that the section applies expressly whenever the insurer is
obliged to indemnify any person in respect of the liability that is the subject of the
claim and not only where it is the insured (the person who contracted with the
21.76 The section does not refer to “any person” or “someone” but specifically says
“another person” and designates him as the “insured”. Furthermore, it speaks of the
“liability incurred by the insured towards a third party”. The insurer must therefore be
obliged to indemnify the insured and not just “any person”. Moreover, the section
confirms that the right bestowed on the third party is the right to recover from the
insurer, on the sequestration of the estate of the insured, the amount of the insured’s
liability towards him, the third party. In short, section 156 deals with the liability
21.77 In this case the contracting insured did not incur any liability towards the third
party and, moreover, the insured was not insolvent as required by the section.
this case. By accepting the benefit, the authorised user, DK, would acquire a direct if
qualified right against the insurer to be indemnified against his liability towards an
21.79 In a subsequent decision, Hollard Insurance Co Ltd v Unitrans Fuel and Chemicals
(Pty) Ltd, 81 rather similar facts presented themselves, except that the driver of the
insured vehicle was not authorised by the contracting insured. Consequently the
________________________
77 The previous Insurance Act 27 of 1943 s 32(5) bis excluded reinsurance from the operation of the Insol-vency
Act 24 of 1936 s 156, so that the common-law position applied in the case of the
insolvency of a primary insurer. There is no similar exclusion in either the LTIA or the STIA.
78 2004 (6) SA 21 (SCA). See the discussions by Reinecke 2012 TSAR 342; Van Niekerk 2004 SA Merc LJ 286;
Van Niekerk 2012 SA Merc LJ 449.
80 Unitrans Freight (Pty) Ltd v Santam Ltd 2004 (6) SA 21 (SCA) 26.
465
claim against the insurer had to fail. Unfortunately the court made a number of
questionable observations that may well serve to muddle matters even further. 82
________________________
82 The court observed that a person claiming under s 156 had to be assisted by the insured (pars 27
and 31). As pointed out by Van Niekerk 2012 SA Merc LJ 449, this boils down to a confusion of
the third party claiming under an extension clause with the (third) party claiming by virtue of
s 156. Moreover, the court’s decision concerning the issue of res iudicata is open to some doubt.
466
22
B. Payment
...................................................................................................................... 468
C. Reinstatement
............................................................................................................
471
E. Prescription................................................................................................................ 477
F. Cancellation
............................................................................................................... 478
G. Compromise
..............................................................................................................
481
H. Set-off
.......................................................................................................................... 482
I. Waiver
......................................................................................................................... 482
J. Estoppel
................................................................................................................................... 487
22
paragraphs
22.1 Obligations under an insurance contract come to an end in the same way as the 22.1–22.2
22.2 The normal way in which obligations are discharged is by performance, but
obligations may be extinguished in various other ways, for instance by release, novation,
some of the ways in which obligations under an insurance contract may be discharged
________________________
1 Van der Merwe et al Contract General Principles pars 13.1–13.4. It is usually said that the contract itself is
cancelled or terminated but this is legalese for explaining that the obligations from the
467
contractual obligation.
obligations remain. Thus, an indemnity insurance contract remains executory while the
insurer has not yet indemnified the insured, 2 or if it has indemnified the insured for a
B. PAYMENT
22.6 An insurer’s obligation usually is to make payment of a sum of money4 and the same holds good for the
obligation of the insured. 5 A monetary obligation is performed
by the payment of the sum due. The amount will depend on the terms of the contract.
of that amount; so too when the insurer compensates the insured in full for a specific
loss, or pays the insured the sum insured or invested with it.
which normally takes the form of an agreement known as a real agreement. Such an
agreement is based on consensus about the debt to be discharged and the parties
involved. Performance may on occasion take the form of a unilateral act, where the
debtor is able to make payment without cooperation from the creditor, such as payment
by electronic means.
22.8 Payment of an obligation must be supported by the intention of the parties (or
party, in case of a unilateral juristic act) to extinguish that specific obligation. The
tenders to pay an amount in “full and final settlement” of the debt, for instance when an
insurer tenders to pay to the insured a smaller amount than the amount he claimed.
Such a tender may amount to an offer of compromise and, if so, the debt will be
ascertained amount, as is often the case with life insurance, or an ascertainable amount,
for instance compensation by an indemnity insurer for the loss sustained by the insured. 7
22.10 Payment of money must, as always, be made in legal tender, 8 unless the creditor
has agreed (initially or subsequently) to accept some other form of payment, such as a
cheque. 9
________________________
2 Cf
Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) 129B differing from Ex parte Liquidators
4 A life insurer may have undertaken, instead of paying a sum of money, to render a service such as a funeral, and
in case of indemnity insurance the insurer may have undertaken the obligation
to reinstate the object insured. For funeral insurance, see 26.67–26.74; for reinstatement, see
22.26–22.61.
5 5.89–5.90.
7 For the calculation of the amount due under an indemnity insurance contract, see 16.14 et seq.
468
22.11 In order to be effective, payment must be made to the person who is entitled to it,
cessionary, but if the insurer pays the cedent (insured) in good faith, it will be
protected. 11 In the case of a contract in favour of a third party, the latter is entitled to
payment provided he has accepted the benefit. Payment must then be made to the third
22
paragraphs
Late payment
22.3–22.18
22.12 Payment must be made in good time. Interest may be due on account of delay
by the debtor ( mora debitoris)13 or in terms of the life industry’s protocol on interest. 14
22.13 Late payment of a debt in terms of an insurance contract does not bear
interest as a matter of course, unless a date has been fixed for performance, for
instance in the case of an endowment policy. Failure by the debtor to perform on the
date agreed to, is known as mora ex re. The date fixed for performance must be certain
22.14 Depending on the contractual provisions, the debtor must in good time call on
instance the insurer must request the insured to complete a maturity form.
22.15 In Du Toit v Standard General Insurance15 the issue was whether a life insurer was in mora when it failed
to pay the sum insured on the death of the insured life. The court
decided that it was not a case of mora ex re because in terms of the life policy the
insurer was entitled, after the death of the insured, to insist on proof that it was
indeed liable in the circumstances. Moreover, the precise time of death was
uncertain, even though it was certain that the insured would die sooner or later.
22.16 If no date for performance has been agreed upon, interest will start running
from the date the insurer had been placed in mora by a proper demand for
persona. The demand must indicate the debt to be discharged and set a specific
22.17 A claim form would set the process of payment in motion, but usually it will
not comply with the requirements for a proper demand, for instance because it
omitted a specific date for payment. In Du Toit v Standard General Insurance18 a claim form had been filled out
on the death of the insured life, but the court found that it
did not amount to a proper demand for payment so as to put the insurer in mora ex
persona.
until it has been liquidated by agreement or otherwise, and in terms of the common
________________________
10 Cf Mostert v Old Mutual Life Assurance Co (SA) Ltd 2001 (4) SA 159 (SCA).
11 Momentum Group Ltd v Van Staden [2009] 4 All SA 218 (SCA); 2010 (2) SA 135 (SCA).
16 Bates & Lloyd Aviation (Pty) Ltd v Aviation Insurance Co, Bates & Lloyd Aviation (Pty) Ltd v Aviation
Insurance Co 1985 (3) SA 916 (A) 937F. In Rouwkoop Caterers (Pty) Ltd v Incorporated General
Insurance Ltd 1977 (3) SA 941 (C), the court apparently allowed the interest to run from the date
17 West Rand Estates Ltd v New Zealand Insurance Co Ltd 1926 AD 173. See also Van der Merwe et al
469
law mora could not occur in respect of such a debt. 19 However, under the Prescribed
Rate of Interest Act, 20 a court has the power to order interest on an unliquidated
22.19 Insurance contracts sometimes provide that payment by the insurer may be
made to a person other than the insured. This person is called a solutionis causa
adiectus, a receiver of payment. Thus, a contract may provide that in the event of a
loss, the insurer may pay the compensation due to the insured to the seller who sold
intended to acquire any rights under the insurance contract. He is a mere conduit
and cannot claim payment from the insurer. 23 Nevertheless payment to the receiver
22.21 The insurer has a choice whether to pay the insured or the receiver. The
insured cannot stop payment to the receiver unless the insurer has waived its right to
pay to the receiver or unless the insured can prove that he will suffer a loss if payment
is made to the receiver. Subject to this, the insured cannot claim payment to himself,
22.22 Some life policies make provision for payment of the premium by a person
22.23 If an insurer makes a payment while labouring under a bona fide mistake of
payment provided its mistake was reasonable. If a payment has been made without
22.24 A mistake of fact exists, for instance, where the insurer makes a payment in the
belief that the insurance contract is still current when it has already expired. 27
contract believing that the insured has suffered a loss while the insured has suffered
no loss at all, or where the loss he has suffered is less than the amount paid.
22.25 Insurers often deliberately make payments to the insured without being legally
bound to do so. Such payments are known as ex gratia payments. 28 An insurer is not
________________________
20 55 of 1977.
21 S 2A. Interest runs from the moment on which payment was claimed or summons was issued,
whichever is the earlier, but the court may make an order that the interest will run from an
23 Cf Compaan v Dorbyl Structural Engineering ( Pty) Ltd t/a Brownbuilt Metal Sections 1983 (4) SA 107
(T) 111.
24 Palmer v President Insurance Co Ltd [1967] 2 All SA 112 (O); 1967 (1) SA 673 (O) 676–677.
26 Vorster v Marine & Trade Versekeringsmaatskappy Bpk 1968 (1) SA 130 (O), Hosken Employee Benefits (Pty)
Ltd v Slabe 1992 (4) SA 183 (W); 1992 (4) SA 183 (W) 522. A claim for repayment may
become prescribed: Pension Fund of the Democratic Nursing Organisation of SA v Botha, unreported
470
insured fails to establish the insurer’s liability under the policy. Provision may also be
22
paragraphs
C. REINSTATEMENT
22.18–22.31
22.26 Insurance contracts often provide that the insurer may reinstate the object of
22.27 A typical clause of this nature reads as follows: “The insurer may at its own
option repair, reinstate or replace such motor vehicle or any part thereof or its
accessories or spare parts or may pay in cash the amount of the loss or damage not
22.28 Reinstatement means either the restoration of the object of risk to the
condition in which it was before the accident, or the replacement of the destroyed
22.29 It has been suggested that if an insurer elects to reinstate, it must reinstate in
full and not merely to the extent of the insured’s interest. 33 However, if the insurer
discovers that the insured lacks sufficient interest, it should at least be allowed to
cancel its election to reinstate and the insured should then be entitled to no more
than compensation for his actual loss, taking into account anything he may have
Election to reinstate
reinstate the property which it would not have had in the absence of the clause. 34 The
election lies entirely with the insurer and the insured has no say in the matter. It
appears that if the insurer has been afforded an election to repair the object, it is also
22.31 If the insurer decides to reinstate, it must notify the insured of its election by
word of mouth or otherwise. 36 An election, once made and notified, is binding and
the insurer cannot later change its mind; by selecting one alternative, the insurer is
________________________
29 Cf Daltron Forge (Pty) Ltd v Etana Insurance Co Ltd, unreported (GSJ), (2012) 15 Juta’s Insurance L
Bul 47.
31 Kali v Incorporated General Insurances Ltd 1976 (2) SA 179 (D) 187B. Cf also Kaffrarian Colonial Bank v
Grahamstown Fire Insurance Co (1885) 5 EDC 61; Smit v Rondalia Versekeringskorporasie van
SA Bpk 1964 (3) SA 338 (A); Grand Central Airport (Pty) Ltd v AIG South Africa Ltd 2004 (5) SA 284
(W).
32 5.63–5.67.
35 Union & National Insurance Co Ltd v Schwartz 1968 (1) PH A15 (N). However, in Kali v Incorporated
General Insurances Ltd 1976 (2) SA 179 (D) 188C the court said it was not persuaded
that an “option” expressed in the clause such as the one quoted in 22.27 did confer “such a
further option upon the [insurer]”.
471
deemed to have abandoned the other. 37 Notice of an election made must be given
within the time allowed, if any, otherwise the opportunity to make an election is lost
and the insured must be indemnified in money. If the policy does not provide for a
time within which the insurer must make its election, the insurer must do so within a
reasonable time. 38 This seems to imply that the right to make an election is lost
22.32 In terms of general principles, an election is not lost by the effluxion of time
but by waiver of an alternative. 39 This does not imply that an insured is powerless in
that he must await waiver by the insurer before he can enforce his right. The insured
can demand performance in money within a stipulated time, provided that he affords
22.33 It has been suggested that where an insurer decides to reinstate, a new
contract of reinstatement is entered into and that the new contract replaces the
Consequently, once an insurer has decided to reinstate, it can no longer invoke the
rule to this effect for South African law is not convincing. As appears from Smit v
contractual construction whether the parties intended to enter into a new agreement
22.34 In Smit’s case, the contention was advanced that the parties entered into a new
contract when the insurer (who had previously elected to reinstate) agreed to have
defective repair work rectified, and that a clause in the policy requiring the insured
to institute action within a certain time was therefore not applicable. The court
accepted that where a liability is incurred, the parties could create a new or
alternative ground for liability, but said that an undertaking to honour an existing
obligation does not necessarily amount to the creation of a new or alternative cause
concluded. If the parties enter into a new agreement, the terms thereof are a
question of fact. In the instant case the court found that no new contract had been
averred; the case for the insured was simply that the insurer had not performed the
insurance contract properly. This being so, the time limit in the policy was applicable
and in fact debarred the insured from claiming damages for defective reinstatement.
22.36 Assuming that no fresh agreement creating a new or alternative obligation has
been concluded by the insurer’s election to reinstate, the question arises whether all
the terms of the insurance contract remain in force. In particular, what is the position
________________________
37 This is in conformity with general principles regarding the exercise of an election: Feinstein v Niggli 1981 (2)
SA 684 (A) 698–699.
38 Kali v Incorporated General Insurances Ltd 1976 (2) SA 179 (D) 190A.
39 22.97.
40 Davis Gordon and Getz on The South African Law of Insurance 254. Contra Clarke et al Contracts par 29.2C;
Van Niekerk 1983 MB 165 169.
43 Smit v Rondalia Versekeringskorporasie van SA Bpk above 346H; cf also Chemfos Ltd v Plaasfosfaat (Pty) Ltd
1985 (3) SA 106 (A) for the approach of the courts to the creation of a new cause of action
by an acknowledgment of debt.
472
if the policy contains an average clause, a clause limiting liability to a specific sum, or
an excess clause?
22.37 The question as to the effect of an average clause was broached, although not
decided, in Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co. 44 The court
suggested that an insurer must reinstate to the full, without having a right of recourse
against the insured. 45
22
paragraphs
22.38 Although a reinstatement clause cannot bear the meaning that the insurer may
make a partial reinstatement, the question whether the insurer has a right of 22.31–22.44
Normally, the parties probably do not intend the insurer to have a right of recourse
in these circumstances. An insurer should rather elect to pay (in which case the
clauses in question become operative), or should stipulate that it will reinstate instead
22.39 The other terms of the insurance contract are ordinarily intended to operate
where at all applicable. Thus, where a policy contains an arbitration clause, the
22.41 The insurer is bound to indemnify the insured by payment in money, but has
the election to reinstate the insured. Since there is only one performance due,
namely payment, the insured can claim payment even before the insurer has
exercised its election. The insured can claim reinstatement instead of payment only if
reinstatement prior to making an election does not normally excuse the insurer from
22.43 If reinstatement becomes impossible after the conclusion of the contract, the
position is the same unless the insured is to blame. The insured has a negative duty
not to prevent the insurer from exercising its right to elect or to obstruct or frustrate
it. 48
22.44 If, by having the object repaired, the insured prevents the insurer from
exercising its election, the insured commits a breach of contract. Depending on the
construction of the contract and the circumstances of the case, this breach may
amount to a serious breach entitling the insurer to resile from the contract. 49
________________________
46 Jordaan v Scottish Assurance Corporation 1922 OPD 129. However, in this case the court seemed to accept
that an election to reinstate involves to a certain extent a supersession of the insurance
contract, so that after such an election the only contract subsisting between the parties is a
contract to reinstate. But the court said that an election cannot render inoperative those clauses
47 Van Niekerk 1983 MB 165 167; Van der Merwe et al Contract par 9.3.3.
48 Cf Kali v Incorporated General Insurances Ltd [1976] 2 All SA 443 (D); 1976 (2) SA 179 (D) 187G.
49 Union & National Insurance Co Ltd v Schwartz 1968 (1) PH A15 (N).
473
According to Kali v Incorporated General Insurances Ltd, 50 if the breach does not warrant rescission, the insurer
may make an election to have the object repaired for less than
the amount the insured has spent, consequently it is not liable for more than the
former amount; to have the object replaced with another, in which case it may tender
to replace the object and undertake to take over the object which has been repaired
at the insured’s expense; or to pay out the cash value, in which case it may tender the
cash and undertake to take over the vehicle which has been repaired at the insured’s
expense. 51
22.45 Once the insurer has elected to reinstate, the obligation becomes an ordinary
obligation with reinstatement as the performance due. The insured then acquires a
insurer is not to blame for the impossibility. Such a ruling would be harsh on the
insured. Then again, if the insurer has already been involved in considerable
22.47 It is conceivable that there may be a tacit term to the effect that if
reinstatement becomes absolutely impossible after the choice to reinstate has been
made, the insurer is once again required to perform by making payment, unless the
22.48 Where the insurer effects reinstatement it is only discharged upon delivery.
Thus, if the insurer rebuilds the insured house and, prior to delivery, the house is
damaged or destroyed for a second time, the insurer has to bear that loss, even
though it has happened after the expiry of the insurance contract. Reinstatement is
after all still possible. Any additional loss during the period of reinstatement must, of
course, likewise be borne by the insurer, provided that the loss occurs during the
22.49 If the property at risk has been destroyed and is reinstated by the insurer, the
22.50 An insurer who has decided to reinstate the object of risk, has the duty either
accident, or to replace it with a similar object, that is, with one which in substance
answers to the description of the original object. 54 The duty must be carried out
within the time allowed or, if no time has been stipulated, within a reasonable time.
22.51 Like any other contractual duty, the duty to reinstate may be breached by
impossible. In the case of mora where no date for performance has been set, the
creditor must make a demand for performance within a stipulated time which must
________________________
50 [1976] 2 All SA 443 (D); 1976 (2) SA 179 (D) 190H. In this case the insured had the insured
vehicle repaired in spite of the fact that the insurer reserved the election to reinstate.
51 It is not clear on what terms the insurer is required to take over the repaired object in terms of the last two
possibilities. However, as to the insurer’s right to salvage, see 18.143 et seq.
52 For the general principles involved, see Van der Merwe et al Contract par 13.4.1.
54 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61 67; Otto v Santam Versekering
Bpk 1992 (3) SA 615 (O). If the object is as a consequence of the restoration worth
more than before the accident, the insurer has no claim against the insured.
474
be reasonable in the circumstances. 55 It is conceivable that the insured may waive the
22.52 If a breach of contract has occurred in any of its various manifestations, the
normal remedies for breach of contract are available to the insured. Moreover, he
may be entitled to an interdict prohibiting the use of defective material in the process
22
for breach of contract is a claim for damages. In terms of general principles, the
paragraphs
insured may claim for direct as well as consequential loss resulting from the breach. 58 22.44–22.58
Thus, where the property restored is worth less than the property before the
accident, the insured may claim damages to make up for the shortfall. 59
22.53 When an insurer elects to reinstate the object, it requires the co-operation of
the insured to a greater or lesser degree, for example, the insurer must be allowed
22.54 An insured who has effected a security cession60 to a creditor, cannot proceed
against the insurer for improper reinstatement. 61 This power vests in the cessionary.
22.55 When deciding to repair or replace the insured object, the insurer normally
contracts in its own name with a third party to effect the repairs or replacement. 62
22.56 A third party who performs to the insured on the instruction of the insurer,
ordinarily intends to perform the insurer’s debt towards the insured. On this basis,
the third party who has performed his contract with the insurer has no redress
against the insured if the insurer becomes insolvent. The third party also has no
additional legal duty towards the insured and is only obliged towards the insurer to
the third-party repairer and the insured entitling the latter to claim damages from
22.58 If the third party who has carried out repairs to the insured object is still in
delivery and claim a lien. The third-party repairer’s lien may be either an enrichment
________________________
55 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co above 67; Otto v Santam Versekering Bpk above.
56 22.108–22.110.
60 21.27 et seq.
62 Otto v Santam Versekering Bpk 1992 (3) SA 615 (O) 621C–D. Cf also Van Niekerk 1983 MB 165
174–175. For a decision concerning a dispute as to whether the insurer had in fact authorised
the repairer to effect certain repairs: Foodcorp Insurance Fund v Eljoney Body Repairs (Pty) Ltd 2009
64 In Sandberg Transport BK t/a Sandberg v African Truck Accident Repairs (Edms) Bpk t/a Hermans Truck
Accident Repairs 2009 JDR 0262 (GNP), eg, there was apart from an agreement between the
repairer and the insurer, also an agreement between the repairer and the insured as to time for
the completion of the repairs and the correction of defective work. The insured based his claim
for damages (the cost of rectifying defective repairs and compensation for consequential loss
suffered) against the repairer on that agreement.
475
22.59 The third party will have an enrichment lien where, for example, he repairs
the insured object in the mistaken belief that he was authorised to do so by the
insurer. 65 The third party may retain possession of the object until he has been paid
the amount of the owner’s enrichment as a result of the repairs. This lien may be
enforced against the whole world, including the owner of the object, even though he
22.60 A debtor and creditor lien, by contrast, secures the contract price. It can only
be enforced against the other contracting party, 66 ordinarily the insurer, but if the
insured owner of the repaired object has expressly or tacitly consented that the
repairs be done, he is probably also subject to the lien even though he is not a party
to the contract67 and even though no judgment for the contract price may be entered
against him.
22.61 The insurer, too, may in appropriate circumstances claim an enrichment lien
over the object of risk. The possibility of such a lien may arise where, after the third
party has effected the repairs to the object of risk and has received payment from the
insurer, the insurer disputes its liability in terms of the insurance contract, takes
possession of the object, and claims a lien as against the insured. 68 However, it has
been held that the insurer cannot claim a lien since the improvements were not
effected while it was in possession of the insured object. 69 An enrichment lien can also
not be present since the repairs were not effected sine causa but were effected in
Novation as agreement
extinguished and replaced by a new one in its stead, 71 for instance, the insurer and
the insured agree to enter into a new insurance contract to replace an existing one
between them.
22.63 For novation is required an intention to substitute a new obligation for the old
one. In this respect novation differs from cession being a transfer of existing rights as
well as from assignment which is a mere transfer of duties. 72 Whether the necessary
________________________
65 Cf McCarthy Retail Ltd v Shortdistance Carriers CC 2001 (3) SA 482 (SCA); Outsurance Insurance Co Ltd v
Brabant Panel Beaters CC 2007 JDR 0043 (T), where a panel beater who towed and stored an
insured vehicle after an accident, sought to exercise a right of retention over it for the expenses
it had incurred.
66 United Building Society v Smookler’s Trustees & Golombick’s Trustee 1906 TS 623 628.
67 Cf Standard Kredietkorporasie Bpk v JOT Motors (Edms) Bpk h/a Vaal Motors 1986 (1) SA 223 (A) 236.
68 Pretorius v Commercial Union Versekeringsmaatskappy van SA Bpk 1995 (3) SA 778 (O); Singh v Santam
Insurance Ltd 1997 (1) SA 291 (A).
69 Singh v Santam Insurance Ltd above 295I–J. Quaere, whether the third-party repairer did not possess the object
for the insurer.
70 Pretorius v Commercial Union Versekeringsmaatskappy van SA Bpk 1995 (3) SA 778 (O) 782A–C; Singh v
Santam Insurance Ltd above 297D–I.
72 However, assignment is often also used in a wider sense, meaning a novation or even a
delegation: 21.47–21.52.
476
Delegation
22.64 Delegation is a specific form of novation and therefore also results in the
to the effect that a new insurer is substituted for the original insurer, or that a new
22.65 A valid delegation may be effected only by an agreement between all three
22
paragraphs
parties concerned, that is, between the original insurer, the new insurer and the
insured, or between the original insured, the new insured and the insurer. 74 An 22.59–22.70
E. PRESCRIPTION
Effect of prescription
22.66 The obligations created by an insurance contract are, like any other obligation,
period of prescription is three years from the time when the debt becomes due. 76 A
22.67 A debt is due when the creditor has the right to institute action for the
recovery of the performance due and the debtor is unable to raise a valid defence
against the claim. In the normal course of events, a debt owed by an insurer becomes
22.68 For the purposes of prescription, a debt cannot be regarded as due unless the
creditor is aware of the identity of the debtor78 and of the facts giving rise to the debt.
This is subject to the proviso that the creditor must be deemed to have the knowledge
22.69 In the case of life insurance, the contractual debt is due on the death of the
life insured and prescription commences to run against, say, the beneficiary if at that
stage all the facta probanda required to succeed in a claim against the insurer are
known to him, namely the existence of the policy, the identity of the insurer, his
nomination as a beneficiary, and the death of the life insured. The beneficiary does
not have to await the insurer’s decision whether or not to pay and the latter’s
22.70 In the case of liability insurance, where the insurer undertakes to indemnify
the insured against claims made against it by third parties, the insurer’s debt to the
________________________
74 Lazy Lion Lodge (Johannesburg) (Pty) Ltd v South African Eagle Insurance Co (Pty) Ltd 2010 JDR 0422
(GSJ).
75 68 of 1969. Cf Van der Merwe et al Contract par 13.4.4.
76 S 11(d).
77 S 10(1).
fund against the fund is postponed because of the member’s ignorance as to whether his claim
was against the fund or against the underwriting insurer (and as to whether the running of
prescription is interrupted by a claim against the insurer), Connolloy v The Southern Life Association
477
insured is due and prescription can commence to run only after the insured has paid
the claim against him or has at least committed himself firmly to doing so, for only
22.71 The LTIA makes provision for the prescription of a debt consisting of interest
provided that, in the case of a long-term policy entered into after 1973, such a debt
will not prescribe before the liability of the long-term insurer under the long-term
policy prescribes. 82
Interruption of prescription
begin a process by which the insured claims payment of the debt. 83 It may also be
insurer.
Time bars
22.73 In the case of claims based on insurance contracts, there usually are time-bar
clauses in the policy which extinguish claims under the policy at a time before
prescription has been completed. 84
F. CANCELLATION
Nature of cancellation
notifying the other party of the decision to cancel. 85 The general rules laid down for
context of insurance. 86
22.75 A right to cancel may stem from statute87 or contract.88 A right derived from
________________________
82 LTIA s 61.
83 In Cape Town Municipality v Allianz Insurance Co Ltd 1990 (1) SA 311 (C) the court held that the words
“payment” and “debt” had to bear a wide and general meaning and that prescription was
interrupted in terms of the Prescription Act s 15(1) by the issue of process against an insurer
with the view to determining the latter’s liability under an insurance contract, as opposed to
actually claiming the payment of money from it. In Van Wyk v Ou Mutual Lewensversekerings-
maatskappy (SA) Bpk 2005 JDR 0611 (T) the running of prescription was held to be interrupted
by the issue of summons not disclosing a cause of action, as such a summons was not a nullity but
84 17.34 et seq.
85 Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A) 954.
86 For the general principles, see Van der Merwe et al Contract par 11.4.
87 Eg, LTIA s 60(2) and STIA s 54(2), providing that an insured may by notice cancel an insurance contract
entered into with an unauthorised or unregistered insurer and that the insured will
( continued)
478
insurance contract. 89
Cancellation clauses
terms of a cancellation clause. 90 The clause may be in favour of the insurer or the
insured, or a right to cancel may be conferred on both. The clause usually makes
22
paragraphs
provision for a return of a rateable proportion of the premium, but does not 22.70–22.79
prescribe, as a condition for a valid cancellation, that the premium must first be
returned. 91
22.77 In its usual form, the cancellation clause does not require the exercise of the
right to cancel to be reasonable and no reasons have to be given92 for the exercise of
upholding the contract and cancelling it. 94 To cancel a contract, it is necessary to give
actual notice of the cancellation to the other party. 95 Notice must be given by the
cancelling party or his agent96 to the other party or his agent. 97 The notice must be in unequivocal terms and an
expression of a desire to cancel or a threat to cancel is not
22.79 Where the insurer cancels by giving notice to the insured, it bears the burden
of proving that the requirements for cancellation have been complied with, for
instance that it had in fact given notice to the insured, or, where it had given such
________________________
will then be regarded as being in the same legal position as regards that insurer as if the con-
tract had been cancelled on the grounds of a breach of contract by the insurer. See further
LTIA s 62(2)(c); STIA s 55(2)(c); the Policyholder Protection Rules (Long-term Insurance),
2004 rule 6.1–6.3; the Policyholder Protection Rules (Short-term Insurance), 2004 rule 7.3.
88 Cf
insurer may not unilaterally cancel a policy without giving 30 days’ prior notice directly to the
insured, or to an intermediary, in which case the insurer must satisfy itself that the notice has
90 Klempman v Law Union & Rock Insurance Co Ltd 1957 (1) SA 506 (W); Union & National Insurance Co v
Buxsons Butchery 1970 (3) SA 692 (N). In SA Eagle Versekeringsmaatskappy Bpk v Steyn
1992 (1) PH A11 35 (A) the point was made that the contractual right to cancel an insurance
contract by virtue of a cancellation clause is separate from, and exists alongside and in addition
91 Cf
Union & National Insurance Co v Buxsons Butchery 1970 (3) SA 692 (N).
92 Cf
Shimi v Mutual & Federal Insurance Co of Namibia, unreported (Namibia HC), (2009) 12 Juta’s
Insurance L Bul 35, from which it may be deduced that at common law an insurer is not re-
quired to give any reasons for its rejection of the insured’s claim, avoidance of the insurance
contract, or cancellation of that contract. If it does, the fact that the insurer relied on a wrong
or improper basis is not fatal and it may subsequently rely on any other, valid basis available to
93 Hothersall v South British Insurance Co Ltd 1945 WLD 25. This presupposes that a right to cancel does exist in
fact and in law.
94 Bekazaku Properties (Pty) Ltd v Pam Golding Properties (Pty) Ltd 1996 (2) SA 537 (C) 542E.
96 Hofmann v Economic Insurance Co Ltd [1956] 2 All SA 107 (W); 1956 (4) SA 380 (W).
97 In
Klempman v Law Union & Rock Insurance Co Ltd 1957 (1) SA 506 (W) the court decided that
in the event of the insured’s death, the insurer must give notice to the proper representative of
the insured’s deceased estate and that an executor has no locus standi as representative of the
479
22.80 Sometimes policy provisions dispense with actual notice, for example by
providing that the insurer may cancel merely by sending a notice to the insured at his
last known address. 100 This may now be in contravention of legislative prescripts. 101
Consequences of cancellation
distinction is usually drawn in the law of contract between continuous contracts and
cancellation usually operates e tunc (from then). This means that the cancelling party
may upon cancellation claim restitution of any performance rendered by him. 102 If he
has not yet rendered any performance, the obligations are simply extinguished.
(from now), that is, from the moment of cancellation. 103 The obligation is merely
terminated for the future. 104 What had been done cannot be undone. This means that
restitution of any performance rendered, cannot be claimed and also that a claim ex
contractu may survive the cancellation of the contract provided that it was accrued,
due and enforceable as a cause of action independent of any executory part of the
contract. 105
under an insurance contract can be extinguished only from the moment the
22.84 Cancellation does not necessarily extinguish the basic or principal obligation
such a case the insured will have any claim to a return of a part of the premium since
the premium is in exchange for the principal obligation to compensate the insured.
22.85 Where the principal obligation to compensate the insured is cancelled in its
entirety as from a certain date, the insured should be entitled to recover part of the
premium paid, at least in the case of a reciprocal insurance contract. A rough and
________________________
99 Truck & General Insurance Co Ltd & Another v Riasal Tours CC, unreported (N), (2005) 8 Juta’s Insurance L
Bul 97.
100 Klempman v Law Union & Rock Insurance Co Ltd 1957 (1) SA 506 (W) 512E.
101 Cf 7.103–7.106.
102 Thomas Construction (Pty) Ltd (in liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1986 (4) SA 510
(N) 515.
103 BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) 424G; Probert v
Baker 1983 (3) SA 229 (D) 235C; Thomas Construction (Pty) Ltd (in liquidation) v Grafton Furniture
105 Walker’s Fruit Farms Ltd v Sumner 1930 TPD 394; Shelagatha Property Investments CC v Kellywood Homes
(Pty) Ltd; Shelfaerie Property Holdings CC v Midrand Shopping Centre (Pty) Ltd 1995 (3) SA 179
(A).
106 Thus, in Pretorius v Kaltwasser 1998 (1) SA 721 (SCA) the court held that, despite the valid termination of
the policy, the insurer remained liable for a loss complete at the date of such
termination.
107 In the case of an affirmative warranty, that will be the date of the conclusion of the contract; 15.32 et seq.
480
ready method which may be applied to calculate the extent of restitution required, is
to divide the premium by the number of days that the insurance endures and to
Rescission of contract
22
paragraphs
difference is that a single contract cannot be rescinded pro parte, whether it is of a 22.79–22.89
continuous nature or a non-continuous nature. 110 Upon cancellation, the insured
must restore what he has received under the contract and so must the insurer.
However, rescission does not mean that the contract did not give rise to valid
G. COMPROMISE
one of two ways. The parties may resort to the judicial resolution of their dispute and
either litigate or arbitrate, 112 or they may negotiate and settle their dispute. Such
resolve a dispute existing between them irrespective of the merits of the dispute. The
disputed obligation is discharged (if it existed), with the result that any uncertainty
22.89 A compromise itself may, and frequently does, give rise to new obligations. 116
Thus, the insurer may undertake to pay a claim, although it maintains that the
offering to pay, in full and final settlement of the insured’s claim, a smaller amount
________________________
108 Thus, in Roseman v North British Assurance Co 1904 ORC 88 it was apparently suggested that the insurer
must return a proportionate part of the premium where the policy is cancelled prematurely.
111 Van Zyl v Credit Corporation of SA Ltd 1960 (4) SA 582 (A).
112 Cf the remarks in Padayachee v Union National South British Insurance Co Ltd 1983 (3) SA 246 (D) 249. As
to arbitration, see 17.5 et seq.
113 Eg, Hosken Employee Benefits (Pty) Ltd v Slabe 1992 (4) SA 183 (W); 1992 (4) SA 183 (W) 522
where the claim was settled with the insured by an insurance broker who did not have any (ac-
tual or ostensible) authority from either his employer or the insurer. See also Hlobo v Multilat-
114 Human v CMC Chemicals (Edms) Bpk, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 49.
115 Cf Stirling v Federated Insurance Co Ltd 1983 (1) SA 897 (W) where the court found that an offer of
settlement made by an insurer was duly accepted by an attorney acting on behalf of the insured. The compromise
was regarded as effective even before release forms had been signed
because the agreement was not subject to the signing of such forms.
116 Van der Merwe et al Contract par 13.3.3. A compromise may therefore effect a novation of an existing
obligation, but it does not always amount to a novation. For novation, see 22.62–22.63.
481
than the amount claimed by the insured. 117 As part of the settlement the insurer may
agree to pay the costs incurred by the insured prior to their agreement. 118
22.90 The general principles of the law of contract determine the position of the
insurance claim, for example whether the compromise constitutes a valid and
binding agreement. 119 Likewise, the scope of the compromise must be established by
applying general rules of construction, for instance where a claim disputed on the
H. SET-OFF
from an insurance contract , subject to the normal rules applicable to set-off. 120
I. WAIVER
22.92 It is commonly asserted that rights may be lost through waiver. This also
22.93 According to one view, waiver takes the form of an agreement in terms of
which a right is abandoned. 122 This form of waiver may more aptly be described as a
contract of release. A requirement for such an agreement is that the person who
waives, must be fully aware of the right he is waiving123 and must have communicated
________________________
118 Eg, Santam Ltd v Ethwar 1999 (2) SA 244 (SCA). In Hassett (Claude) v Santam Insurance Co Ltd 2000 (1)
SA 403 (C) the court indicated that subsequent costs other than those the defendant
undertook to pay, are to be dealt with in accordance with the discretion of the court.
120 Cf Maharaj v Sanlam Life Insurance Ltd 2011 (6) SA 17 (KZD) where the insurer was allowed to raise set-off
against the cessionary of a policy for a debt incurred by the cedent. The cessionary
was the wife of the insured cedent. The debt to the insurer was incurred during the subsistence
of the parties’ marriage in community of property. The husband was insolvent and the insurer
invoked set-off for one half of the debt owed by the insured; Saaiman v Saaiman 2012 JDR 0675
121 Cf, eg, Mahabeer v Sharma 1983 (4) SA 421 (D) 423H; Thomas v Henry 1985 (3) SA 889 (A) 896F.
122 De Wet and Van Wyk Kontraktereg en Handelsreg 266; Union Free State Mining & Finance Corporation Ltd
v Union Free State Gold & Diamond Corporation Ltd 1960 (4) SA 547 (W) 549; Resisto Dairy
(Pty) Ltd v Auto Protection Insurance Co Ltd 1962 (3) SA 565 (C) 571; Pienaar v Southern Insurance
Association Ltd 1983 (1) SA 917 (C) where the insurer continued to accept monthly premiums
in respect of a policy cancelled on the ground of non-disclosure and where the court found
(925H) that there was no waiver in that there was no fresh meeting of the minds of the parties
to undo the cancellation; In Steyn’s Estate v SA Mutual Life Assurance Society 1948 (1) SA 359 (C)
373–374, a life policy lapsed as a result of failure to pay a premium and it was unsuccessfully ar-
gued that the insurer had waived its right “to treat the policy as void” by retaining moneys sub-
sequently paid; In Regent Insurance Co Ltd v Maseko 2000 (3) SA 983 (W) 995–996, the court held
that it was established law that the waiver of a contractual right was itself a form of contract and
stressed the need for the insurer to communicate the waiver of its contractual right to repudi-
482
his intention to the other party. 124 The person who relies on the waiver, too, must, at
the time the waiver was allegedly communicated to him, have been aware of the right
in question. 125
22.94 The contention that waiver is an agreement rests, in part, on the argument
that a debtor may have an interest in the performance of his debt and that the
creditor should therefore not be entitled to release him unilaterally. 126 Treating
22
paragraphs
“abandonment” of rights involving a relationship of debtor and creditor. Where the 22.89–22.98
term “waiver” is applied in this sense, it may denote a concluded agreement of waiver
22.95 According to a second view, waiver is in essence a unilateral juristic act. 128 Thus, where a person has an
election between inconsistent remedies, such as upholding or
which course to take. By choosing one alternative, he is said to have waived the
other. 129
22.96 Waiver in this form involves a deliberate decision to abandon the right in
question and it takes effect when the other party learns of the abandonment or
renunciation. 130 A requirement for waiver in this sense is that the person waiving the
right must have knowledge of the material facts which give rise to his remedies. 131 It is
not certain, though quite probable, that, as is the position with waiver as an
agreement, he must also be aware of his rights. 132 This unilateral form of waiver
therefore applies only to rights and legal competences other than personal rights
22.97 Earlier authority seemed to justify the conclusion that a “right” to cancel a
contract could be lost by a simple failure to exercise that right within a reasonable
time. 133 It has since been decided that such a right can be lost only through waiver,
and that a failure to exercise the right within a reasonable time may, depending on
the circumstances, justify an inference that a waiver has occurred. 134 It follows that
failure to exercise the right within a reasonable time creates a presumption that the
waiver is involved where a contracting party must make a choice between upholding
________________________
124 President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk 1989 (1) SA 208 (A) 220I–J, holding that
waiver required at least an act on the part of the waiving party from which the intention to waive was evident and
which was communicated to the other party.
125 Ledingham v Commercial Union Insurance Co of SA Ltd 1993 (2) SA 760 (C) where, at the time when the
insured received the communication from the insurer in which the latter allegedly
waived its right under the insurance contract to rely on a time limit for the institution of a claim
127 Cf Union Free State Mining & Finance Corporation Ltd v Union Free State Gold & Diamond Corporation
Ltd 1960 (4) SA 547 (W) 550A.
130 Mutual Life Insurance Co of New York v Ingle 1910 TPD 540 550–551.
131 Feinstein v Niggli 1981 (2) SA 684 (A) 698H; Thomas v Henry 1985 (3) SA 889 (A) 896D.
132 Idem.
133 North Vaal Mineral Co Ltd v Lovasz 1961 (3) SA 604 (T).
134 Mahabeer v Sharma 1985 (3) SA 729 (A); Paradyskloof Golf Estate (Pty) Ltd v Stellenbosch Municipality
2011 (2) SA 525 (SCA).
483
and cancelling a contract. It is furthermore considered that waiver and election are
species of the same general concept. 135 This approach has been questioned. 136 It has been suggested that
“election” is a better term to explain what occurs when a
22.99 There is some doubt as to whether the test for waiver in any of its forms is
whether the waiving party subjectively intended to waive his right, 138 while the
22.100 A contract of waiver may, like any other contract, be concluded expressly or
tacitly, provided the conduct from which waiver is inferred is unequivocal. 141
Similarly, a unilateral waiver may take place by means of a tacit declaration of will.
22.101 Once a waiver has taken place, its scope must be ascertained. So, where an
insured was obliged to submit a claim within 15 days and the insurer, upon expiry of
this time, indicated that some leniency would be shown towards the insured in
submitting the claim, this did not mean that the insured could submit a claim after
22.102 If the insurer “reserves its rights in terms of the policy” in negotiating with the
22.103 In some instances the waiver of a right may be against public policy and
22.104 The burden of proving a waiver rests on the person who alleges it. 145
Waiver by insurer
22.105 Waiver by the insurer may occur in a variety of circumstances in the context
of insurance. The insurer may, by entering into an agreement with the insured, waive
________________________
136 Lubbe and Coetzee 1990 TSAR 65; Van der Merwe et al Contract par 11.4.8.
141 Hepner v Roodepoort-Maraisburg Town Council 1962 (4) SA 772 (A); Steyn’s Estate v SA Mutual Life
Assurance Society 1948 (1) SA 359 (C); Road Accident Fund v Mothupi above.
143 Ledingham v Commerical Union Insurance Co of SA Ltd 1993 (2) SA 760 (C) 764A.
144 In ABSA Insurance Brokers ( Pty) Ltd v Luttig 1997 (4) SA 229 (SCA) 241, eg, the court held that it was not
open to an insurer to waive its statutory right to claim premiums received on its behalf
by an agent or broker from an insured. This right flowed from a legislative measure prescribing
how agents or brokers should deal with such premiums and that the measure was enacted not
only for benefit of insurers but also to protect the rights of the insured and the public in gen-
eral.
145 Feinstein v Niggli 1981 (2) SA 684 (A) 698G. In Regent Insurance Co Ltd v Maseko 2000 (3) SA 983
(W), eg, the insured could not prove on a balance of probabilities that the parties had agreed
to extend the period the insured was allowed in terms of the insurance contract to issue sum-
mons and that the insurer had therefore waived its contractual right to repudiate the contract
484
any one of the numerous rights it enjoys, such as its right to receive material
information from the insured, its right of subrogation146 or its rights in connection
with the claims process. Thus, where the insured is required to give written notice of
a loss but gives oral notice to the insurer147 or its authorised agent148 which accepts such notice, the necessity for
a written notice is in so doing contractually waived.
Conversely, in a case where the insured was required to submit a formal claim within
a certain time, the court found that the mere fact that the insurer had sent out an
22
paragraphs
assessor to investigate the loss was not a waiver of the insurer’s right to have a formal 22.98–22.109
22.106 In Steyn’s Estate v SA Mutual Life Assurance Society150 the policy had lapsed because of non-payment of
a premium. The court stressed that the insured who
alleged that the policy had been revived, must prove conduct on the part of the
insurer which is inconsistent with an intention to regard the policy as lapsed and
consistent with an intention to regard the policy as revived. In this case the policy
provided that once it had lapsed, the insurer could decide to reinstate the policy,
provided that all outstanding premiums were paid up and a certificate of good health
was produced. It was held that mere acceptance of certain sums of money paid by the
“insured” was not “unequivocal conduct warranting an inference of waiver of the
acceptance of premiums from the insured constitutes a waiver or, put differently,
whether the insurer has elected to uphold the contract by accepting the premiums. 152
Thus, the insurer may waive its right to cancel if, knowing full well that the insured
if the insurer accepts the premium in respect of the renewal of the contract while the
Waiver by insured
22.108 Waiver by the insured may also occur. Where, for example, an insurer has
opted to have the object of the risk repaired, 154 the insured is usually required on
completion of the work to sign a document which records his satisfaction that the
work has been properly done. If the work is in fact defective, an attempt may be made
22.109 It seems, first of all, that any contract embodied in such a document is
ordinarily subject to the supposition that there are no serious hidden defects. 155 The
document may embody a contract between the insured and the insurer, or it may be
a contract between the insured and the repairer for the benefit of the insurer. In the
former case the insured cannot complain to his insurer about the reinstatement,
________________________
146 Richard Ellis SA (Pty) Ltd v Miller 1990 (1) SA 453 (T) (insurer waiving right of subrogation against any
partner or employee of the insured).
148 Cf Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61.
149 Norris v Legal & General Assurance Society Ltd 1962 (4) SA 743 (C); Ledingham v Commercial Union
Insurance Co of SA Ltd 1993 (2) SA 760 (C).
152 Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A).
153 Southern Insurance Association Ltd v Cooper supra.
155 Cf BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) 411G.
485
unless the contract can be set aside on the usual grounds. More likely, the document
will represent a contract between the insured and the contractor who did the repairs.
In such a case the effect of the document depends largely on whether the insured or
22.110 If the insured commissioned the work, the insurer fulfils its obligations by
paying the cost of repair. If the insured cannot recover from the person who did the
repairs, he has only himself to blame. By contrast, if the insurer commissioned the
work, the signed document may be no more than evidence that the work has been
done properly. In such a case the insured can dispute the correctness of the
document as against the insurer. The insurer may in turn look to the contractor to
remedy the defect because the insurer is not bound by the agreement between
insured and contractor that the work has been properly done, unless the insured had
authority to bind the insurer when receiving performance from the contractor.
22.111 Where the insurer has committed a breach of contract by rejecting the
insured’s claim and repudiating the insurance contract and the insured then elects to
keep the contract alive, the insurer cannot subsequently deny liability on the ground
that the insured had failed to comply with his contractual duties regarding the
22.112 Thus, a contractual term that requires from the insured notice and details of
the claim within a prescribed period after the occurrence of a loss, is considered
waived by the insurer’s repudiation of liability, provided that such repudiation was
made before the expiry of the prescribed period of time. If the repudiation occurred
after the period had elapsed, the insurer cannot be said to have waived its right to
rely on the term in question. 157 In these circumstances it is contended that it would be
a waste of time and effort for the insured to attempt to comply with the terms of the
application of the general principles that obtain when any contract is repudiated. 159
These principles have been explained on the basis of waiver. 160 However, the better
view appears to be that they do not rest on waiver, but that it is a consequence of a
repudiation that the obligations of the innocent party are relaxed to a certain
extent. 161
________________________
156 Myburgh and Co v Protecteur Fire Assurance [Protecteur Insurance] Co (1878) 8 Buchanan 152, (1878) 3
Roscoe 18; Irving v Sun Insurance Office 1906 ORC 24; Hurwitz’s Trustee v Magdeburg Fire Insurance Co 1917
TPD 443 448; Collen v AA Mutual Insurance Association Ltd 1954 (3) SA 625 (EDL);
Shooter t/a Shooter’s Fisheries v Incorporated General Insurances Ltd 1984 (4) SA 269 (D) 287. See also
17.21–17.22.
157 Bulldog Hauliers (Pty) Ltd v Santam Insurance Ltd 1992 (1) SA 418 (W), holding that an insurer’s failure to
rely on the late notification of a claim when it repudiated liability on the contract in
reliance on another ground, did not preclude it from relying on such late notification at a later
stage.
159 Cf Erasmus v Pienaar 1984 (4) SA 9 (T) and the authorities referred to there; Van der Merwe et al Contract
par 10.3.3.
160 Eg, Collen v AA Mutual Insurance Association Ltd 1954 (3) SA 625 (EDL) 629 (in the context of insurance);
NKP Kunsmisverspreiders (Edms) Bpk v Sentrale Kunsmis Korporasie (Edms) Bpk 1973 (2)
486
Exclusion of waiver
22.114 Some insurance contracts contain a clause which provides that no variation or
waiver of any term of the contract will be valid, unless it is made in writing and signed
22
paragraphs
affect a waiver which does not actually vary the agreement or a term in it. 164 Thus, if 22.109–22.117
an insured has committed a breach of a warranty, the insurer may informally elect to
uphold the contract. The parties may in these circumstances also agree verbally to a
pactum de non petendo in favour of the insured. 165 The clause further does not preclude
J. ESTOPPEL
insurance contract, 166 often in the alternative to waiver. The usual requirements for a
escape liability by relying on the failure of the insured to give timeous notice in terms
of the liability insurance contract. However, having received late notice of the
repudiated liability. The court found that there was a duty on the insurer, once it had
made up its mind to repudiate liability under the policy, to inform the insured of its
decision within a reasonable time. If the insurer wanted time to consider whether or
not to terminate, it was obliged to inform the insured accordingly because it must
have been obvious to the insurer that if it made no communication whatsoever to the
insured, the latter would inevitably infer from this silence that the insurer was dealing
with the insured’s claim under the policy. In the circumstances, the court came to the
conclusion that the insurer’s long period of silence and inaction amounted to a
representation to the insured that his claim was being attended to under the policy,
and that this representation had induced the insured to refrain from taking any steps
to deal with the third party’s claim against him. The insured was consequently
prejudiced and the plea of estoppel upheld.
________________________
162 Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1962 (3) SA 632 (A).
163 SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 (4) SA 760 (A).
164 Cf Impala Distributors v Taunus Chemical Manufacturing Co (Pty) Ltd 1975 (3) SA 273 (T) 277.
166 London & Lancashire Insurance Co Ltd v Abrahamson’s Assignee 1924 WLD 130; Steyn’s Estate v SA Mutual
Life Assurance Society 1948 (1) SA 359 (C); Norris v Legal & General Assurance Society Ltd
1962 (4) SA 743 (C); Adriatic Insurance Co v O’Mant 1964 (3) SA 292 (SR).
167 Thus, in the absence of a representation by or on behalf of the insurer, there is no basis on which insured can
rely on estoppel: Everton v Compass Insurance Co Ltd [2003] JOL 11268 (T).
168 1963 (1) SA 632 (A). See also Road Accident Fund v Mothupi 2000 (4) SA 38 (SCA).
487
23
A. Over-insurance
..........................................................................................................
489
B. Double
C. Under-insurance........................................................................................................ 501
D. Reinsurance
...............................................................................................................
504
23
A. OVER-INSURANCE
paragraphs
23.1 Over-insurance occurs when the sum insured, which is the maximum limit of 23.1–23.2
the insurer’s liability, is more than the total value of the insured’s interest in the
object of risk at the time of the loss. In other words, the sum insured is more than is
required to indemnify the insured fully in the event of a total loss.
23.2 Over-insurance may, but need not, be the result of double insurance. 2 Over-
insurance may be intentional (eg, when the insured, expecting an increase in the
value of the object of risk during the period of insurance, insures it for more than its
value at the time when the insurance contract is concluded) or not (eg, when the
value of the object of risk decreases during the period of insurance to below the
However, by reason of the indemnity principle, the insured cannot recover more
than an indemnity for his real loss. 3 This is because the sum insured is not the
minimum or invariable amount but the maximum amount recoverable in the event
of a loss. 4
________________________
2 Cf
23.7.
4 The insured in principle recovers the amount of his loss or the sum insured, whichever is the lesser. See, eg,
Wetzlar v General Insurance Co (1884) 3 SC 86 (insured claimed sum insured of
£1 000 for destruction of property by fire, but held entitled only to value of property insured, viz
£750); Edwards v London and Lancashire Fire Insurance Co (1896) 17 NLR 18 (even though article
insured for £65, insurer liable only to pay smaller sum if it appears to have been worth £30 or
£40); JNG Express (Pty) Ltd v Botswana Insurance Co Ltd, unreported (Botswana CA), (2009) 12
Juta’s Insurance L Bul 28 (on total loss of over-insured property, insured cannot recover sum
insured but only actual (market) value of property). For the sum insured, see 16.32–16.39.
489
23.3 There is no right in South African law for the parties to request a reduction of
the sum insured in the case of over-insurance, 5 and neither does over-insurance, even
if excessive and even if intentional, in itself affect the validity of the contract. 6
namely, where upon conclusion of the insurance contract the parties agree on the
total value of the object of the risk which exceeds its real value.8 There is no over-
23.5 If known to the insurer, over-insurance may be a factor in assessing the risk. 11 An insured, it may be thought,
will not be able to recover the premium, or any part of
the premium, from the insurer in the case and by reason of over-insurance. 12
premiums.
B. DOUBLE INSURANCE
23.6 Double insurance13 occurs when the same interest is insured by or on behalf of
the same insured against the same risk and the same loss with two or more
________________________
5 German law, by VVG art 74(1): there is such a right if the sum insured considerably (“erheblich”) exceeds the
value of the insured interest.
6 German law, by VVG art 74(2): fraudulent over-insurance, obtained with the intention of obtaining an unlawful
pecuniary benefit, renders the insurance contract void and the premium
irrecoverable.
7 Cf
Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61 (the court observing
that in their own interest and that of the insuring public, insurers ought to insure upon
appraisals of the value of property by their own reliable appraisers and not to accept as correct
the value placed on property by applicants for insurance; that would avoid intentional or
ignorant misrepresentations and prevent the possibility of over-insuring property for fraudulent
purposes).
7 For valued policies, see 4.18–4.24; 16.141–16.147, Lawsa Vol 12 Part 2 par 300.
9 Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere
Overeenkomsten Deel IX Verzekering par [418], pointing out that in the absence of an object of risk, as with
liability insurance, there is no question of over-insurance.
10 Cf 3.140–3.149. This is so in English law and is relevant only in the case of, eg, insurance on the life of a third
party.
11 See Qilingile v SA Mutual Life Assurance Society Ltd 1991 (2) SA 399 (W) 410H–J, 414I–J, 420I–J.
12 14.79–14.80.
13 For English law, see generally Merkin et al Colinvaux’s Law of Insurance pars 11.044–11.051; Clarke et al The
Law of Insurance Contracts par 28.9; and Birds Birds’ Modern Insurance Law par
14 Eg, where A insures his house with insurer X and also with insurer Y.
15 Co-insurance is where two or more insurers (or underwriters) are liable on the same insurance contract; in the
case of double insurance, the insurers involved are each liable on its own
insurance contract, whether these were concluded simultaneously or successively, as long as they
run concurrently and hence overlap. For terminology, see Van Niekerk Insurance Law in the
Netherlands Vol II 1182–1183; for co-insurance, see 1183–1199; Wansink et al Assers pars [189]–
( continued)
490
inveterate term,16 double (or dual) insurance should not be understood literally and
is not confined to instances where only two insurers are involved; multiple insurance
23.7 Insurance in favour of a third party may also result in double insurance.18
Double insurance may, but need not, amount to over-insurance.19 It will when the
total value of all the – sums insured by the different – insurances is more than the
23
total value of the insured’s interest in the object of risk at the time of the loss or
paragraphs
damage.20
23.3–23.9
23.8 Double insurance is of importance for at least two reasons. First, whether or not
the double insurance amounts to over-insurance, an insurer who pays more than its
proportionate share of the loss, has a right to contribution against each of the other
insurers.21 Secondly, insurance contracts often contain provisions that the insured
must, on pain of forfeiture, disclose other insurances which either exist at the time
the contract is concluded or are contracted subsequently22 and that, in the event of
double insurance, the insurer will either not be liable at all or will be liable to pay to
over-insurance. The insured may insure with as many insurers and under as many
insurance contracts as will satisfy his need for security. 25 Double insurance may arise
________________________
[193]. For examples of co-insurance, see, eg, Chiappini and Co v Jones (1837) 3 Menzies 181 (a
ship insured for £1 000, with the particular individual underwriter concerned underwriting the
policy for £200); Israel Bros v Northern Assurance Co and Union Assurance Society (1892) 4 SAR 175
(a claim on a fire insurance contract against two insurers trading together, the first insurer to be
liable for 3/5ths and the second insurer for 2/5ths of the insured’s loss); Standard General
Insurance Co Ltd v Voest-Alpine Industrieanlangenbau GmbH 1994 (3) SA 365 (A) (three insurers
jointly concluding an insurance contract, their individual liability to the insured being 65 per
cent, 20 per cent and 15 per cent respectively); Walker v Santam Ltd 2009 (6) SA 225 (SCA)
16 And otherwise than the approach followed and examples devised here for the sake of simplicity may suggest.
17 In Dutch law it is referred to as the concurrence of insurances (“samenloop van verzekeringen”), although the
terms double insurance and multiple insurance are also known: Wansink et al
18 Eg, where A insures his house with insurer X and B insures A’s house in his (A’s) favour with insurer Y: see
further 19.13–19.15.
19 The two notions are often equated: see, eg, Lowry et al Insurance Law: Doctrines and Principles 329–330. The
definition in the Marine Insurance Act, 1906 s 32(1) is not of double insurance
23 23.19.
24 Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 (it is competent to make a
double insurance on the same property and for the same interest).
25 In earlier times, an insured often took out a further insurance on suspicion that the first insurer (often an
individual underwriter) may be or turn out to be or become financially unable to meet
his obligations. For double insurance in Roman-Dutch law, see Van Niekerk Insurance Law in the
26 Not only when the insured himself concludes both insurances (eg, travel or holiday insurance may cover items
also covered under a householder’s policy), but especially when one of the
insurances is in the form of insurance concluded by someone else in the insured’s favour. In
German law, provision is made for the elimination of multiple insurances (“Mehrfachversicerung”)
arising without the insured’s knowledge by allowing the insured to cancel or reduce the sum
491
23.10 However, although in principle valid, double insurance does not mean that in
the case where it amounts to over-insurance the insured can recover more than is
necessary to indemnify him for his loss. The indemnity principle applies between the
insured and several double insurers on several insurance contracts in the same way as
it applies between the insured and a single insurer on one insurance contract. Once
the insured has been compensated in full, he has no further claim because the
23.11 The insured in principle has a free choice in recovering an indemnity for his
loss – but no more – from the various insurers. 27 He may recover the full amount of
his loss from any one or more of them, in which case he will have no further claim
against the others; or he may claim a proportionate amount from each. His recovery
from any insurer is limited only by the extent of his loss and by the terms of the
contract he has with that insurer, for instance by the relevant sum insured. And if he
does not succeed in recovering his full indemnity against any one insurer, he may
recover the shortfall from the other or others. 28 However, his recovery from such
other insurer is additionally limited also by the amount or amounts he has already
recovered. 29
23.12 The principle of free choice may be excluded or limited by appropriate terms
23.13 The requirements for double insurance are overlapping coverage, as to the
same interest of the same insured, in respect of the same object of risk, and existing
________________________
27 Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 (insured may select which
of two or more policies he will sue on and, in absence of rateable proportion clause, he is
entitled to recover under the policy sued on the full amount covered by it, such insurer being
entitled to claim a contribution from the other insurers); Refrigerated Trucking (Pty) Ltd v Zive
(Aegis Insurance Co Ltd, Third Party) 1996 (2) SA 361 (T). The principle of free choice is also
28 According to Roman-Dutch law, however, insurers were initially liable according to the order in which they had
underwritten the risk and as soon as an indemnity had been paid, the remaining
insurers were released from their liability towards the insured. By the mid-18th century, a change
occurred and a custom was introduced that gained the force of law in the courts, namely that,
inter se, all insurers were liable rateably according to the amount of their several subscriptions
without regard to any priority of time. See, eg, Van Bynkershoek Questiones Iuris Privati 4.2; Van
der Keessel Praelectiones 3.23.17; Van der Linden Koopmanshandboek 4.6.3; Lange and Co v The
South African Fire and Life Assurance Co (1867) 5 Searle 358. The common-law rule may, eg in the
case of the insolvency of one of the insurers, prejudice the position of the insured who has paid
a premium for each of the insurances, possibly with a view to obtain security against just such an
now also the position in practice. In modern Dutch law, a system of choice (“systeem van de vrije
insurer liability. However, it is subject to a contractual arrangement to the contrary. See further
Wansink et al Assers pars [484]–[486]. Likewise the position in German law: VVG art 78(1):
insurers liable as joint and several debtors.
29 Or, as the Marine Insurance Act, 1906 s 32(2)(b) and (c) has it, the insured “must give credit”
for any sums he has received. Should the insured recover more than an indemnity, s 32(2)(d)
deems the insured to hold the excess “in trust for the insurers, according to their rights of
contribution amongst themselves”. Arguably, in our law, the insurer will simply be able to
recover such excess from the insured as an undue payment and not involve the latter in the
31 These requirements are discussed in greater detail in Lawsa Vol 12 Part 2 par 168.
492
23.14 Although often thus mentioned, it is not a requirement for double insurance
that there also be over-insurance. 32 Further, it is not required that the policies
involved provide the same amount or financial limit of coverage. This follows from
fact that they need not cover an identical range of risks or objects of risk.
23.15 These requirements have to be met not when the several insurance contracts
are concluded, but when the communal risk materialises; only at that stage can
23
paragraphs
23.10–23.19
23.16 Insurers have sought to alter the common-law position pertaining to double
have imposed contractual duties of notification on the insured. The breach of such
duties, more readily provable than any fraud on the part of the insured, allows them
to avoid liability in appropriate cases. Next, the free-choice principle that allows the
insured to claim from any or all of the insurers and in any sequence he wishes,
as inconvenient, in particular to the insurer to which the insured turned first, and
hence the principle came to be excluded. And last, insurers in some instances seek to
avoid becoming involved in situations of double insurance and for this reason either
23.17 Generally these contractual provisions operate only when there is “other
insurance”. For this purpose, and unless the particular clause states otherwise, the
other insurance must be valid and operational and not, for instance, insurance that
has merely been applied for, or for which the premium necessary to put it into
operation has not yet been paid, or which has been avoided. The fact that the other
23.18 One category of clauses requires notice of the existence of other insurance. 35
The existence of other insurance is quite possibly today a material fact requiring
disclosure by the insured who is aware of it when applying for further, overlapping
insurance. 36
liability should other insurance exist. 37 They include escape clauses, 38 excess clauses39
________________________
32 Cf, again, the definition in the Marine Insurance Act, 1906 s 32(1) which is not of double
36 But cf Merkin et al Colinvaux par 11.044 (other insurance need be disclosed only if there is such a degree of
over-insurance as to give rise to the prospect of fraud).
37 Lawsa Vol 12 Part 2 par 169(b). Clauses excluding or subordinating or limiting an insurer’s liability under an
insurance contract where there is “other insurance” may in appropriate
circumstances have an effect on the operation (more specifically the exclusion of the free-choice
principle) or even the existence of double insurance. They also exclude the operation of the
principle of contribution because their presence removes one or more of the requirements for
contribution.
38 Idem par 169(b)(i). A clause excluding the insurer’s liability in situations of double insurance, when there exists
“other insurance” covering the same loss, is perfectly valid. It means that the
insured cannot claim an indemnity, in full or in part, from that insurer, but must turn to the
other insurer.
493
23.20 In a case of double insurance the insured is, subject to the terms of the
insurance contracts involved, 42 free to decide how much of his loss he wishes to claim
from which of the insurers involved. Naturally, though, he cannot in total claim more
than a full indemnity for his loss simply because there are multiple insurers and that
23.21 The question of contribution can arise only in connection with indemnity
insurance.
23.22 If an insurer has paid the insured more than its rateable proportion of the
insured’s loss, 44 it is entitled to claim from the other insurers that they each
contribute proportionately by paying it their share of either the loss or of what it had
23.23 The exercise by an insurer of its right to a contribution is unlikely to arise all
clauses in most indemnity insurance contracts. The presence of such a clause in one
or both of the insurance contracts involved, modifies if not excludes the possible
application of contribution. 45
23.24 The right to a contribution is not unique to insurance law, but is well known in
23.25 In the law of delict46 concurrent wrongdoers are jointly or severally liable for
the same damage. The plaintiff may sue any one of them for the full amount of his
damages, or may sue both in the same action, or may sue the other for the balance if
he only partly recovered his damages from one. Payment by one wrongdoer absolves
the other from or reduces its liability towards the plaintiff, but the other remains
liable to make a contribution to the wrongdoer who had paid the damages in full or
who had paid more than its share. The wrongdoers’ respective degrees of fault is the
23.26 In the law of contract47 co-debtors, too, are liable jointly or severally. Debtors
are co-debtors when they are liable in terms of distinct obligations for the same
________________________
39 Idem par 169(b)(ii). An excess clause provides that in situations of double insurance, when
there exists “other insurance” covering the same loss, the insurer’s liability is to be subordinate
to that of the other insurer. See also the discussion in that sub-paragraph of Samancor Ltd v
Mutual and Federal Insurance Co Ltd, 2005 (4) SA 40 (SCA). And see further on this decision
23.38.
40 Idem par 169(b)(iii). Insurance contracts often contain a provision that in the event of double insurance, when
there is “other insurance” covering the same loss, the insurer will be liable only
for its proportionate share of the loss. Such limiting clauses are referred to as rateable
proportion clauses.
41 On contribution, see Merkin et al Colinvaux pars 11.052–11.065. Clarke et al Contracts par 28.9
regard contribution as solely a matter between insurers and not as part of the law of insurance
43 Refrigerated Trucking (Pty) Ltd v Zive (Aegis Insurance Co Ltd, Third Party) 1996 (2) SA 361 (T) 367H,
374F–G.
45 For rateable proportion clauses, see 23.19 n 40, Lawsa Vol 12 Part 2 parr 169(b)(iii).
46 See Neethling et al Law of Delict 265–267. The position is now statutorily regulated but the underlying
common-law principles remain. As to the common-law right of concurrent (as
opposed to joint) wrongdoers to claim contribution inter se, see Windrum v Neunborn 1968 (4) SA
494
performance. 48 The creditor, again, has an election and may claim the whole or part
of the performance from any one or more of the co-debtors, 49 or may claim from all
jointly. And if one co-debtor performs completely or in part, the others are absolved
in full or have their liability reduced. A co-debtor who has performed, has an ex lege
right recourse against the other co-debtors for their proportionate share of the
performance. 50 The co-debtors’ respective shares are determined on the basis of their
number and unless there is something to the contrary in their respective contracts
23
paragraphs
23.20–23.29
23.27 It has been said that a right to contribution, operating as it does between
insurers, does not depend on either their respective insurance contracts or any
contract between the insurers themselves, but rests on principles of natural justice
and equity. 51
23.28 Alternatively, it may be argued that52 a right to contribution is a naturale of an indemnity insurance
contract. It is one of the legal consequences of such an
insurance contract that an insurer who has paid more than its rateable proportion of
the loss, succeeds as against the insured to the rights of the insured against the other
insurer or insurers, 53 subject to the qualification that only a rateable proportion may
insured’s rights against the other insurers takes place by the operation of law in
therefore a right of recourse by one insurer against another which has also insured
the same interest of the same insured in the same object of risk against the same loss
– that is, where there is double insurance – and where that other insurer is a co-
concerned, the double insurance, although involving more than one insurance
________________________
48 Eg, liable either under different contracts, or for divisible but identical performances under the same contract.
49 A co-debtor may not claim that the creditor sue the others for their share: it has no automatic right equivalent to
the beneficium divisionis, or to that conferred by a clause like the rateable
proportion clause.
50 Cf, eg, Kroon v Enschede and Others 1909 TS 374 (contribution in case of suretyship entitling a co-surety on
payment of the debt to claim a contribution from other co-sureties without a cession of
action from the creditor; in the absence of contractual privity, the surety’s right to contribution
51 See, eg, Windrum v Neunborn 1968 (4) SA 286 (T) 290, observing that given its equitable basis, the “same
principles would therefore be common” to all rights of contribution whether in delict
or in contract; Samancor Ltd v Mutual and Federal Insurance Co Ltd 2005 (4) SA 40 (SCA) par [16]
(contribution is an equitable remedy, not based on any contractual relationship between co-
insurers; Shell Auto Care (Pty) Ltd v Laggar 2005 (1) SA 162 (D) (discussion of the basis of the
right of contribution between co-debtors and whether the right exists automatically, unless
53 Cf Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 (the insurer stands in the
place of the insured to receive a contribution from other insurers also liable to pay
54 23.30–23.38.
55 See, eg, Clarke et al Contracts par 28.9; Lange and Co v The South African Fire and Life Assurance Co (1867)
5 Searle 358 (in the case of double insurance, the several policies are considered as one
insurance).
495
have been met. The absence of any one of them may be raised by an insurer when
23.32 Secondly, a loss must have occurred for which, given the double insurance,
both insurers become liable. Put differently, both policies must respond, or at least
have been liable to respond, to the loss. 57 Thus, the insurer from whom a
contribution is claimed must also have been liable towards the insured at the date of
the payment by the first insurer, if not at the time of the loss. 58
23.33 Thirdly, the paying insurer claiming a contribution must have paid more than
its rateable proportion of the insured’s loss. It is not required that it should either
have indemnified the insured in full, or even that it should have paid the insured
everything that was due under its policy. 59 It is also not required that the double
23.34 Fourthly, the paying insurer claiming a contribution must have paid under a
legal obligation and not as a volunteer. In this regard a difference is drawn between a
to pay at all on the policy – and payment innocently or mistakenly made under
circumstances where the insurer was unaware of the existence of “other insurance”
and therefore did not rely on a rateable proportion or similar clause in its own policy
but simply paid out more than its proportional share. Such payments are currently
contribution. 60
contribution against another insurer is the effect of escape and excess clauses in one
or both of the contracts. As pointed out, such clauses, if effective, ordinarily exclude
or postpone the liability of the one insurer. 61 Put differently, they exclude the
23.36 An excess clause for instance, turns an otherwise concurrent liability into a
successive or hierarchical liability between the insurers involved; they are not, or are
no longer liable for the same loss, but the one is liable only if the other is not, or only
for an excess not recoverable from the other. In short, there is no double insurance
and hence no contribution between the insurer to a primary policy and the insurer to
________________________
59 Thus, the other insurer may be liable in part to the insured for the portion of his loss not yet indemnified and in
part to the paying insurer for a contribution.
60 Merkin et al Colinvaux par 11.060, observing that the rateable proportion clause does not operate without more
as a waiver of the right to a contribution in the case of a payment in full,
but only does so where the paying insurer failed to ascertain the existence of “other insurance”,
or paid knowingly. The possibility that a payment or over-payment in ignorance of the existence
of “other insurance” will merely entitle the insurer to recover the undue payment from the
insured rather than to claim a contribution from the other insurer (even if the latter may well in
English law.
61 See again Lawsa Vol 12 Part 2 pars 169(b)(i) and 169(b)(ii) respectively.
496
a subsequent excess of loss policy. 63 Such insurers are not co-debtors but a primary
23.37 Where an excess insurer paid the insured on the basis that it was the only
insurer, it is not entitled to contribution from the primary insurer, but may claim in
full from the other on the basis of subrogation. Likewise, where the primary insurer
23
23.38 In this regard the correctness of the decision in Samancor Ltd v Mutual and
paragraphs
liable excess insurer66 who had paid the insured, only a right of contribution against a
primary insurer67 and not a recovery in full on the basis of subrogation. 68 The insurers were arguably not co-
debtors, not liable for the same performance, and accordingly
rateable proportion clause the insurer’s liability towards the insured may be so
limited, or because the insurer, having paid the insured more than its rateable
23.40 Complex problems, not least of mathematics, may arise, and become more
complicated when more than two insurers are involved. They are exacerbated by a
dearth of legal authority, probably because the issues are invariably resolved by
litigation. 72
________________________
63 Merkin et al Colinvaux pars 11.054, 11.057 (no contribution in principle between insurers bearing different
layers of – the same – risk), 11.058 (no contribution if a policy “does not
respond” to a loss at the time of the loss, eg, because its cover was removed by an express term
66 Whose policy contained an excess clause making it liable towards the insured only to the extent that the other
insurer was not, or not fully, liable for the insured’s loss.
68 For the difference between contribution and subrogation, see 23.48–23.53, Lawsa Vol 12 Part 2
par 70.
69 The court seems to have been of the view that the excess clause merely affected the precedence in which the
insurers involved could have been sued by the insured, and not the relative status of
their liability and the fact that they were or remained co-liable. It did not regard the contractual
provisions as excluding double insurance, co-existing liability between the insurers involved, and
thus a claim for contribution. They merely excluded the insured’s choice as to which of the
insurers to sue in the first place, not their co-existing liability; their effect was procedural rather
than substantial. For a further discussion of the decision, see (2005) 8 Juta’s Insurance L Bul 28–
47.
71 One should assume, it seems, that the rules as to the determination of an insurer’s proportional liability is the
same whether they are applied to determine the extent of an insurer’s liability
towards the insured under a rateable proportion clause, or towards another insurer for purposes
of the exercise of its right of contribution. In other words, an insurer’s proportionate share of
the insured’s loss is always the same, whether it has to be determined how much he should pay
the insured, or how much more it paid the insured than, as between the co-insurers, it should
have.
72 Numerate lawyers are welcome to try following the calculations involved in determining the
rateable proportions in O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v
497
23.41 In a straightforward but practically unusual case, where the sums insured and
coverage in both policies are identical in all relevant respects, the loss is simply
apportioned equally between the insurers involved. Thus, if the loss in respect of a
house insured for R800 amounts to R400 and insurer X insured it for R400 and B
insured it for R400, each would be liable for R200 of the loss. 73
the sums insured and for each insurer to pay such proportion of the loss as its sum
insured (the amount it underwrote) bears to the total of the sums insured (the
aggregate amount insured by all the policies). Thus, if the loss in respect of a house
insured for R800 amounts to R400 and insurer X insured it for R600 and B insured it
for R200, X would be liable for ¾ (R300) and Y for ¼ (R100) of the loss. This is called
the “maximum liability” approach because the maximum of the two insurer’s
23.43 There is authority for the proposition that the relevant time for determining
the total sums insured is at the time when the insurance was concluded and not at the
the only workable approach in all cases of property and liability insurance, 75 insurers
are liable in proportion to the amounts for which each is liable individually. Put
differently, each insurer’s independent liability for the insured’s loss is calculated and
their relative proportional liability is the proportions those figures bear to their total.
Thus, if the loss in respect of a house insured for R800 amounts to R400 and insurer
X insured it for R600 and Y insured it for R200, X’s total liability for the loss will be
R400 and Y’s R200, so that Y bears Ϝ (R266.66) and Y ϛ (R133.33) of the loss; if the
23.45 The maximum liability approach is criticised, and the independent liability
approach favoured, because a sum insured is merely the insurer’s maximum liability
for a loss, not its actual liability: other limiting factors and terms may reduce its
23.46 In the case of concurrent liability insurances, it has conclusively been held in
England78 that the independent liability approach should be followed as being more
________________________
73 Cf Van Buuren and Co v Caledonian Insurance Co (1896) 3 Off Rep 52 (goods worth £1 000 insured for £500
with one insurer and for £500 with another insurer so that in case of total loss of goods,
each insurer liable for half the amount of insured’s loss, namely for £500); Refrigerated Trucking
(Pty) Ltd v Zive (Aegis Insurance Co Ltd, Third Party) 1996 (2) SA 361 (T) 374G–H.
74 Cf Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 (goods insured for £2
000 with insurer A and with other insurers for a total of £9 000 at the time of the first
insurance, for £7 000 shortly after such insurance (one of the other insurances to the value of
£2 000 being, to the knowledge of insurer A, about to lapse and having lapsed at that time), and
for £6 000 at the time of the fire (other insurances having in meantime lapsed, been cancelled
or reduced); held that insurer A’s rateable proportion of the insured’s total loss of the goods
had to be calculated on the total insurances of £9 000, not £6 000 (which would have resulted in
75 That is the position in Dutch law: Wansink et al Assers par [488] (liability “naar evenredigheid van de
bedragen waarvoor de betrokken verzekeraars ieder voor zich onder hun eigen polis aangesproken konnen
76 Birds Birds’Modern Insurance Law par 18.3 offers the following neat explanation: insurers are liable equally on
the independent liability method whenever the loss is smaller than the lesser of
the sums insured; when the loss falls in between the sums insured, the insurer with the larger
sum will gradually attract more liability; only when the loss is the same as or greater than the
total sums insured, will the calculation be the same as under the maximum liability approach.
498
realistic in the circumstances. Some of the reasons advanced include the fact that
otherwise than in the case of property insurances, liability insurance premiums are
not calculated in proportion to the sum insured; the sum insured as limit of the
liability insurer’s liability is not determined with reference to any object or objects if
risk, is often arbitrary and simply to protect the insurer against exceptional claims –
accordingly it may vary significantly in two policies covering the same liability,
especially if the one is dedicated liability cover and the other merely add-on liability
23
paragraphs
cover in a comprehensive policy; also, some liability policies provide unlimited cover 23.41–23.50
23.47 But also in the case of property insurances with different ranges or scopes,
where the sum insured by each not only differs but each provides different albeit
apportioning the loss. The policies involved may cover a common object of risk but
also other (non-common) objects so that the sums insured by each may, unless
between those policies on the basis of their respective sums insured will be skewed
and unsatisfactory. In those cases, too, the independent liability approach may be the
23.48 Both the right to contribution and the right to subrogation79 are rights of
between them.
23.49 Contribution is a right one insurer has against another; it is exercised in its
own name. Subrogation is a right the insurer has against the insured, in respect of
the latter’s rights against third parties: the insurer exercises its right of subrogation in
its own name against the insured, but proceeds against the third party in the name of
the insured. Although both apply only to indemnity insurances, they serve different
indemnify the insured for his loss. However, a relationship of co-debtorship can in
However, the mere fact that both are liable to indemnify the same person (insured or
creditor) for the same loss, does not mean they are invariably co-debtors. Neither
does the fact that one is not an insurer mean that they cannot be co-debtors. 82 That
________________________
80 It is often said that subrogation ensures that the insured does not receive more than an
indemnity, while contribution ensures that insurers do not suffer injustice inter se because of the
indemnity principle. Clearly, though, contribution also applies where there is no over-insurance
81 But see 23.28 for the view that contribution is based on an implied term of the indemnity
insurance contract.
82 In the same way, the mere fact that they are both insurers does not mean that they are co-
499
depends on the facts of each case, including the terms of the respective contracts
they concluded with the insured or creditor83 and on policy considerations. 84
insured against or for the same loss. The insurer and the third party are not co-
debtors; they do not share the insured’s loss proportionally, but the third party is,
even if only ultimately, primarily liable for the insured’s loss. Such a third party may,
of course, also be another insurer (or a contractual indemnifier), either the third
party’s liability insurer, or an insurer who, by reason of terms in his policy and/or in
the other insurer’s policy, is, compared to the other insurer, primarily liable towards
the insured. Such insurers likewise do not share the insured’s loss; there is no
contribution between them. And if the secondarily liable insurer has paid the
insured, its payment is res inter alios acta as far as the primarily liable other insurer is
recouped in full by the other insurer who remains liable as against the insured
despite such payment. Conversely, if the primarily liable insurer has paid the insured,
its payment discharges the liability of the secondarily liable insurer as against the
insured so that no claim remains against the latter to which the paying insurer may
be subrogated. 85
23.52 For an insurer who has paid the insured, there is either a right to subrogation
or one to contribution – or possibly a right to none of them – but not a right to both
of them. If one applies, the other is excluded. The explanation for this, simply, is that
in the case of co-ordinate liabilities for the same debt, payment in full by the one
debtor extinguishes the debt, leaving no right of the creditor against the other debtor
to which the paying debtor may be subrogated, but merely entitling it to claim a
contribution from that other debtor. Conversely, in the case of unequal, layered
liabilities, payment in full by the secondarily liable debtor does not release the other
(primarily liable) debtor for which such payment is res inter alios acta; as a result,
subrogation is possible to allow both the paying debtor to recoup what he has paid
and preventing the creditor from retaining both that payment and what he may
stances. 86
________________________
83 In English law, eg, there is authority for the view that where one indemnity is due under an insurance contract
and another indemnity is due to the same person under another form of
contract, the insurers are indemnifiers of last resort and their liability subordinate to that of the
“contractual indemnifiers”. Hence, the correct remedy for an insurer which has paid before the
contractual indemnifiers is a subrogation action against the third-party indemnifier for the
entire sum it paid rather than a contribution action for a proportion of the amount paid. See,
eg, Caledonia North Sea Ltd v British Telecommunications Plc (Scotland) [2002] 1 Lloyd’s Rep 553
84 Such considerations dictate, eg, that a delictually liable third party is primarily liable towards the insured and
that an insurance payment by an insurer to the insured is res inter alios acta and will
not relieve the third party of liability. As to collateral benefits, see further 16.150–16.168
85 See Samancor Ltd v Mutual and Federal Insurance Co Ltd 2005 (4) SA 40 (SCA) pars [4]–[5] for the different
fields of application of contribution and subrogation.
86 Thus, co-insurers may be entitled to a contribution among themselves in respect of subrogation rights against
third parties and thus share in the proceeds of proceedings against such third
parties.
500
C. UNDER-INSURANCE
23.54 There is under-insurance87 when the sum insured, which is the maximum limit
of the insurer’s liability, is less than the total value of the insured’s interest in the
object of risk at the time of loss or damage. 88 To establish whether there is under-
23
paragraphs
23.50–23.60
23.55 It is not usual to refer to under-insurance in this sense in the context of non-
indemnity insurance. 90
23.57 Otherwise, a person who under-insures his interest, or whose interest becomes
under-insured during the period of cover, is, in the event of loss or damage, entitled
to recover up to the amount of the sum insured or the amount of the loss, whichever
is the lesser amount. Thus, if an item worth R1 000 is insured for R500 and there is a
total loss or a partial loss of R400, the insured can recover only R500 or R400, as the
for less than the insurable value of his interest in the object of risk, he is, by the
automatic application93 of the principle of average, 94 deemed to be, in common parlance, “his own insurer for
the uninsured balance”.
23.59 This means that the marine insured will, as far as the insurer is concerned,
determined by dividing the sum insured by the (higher) true value of the object of
the insurance. So, if a ship worth R1 000 at the time of the loss or damage is insured
for R500 and there is a total loss or a partial loss of R400, the insured can recover
only R500 or R200, as the case may be. Put differently, given that the sum insured
covered only 50 per cent (500/1 000) of the value at risk, the insured can recover
23.60 The effect of average is readily apparent in the case of a partial loss; in the case
of a total loss, which is in many forms of insurance relatively rare, it may be thought
that average does apply but does not, given the limit imposed on any recovery by the
________________________
87 See generally Wansink et al Assers par [417]; Birds Birds’Modern Insurance Law par 15.9; Clarke et al
Contracts par 28.8A; Merkin et al Colinvaux par 10.029; Jerry Understanding Insurance Law 652–
657; Lowry et al Doctrines 328; Van Niekerk Insurance Law in the Netherlands Vol II 1246–1250; Van
88 Cf Minister of Education v Stuttaford and Co (Rhodesia) (Pvt) Ltd 1980 (4) SA 517 (Z) 423H.
89 Chemical Specialities Ltd v Hollard Insurance Co Ltd, unreported (KZP), (2011) 14 Juta’s Insurance L
Bul 135.
90 Thus, the fact that it may be said that a person does not have “enough” life cover, does not mean he is “under-
insured” in the technical sense.
93 Ie, the principle applies by virtue of law, ex lege, in all marine insurance contracts.
94 The word “average” in this context points to proportionality and should be distinguished from the meaning it
bears in marine insurance in the expressions “general average” and “particular
95 Put differently, the insurer and the insured are treated as “co-insurers” and share the loss proportionally. Hence
the term “co-insurance” in American law: see Jerry par 93[b][i].
501
sum insured, mathematically produce a different result from the case where it does
not apply. 96
23.61 Given that premiums are often at least to some extent calculated with
reference to the amount of the insurance (the sum insured), 97 under-insurance works
remain fully insured, insurers may make provision in non-marine insurance contracts
for the application of the average principle in the event of under-insurance. This may
insurances – simply by stating that the insurance is “subject to average”. The result is
23.63 The insurer bears the burden of proving the existence of under-insurance and,
hence, that it is entitled to apply average to the insured’s claim. 100 The average clause
itself may provide when the insured is to be taken to be under-insured for purposes
of (the application of average under) the clause. 101 Likewise, the application of
proportion or percentage – say, 80 per cent – of the value of the object of risk. 102 This
may avoid the application of average in instances of slight and usually inadvertent
under-insurance.
23.64 If an insurer elects to reinstate the object of risk, it is not entitled to invoke an
average clause to require the insured to contribute and to pay a proportional share of
________________________
96 Alternatively, given that it is a feature of average that the insurer pays less than the sum insured (Clarke et al
Contracts par 28.8A), it does not apply to a total loss as the insurer then pays the
sum insured, which is in all cases the limit on the amount of indemnification recoverable. In ei-
98 Such a clause may provide as follows: “Where immediately prior to its loss or damage the
market value of property separately insured under this policy is greater than the sum for which
such property is insured, the insured shall be deemed to be his own insurer for the difference
and the insurer’s liability shall be limited to that sum which bears the same proportion to the
amount of the loss or damage as the sum insured bears to the aforesaid value.”
99 O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co (1866) 1
Roscoe 372.
100 See Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61 (building insured for £600
and although the insurer initially alleged it to be worth £800 at the time of the loss so
that it was liable only for ¾ths of the insured’s loss, the actual value of the building at the time
of the loss, as also later admitted by insurer, was no more than £600; accordingly the insurer,
not having established under-insurance, was held not entitled to any reduction in its liability in
101 See Mutual and Federal Insurance Co v Chemalum (Pty) Ltd 2007 (2) SA 479 (SCA) where it was held, on an
interpretation of the clause, there was under-insurance as defined in it, resulting in
an application of average and in a proportional reduction in the amount recoverable from the
insurer.
102 Thus, where the average clause does not specify for its application a proportion or percentage of under-
insurance, average will apply in all cases of under-insurance. In American law, it is said
(Jerry 683), a co-insurance system can range from a pure or 100 per cent to a zero per cent (or
no co-insurance) system.
103 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61. As to reinstatement, see
22.26–22.61.
502
that the insured retains a real financial interest in the preservation of the object of
risk. 105 It means that, as far as the insurer is concerned, the insured cannot insure
23.66 The application of average by means of average clauses has been subjected to
criticism, 107 especially in instances where the under-insurance is not by design108 but 23
arises, often after the conclusion of the insurance contract, because of an inflationary
paragraphs
increase in the value of the object of risk, something of which the insured may not be 23.60–23.66
aware. 109 For this reason, it may be thought, courts should – at least in non-
commercial insurances – not readily hold an average clause to have been tacitly
agreed upon. It has also been said that no more effect should be given to an average
clause than is absolutely necessary. 110 One response from insurers has been to provide
for an automatic periodic increase in the sum insured (and, with it, in the amount of
the premium due) in accordance with the inflation rate or a price or similar index.
This, to some extent at least, counters the effect of creaping under-insurance in the
________________________
104 Compulsory under-insurance by legislative fiat was a prominent feature of early insurance
regulation in Roman-Dutch law: see Van Niekerk Insurance Law in the Netherlands Vol II 1231–
1246. The same result may be achieved by having the insured warrant to keep a specified por-
105 Steyn v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96 104.
106 The clause is therefore usually formulated in such a way that the insured is not allowed to insure the
proportion of the loss, which he is to bear, with another insurer. It may provide, eg,
that “in no case shall the insurer pay more than two-thirds of the value of the property insured
under this policy and the insurance is only granted on the condition that the whole sum in-
sured under each item is not more than two-thirds of the market value of each item”. See Steyn
v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96; Zeeman v Royal Exchange
107 See Lange and Co v The South African Fire and Life Assurance Co (1867) 5 Searle 358 (questioning whether
effect should be given to a clause by which the insurer, having stipulated for a premium calculated on £1 000 and
having bound itself to pay that sum, could so far undo its under-
taking as to make itself liable for less than £1 000 while retaining the payment of the premium
calculated on the full £1 000); Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5
EDC 61 (referring to average as a vicious system not conducive to commercial morality: not on-
ly might it give the dishonest insured a strong incentive to over-insure his property in the hope
of destroying it fraudulently, but it is also unfair that after the insurer had for an indefinite pe-
riod received premiums on a larger amount, often determined by the insurer’s own estimate, it
became entitled then to pay a smaller sum to the insured, who is often ignorant of the average
clause).
108 As may have been the case in Cornelissen v Equitable Fire Insurance Co (1861) 4 Searle 35 (where a house
was insured for £500 but was at the time worth more than that, having just been completed at a cost of £900).
109 In German law, therefore, the proportionality following on the application of average applies only if the sum
insured is “considerably less” than the insurable value at the time of loss: VVG
art 75. In England, average clauses, while common in commercial policies, are rare in domestic
110 Kaffrarian Colonial Bank v Grahamstown Fire Insurance Co (1885) 5 EDC 61 (expressing the view that as
the clause is inserted for the insurer’s own benefit and alters the insured’s position in its
absence detrimentally, giving the insurer a right not maintainable at common law, the clause
should not be construed favourably to insurer and given greater effect than was absolutely ne-
cessary).
503
D. REINSURANCE
General
23.67 A reinsurance contract is an insurance contract in terms of which an insurer
transfers the risk or risks112 it has taken over under an insurance contract or contracts
in whole or, more usually, in part113 to another insurer or insurers. The latter receives
a premium in exchange for assuming the risk from the direct insurer. By transferring
or “ceding” 114 its primary insurance risks to another insurer, the original, direct,
primary or “ceding” insurer becomes the reinsured and the insurer to which the risks
insurer can therefore relieve itself of the risk, or a part of the risk, 115 it has
underwritten and taken over under the primary or “head” insurance contract.
23.68 Reinsurance involves the further spreading of risk. 116 It is a way in which
insurers manage their exposure to assumed risks by reducing their potential liability
on insurance contracts117 and so maintain and stabilise their financial solvency if not
increase their capacity to assume further risks. It is also a way in which an insurer may
protect itself against the consequences of a catastrophic loss in the form of losses that
23.69 There may be a whole chain of reinsurance contracts in that a reinsurer may
cede the risk, or a portion of the risk, it has taken over from a direct insurer to yet
referred to as a retrocession with the ceding reinsurer called the retrocedent and the
insured, being a primary insured, takes out two or more policies with two or more
insurers, or from the situation where such an insured cancels one policy and takes
out another in its place. In both these instances the second policy, whether it be an
additional policy or a replacing policy, may be concluded with a view to the possible
insolvency or failure of the first insurer and thus to “reinsure” the same risk. 118
more insurers undertake a several liability towards the same insured in respect of the
________________________
112 Ie, either a single, large risk or all the risks in one particular class of business.
113 The insurer may be obliged by the reinsurance contract to retain a portion of the risk(s)
involved.
114 The term is used loosely in most legal systems, and not in the technical sense of a “cession” as understood in
South African law.
115 Thus, the primary or head policy may provide cover against all risks, whereas the reinsurance policy offers
cover only in respect of the hazard of fire; or the primary policy may cover all losses from a particular peril, while
the reinsurance policy covers only total losses from that peril.
116 Whereas primary insurance involves the spreading of risk amongst a group of similarly exposed insured (see
again 1.13–1.16), reinsurance involves the (further) spreading of risk among a
group of insurers.
117 Reinsurance was mentioned (alongside co-insurance contracts and layered insurance pro-
corporate insurance market: Santam Ltd and Emerald Insurance Co Ltd, unreported (CT), (2010)
118 At common law, so-called solvency reinsurance (in effect double insurance, concluded by an
insured with another primary insurer) was recognised alongside reinsurance proper (conclud-
ed by a primary insurer with another insurer): Van Niekerk Insurance Law in the Netherlands
Vol 1 442–452.
504
same risk. 119 Likewise, the transfer (or assignment) by an insurer of one or more of its
23.72 There are two main categories of reinsurance arrangement, each with many
23
paragraphs
23.67–23.77
23.73 Within both these categories there are two main kinds of coverage. Both
facultative reinsurance and treaty reinsurance may be written on a proportional or a
non-proportional (excess) basis. Both these bases further occur in a variety of often
indemnity insurance, so that it takes on the nature of the primary insurance (the
reinsurance is then a further, fresh contract on the same object or objects of risk as
covered by the direct insurance; a further policy on the direct risk or on the original
then a distinct insurance covering the primary insurer’s liability). 122 This ultimately
contract.
considered as a further insurance on the direct risk or the class of business carried on
by the direct insurer (thus, a reinsurance of the risks of a marine insurer is in essence
liability. 123
23.76 The principles which govern direct insurance contracts generally also apply to
reinsurance contracts. Thus, the same essential features of an insurance contract will
have to be met before the contract can be classified as one of reinsurance, 124 just as the general requirements for
the validity of an insurance contract will have to be met for
does between two insurers, the application of principles no different to those that
apply in the case of a direct insurance contract, may produce different results. 126
________________________
119 Standard General Insurance Co Ltd v Voest-Alpine Industrieanlangenbau GmbH 1994 (3) SA 365 (A) 368C;
for co-insurance, see 23.9.
120 For further details, see Lawsa Vol 12 Part 2 pars 177–178.
121 This may lead to confusion with double insurance: see again 23.6–23.12.
122 Expressed in terms of the interest theory, the insurable interest in the first instance is that of the primary
insurer in the object of risk insured under the primary insurance contract (thus,
both insured and primary insurer have an – a distinct – interest in the same object), and in the
second instance that of the primary insurer in not incurring liability under the primary insur-
123 For the legislative provisions concerning reinsurance, see Lawsa Vol 12 Part 2 par 181.
126 Eg, the test for the materiality of facts in connection with non-disclosure and misrepresentation, the reasonable
person (in the position of an insured) test, may in the context of reinsur-
ances have to be taken to be a reasonable person (in the position of an insurer) test which will
result in additional, reinsurance-related facts – eg, those relating to the direct insurer’s under-
writing practices, claims experience (see Merkin et al Colinvaux par 17.007 for further exam-
505
Further, there are several special terms that commonly appear in reinsurance
contracts and that have a particular effect on the relationship between the insurance
23.78 Despite the involvement of the primary insurer (the reinsured) in both
contracts, and despite the fact that reinsurance contracts may contain or share
identical terms, the primary insurance contract and the reinsurance contract are
separate contracts and involve distinct obligations (between, respectively, the insured
and the insurer or reinsured, and between the latter and the reinsurer).
23.79 The primary insurer is liable to the insured irrespective of the existence of, or
the liability of a reinsurer under, a reinsurance contract. 128 At common law, further,
there is no contractual relationship between the primary insured and the reinsurer
and the former has no direct claim against the latter. Likewise, the reinsurer is liable
on the reinsurance contract only as against the reinsured primary insurer, not also or
________________________
127 On the relationship between the primary insurance and the reinsurance contracts, see further Lawsa Vol 12
Part 2 par 180.
128 Generally a clause in an insurance contract to the contrary is statutorily declared void: LTIA s 56(c); STIA s
51(c).
506
24
intermediaries
A. Introduction
..............................................................................................................
507
(a)
Insurance
agents
...............................................................................................
514
(b)
Brokers
...............................................................................................................
517
(c)
Broker
consultants
............................................................................................
524
E.
A. INTRODUCTION1
24
Representation as a legal concept2
paragraph
24.1
1 The authors are indebted to Louis Wessels, Leanne Jackson and Jo-Ann Ferreira, all of the FSB, who, in their
personal capacities, contributed extensively to and revised the section in Lawsa Vol
12 Part 2 pars 182–241 on which this corresponding but curtailed version of the legislative
2 See generally Havenga Insurance Intermediaries; Nienaber and Reinecke Life Insurance in South Africa pars
17.1–17.48 17. The concept “representative” intersects at diverse levels with the
statutory definition of “representative” discussed below in the section entitled “The Legislative
Regime”.
507
to a legally relevant fact ( regsfeit), 4 is any act to which the law attaches the
24.2 A “representative” in terms of the FAIS7 has a somewhat narrower and distinctly
one person, the representative, is empowered (ie, granted the authority) to conclude
a juristic act on behalf of another, the principal. The source of authority is usually but
normally contained in a dedicated contract of mandate, 11 but the authority may also
even be derived from the common law or legislation. Not every representative is thus
particular task. The task may or may not consist of the conclusion of a juristic act (eg,
merely soliciting proposals for insurance). In the first situation, the mandatary
derives his authority from the contract of mandate to represent the mandator; two
contracts are involved: the contract of mandate and the insurance contract. The
governed by the law of contract in general and the rules applicable to contracts of
mandate in particular. 13
24.5 Absent actual authority, the ostensible “principal” (the first party) is not
contractually bound, but he may nevertheless be bound if his conduct has led
someone else (a third party) reasonably to conclude that the person who ostensibly
represented him (the second party) had the requisite authority to act on the first
party’s behalf. 14
________________________
5 A unilateral juristic act, such as an offer; certain forms of waiver; certain notices, or, in a different context, a will.
7 37 of 2002.
8 These concepts are all defined in FAIS and in the Insurance Acts.
9 24.13 et seq.
10 24.1.
11 Joel Melamed & Hurwitz v Cleveland Estates (Pty) Ltd, Joel Melamed & Hurwitz v Vorner Investments (Pty)
Ltd [1984] 2 All SA 110 (A); 1984 (3) SA 155 (A) 166C.
Totalisator Agency Board, OFS v Livanos [1987] 3 All SA 192 (W); 1987 (3) SA 283 (W) 291C–D.
14 Cf Momentum Group Ltd v Van Staden [2009] 4 All SA 218 (SCA); 2010 (2) SA 135 (SCA). It has been said
that in such instances liability is based on ”ostensible” or “apparent” authority, but it is
Glofinco v ABSA Bank Ltd t/a United Bank 2002 (6) SA 470 (SCA); Birds Birds’ Modern Insurance
508
24.6 The law relating to representation and authorisation in South Africa has been
legal principles. 15 The term “agency” in modern law can be used in either a restricted
or a wide sense. In the restricted sense it denotes a person who has authority to
24
conclude a juristic act in the name of his principal. Juristic acts which come to mind
paragraphs
in the context of insurance are the conclusion of an insurance contract, the payment
24.1–24.8
notice such as a notice of a claim, or the waiving of an accrued right. In the wider
sense of the word the term “agent” means any person who has been mandated to
carry out a certain task for his mandator which may include, but is not limited to,
someone who has been authorised to conclude a juristic act on behalf of his
mandator.
24.7 Insurance business16 is largely transacted through persons other than the
insured or the insurer. Insurers and many insured are not natural persons but legal
entities which are only able to operate through agents, be they mandataries or
representatives or both. Persons seeking insurance also frequently resort to
broker to negotiate the most favourable insurance terms for him or he may instruct
an attorney, auditor, banker or estate agent to obtain insurance cover and conduct
insurance business on his behalf. Many commercial contracts (like c.i.f. contracts,
building and construction contracts, credit sales agreements and leases) contain
provisions instructing one party to take out insurance to protect the interests of the
other party.
24.8 It is essential to establish at the outset whether the agent is engaged by the
of, for example, a misrepresentation or mistake made by the agent. It may and does
happen that a person who is employed or instructed by one party to the insurance
contract for one purpose is also instructed by the other party to perform a different
juristic or, as the case may be, non-juristic task. 18 Thus, a broker instructed by a
proposer. It is even legally feasible, though not advisable, for a person to act simulta-
neously for both parties in connection with the same juristic act.
________________________
15 On agency in English law, see Lowry et al Insurance Law: Doctrines and Principles par 3.1; Birds
Birds’ Modern Insurance Law par 12.2. See further Lawsa Vol 12 Part 2 par 183.
16 The reference to “insurance business” encompasses not only the conclusion of insurance
contracts, but any conceivable juristic act or task to be performed by the insurer or the insured.
It comprises, eg, the completion of forms such as proposal and claim forms; the variation of
contracts; the payment and receipt of premiums; the giving or receiving of contractual notices;
the payment or settlement of claims; the waiver of rights; and the renewal of contracts. If such
work is done “as a regular feature of the business of such a person”, such a person will have to be
licensed as a financial services provider in terms of FAIS. The expression “insurance business” is
given a more restrictive technical definition in both STIA s 1(1) and LTIA s 1(1).
17 Birds Birds’Modern Insurance Law par 12.2.
18 Cf Hofmann v Economic Insurance Co Ltd [1956] 2 All SA 107 (W); 1956 (4) SA 380 (W); Bodemer v
American Insurance Co [1961] 2 All SA 615 (A); 1961 (2) SA 662 (A).
509
Insurance Acts and the FAIS, referred to earlier. 19 Both the STIA and the LTIA and
the regulations issued thereunder draw a distinction between what are termed
are middlemen who are not employed by or associated with a particular insurer or
mediaries. 23 The term “independent intermediary” is not generic for all types of
Acts. 26 The restriction on the remuneration that may thus be paid is two-fold: it must
maximum. The restriction is directed against insurers (or their representatives) for
24.11 There are two kinds of “services as intermediary” for which the remuneration
enter into, vary or renew a policy with the insurer (ie, where the intermediary is
instrumental in having the business placed with the insurer concerned); and (ii) post-
the policy; collecting and accounting for premiums; and receiving, submitting or
processing claims. 27 The first kind, which refers to the reward paid by a principal to
________________________
19 For the rationale for legislative intervention and its development in South Africa, see Lawsa Vol 12 Part 2 par
186.
20 See also the difference in definition between “representative” in the Insurance Acts and
“representative” in FAIS.
22 For collection of premiums in terms of the STIA, see Lawsa Vol 12 Part 2 par 189.
23 For commission restriction, see Lawsa Vol 12 Part 2 pars 187–193; 24.10, 24.25.
24 24.1 et seq. This nomenclature does not track the common-law distinction between mandataries and
representatives. A common-law representative would have the authority of his principal to
enter into juristic acts on his behalf. The statutory representative, being an employee of, or an
agent tied to the insurer, may or may not have such authority. If he does have such authority, the
description of him as a representative is apposite; if he does not have it, the description is, strictly
speaking, a misnomer. Cf, further, Lawsa Vol 12 Part 2 pars 192, 194, 197.
25 To the extent that independent intermediaries presume to give advice or render intermediary
services, as defined by FAIS, they must be authorised to do so under that Act and will therefore
26 See, in general, for the STIA, s 48 read with part 5 of the regulations to the STIA and Lawsa Vol 12 Part 2 pars
188, 190; for the LTIA, s 49 read with regs 3.2 and 3.4 of part 3 and Lawsa
27 Cf Tristar Investments v The Chemical IndustriesNational Provident Fund (455/12) [2013] ZASCA 59
510
“introduction fee” or commission proper. The second kind, which in essence covers
“servicing fee”.
Market conduct regulation in terms of FAIS
24.12 FAIS, 28 unlike the Insurance Acts, does not, as its main aim, 29 purport to regulate intermediary
remuneration. Its primary objective is to regulate market
24
paragraphs
conduct in the financial services industry. Although the definition of “intermediary 24.9–24.14
and the “rendering of services as intermediary” in the regulations to the LTIA, the
24.13 The backbone of FAIS is section 7(1) which provides that no one may act or
offer to act as a “financial services provider” unless he has been issued with a licence
licenced as a financial services provider such a person must meet the requirements
for a fit and proper financial services provider laid down by the registrar. 34
Advice
________________________
28 37 of 2002.
29 The “conflict of interest” provisions in the FAIS General Code of Conduct do contain specific limitations and
prohibitions on various types of remuneration and benefits that financial services
providers and their representatives may receive. See the General Code of Conduct par 3A.
30 S 1.
31 S 16(1)(e).
33 For the meaning and application of “intermediary services”, see Tristar Investments v The Chemical
IndustriesNational Provident Fund (455/12) [2013] ZASCA 59 pars 9, 23, 14, 15.
35 “By ‘advice’ is meant any recommendation, guidance or proposal of a financial nature furnished, by any means
or medium, to any client or group of clients –
(c) on the conclusion of any other transaction, including a loan or cession, aimed at the
incurring of any liability or the acquisition of any right or benefit in respect of any financial
product; or
(d) on the variation of any term or condition applying to a financial product, on the replace-
ment of any such product, or on the termination of any purchase of or investment in any
such product, . . . ”
See
also
Tristar Investments v The Chemical IndustriesNational Provident Fund above par 11.
511
product, other than the furnishing of advice (which is specifically excluded). Such
services could include the introduction of new business to an insurer and the
licence as an insurer.
24.15 Independent agents, that is brokers, financial advisers or agents who are not
of insurers and who, by the nature of their business, furnish advice or render
intermediary services or both, must likewise be licensed under the FAIS and comply
with its provisions. 38 But if such an agent gives advice or renders an intermediary
service in spite of not having been licensed, the validity of the ensuing contract or
other juridical transaction will not be affected, 39 but the agent will commit an
offence40 and the registrar will be entitled to institute civil remedies, 41 such as an interdict, against him.
Representatives
not be so licensed although he must otherwise be duly qualified and remains subject
other mandate. This would include employees of an insurer and so-called tied agents
who are exclusively associated with a particular insurer or group of insurers even if, in
the normal course of their duties, they furnish advice or render intermediary services
to the insurer’s clients. In this configuration, the insurer would be a financial services
Clerical personnel
(a)
________________________
36 This is irrespective of whether or not such advice is furnished in the course of or incidental to financial
planning in connection with the affairs of the client; or results in any such purchase,
37 FAIS s 1(1) defines “intermediary service”. See Tristar Investments v The Chemical IndustriesNational
Provident Fund (455/12) [2013] ZASCA 59 pars 9, 13, 14, 15.
38 24.13.
42 FAIS s 1(1).
44 The definition of a representative in FAIS deviates in emphasis from the common-law meaning
of the term discussed above. In terms of the common law, a representative invariably is someone
who, by virtue of a mandate or his terms of employment or some other circumstance, is clothed
with the authority to enter into binding legal relationships on behalf of his principal. A
representative in terms of the definition in the Act may have, but does not necessarily have, the
authority to bind his principal. The emphasis is thus not on his authority but rather on his
contractual relationship to a financial services provider, in this case the insurer. Cf Nienaber and
512
(b)
This would primarily refer to the clerical personnel of a financial services provider.
Ancillary measures
24.18 Several ancillary measures were introduced by FAIS to ensure that its stated
purpose is achieved. Thus, the Act created various offences if its provisions are not
24
paragraphs
adhered to; 46 it set up a procedure for prohibiting undesirable practices of financial 24.14–24.20
The Act also provides direct enforcement procedures. 49 An important step taken by
the legislature is to clothe the registrar with the power to issue codes of conduct for
financial services providers. 50 Different codes of conduct have been published. 51 The purpose of these codes is
to ensure that clients will be able to make informed
decisions and that their reasonable financial needs regarding financial products will
be appropriately satisfied. 52 Penal sanctions may be incurred if the provisions of a
Codes
24.19 FAIS makes provision for the publication of different codes of conduct
depending on the sector which it serves. Intermediary remuneration falls under the
General Code of Conduct. However, the General Code does not take the matter of
intermediary remuneration much beyond what is provided for in the STIA and the
LTIA, save to require full disclosure of the due remuneration and other monetary
24.20 The relationships between agents and their mandators are based on contract,
irrespective of whether the contract between the parties is express or tacit, written or
oral. Apart from the terms agreed to by the parties there may be certain naturalia
attached to these contracts. FAIS has not presumed to codify the terrain by replacing
certain kind and content. It is true that when the position of an agent or
will have to be taken of the above-mentioned legislative measures. The legislature has
laid down certain additional requirements and imposed certain additional duties54
and restrictions upon certain middlemen. Otherwise the contractual principles of the
common law remain undiminished. 55 The significance of this is that the contractual
________________________
46 S 36.
47 S 34.
48 S 35.
49 Ch VI (ss 20–39).
50 S 15.
51 S 15(2)(a).
52 S 16 lists several principles which must be embodied in the codes such as that authorised
financial services providers and their representatives must act honestly and fairly, and with due
skill, care and diligence, in the interests of clients and the integrity of the financial services
industry.
53 Cf 24.12 in connection with the “conflict of interest” provisions in the FAIS General Code of Conduct.
54 Ss 13, 17–19.
55 S 40.
513
C. TYPES OF AGENCY56
24.21 Various terms are in use in insurance circles to describe middlemen in the
insurance market, such as insurance agents, 57 canvassing agents, 58 commission agents, financial advisers, and
insurance consultants. They are engaged by insurers59 and
their main task is to solicit applications from prospective insured although they may
24.22 The term “insurance agent” is not, in any of its variants, a term of art with a
precise legal meaning. The relationship between the insurer and the agent is based
on contract, be it written or oral, express or tacit. Hence the terms of the contract
must be scrutinised to determine the precise nature of the relationship, for instance
into contracts on behalf of the insurer. Each case will thus depend on its own facts. In
a number of cases, the intermediary or insurance agent was found on the facts not to
the contrary is indicated, the concept “agent” will henceforth be used to denote a
insured.
24.23 A so-called “tied agent” who exclusively promotes and markets the products of
terms of his agreement with the insurer. In either event an insurer may lay down
strict procedures for the marketing of its products. Although the typical “insurance
________________________
57 Hofmann v Economic Insurance Co Ltd [1956] 2 All SA 107 (W); 1956 (4) SA 380 (W); Dicks v SA Mutual
Fire & General Insurance Co Ltd [1963] (4) All SA 303 (N); 1963 (4) SA 501 (N); Theron v
AA Life Assurance Association Ltd [1995] 2 All SA 581 (A); 1995 (4) SA 361 (A) 370E; Niselow v
Liberty Life Association of Africa Ltd [1998] JOL 2432 (A); 1998 (4) SA 163 (SCA) 165B where the
58 Colonial Mutual Life Assurance Society Ltd v MacDonald 1931 AD 412; Bodemer v American Insurance Co
[1961] 2 All SA 615 (A); 1961 (2) SA 662 (A) 666E. A canvassing agent is someone whose
59 The position of brokers is considered separately below. As a rule brokers are mostly appointed by prospective
insured; unlike agents who are engaged by insurers. See 24.35 et seq.
60 See Delphisure Group Insurance Brokers Cape (Pty) Ltd v Kotze [2011] 1 All SA 109 (SCA); 2010 (5) SA 499
(SCA) where it was said in par 2: “Not only does [the intermediary] sell insurance on
behalf of insurance companies, but it acts as an administrator of insurance products sold to third
parties and is an accredited agent of the international insurer [sic], Lloyd’s of London on whose
61 Colonial Mutual Life Assurance Society Ltd v MacDonald 1931 AD 412 426, 437, 445; Ongevallekommissaris
v Onderlinge Versekerings Genootskap AVBOB [1976] 4 All SA 358 (A); 1976 (4) SA 446
(A) 462F; Smit v Workmen’s Compensation Commissioner [1979] 1 All SA 152 (A); 1979 (1) SA 51
(A) 68H–69A. In Niselow v Liberty Life Association of Africa Ltd [1998] JOL 2432 (A); 1998 (4) SA
163 (SCA) the position of a canvassing agent or consultant who had been engaged on a full-time
basis to procure applications was in issue. The court remarked (168): “It follows that [the
intermediary] was not working for [the insurer] as required by the first part of the definition of
‘employee’ . . . It was not and could not be contended that [he] was an employee within the
contractor [he] was carrying on and conducting his own business.” The court regarded the
contract as a work contract and not an employment contract. A work contract is nothing other
62 See, eg, Diamond v Kernick [1947] 3 All SA 254 (A); 1947 (3) SA 69 (A); Equitable Trust & Insurance Co of
SA Ltd v Registrar of Banks [1957] 2 All SA 233 (T); 1957 (2) SA 167 (T).
514
Agents, representatives and intemediaries
agent” is appointed by the insurer and not by the prospective insured, it is possible
that the applicant for insurance may entrust the agent with a particular duty or range
of duties towards him for instance, to complete an application form on his behalf. 63
24.24 Under the common law an insurer could simply authorise an agent to collect
and receive premiums on its behalf, but this aspect is now partially regulated by
24
paragraphs
legislation. 64
24.21–24.27
24.25 At common law agents were usually remunerated for their services by the
changes. 65
24.26 Insurers are corporate entities and usually confer authority to contract on their
behalf on the chief executive officer and the board of directors acting in concert.
Other persons derive their authority to act from delegated authorisation by the
express or tacit. Whether the insurer has authorised a person to conclude a contract
insurers. 69
on the facts. Often, authority to issue interim insurance is granted tacitly, for instance
________________________
63 For the divergent legal status of “independent intermediaries” and “representatives” under the Insurance Acts
and FAIS, see pars 24.11 et seq; Lawsa Vol 12 Part 2 par 201.
65 24.9, 24.10. 24.11; Lawsa Vol 12 Part 2 pars 188, 190, 191, 193.
66 In Feldman v British Aviation Insurance Co Ltd 1949 (3) SA 1078 (SR) 1080 the court, relying on English
decisions, stated that there was ample authority for the proposition that even a
superintendent of a local branch of an insurance company has no implied authority to vary any
vital terms contained in the written insurance contracts made by his principals so as to bind the
latter.
67 Cf Wedzera Petroleum (Pvt) Ltd v Zimmat Life Assurance Co of Zimbabwe, unreported (ZH), (2004) 8
68 Kahn v African Life Assurance Society Ltd 1932 WLD 160 164; Dicks v SA Mutual Fire & General Insurance
Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N); Gani v Santam Insurance Co Ltd
69 24.32 et seq.
70 Contrast Dicks v SA Mutual Fire and General Insurance Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N);
Petersen v Incorporated General Insurances Ltd [1982] 2 All SA 112 (C); 1982 (3) SA 1 (C);
Gani v Santam Insurance Co Ltd 1975 1 PH A36 (T). Cf Lawsa Vol 12 Part 2 par 205 n 1.
515
24.28 Whether or not an agent possesses authority to admit liability depends on the
facts of the case. In Kapeller v Rondalia Versekeringskorporasie van Suid-Afrika Bpk71 it was held that an
“insurance assessor” did not have the authority to acknowledge liability
24.29 Insurers may require that application forms for insurance be completed by
instruction of the prospective insured but in his own name. As such he would be a
be acting on the authority and in the name of the prospective insured, that is, as the
24.30 A common procedure is that the insurer’s agent puts questions to the
applicant and, armed with the information so obtained, completes the form. 73
Sometimes, the agent fills in the proposal form first and then he obtains the insured’s
applicant for insurance. The agent may fail to record the applicant’s answers
correctly or in full, or he may neglect to ask the insured to elaborate on vital aspects.
In both instances the answer in the form may be wrong or misleading. What is even
worse is that agents have been known to advise applicants incorrectly about how to
respond to certain questions and what insurers want to know. By signing the
application form containing wrong answers the applicant himself commits a false
representation entitling the insurer to rescind the contract should the representation
be material. 75 A doctrine that may bring some relief to the applicant in limited
to effect insurance on jewellery and to pay the premium on it. When this agent
the insurance contract without, however, communicating with the insured. The agent
was associated with the insurer as a “commission agent” and was not in the position of
a broker. The court found that the agent had no implied authority to cancel the
contract as cancellation was outside the ordinary course of his business and was,
moreover, neither necessary for, nor incidental to, the authority he possessed. 78
________________________
71 1964 (4) SA 722 (T).
72 Cf 24.71.
73 Cf 8.32 n 76, 8.40 et seq, 8.70 et seq; see, eg, Bodemer v American Insurance Co [1961] 2 All SA 615
(A); 1961 (2) SA 662 (A); AA Mutual Life Assurance Association Ltd v Singh [1991] 4 All SA 737
(A); 1991 (3) SA 514 (A) 518D; Theron v AA Life Assurance Association Ltd [1995] 2 All SA 581 (A);
74 See the Financial Advisory and Intermediary Services General Code of Conduct par 7(2), the
Policyholder Protection Rules (Long-term Insurance), 2004 r 17; the Policyholder Protection
75 8.32 n 76, 8.40 et seq, 8.70 et seq; Lawsa Vol 12 Part 2 par 207 n 4.
76 24.71 et seq.
516
24.32 Both the LTIA and the STIA79 make provision for the conclusion of written
and to determine the wording, rights and duties under the policy. He may also be
empowered to settle claims under the policy. Such a person may be designated an
24
paragraphs
representation in the insurance context where the mandatory is given plenary 24.28–24.35
authority to perform legal acts on behalf of the principal who will in law be bound by
those acts. 81
24.33 A binder agreement must be in writing and it must contain certain particulars.
information such as the name of the insurer involved and the remuneration that
would be payable to the binder holder by the insurer. The agreement must also
compel the binder holder to keep proper books. 82 Binder agreements must be in
regulation. 83 The nature and scope of the authority conferred on the binder holder
must be spelt out in the written binder agreement. 84 His authority may be general, or
regulations.
24.34 Binder agreements were initially conceived as a vehicle for the outsourcing of
insurance business, but they have been utilised by insurers in other fields of
insurance as well. In its widest form, this type of agreement sees almost the entire
administrative side of the business of an insurer placed in the hands of the “binder
holder”. The insurer involved remains responsible for compliance with the legislation
(b) BROKERS
24.35 Another type of functionary found in the insurance market is the broker. The
more insurance quotations from one or more insurers. When the term “broker” is
used in this chapter it normally refers87 to a broker who, unlike the traditional
________________________
79 The provisions of STIA s 48A differ from those of LTIA s 49A in so far as the former includes under the term
“insurer” a Lloyd’s underwriter.
80 Nienaber and Reinecke Life Insurance par 17.26. In terms of the binder regulations, an
“underwriting manager” is a particular type of binder holder. Not all binder holders can be
86 But the term is not used by the legislature except in the context of Lloyd’s brokers. Cf 24.60 et seq.
87 However, insurers do sometimes make use of the expertise of brokers: cf Kievits Kroon Country Lodge (Pty) v
Hollard Insurance Co 2003 JDR 0289 (T); Okavango Foam & Bedding CC v New National
Insurance Co Ltd [2006] JOL 16732 (C); Momentum Group Ltd v Van Staden [2009] 4 All SA 218
517
insurance agent who acts in the interest of the insurer, acts on behalf of the
prospective insured. In order to market the products of an insurer the broker will
normally enter into a written commission agreement with the insurer concerned, but
24.36 The relationship between a broker and his client is based on a contract of
contract the broker basically undertakes to inform and advise his client regarding
suitable insurance cover. The naturalia of such a contract also create additional duties
and rights for the broker. Furthermore, the contract may clothe the broker with
authority to act on behalf of his client, for instance to take out insurance, pay
24.37 Since Roman-Dutch times it is customary for brokers to charge and be paid a
commission, termed brokerage, by the insurer for brokering the contract89 but this
does not alter the fact that the broker, having been mandated by the insured, acts on
behalf of the insured. 90 The fact that the insurer pays the broker a commission also
does not mean that the broker owes the insurer any special allegiance. However,
24.38 The very essence of a broker’s business is to advise clients about financial
products such as insurance contracts and he may also render some intermediary
in terms of the FAIS and he will have to observe the duties imposed by the Act. 91 In
addition to the duties flowing from the contract of mandate the broker, as an
authorised service provider or representative, must comply with the duties imposed
by the FAIS and its codes or else he may incur sanctions under that Act.
relationship to his client93 which requires him to act in good faith towards the latter. 94
This means, in the main, that the broker must perform his mandate in the interest of
the insured, that he must be frank and honest with the insured, and that he may not
make a secret profit. The broker’s duty to act in good faith implies that he may not
place himself in a position in which the broker’s personal interests conflict with his
duty to the insured unless the broker makes a full disclosure of his conflicting
interests and obtains the insured’s prior consent to proceed. 95 A broker who acts on
behalf of both an insured and insurer, either at the same time or in quick succession,
is in breach of his duty of good faith unless a full disclosure is made. 96 The burden of
________________________
88 Stander v Raubenheimer 1996 (2) SA 670 (O); Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337
(W); 2001 (4) SA 1100 (W) 1108F–H. Cf Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA
360 (W); 1980 (1) SA 403 (W) 407H and see also Havenga 1996 SA Merc LJ 114.
89 Havenga ch 5. The broker is not contractually obliged as against the insurer to generate new business. For
commission regulation, see 24.9–24.11.
90 Low v Shedden [2001] 2 All SA 171 (C) (estate agent).; Lowry et al Doctrines par 5.2; Birds Birds’
91 Cf 24.13.
93 Ashton Insurance Brokers CC v IMATU [2002] 3 All SA 175 (A); Watson v Shaw 2008 (1) SA 350 (C);
Afrisure v Watson [2009] 1 All SA 1 (SCA); 2009 (2) SA 127 (SCA).
96 Anglo-African Merchants Ltd and Exmouth Clothing Company Ltd v Bayley [1970] 1 QB 311, [1969] 1
Lloyd’s Rep 268. See also North & South Trust Co v Berkley, Berkley v North & South Trust Co [1971]
( continued)
518
proof is on the broker to show that he has made a complete disclosure and that the
insured duly consented. A breach by the broker of his duty to act in good faith, like
the breach of any other duty, constitutes a breach of contract giving rise to the
24.40 In terms of the common law, the brokerage contract requires the broker to
24
paragraphs
properly advise his client as to the suitability of the product recommended by the 24.35–24.42
broker. 97 In advising his client, a broker must exercise the degree of care and skill
who have the same rank and profess the same specialisation as he does. 98 This holds
good for any other particular duty the broker may have to perform towards his client.
In assessing the standard of care and skill, a court may accept the evidence of other
experienced members of the profession. 99 It may also refer to the code of conduct or
practice which lays down the business standards to be observed by partaking brokers.
24.41 By failing to properly comply with the duties imposed by the brokerage
contract, the broker commits a breach of contract. This gives rise to the normal
remedies for breach of contract, such as a claim for damages to restore the client to
the financial position in which he would have been had the broker correctly carried
out his duties. 100 A causal connection between the breach and the loss must be
proved. 101 The broker will not be liable if, for instance, he can prove that the insurer
would in any event not have paid the insured’s claim or that the insurer wrongly
repudiated the insured’s claim under the contract he had brokered. 102
failure or delay to obtain the required cover, may amount to a breach of contract. 104
However, the duty to obtain cover is not absolute and the broker only has to make a
reasonable attempt to obtain cover for his client. 105 If cover is obtained, the broker
must advise his client promptly of the terms of the cover106 and, if it is not possible to
________________________
1 WLR 470, [1970] 2 Lloyd’s Rep 467; Eagle Star Insurance Co Ltd v Spratt [1971] 2 Lloyd’s Rep
116 (CA) 133; Birds Birds’ Modern Insurance Law par 12.6.2.
97 As mentioned above, the broker need to be authorised under FAIS; if not, he may incur the
98 Cf
Durr v ABSA Bank Ltd [1997] 3 All SA 1 (A); 1997 (3) SA 448 (SCA) 460I; Lappeman Diamond
Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd, unreported (W), (1999) 2 Juta’s Insurance L Bul
101; Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd, unreported (W), (2002) 6
Juta’s Insurance L Bul 157; Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd
[2003] 4 All SA 317 (SCA); 2004 (2) SA 1 (SCA); Lowry et al Doctrines 71–82.
99 L enaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337 (W); 2001 (4) SA 1100 (W) 1106E–1108D.
100 Cf Delphisure Group Insurance Brokers Cape (Pty) Ltd v Kotze [2011] 1 All SA 109 (SCA); 2010 (5) SA 499
(SCA).
101 BC Plant Hire CC t/a BC Carriers v Grenco (SA) Pty Ltd [2004] 1 All SA 612 (C); 2004 (4) SA 550
(C).
102 Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK 2002 (5) SA 85 (T).
103 Stander v Raubenheimer 1996 (2) SA 670 (O); Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337
105 Forecourt Express (Pty) Ltd v Dalys Marine Insurance Brokers (Pty) Ltd, unreported (C), (2005) 9
106 Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337 (W); 2001 (4) SA 1100 (W) 1109H–I.
519
pursue his client for funds to pay the premium nor is it the broker’s duty to pay the
24.43 Brokers are often clothed with authority to conclude an insurance contract on
behalf of the prospective insured, but it depends on the facts of the case whether or
not the broker has indeed been duly authorised. Where a broker has been mandated
to act on behalf of his client, 108 the broker’s authority extends to all acts that are
necessarily or ordinarily incidental to the execution of the instructions of his client. 109
As a rule, the broker will not have authority to cancel an existing insurance contract.
If a broker concluded a contract without the requisite authority, his client may ratify
the contract, provided ratification is done within a reasonable time, even if a loss has
24.44 Generally, a broker must take care not to insure with an insolvent insurer. 111 If, after the conclusion of the
contract, the position of the insurer worsens, the broker
entitled to rescind the contract. 114 It remains the duty of the applicant for insurance
to disclose material facts not known by the broker, but the broker must call the
applicant’s attention to this duty and its importance. The FAIS General Code of
this regard. 115 The broker must also advise the applicant which facts he has to
disclose. 116 If the application form completed or overseen by the broker contains
________________________
107 Newcastle Kings Hotel (Edms) Bpk v Safcam (Edms) Bpk, unreported (O), (2004) 8 Juta’s Insurance L
Bul 49.
108 Where such a mandate exists, the broker will have to be licensed under FAIS as a category II financial services
provider, ie a “discretionary financial services provider”. This entails considerably more onerous licensing and
compliance criteria than those applicable to the typical insur-
ance broker. In practice, category II licences are almost exclusively used by discretionary
investment managers, while insurance brokers would typically argue that they do not have this
type of mandate from their clients and are therefore not required to be licensed under catego-
ry II.
109 Pacific & General Insurance Co Ltd v Hazell [1997] LRLR 65 70.
110 National Oilwell (UK) Ltd v Davey Offshore Ltd [1993] 2 Lloyd’s Rep 582; Lowry et al Doctrines 63.
What Roman-Dutch authority there is, seems to support this view: Barels Advysen over den
Koophandel en Zeevaart adv XVIII, as quoted by Kahn 1952 SALJ 53 67, who also favours the ma-
111 Lewis v Tressider Andrews Associates (Pty) Ltd & Andrews (1986) 4 ANZ Ins Cases 60-750, 74-515.
112 Osman v J Ralph Moss Ltd [1970] 1 Lloyd’s Rep 313 (CA); Beck Helicopters Ltd v Edward Lumley & Sons
(NZ) Ltd (1990) 6 ANZ Ins Cases 60-995; Birds Birds’ Modern Insurance Law par 12.6.2.
113 8.75, 8.84; O & R Jewellers Ltd v Terry (Michael John) Jardine Insurance Brokers Ltd [1999] Lloyd’s Rep IR
436; Birds Birds’ Modern Insurance Law par 12.6.3.
114 8.133; Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403 (W) 407H.
116 Stander v Raubenheimer 1996 (2) SA 670 (O). See also Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337
(W); 2001 (4) SA 1100 (W) par 6; Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group
(Pty) Ltd [2003] 4 All SA 317 (SCA); 2004 (2) SA 1 (SCA); Mutual and Federal Insurance Co Ltd v
520
incorrect information, this may amount to a breach of contract by the broker since it
24.46 The broker does not have a duty to give a meticulous explanation or
interpretation of every clause of the insurance contract to the insured, 118 but if he
does venture such advice and it is proved to be wrong, he may incur common-law
24
paragraphs
liability. 119 The FAIS General Code of Conduct120 moreover requires a financial 24.42–24.48
explanation of the nature and material terms of the relevant contract or transaction
to the prospective insured; generally to make full and frank disclosure of any
informed decision; and wherever reasonable and appropriate to provide him with any
the broker contains unusual provisions that limits or exempts the insurer, it is his
24.47 When a broker becomes aware that the insurance is no longer in force, either
because it has expired or because the insurer has cancelled the insurance contract,
24.48 A broker who has authority to conclude an insurance contract on behalf of his
client generally does not have a duty to renew the it, unless otherwise agreed or if
there is in particular circumstances a trade usage to this effect. 123 Certain brokers act
as risk managers and in such circumstances the broker is responsible for ensuring
that the insured is and remains adequately covered by timeously renewing the cover,
failing which he will be liable to the insured. 124 It would not be a defence for the
________________________
117 Aneco Reinsurance Underwriting Ltd v Johnson & Higgins Ltd [2000] Lloyd’s Rep IR 12. In Pickering v Syfin
Holdings Ltd 1981 (4) SA 467 (Z), confirmed sub nom Syfin Holdings Ltd v Pickering
[1982] 4 All SA 14 (ZS); 1982 (2) SA 225 (ZS), the insured sued his broker for negligently in-
serting incorrect answers into the application form and therefore causing the insured to breach
his duty to disclose material information. The only matter which the court had to decide, was
whether the insured’s claim had become prescribed. The insured had first instituted action
against the insurer (see Kelly v Pickering (2) [1980] 4 All SA 19 (R); 1980 (2) SA 758 (R), con-
firmed on appeal sub nom Pickering v Standard General Insurance Co Ltd, [1980] 4 All SA 699
(ZA); 1980 (4) SA 326 (ZA), before proceeding against the broker. The court held that pre-
scription could not start to run before legal liability to pay had been established and the insurer
had refused to pay. But see Harker v Fussell 2002 (1) SA 170 (T) 174.
118 Harvest Trucking Co Ltd v PB Davis t/a PB Davis Insurance Services [1991] 2 Lloyd’s Rep 638 643; Birds
Birds’ Modern Insurance Law par 12.6.2.
119 See Melik & Co Ltd v Norwich Union Fire Insurance Society Ltd & Kemp [1980] 1 Lloyd’s Rep 523
(QB); Engel v Janzen (1990) 65 DLR (4th) 760; Sharp (Anthony John) & Roarer Investments Ltd v
Sphere Drake Insurance Plc, Minster Insurance Co Ltd & EC Parker & Co Ltd (The Moonacre) [1992] 2
121 Stander v Raubenheimer 1996 (2) SA 670 (O); Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337
122 London Borough of Bromley v Ellis, A Luff & Son (Third Party) [1971] 1 Lloyd’s Rep 97 (CA); Youell v Bland
Welch & Co Ltd (The Superhulls Cover Case) (2) [1990] 2 Lloyd’s Rep 431.
123 See, with respect to renewal, 6.64 and Lawsa Vol 12 Part 1 par 133.
521
broker to plead that the insurer had not sent him a renewal notice. 125 The broker has
a duty to inform the insured of changes made to the terms of the insurance contract
24.49 In the absence of an agreement or a trade usage to the contrary, 127 a broker
generally does not have a duty to assist the insured to enforce a claim merely because
he brokered the contract on behalf of the insured. 128 Where a broker has a duty to
assist the insured to enforce and settle a claim, he, as always, acts on behalf of the
insured. 129 He must investigate whether the loss is covered130 and ensure that the claim form is properly
completed and submitted in good time. 131 Payment of the
insured’s claim by the insurer to the broker will not discharge the insurer from
liability towards the insured, unless the broker has been authorised to receive
payment. 132 If the broker receives payment from the insurer, he must transmit it to the insured. 133 Where the
broker settles the claim with his client without the insurer’s
authority, payment by the broker to the insured may be reclaimed from the insured
24.50 The broker must report the outcome of his negotiations with the insurer and
account for all income and expenditure relating to the insurance under his control. 135
This is of particular importance where the broker is the insured’s risk manager.
24.51 At common law the broker has a lien on the policy against the insured for any
expenses incurred on his behalf. 136 This common-law right has been supplemented by
the statutory duty that an insurer has to provide the insured with a summary of the
________________________
125 Fraser v BN Furman (Productions) Ltd, Miller, Smith & Partners (Third Party) [1967] 1 WLR 898
(CA).
126 Mint Security Ltd v Blair, Thos R Miller (Home) Ltd, & EL Darwin Clayton & Co Ltd [1982] 1
Lloyd’s Rep 188; Harvest Trucking Co Ltd v PB Davis t/a PB Davis Insurance Services [1991] 2
127 In the case of Lloyd’s brokers it has been held that there is an implied contractual obligation to exercise all
reasonable care to collect claims on the insured’s behalf: Johnston (And All Other
Members of Syndicate 964 at Lloyd’s, who were parties to the contract of reinsurance) v Leslie & Godwin
Financial Services Ltd [1995] LRLR 472 477. The court was careful to limit its ruling to Lloyd’s
brokers and preferred not to comment on the position of brokers outside the Lloyd’s market.
129 Hosken Employee Benefits (Pty) Ltd v Slabe [1992] 3 All SA 919 (W); 1992 (4) SA 183 (W).
130 Cf Ledingham v Commercial Union Insurance Co of SA Ltd [1993] 4 All SA 101 (C); 1993 (2) SA 760
(C) 762D–G.
131 Comber v Anderson (1808) 1 Camp 523, 170 ER 1044. Receipt of the claim by the broker is not to be deemed
receipt by the insurer, since the broker is acting on behalf of the insured and not
on behalf of the insurer: Hosken Employee Benefits (Pty) Ltd v Slabe [1992] 3 All SA 919 (W); 1992
133 Fedgen Insurance Ltd v Bankorp Ltd [1994] 3 All SA 209 (W); 1994 (2) SA 399 (W).
134 Hosken Employee Benefits (Pty) Ltd v Slabe [1992] 3 All SA 919 (W); 1992 (4) SA 183 (W).
522
indemnified for any loss which he has suffered in the course of properly carrying out
24
paragraphs
24.53 The relationship between a broker and an insurer is based on a contract that 24.48–24.54
agreement an estate agent enters into with the would-be seller of a property. The
commission contract is concluded between the broker and the insurer when the
broker places the insurance with the insurer. 139 In terms of the contract, the insurer
agrees to pay the broker a commission for the introduction of business and the
govern the rights and duties of the parties. Although the broker is entitled to claim
commission from the insurer, this does not alter the general rule that, contrary to the
analogy of the estate agent, the broker is the agent of the insured and not of the
insurer. 141 The broker must disclose to the insured the amount of the consideration
24.54 Before the broker becomes entitled to the payment of commission, certain
conditions have to be fulfilled. First, the insurance contract must have come into
existence. The broker may put the insured’s offer to the insurer, but if the insurer
refuses to cover the risk, the broker will not be entitled to commission143 unless the
parties agree otherwise. 144 The insurer may perhaps be prepared to cover the insured,
but the broker will not be entitled to commission if, for some or other reason, the
insurance contract does not materialise, for instance if the contract is subject to a
suspensive condition which has not been fulfilled. 145 Secondly, there must be a causal
connection between the broker’s efforts and the conclusion of the insurance
contract. 146 In the event of conflicting claims by more than one broker, it must be
determined which broker’s intervention was the proximate cause of the conclusion of
the contract. 147 Finally, payment of the commission is dependent on the payment of
________________________
139 Wilson v Avec Audio-Visual Equipment Ltd [1974] 1 Lloyd’s Rep 81 (CA) 82.
140 Wilson v Avec Audio-Visual Equipment Ltd above; Pryke (John W) v Gibbs Hartley Cooper Ltd [1991] 1
143 Wacks v Record [1955] 2 All SA 165 (C); 1955 (2) SA 234 (C); Bundshuh v Finnegan [1975] 1 All SA 654
(C); 1975 (1) SA 376 (C).
144 Commercial Business Brokers v Hassen [1985] 2 All SA 146 (N); 1985 (3) SA 583 (N).
145 Naidu v Naidoo [1967] 2 All SA 79 (N); 1967 (2) SA 223 (N); Venter Agentskappe (Edms) Bpk v De Sousa
1990 (3) SA 103 (A); Jurgens Eiendomsagente v Share [1990] 2 All SA 548 (A); 1990 (4) SA
664 (A); Southern Era Resources Ltd v Farndell [2010] 2 All SA 350 (SCA); 2010 (4) SA 200 (SCA).
The doctrine of fictional fulfilment of the condition may apply in appropriate circumstances in
which case the broker may be entitled to commission: Van Heerden v Hermann [1953] 3 All SA
200 (T); 1953 (3) SA 180 (T); Watson v Fintrust Properties (Pty) Ltd [1987] 2 All SA 62 (C); 1987
146 Cf Aida Real Estate Ltd v Lipschitz [1971] 3 All SA 421 (W); 1971 (3) SA 871 (W); Wakefields Real Estate
(Pty) Ltd v Attree [2011] JOL 27977 (SCA); 2011 (6) SA 557 (SCA) par 18. See also Harding
147 Cf De Coning v Monror Estate & Investment Co (Pty) Ltd [1974] 1 All SA 477 (E); 1974 (3) SA 72
(E). Cases dealing with commission earned by estate agents are instructive in this regard: cf eg
Wynland Properties CC v Potgieter [1999] 3 All SA 567 (C); 1999 (4) SA 1265 (C).
523
the premium. 148 Although the right to claim the commission vests when the insurance
contract is concluded, the right is suspended until such time as the insurer has
received the premium. The broker’s right to commission is further curtailed by and
24.55 Since it has been held that agents of the insurer do not have implied authority
to issue interim insurance contracts, 150 a broker would in principle151 require express actual authority to issue
interim cover. 152
24.56 The authority of a broker to collect and receive the premium on behalf of the
24.57 In all instances where a Lloyd’s broker mediates a marine insurance contract
with an underwriter, the underwriter may hold the broker liable for payment of the
premium. 154 The same rule applies where a non-Lloyds broker mediates a marine
insurance contract. 155 The rule applies only where the broker grants the insured
credit for the payment of the premium. The rule does not apply to non-marine
insurance. 156
Liaising function
24.58 Broker consultants, also known as business consultants, are either employees
and update brokers on behalf of the insurer concerned. Different insurers have
allocated to him.
defined, 157 to see clients he does not have to be licenced under FAIS. This is so
provided he does not purport to provide advice to clients and merely renders clerical,
________________________
148 See eg Wholesale Builders & Plumbers Suppliers (Pty) Ltd v Van den Heever [1985] 4 All SA 273 (W); 1985
(4) SA 360 (W). LTIA Part 3 of the regulations allow commission on policies to be paid in
advance of actual receipt of the premium, with the broker then being obliged (in certain cir-
cumstances) to refund some or all of the commission if premium payments stop within certain
time frames.
149 STIA s 48; LTIA s 49 are applicable since a broker qualifies as an “independent intermediary”.
150 Dicks v SA Mutual Fire & General Insurance Co Ltd [1963] 4 All SA 303 (N); 1963 (4) SA 501 (N); Gani v
Santam Insurance Co Ltd 1975 1 PH A36 (T) 83.
151 See STIA reg 6.5 of the regulations which stipulates certain conditions with which a “hold over”
152 Poltek Manufacturing & Sales BK v Regent Versekeringsmaatskappy Bpk, unreported (FB), (2011) 15
153 STIA s 45 is applicable since a broker qualifies as an “independent intermediary”. See also the FAIS General
Code of Conduct par 10 and the definition of “intermediary service” in s 1b(iii).
155 Hollet v Nisbet & Dickson (1829) 1 Menz 391; Havenga 1987 MB 103; Van Niekerk Insurance Law in the
Netherlands Vol II 758.
156 Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd’s Rep 326.
524
subordinate capacity, which service, first, does not require judgment on the part of
the latter person; and, secondly, does not lead a client to any specific transaction in
Lloyds functionaries
24
24.60 Insurance business conducted at Lloyd’s differs from that conducted by other
paragraphs
short-term insurers. The STIA160 contains specific provisions relating to Lloyd’s. 24.54–24.63
incorporated by the Lloyd’s Act of 1871, 161 passed by the Parliament of the United
Kingdom of Great Britain and Northern Ireland. 162 The relevant Lloyd’s functionaries
Lloyd’s correspondents.
Lloyd’s brokers
24.61 A Lloyd’s underwriting member163 may accept or place business only from or
through a Lloyd’s broker. The STIA defines a “Lloyd’s broker” as a person permitted
that a Lloyd’s broker is the agent of the insured and not of the insurer, though in
some instances the Lloyd’s broker acts on behalf of the insuring underwriter. The
broker. 164
Lloyd’s representative
24.62 Lloyd’s must appoint, and at all times have a natural person permanently
resident in the Republic to act as its representative. 165 The appointment of the Lloyd’s
representative and the deputy representative will not take effect unless it has been
approved by the registrar on such conditions as the STIA or the registrar prescribes. 166
Lloyd’s correspondent
24.63 The STIA provides for another type of independent agent, namely a Lloyd’s
market correspondent means a broker (not being a Lloyd’s broker) or other agent
introducing risks directly to a Lloyd’s broker for placing with underwriters or, if a
________________________
158 24.17.
159 See Havenga 147 et seq; Lawsa Vol 12 Part 2 pars 228 et seq.
163 According to s 1(1) a Lloyd’s underwriter means an underwriting or non-underwriting member of Lloyd’s.
They are in fact insurers.
168 S 1(1) sv “Lloyd’s correspondent”. See further Lawsa Vol 12 Part 2 par 230 et seq.
525
underwriting members. 171 A Lloyd’s correspondent has certain prescribed duties for
example the duty, if acting on behalf of a Lloyd’s broker, to collect the premium. 172
representative or any person on behalf of the insurer or broker. 173 He must disclose
the amount of any fee charged in addition to any remuneration received by way of
commission. 174
D. MISREPRESENTATION BY AGENTS
Legal consequences
24.65 An agent (in the wide sense of the word) is in principle liable in damages for
his own wrongful conduct. A critical question, as discussed below, is whether the
insurer, as the principal, may be held vicariously liable for a misrepresentation for
authorised agent who concludes the contract on behalf of his principal, 176 the
ensuing contract, and the rights177 and obligations flowing from it, are tainted by the
24.67 A principal may be held liable for damages or other remedies on account of a
misrepresentation by an agent if that agent had been instructed to make the
principal will be held liable on the ground that the instruction is considered to be the
________________________
172 In terms of s 45. He does not seem to have this duty where he is acting on behalf of an underwriter. See
Havenga 169–170.
173 S 48 read with reg 5.1–5.5. The regulation does not seem to apply in the case where a Lloyd’s underwriter
offers another form of remuneration to a Lloyd’s correspondent. Havenga 170.
174 S 48A(2)(h)(i)(bb).
175 See in general Wicke 1998 THRHR 609. The question will also arise in other instances of wrongful conduct by
a representative.
176 Eg where the duly authorised agent of the insurer advises an applicant for insurance that a particular potential
loss is covered by the policy when that is in fact not the case.
177 Cf the position of a cessionary who claims from a debtor who has been misled by the cedent: Van Zyl v Credit
Corp of SA Ltd [1960] 4 All SA 314 (A); 1960 (4) SA 582 (A); Brangus Ranching
(Pty) Ltd v Plaaskem (Pty) Ltd 2011 (3) SA 477 (KZP). See Van der Merwe et al Contract par 9.2.3.
178 8.132 et seq; Lawsa Vol 12 Part 1 par 235 et seq; Randbank Bpk v Santam Versekeringsmaatskappy Bpk
[1965] 4 All SA 337 (A); 1965 (4) SA 363 (A) 370H and the remarks of the court a quo
Randbank Bpk v Santam Versekeringsmaatskappy Bpk [1965] 2 All SA 444 (W); 1965 (2) SA 456 (W)
457 et seq; Certain Underwriters of Lloyds of London v Harrison [2003] JOL 11573 (SCA); 2004 (2)
SA 446 (SCA) par 4; Reinecke 1966 THRHR 171; Kahn et al Contract and Mercantile Law 894.
526
act of the person who issues it. 179 It is immaterial whether or not the agent who was
24.68 A remedy against the principal for a misrepresentation by his agent may also
be based on the principle that an employer is vicariously liable for any delicts
24
paragraphs
committed by his employee in the course of his employment. 181 Thus, if an agent is in 24.63–24.70
the employ of the insurer and makes a misrepresentation in the course of his
employment, the insurer may be held vicariously liable for any loss attributable to the
the applicant for insurance by assuring him that the proceeds of the policy would not
be subject to income tax. Likewise, where an employee of the insurer has been
instructed to market the products of the insurer, the insurer will incur liability if in
the course of marketing the product the employee makes a misrepresentation, say,
neither in the employ of his principal nor has been instructed by him to make that
mandatary who has been instructed to carry out some or other task for his principal,
for example where an insurer instructs its agent to recruit proposals for insurance.
Any attempt to hold a principal or mandator liable for the misrepresentations of such
an agent may well be met with the defence that vicarious liability for the delicts of an
independent contractor is not in principle recognised by South African law. 182 The
courts have nevertheless adopted the rule that a “principal” will be liable for the
unlawful conduct of his “agent” if the conduct is directly connected with the very
business that the “agent” is promoting or transacting for his “principal”. 183 Thus it was
held in Ravene Plantations Ltd v Estate Abrey184 that a principal may be liable where his
“agent, acting within the scope of his authority; makes a fraudulent misrepresentation
agent who is neither his employee nor authorised to contract on his behalf, provided
that the agent who made the misrepresentation was given the power to make
________________________
179 Qui facit per alium facit per se: see Colonial Mutual Life Assurance Society Ltd v MacDonald 1931 AD
412 429. See also Ruto Flour Mills (Pty) Ltd v Moriates [1957] 3 All SA 28 (T); 1957 (3) SA 113
(T) 115; Delphisure Group Ins Brokers Cape (Pty) Ltd v Kotze [2011] 1 All SA 109 (SCA); 2010 (5)
180 The insurer may, eg, have instructed the agent that the policy covers a loss which is actually excluded from
cover by the contract.
181 See Estate Van der Byl v Swanepoel 1927 AD 141. In the circumstances of a particular case, an employee may
of course have been authorised to commit the representation. Liability for damages will then be based on
authorisation.
182 See Colonial Mutual Life Assurance Society Ltd v MacDonald 1931 AD 412; Langley Fox Building
Partnership (Pty) Ltd v De Valence [1991] 3 All SA 736 (A); 1991 (1) SA 1 (A); Minister of Community
Development v Koch [1991] 2 All SA 420 (A); 1991 (3) SA 751 (A); Chartaprops 16 (Pty) Ltd v Sil-
183 See Colonial Mutual Life Assurance Society Ltd v MacDonald above 437, 442.
527
authority to perform a juristic act such as concluding a contract, will usually have tacit
authority to make representations in relation to that contract, 187 but such a power
may also be conferred on agents without authority to contract. 188 The basis on which
any such liability of the principal rests is not, however, always apparent. 189
CONSTRUCTIVE KNOWLEDGE
Imputing knowledge
24.71 In many instances an applicant for insurance will be assisted and advised by an
insurance agent who has no authority to conclude a contract on behalf of the insurer,
but who has been mandated to collect proposals from prospective insured. He may
also have been instructed to put the applicants’ proposals in proper order. 190 The
application form, if there is one, will usually be completed by the agent and signed by
the applicant. In these circumstances it may happen that the applicant informs the
agent of facts that are material, but that the agent, whether deliberately or not, fails
to convey this information to the person who eventually concludes the contract on
behalf of the insurer. Or the agent may be aware that the application form contains a
material non-disclosure of which the applicant, in signing the form, may or may not
also be aware (which may easily happen in the case of electronic applications). Or the
agent, in order to earn commission, may convince the applicant that the information
in issue need not be disclosed. In such circumstances the question arises whether the
knowledge of the agent may be imputed to the insurer when the insurer attempts to
eventual insured. This is where the doctrine of constructive knowledge comes into
play.
24.72 The scope and requirements of this doctrine are shrouded in uncertainty. In
the court
________________________
186 See Randbank Bpk v Santam Versekeringsmaatskappy Bpk [1965] 2 All SA 444 (W); 1965 (2) SA 456
(W) 457–458; Allen v Sixteen Stirling Investments (Pty) Ltd [1974] 4 All SA 271 (D); 1974 (4) SA
164 (D) 169E; Rabinowitz v Ned-Equity Insurance Co Ltd [1980] 3 All SA 360 (W); 1980 (1) SA 403
(W) 407H; Davidson v Bonafede [1981] 2 All SA 19 (C); 1981 (2) SA 501 (C) 504; Mutual & Federal
Ins Co Ltd v SMD Telecommunications CC [2011] 2 All SA 34 (SCA); 2011 (1) SA 94 (SCA) par 23.
187 Cf Ravene Plantations Ltd v Estate Abrey 1928 AD 143 154; Sampson v Union & Rhodesia Wholesale Ltd
1929 AD 468 482.
188 In Davidson v Bonafede [1981] 2 All SA 19 (C); 1981 (2) SA 501 (C) 504 eg, the court accepted that a seller
was liable to compensate for damage caused by the misrepresentation of an estate
agent whom he had instructed to procure offers for a property. That is so even if the principal
was unaware of the misrepresentation: Odendaal v Ferraris [2008] 4 All SA 529 (SCA); 2009 (4)
SA 313 (SCA) par 30. See also Hay v Hilder [2001] 2 All SA 95 (W).
189 In the Ravene decision above (n 187) the court stated that the “well-known principle of our law that a master is
liable for the act of his servant . . . has been extended” to embrace the liability
of the principal for misrepresentation by the intermediary. But see Van der Merwe et al Contract
par 9.2.3.
190 Cf 24.29 et seq; Pereira v Equitable Marine & Fire Assurance Co (1899) 16 SC 273 275; Bawden v London,
Edinburgh & Glasgow Assurance Co [1892] 2 QB 534 (CA); Lowry et al Doctrines par 4;
191 1945 TPD 306 311. See also Trucar Finance & Acceptance Corporation Ltd v Jones’ Garage & Service
Station [1963] 1 All SA 546 (T); 1963 (1) SA 588 (T) 590F–H; Connock’s (SA) Motor Co Ltd v Sen-
( continued)
528
took the view that the English law on constructive notice is salutary and that, if not
already part of the law, it should be adopted. Two requirements have been laid down:
first, that the knowledge to be imputed must have been acquired in the course of the
agent’s employment or mandate192 and, secondly, that the agent must be under a duty
24.73 Whether it is the duty of the agent to communicate the information depends
24
on the scope of his authority and the importance or materiality of such knowledge to
paragraphs
the principal. The test of materiality is whether the knowledge of the agent is such 24.70–24.75
impart the knowledge to the person who has delegated to him the conduct and
24 74 It has been suggested195 that only the knowledge of an agent who has authority
to bind the insurer by contract may be imputed to the insurer. This seems too high a
threshold. 196 Whilst the knowledge of an agent with authority to conclude a contract
is ordinarily imputed to his principal, 197 there may be cases where an agent is specially
authority falls short of actually concluding the contract. In English law such an agent
to his principal. 199 An example of an agent to know is the secretary of a company. 200
24.75 While the knowledge of directors is ordinarily imputed to a company, 201 this is
not a hard-and-fast rule and much depends on the particular circumstances. 202
________________________
traal Westelike Ko-operatiewe Maatskappy Bpk [1964] 2 All SA 316 (T); 1964 (2) SA 47 (T) 53H;
Randbank Bpk v Santam Versekeringsmaatskappy Bpk [1965] 4 All SA 337 (A); 1965 (4) SA 363 (A)
368C; Oatorian Properties (Pty) Ltd v Maroun [1973] 4 All SA 1 (A); 1973 (3) SA 779 (A) 787H;
Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987
(3) SA 506 (A) 518D–F; Ellanco International Trading v SA Botswana Hauliers (Pty) Ltd [1992] 3
All SA 664 (W); 1992 (2) SA 299 (W) 303H; Wilkins v Voges [1994] 2 All SA 349 (A); 1994 (3) SA
130 (A) 141G–H; Wilkens v Potgieter [1996] 2 All SA 546 (T); 1996 (4) SA 936 (T) 939F–G; Fourie
v Sentrasure Bpk 1997 (4) SA 950 (NC) 973B–D; Standard Bank of SA Ltd v Prinsloo [2000] 1 All
SA 145 (C); 2000 (3) SA 576 (C) 589F–H. Cf Yorkshire Insurance Co Ltd v Ismail [1957] 1 All SA
193 Town Council of Barberton v Ocean Accident & Guarantee Corporation Ltd 1945 TPD 306 311. Cf
Momentum Group Ltd v Van Staden [2009] 4 All SA 218 (SCA); 2010 (2) SA 135 (SCA).
194 Town Council of Barberton v Ocean Accident & Guarantee Corporation Ltd above 311. See also Ballenden v
Salisbury City Council [1949] 1 All SA 396 (SR); 1949 (1) SA 240 (SR) 250; Trucar Finance & Acceptance
Corporation Ltd v Jones’ Garage & Service Station [1963] 1 All SA 546 (T); 1963
195 For English law, see Newsholme Bros v Road Transport & General Insurance Co Ltd [1929] 2 KB 356
(CA) 373; Lowry et al Doctrines 65–67; Birds Birds’ Modern Insurance Law par 12.5. See also Steyn v AA
Onderlinge Assuransie Assosiasie Bpk 1985 (4) SA 7 (T) 21G (where the court regarded the
knowledge possessed by a claims superintendent, who had nothing to do with the conclusion of
196 Ying v South British Insurance Co Ltd [1957] 1 All SA 19 (E); 1957 (2) SA 194 (E) 198E.
198 Blackburn, Low & Co v Vigors (1886) 17 QBD 553 (CA); Randbank Bpk v Santam Versekeringsmaatskappy
Bpk [1965] 2 All SA 444 (W); 1965 (2) SA 456 (W) 458D (this aspect of the case was
199 Broli v London Assurance Co 1931 EDL 186; see also Randbank Bpk v Santam Versekeringsmaatskappy Bpk
[1965] 2 All SA 444 (W); 1965 (2) SA 456 (W) 458D.
200 Cf Legg & Co v Premier Tobacco Co 1926 AD 132 140; Schoeman v Administrateur (OVS) [1961] 4 All SA
493 (O); 1961 (4) SA 856 (O).
201 Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 (HL) 14.
529
Imputation of knowledge cannot take place where the agent commits a fraud on his
principal; 203 where the knowledge is obtained in breach of a duty to the principal; 204
or where the third party knows that the agent does not intend to inform his
principal. 205
24.76 The judgment in Town Council of Barberton v Ocean Accident and Guarantee
from confirming, first, whether there must necessarily be a duty209 on the agent to
communicate the information obtained and, secondly, whether the existence of such
a duty would suffice where the duty would in all probability not be implemented. 210
examination, it is suggested that the doctor, appointed by the insurer, is par excellence
an “agent to know”. Consequently facts learned by the doctor in the course of his
examination should be imputed to the insurer. It does not matter whether the doctor
himself discovers medical facts about the proposer or whether the proposer
another capacity should not be imputed to the insurer, 211 for example where the
doctor learns the facts when the proposer consults him afterwards in a private
capacity. 212
24.78 In the course of time clauses have been developed to exclude the possible
that the agent is to be regarded as the agent of the proposer – a so-called “transfer of
agency” clause213 – or that the insurer will be bound only by facts which have been
________________________
203 Randbank Bpk v Santam Versekeringsmaatskappy Bpk [1965] 2 All SA 444 (W); 1965 (2) SA 456 (W) 458
(this aspect was not affected by the judgment on appeal); Connock’s (SA) Motor Co Ltd v Sentraal Westelike Ko-
operatiewe Maatskappy Bpk [1964] 2 All SA 316 (T); 1964 (2) SA 47 (T) 53H.
204 National Employers Mutual General Insurance Association v Gany 1931 AD 187 204.
205 National Employers Mutual General Insurance Association v Gany above 203, where the agent stated that the
insurer was not interested in the truth of a question that had been answered incorrectly and the parties agreed not to
disclose the correct information; consequently the insured did
not expect the insurer to be informed of the truth. See also Broli v London Assurance Co 1931
EDL 186; Trucar Finance & Acceptance Corporation Ltd v Jones’ Garage & Service Station [1963] 1 All
207 See, eg, Oatorian Properties (Pty) Ltd v Maroun [1973] 4 All SA 1 (A); 1973 (3) SA 779 (A) 787H
where the court referred to Town Council of Barberton v Ocean Accident & Guarantee Corporation
Ltd above with approval; Trucar Finance & Acceptance Corporation Ltd v Jones’ Garage & Service Station
[1963] 1 All SA 546 (T); 1963 (1) SA 588 (T) where Town Council of Barberton v Ocean Acci-
208 [1965] 4 All SA 337 (A); 1965 (4) SA 363 (A) 368F.
209 In Anderson Shipping (Pty) Ltd v Guardian National Insurance Co Ltd [1987] 2 All SA 307 (A); 1987
(3) SA 506 (A) 518D the court referred with apparent approval to Trucar Finance & Acceptance
Corporation Ltd v Jones’ Garage & Service Station above and decided that since there was no duty
on the agent concerned to communicate certain material information to his employer, a com-
pany, the knowledge of the agent could not be imputed to the company.
210 For instances of where knowledge was or was not imputed, see Lawsa Vol 12 Part 2 pars 237 and 238.
211 Colonial Mutual Life Assurance Society Ltd v De Bruyn 1911 CPD 103.
212 Muller v Colonial Mutual Life Assurance Society Ltd 1925 WLD 103.
213 It should be observed that LTIA s 56(b) and STIA s 51(b) provide that “transfer of agency”
530
recorded on the proposal form. 214 Moreover, the view has been expressed that a
clause providing that answers to the questions are to be the basis of the ensuing
contract, likewise excludes the imputation of an agent’s knowledge to his principal. 215
The protection afforded by such clauses seems suspect where the agent is an agent to
knowledge do not change the relationship between the insurer and its agent and
24
paragraphs
24.79 The LTIA217 and the STIA218 provide generally that any provision in an 24.75–24.82
agreement that purports to exempt an insurer from liability for the actions, omissions
to be void.
Summary
on behalf of the insurer if he had merely been instructed by the insurer to oversee
the formal completion of the application form. The application form, after all, is the
declaration of will of the prospective insured. However, where the agent has been
instructed by the insurer to put the proposal in proper form, he will probably have an
implied mandate to ascertain and receive information for the insurer and to that
extent he acts for the benefit of the insurer. This would be all the more probable
where the agent is in fact an employee of the insurer. Consequently, where an agent
there would be a basis for justifying the imputation of the agent’s knowledge to his
principal, the insurer. The reluctance of South African courts to allow the imputation
of knowledge should probably be ascribed to a finding in each case that the agent
24.81 It is suggested that the main fields of enquiry, whenever the imputation of
knowledge to an insurer is in dispute, are (i) was the agent actually or ostensibly
authorised by the insurer to receive the information in question?; (ii) was the agent
actually or ostensibly authorised by the insurer to assist the insured in processing the
information?; and (iii) was the agent for that particular purpose the agent of the
insured? If the answer to either (i) or (ii) is in the affirmative, it is implicit that such
information, if material, should be imparted to the insurer and that such knowledge
eventual insured was aware that such material information would not be disclosed to
the insurer, for instance if he was pertinently so informed by the agent, it may, but
________________________
215 Newsholme Bros v Road Transport & General Insurance Co Ltd [1929] 2 KB 356 (CA); London & Scottish
Assurance Corporation Ltd v Venter 1923 OPD 209; Broli v London Assurance Co 1931 EDL
216 Thus, the existence of such a clause was no obstacle in Bawden v London, Edinburgh & Glasgow Assurance
Co [1892] 2 QB 534 (CA) and Stone v Reliance Mutual Insurance Society Lt d [1972] 1
Lloyd’s Rep 469 (CA) where the imputation of knowledge was allowed. See Lowry et al Doctrines
65–67; Birds Birds’ Modern Insurance Law par 12.5. In National Employers Mutual General Insurance
Association v Gany 1931 AD 187 such a clause was present, but the court made no mention of it
217 S 56.
218 S 51.
531
to repudiate a later claim on that ground, will depend on whether the prospective
insured’s non-disclosure, measured against the criterion of the boni mores, was
deemed to be wrongful. 219 It might, or might not, be so regarded when, for instance,
an agent advises the proposer to withhold the information deliberately for fear that
insurance would not be granted if the whole truth were told. It will ultimately depend
on the surrounding facts, for instance, on whose agent he is and what his relationship
to the prospective insured and the insurer is. But once such a misrepresentation is
found, it could in principle entitle the insurer to repudiate the claim on that specific
ground alone.
24.83 In such a case the prospective insured’s failed duty to disclose, constituting a
material misrepresentation, would override the fiction that the insurer had due
knowledge and that, because of the fiction, the insurer was not misled. 220 So too, if
the agent was employed or mandated by the insurer to market the insurer’s products
or to ascertain the pertinent facts, and the agent who in the course of carrying out his
duties wrongly advises the client that certain disclosed facts were not required by the
insurer, say, because it would not in his opinion be regarded as material, the
misrepresentation and the knowledge could be imputed so that the insurer would
________________________
219 On wrongfulness, see 8.17; Lawsa Vol 12 Part 1 pars 185, 193.
220 Cf Nienaber and Reinecke Life Insurance par 17.45; Merkin et al Colinvaux’s Law of Insurance par 15.019.
532
25
Short-term insurance
A. General
....................................................................................................................... 533
C. Guarantee
insurance.................................................................................................
536
D. Liability
insurance
.....................................................................................................
538
25
A. GENERAL
paragraphs
25.1 The STIA applies to short-term insurance business. “Short-term insurance 25.1–25.2
25.2 The term “short-term policy”, in turn, is defined as the business of providing
policy benefits under any one of a list of specific types of policy. The list is made up of
alphabetical order, an accident and health policy, 2 an engineering policy, 3 a guarantee policy, 4 a liability policy,
5 a motor policy, 6 a property policy7 or a transportation policy. 8 There is also a creature called a miscellaneous
policy. 9 And then the list also includes a contract comprising a combination of any of these
policies, as also a contract by which any such contract is varied or renewed. 10 These
________________________
2 25.10–25.16.
3 See
further
4 25.17–25.23.
5 25.24–25.83.
6 See
further
7 See
further
Lawsa Vol 12 part 2 par 256 as As to property insurance, including fire insurance, see
8 See further Lawsa Vol 12 part 2 pars 256–259 for For transportation insurance, including aviation and motor-
vehicle insurance, see idem pars 256–259; for marine insurance, see idem
pars 261–305.
533
25.3 The term “policy benefits” is defined to mean one or more sums of money, other
many types of insurance short-term insurers reserve for themselves the right to
indemnify the insured not by the payment of a sum or sums of money, but by the
unlikely that the intention was to outlaw this practice by the loose definition of
25.4 Although the STIA regulates “short-term insurance business”, the word
“insurance” is not defined in the Act. It was apparently thought that a definition of
the various types of policy within the purview of “short-term insurance” would
suffice. 14 Although this may result in contracts other than insurance falling within the
common-law meaning. 15
25.5 By the same token, although the Act does not explicitly say so, the word “policy”
different meaning is evident. Such a different meaning is, for instance, clear from the
definition of the term “guarantee policy” in that it includes contracts that would, at
25.6 The concept “policy” is basic to the Act but it is not specifically defined. Use of
the term “policy” may create the impression that the Act is concerned only with
written insurance contracts since the term refers to a written document. After all and
despite common usage, the terms insurance policy and insurance contract are not
25.7 However, in defining the different types of policy to which the Act applies, the
Act refers to “contracts” which is, of course, not limited to written contracts. Hence,
the word insurance “policy”, wherever it occurs in the Act, must be taken to embrace
25.8 It should also be observed that in its description of the various types of policy,
the Act refers to a premium as being “in return” for the undertaking by the insurer.
return for an undertaking to provide policy benefits. 17 This may create the impression
However, it has been pointed out that an insurance contract is not necessarily a
25.9 The STIA contains a number of substantive provisions which prohibit certain
practices relating to, and which protect the policyholders of, short-term policies. 19
________________________
17 S 1(1) sv “premium”.
( continued)
534
Short-term insurance
25.10 For the purposes of the STIA an accident and health policy20 is defined as a
25.11 Excluded from the definition are contracts of which the policy benefits are
25
paragraphs
something other than a stated sum of money, which are to be provided upon an
expenditure having been incurred in respect of a health service, and which are to be
25.3–25.14
provided to a provider of a health service in return for the provision of such a service.
Also excluded are policy benefits provided in terms of the Medical Schemes Act.24
the rules on insurable interest relating to life insurance27 apply. If the contract is one
of indemnity insurance, the rules on insurable interest in that type of insurance28 are
that of subrogation. 29
25.13 The possibility that personal accident insurance may be concluded either by
envisaged for regulatory purposes. Accident and health insurance is regulated by the
STIA but there is some overlap with the LTIA. The latter Act provides for health30 and
disability insurance31 and not only are the same definitions employed to define a
disability and a health event as those employed under the STIA but the definition of
“accident and health policy” under the latter is identical to that of “health insurance”
and health” insurance under the STIA or “disability” insurance under the LTIA.
health” insurance under the STIA or “health” insurance under the LTIA. An
________________________
policy and inspection of policy records); 48 (intermediaries: remuneration and binder
20 S 1(1) sv “accident and health policy”. For discussions of the regulation of “health policy” and of
24 131 of 1998.
25 26.47.
26 An accident policy providing for the payment of a fixed sum or sums of money on the
occurrence of an accident, irrespective of whether and to what extent the insured suffered loss,
is a non-indemnity contract. In contrast, a policy covering the insured against loss or damage
insurance contract providing cover against medical expenses, whether necessitated by accident
or illness, is one of indemnity. See, eg, Lowry et al Insurance Law: Doctrines and Principles 460.
27 3.140–3.149.
28 3.17–3.64.
29 18.27–18.29.
30 26.15.
31 26.16.
535
25.15 The demarcation between the regulation of accident and health insurance
25.16 The STIA limits the policy benefits provided in terms of an accident and
health policy in the event of the death of an unborn child or of a minor before that
C. GUARANTEE INSURANCE
25.17 “Guarantee policy” means a contract in terms of which a person, other than a
contractually undertakes, for remuneration, to pay a sum of money to the other party
on the failure of a third person to perform an obligation, the contract may be either
one of insurance or one of suretyship. That will depend on the intention of the
parties. It is insurance if the intention was that the insurer by the performance of its
own, principal obligation indemnify the other party (the insured) on the third
person’s non-performance the insurer renders to the other party (the creditor) an
business. 37 A short-term insurer may further not by means of suretyship or any other
________________________
32 Registrar of Medical Schemes v Guardrisk Insurance Co Ltd, unreported (W), (2007) 10 Juta’s Insurance L Bul
122, holding that a disjunctive (“and/or”) as opposed to a conjunctive (“and”)
reading was required of the relevant parts of the definition of “business of a medical scheme” in
the Medical Schemes Act s 1 and of the definition of “accident and health policy” in STIA s 1(1).
34 S 50.
35 S 1(1) sv “guarantee policy”. The nature of “guarantee business” under the Insurance Act 27 of 1943 was
considered in Johannesburg Livestock Auctioneers Association v President Insurance Co Ltd
1987 (1) SA 539 (W). In fact, an undertaking to provide benefits upon the occurrence of an
event “relating to the failure of a person to discharge an obligation” could include suretyship
36 For the similarities and differences between insurance and suretyship, see 5.108–5.111.
37 S 7(1).
38 S 33(1)(d).
39 The precise scope of these conditions, and hence, of the prohibition itself is not readily
apparent. It seems s 33(1)(d) should be read as meaning that insurers not registered to carry on
guarantee insurance may conclude suretyships only with the approval of the registrar, while
those that do have authority to carry on guarantee insurance may conclude suretyships without
the registrar’s approval. This meaning appears likely, for in the equivalent measure in LTIA
s 34(1)(d) – where there is, logically, no exception for insurers registered to do conclude
guarantee insurances – no long-term insurer may conclude suretyships without the registrar’s
approval.
536
Short-term insurance
insurance forms may be distinguished, depending on the precise nature of the third
25
paragraphs
25.20 Fidelity guarantee insurance41 covers the insured against losses he may suffer 25.14–25.22
through the fraudulent or dishonest conduct of an employee, for instance the theft
of the employee is required before the insurer can be held liable, but unless the
policy so states the criminal prosecution of the employee is not necessary. Again, this
25.21 Credit (or debt) guarantee insurance43 covers the insured against the loss he
may suffer as creditor by the failure of a third-person debtor to pay his debt, either at
all or on time (when the debt falls due) or by a specified subsequent date. The
insurance contract may cover any such failure irrespective of the cause, or only those
caused by specific causes, such as the third person’s insolvency; it may cover an
individual debt, or the insured’s (or his businesses) debts generally; and it may cover
existing debts or future debts. Being indemnity insurance, the insurer will on
payment of the debt from the third person. Otherwise than in the case of suretyship,
the insured may claim an indemnity from the insurer under their contract without
having to sue the debtor first, 44 unless the insurance is to the effect that it covers the
insured only against any loss (any unpaid balance of the debt) remaining after he has
25.22 The Export Credit and Foreign Investments Insurance Act45 provides for the
investments and loans or similar facilities relating to such transactions. The insurance
________________________
40 See generally Merkin et al Colinvaux’s Law of Insurance pars 23.018–23.020, where it is pointed out that the
insurer may either undertake guarantee insurance (ie, indemnify the insured
against loss from non-performance by the third person) or stand surety or provide a guarantee
(for the performance of the obligation by the third person); an insurer promises an indemnity
to the insured creditor if the debtor does not pay or perform, while a surety promises the
creditor that he will be paid or that the performance will be rendered; payment by an insurer
does not affect the principal debt, while payment by the surety discharges the principal debt. See
41 See Merkin et al Colinvaux pars 23.021–23.028; Randbank Bpk v Santam Versekeringsmaatskappy Bpk 1965
(2) SA 456 (W), 1965 (2) All SA 444 (W) (whether in renewing his employer’s fidelity
policy, the employee should have disclosed his own fraud); ABSA Makelaars (Edms) Bpk v Santam
employee for purposes of a fidelity insurance contract; whether individual brokers were
42 And it should be distinguished from liability policies covering the insured against liability he may incur towards
others as a result of the (negligent) conduct of an employee.
44 Put differently, there is no benefit of excussion for the insurer as there is for a surety; it is not a naturalia of an
insurance contract.
45 78 of 1957. See further Merkin et al Colinvaux par 23.032; Van Niekerk and Schulze SA Law of International
Trade 45–47; Metcash Trading Ltd v Credit Guarantee Insurance Corp of Africa Ltd 2004
537
as a short-term insurer. It covers the insured against the risk of monetary loss or
political risks (eg, import prohibitions in the foreign country or restrictions there on
money being transferred from that country, or the outbreak of war or hostilities) or
commercial credit risks (eg, insolvency, default or repudiation on the part of the
foreign trading partner) which are not normally insurable in the local market.
25.23 Contract completion insurance46 covers the insured against the loss he may
South African courts have on numerous occasions considered the nature of these
letter of undertaking or a bond – to provide security for the release of property from
arrest, for the satisfaction of a judgment, or for the performance of certain official
(often judicial) functions.
D. LIABILITY INSURANCE
General
25.24 Although rather neglected in South African law compared to many other
of risk as also in the imposition of civil liability. 49 And with the advent of statutory
increase.
25.25 The distinction between property or first-party insurance and liability or third-
party insurance has already been drawn. 50 The former is concerned with positive
elements of the insured’s patrimony, the latter with negative elements or liabilities of
that estate, 51 and the distinction is therefore based on the nature of the asset the
________________________
49 Potentially, though obviously much less so in a developing country such as South Africa, there is an insurer
behind every party to a civil claim; a property or accident insurer, say, behind the
plaintiff and a liability insurer behind the defendant. See again Lawsa Vol 12 Part 2 par 82.
50 1.47–1.48.
51 Liability insurance is referred to as third-party insurance not because it is insurance for the benefit of the third
party, but because it is the third party’s loss and the insured’s liability for that
loss which make up the uncertain event upon which the insurer’s liability to pay is dependent.
The fact that the liability of the insured is incurred or quantified with reference to the loss of or
damage to (the property of) a third party, does not render it an insurance of that third party (or
52 The distinction between insurance of actives and of passives is known in some continental legal systems, eg, in
German law where known as “Aktivenversicherung” and “Passivenversicherung”: see
Wansink et al Assers Handleiding tot de Beoefening van het Nederlands Burgerlijk Recht. 7: Bijzondere
538
Short-term insurance
25.27 Liability insurance is insurance against a legal liability. The STIA55 defines
25
paragraphs
25.28 In the same way as insurance contracts generally should be distinguished from
liability as the main, and not merely a subsidiary, element of the parties’ contractual
25.29 The liability insured against by a liability insurance contract is that of the
insured towards a third party; the insured is not protected by such insurance against
________________________
53 A person who takes care of and may be held liable for loss of or damage to another’s property (eg, a carrier, or
a pledgee), has an insurable interest in that property and may insure either the
property itself or against liability in respect of the property. Whether a contract is one of
property insurance or liability insurance depends on the intention of the parties and involves an
interpretation of their contract. Cf, eg, Spar Group v Webber, unreported (FB), (2011) 14 Juta’s
Insurance L Bul 84 as to whether insurance taken out by a debtor for the security of a creditor is
third-party (liability) insurance with the debtor as the insured, or first-party insurance contract
with creditor as the insured; Merkin et al Colinvaux pars 20.006, 20.062; Clarke et al Contracts par 4.5K.
54 Eg, a comprehensive householders or motor-vehicle insurance contract may provide cover for
first-party property and personal-injury as well as against third-party liability: Cape Town
Municipality v Allianz Insurance Co Ltd 1990 (1) SA 311 (C) 321C–D; Russell and Loveday v Collins
Submarine Pipelines Africa (Pty) Ltd 1975 (1) SA 110 (A) 141E–G.
56 Presumably a legal liability (see further Lawsa Vol 12 Part 2 par 248) and presumably the, or an, insured’s
liability.
58 Thus, a subsidiary undertaking of indemnification (an indemnification clause), say by a lessee towards a lessor
in a contract of lease, or by a contractor as against an employer in a service
contract, will not suffice to render that contract (also) one of liability insurance. See also Clarke
et al Contracts par 1.2C on the role of the “dominant purpose test” in identifying a (liability)
insurance contract. Nevertheless, many of the principles that apply to the obligations of an
incidental indemnifier will mutatis mutandis also be applicable in determining the obligations of
a liability insurer: see, eg, Furman v Batha, unreported (GSJ), (2011) 14 Juta’s Insurance L Bul 31
(requirements of proper notice and proper defence of the third-party action). But liability
insurances and indemnity clauses or contracts generally are not in all respects or for all purposes
identical or even comparable: see, eg, Venfin Investments (Pty) Ltd v KZN Resins (Pty) Ltd t/a KZN
Resins [2011] 4 All SA 369 (SCA) as to whether the Insolvency Act 24 of 1936 s 156 applies not
59 Watson NO v Shaw NO 2008 (1) SA 350 (C). Different considerations may apply to an exemption cast in the
form of an indemnity in, say, a building contract: see Masstores (Pty) Ltd v Murray and
Roberts Construction (Pty) Ltd [2009] 1 All SA 146 (SCA), observing that although the terms
“indemnify” and “hold harmless” relate primarily to third-party claims against the party to be
indemnified, they may also, on a proper interpretation, refer to the exemption of the
539
25.30 Liability insurance may be voluntary or compulsory. The prudent will insure
insurance60 to cover themselves or their members against the liability they may incur
in particular capacities. A wide variety of methods are employed in this regard: the
such insurance cover is usually a condition of the person or body being permitted to
to ensure that the liable insured will have the means to meet third-party claims. That,
however, does not as a rule mean that the third party will have a claim against the
25.32 Liability insurance may be classified – or, to put it differently, the cover
provided may be restricted in scope – in various ways: with reference to the identity or
characteristics of the insured, the activity or activities from which the covered liability
has to arise, 64 the type of third-party loss or damage in respect of which the insured’s
liability is covered, or the range of third parties in respect of whom the insured’s
liability is covered. 65
________________________
61 A few random examples: Estate Agency Affairs Act 112 of 1976 s 12C (group insurance to
provide indemnity insurance to cover estate agents’ liability to members of the public), s 23
(insurance to cover the Estate Agency Board against liability to pay claims in respect of estate
agents); Attorneys Act 53 of 1979 s 40 (insurance to indemnify the Attorneys’ Fidelity Fund
against liability to pay certain claims in respect of practising attorneys to clients and other third
parties), s 40B (group professional indemnity insurance for practitioners); Sheriffs Act 90 of
1986 ss 30 and 33(1)(m) (professional indemnity insurance to be held by sheriffs before they
may perform their functions); Public Accountants’ and Auditors’ Act 80 of 1991 s 13(1)(n)
(professional indemnity insurance to cover the liability incurred by accountants and auditors in
public practice); Diplomatic Immunities and Privileges Act 37 of 2001 s 13 (liability insurance
requirements to be met by persons enjoying immunities or privileges under Act); FAIS Act 37 of
2002 s 16(1)(e) (professional indemnity or fidelity insurance cover for financial services
director, officer and certain others against liability or expenses in certain cases).
62 A few examples: Marine Pollution (Control and Civil Liability) Act 6 of 1981 s 13 (certain oil tankers to carry
compulsory insurance in a minimum prescribed amount against liability for loss
or damage or costs for which they may be liable in respect of pollution-causing incidents);
National Land Transport Act 5 of 2009 s 8(1)(bb) (liability insurance for transport operators to
supplement the cover provided in terms of the Road Accident Fund Act 56 of 1996); Civil
Aviation Act 13 of 2009 s 155(1)(w) (compulsory insurance for the owners of aircraft in respect
of third-party liability); Safety at Sports and Recreational Events Act 2 of 2010 s 25 (obligation on
event organiser or owner of stadium or venue to have public liability insurance in place for an
event).
63 Such direct claims are the exception: see, eg, Insolvency Act of 1936 s 156 (insolvency of liable insured);
Marine Pollution (Control and Civil Liability) Act 6 of 1981 s 15 (proceedings to
enforce a claim in respect of the liability of a tanker owner for pollution damage may be brought
directly against the insurer who provided the – compulsory – insurance the owner carried).
65 These are discussed with greater particularity in Lawsa Vol 12 Part 2 pars 247–248.
540
Short-term insurance
25.33 As with all insurance contracts, the insured is also under a duty of disclosure
the inception of the policy may result in third-party claims being made during the
currency of the policy. In addition, many liability policies contain an express term
25
underscoring the common-law duty of disclosure, while liability insurers may further
paragraphs
exclude liability for claims arising out of circumstances known to the insured at the 25.30–25.38
inception of the policy or for claims arising from circumstances that should have
25.34 Liability insurance is an indemnity insurance contract67 and the insured may
not be enriched. 68
25.35 Loss does not only take the form of a diminution of the value of an estate
through loss of or damage to assets in that estate, but also of the owner of the estate
the insurer undertakes to indemnify the insured against the (consequences of or loss
caused by) legal liability the latter may incur. The insured’s insurable interest lies in
25.36 Usually the quantification of the insured’s loss occurs with reference to the
of the third-party plaintiff’s loss or damage. The quantification of the insured’s loss
(liability) may also be established, at least prima facie and not necessarily conclusively
as far as the insurer is concerned, by means of a court order obtained by the third
third party.
25.37 Limitations are usually imposed upon the amount recoverable under a liability
policy. 71 These take various forms. The insured is occasionally required to bear as an
excess the first portion of any liability incurred. In addition, or alternatively, there
whether, for example, the insured is to bear an (the specified) excess for every claim,
or for all claims arising from a single occurrence, or whether the stated maximum
insurer liability is per claim, or for all claims arising from a single occurrence. 72
25.38 In addition to per claim or per occurrence limits, the policy may also have a
total limit, the maximum amount recoverable as the sum insured during the currency
of the policy. Thus, a liability policy may provide cover up to R1 million with a limit of
________________________
67 Boshoff v South British Insurance Co Ltd 1951 (3) SA 481 (T) 487C–D.
68 See, eg, Davey, Paxman and Co v Langlaagte Star GM Co Ltd (1898) 5 Off Rep 216, observing that as in the
case of fire and marine insurance, in terms of an indemnity clause the party to be
indemnified is entitled to recover from the indemnifier only such amount as is equivalent to the
69 4.7–4.9.
70 See again 3.38–3.42; also Merkin et al Colinvaux par 20.062; Wansink et al Assers par [370], explaining that in
the case of liability insurance, the interest is not linked to a specific asset, but
72 Idem pars10.032–10.037.
541
R500 000 per claim or occurrence, as the case may be. Provision may be made for the
provisions. 73
25.39 Multiple insurances may cover the insured against an identical liability. If these
policies amount to double insurance, contribution may come into play. 74 However,
the multiple insurances may also be arranged in layers, the one insurer to be liable
primarily, up to a certain limit, with the other insurer or insurers, known as excess
insurers, being liable in a successive layer or layers beyond that, and then there is no
25.40 Subrogation is possible in the case of liability insurance where the liability
insurer, having indemnified the insured (by the payment of the third party), seeks a
contribution in the insured’s name from a co-liable joint wrongdoer by exercising the
insured’s right of recourse against the latter. 76 It is also possible that the third-party’s
claim may be controlled by a subrogating insurer in the third -party’s name while the
Liabilities that are not uncertain but bound to happen (say, the liability undertaken
by the insured in a contract with a third party) cannot be insured against. Whereas in
the case of property insurance the risk is described with reference to a particular
tangible asset or object of risk, that is not possible in the case of liability insurance;
the object of risk is simply the insured’s estate as a whole78 and he has an interest (the
object of insurance) in no liability being incurred in respect of that estate (the object
of risk).
25.42 On general principles, the insured will be able to recover for liability arising
from his own negligent conduct, but, contractual terms and provisions apart, not for
liability arising from his own intentional or reckless conduct. 79 Should his (negligent)
conduct also be criminal, public-policy considerations come into play. More speci-
fically, the consideration against allowing the insured to benefit from his own
party claimant or victim to benefit, even if only indirectly, from an insurance payout
to the insured. 80
________________________
74 Wansink et al Assers par [483]. According to par [418], over-insurance is not possible in the case of liability
insurance as there is no identifiable object of risk the value of which may be
excessively insured.
75 Merkin et al Colinvaux pars 11.057, 20.032. For the exclusion of contribution by contract terms, see again
23.19, 23.35–23.38.
76 Wansink et al Assers par [579]; Walker v Matterson 1936 NPD 495, discussed in (2006) 9 Juta’s Insurance L
Bul 230.
77 25.57–25.67; Momentum Group Ltd v Fire Control Systems (Cape) CC, unreported (C), (2007) 10
78 Wansink et al Assers par [373]: liability insurance is insurance without an (a specific?) object of risk.
79 In this regard the insured is prevented from recovering from the insurer as the latter’s liability for the
consequences of the insured’s intentional – including reckless – conduct is excluded by
an implied term in the insurance contract to that effect: see 13.125–13.132. That is also the
position in German law where art 103 VVG refers to intentional and unlawful conduct.
80 See again 13.143–13.144. For English law, see Merkin et al Colinvaux par 20.031. In the case of compulsory
liability insurance, the interest of a third-party claimant or victim to be compensated
– the more so if entitled to claim directly from the insurer – may outweigh that of not allowing
the insured to benefit, which is seen as incidental: Clarke et al Contracts pars 24.7A–14.7B.
542
Short-term insurance
25.43 Like property policies, liability policies commonly provide that the insured is
to exercise reasonable care in avoiding loss or, in this case, liability. As the main
purpose of insurance, and even more clearly liability insurance, 81 is to protect the
insured against the consequences of his own negligence, this obligation will be
causing or contributing to his liability, but only when his conduct is intentional or, at
least, reckless. 82
25
paragraphs
25.44 As with all other insurances, the liability insured too is under an obligation to 25.38–25.48
avert or minimise incumbent or occurred loss which, in this case, is liability towards
third parties. 83
25.45 As far as the insured’s conduct after the occurrence of the liability-causing
event is concerned, liability policies often require of the insured not to admit any
liability to a potential third-party claimant without the insurer’s consent. Likewise, the
insured may be obligated not to settle any third-party claim without the insurer’s
prior consent. Such consent, it may be thought, should not be withheld unreasonably
or arbitrarily. 84 These obligations may be part of a more general duty, usually imposed
by express terms but arguably even tacitly, not to prejudice the insurer’s rights85 but
to co-operate with the insurer. 86 They are related to the insurer’s rights and duties as
far as the defence of the third-party claim against the insured is concerned. 87
Notification
25.46 Liability policies as a rule require the insured to notify the insurer of particular
facts. 88 What exactly requires notification depends on the wording of the particular
policy and, generally, on the type of liability insurance. The purpose of the
notification is to alert the insurer to the possibility of an (action against the insured
and a consequent) action against itself, so that it may take steps to mitigate the
insured’s loss (liability) and, with it, its liability to pay him an indemnity for it.
25.47 Under an occurrence-based policy, for instance, the insured will be required to
notify the insurer of any occurrence or third-party loss that may give rise to a claim.
Notice is to be given of an occurrence giving rise to a claim against the insurer, not of
a claim by the third party against the insured. The insured cannot therefore wait for a
third-party claim against it before notifying the insurer of the occurrence having
taken place as the duty of notification is not dependent on a third-party claim arising
25.48 A claims-made policy, again, requires notification of any claim made against
the insured by a third party in respect of which the insurer may incur liability.
“Claim” may be defined in the policy to include, for instance, a letter of demand, or a
________________________
81 See Wansink et al Assers par [467], explaining that insurance against one’s own negligence is not only possible
but is in the case of liability insurance even a feature of the insurance in view of the
general requirement of fault (negligence) for the liability which is insured against.
84 See Merkin et al Colinvaux par 20.061. In German law, the exclusion of the insurer’s liability should the
insured pay or admit liability to the third party, is void: VVG art 105.
86 Clarke et al Contracts par 25.4A. In Dutch law, the insured’s duty not to admit liability is a statutory one, the
breach of which is without effect though if the admission is correct; and there
543
summons, but will otherwise bear its ordinary meaning. The phrase “claim made”, it
has been held, does not include a communication or notification by a third party of
the prospect of a claim being made against the insured sometime in the future. 90
25.49 As far as the time and form of the notice are concerned, notice is usually
possible”, that means it is required as soon as is reasonably practicable under all the
which the insured is actually or by imputation aware. Notice of such need be given
only if, realistically or objectively, they may give rise to a (claim against the insured
25.50 A liability insurer incurs liability for a loss sustained by the insured by reason of
a third-party claim. The question arises what is a “loss” for this purpose and, by the
25.51 For the insurer to be liable, and for the insured to be entitled to an
called “pay to be paid” clause94 – not required that the insured should actually have
paid the third-party claimant. Put differently, “loss” for purposes of liability insurance
refers to a liability being incurred, and not met, by the insured, the aim of such
insurance being to protect the insured from being required to make a payment to a
third party or having to borrow money to be able to do so, and not merely to
indemnify him after he had already done so. 95 In this sense, then, liability insurance is
25.52 As to when, exactly, the insured suffers loss by incurring liability to the third
25.53 According to the narrower view, for the insurer to be liable and for the insured
to be entitled to sue the insurer (for an indemnification), it is, again in the absence
of an express provision to the contrary, necessary for the insured’s liability towards
the third party to be ascertained. The insured’s liability must be established and
quantified before the insurer becomes liable. This may happen when there has been
a judgment against the insured, or a binding arbitral award against him, or where the
insured has concluded a valid, final and binding settlement with the third party. In
________________________
90 Van Immerzeel v Santam Ltd 2006 (3) SA 349 (SCA). In consequence, a later liability policy which excluded
claims against the insured under earlier policies had to respond to the claim when it
was eventually actually made. See also Merkin et al Colinvaux par 20.038.
91 If so, liability is written on a “claims-made and notified” basis: Merkin et al Colinvaux par 20.037; Van Niekerk
2006 SA Merc LJ 382.
93 In this regard the occurrence or claim may be described as one that “may” or (more narrowly
and less onerously) “is likely” to give rise to insurer liability. See further Merkin et al Colinvaux
94 Such a clause will exclude a direct third-party claim under the Insolvency Act 24 of 1936 s 156
(as to which see par 19.135, 21.61–21.74) on the basis that the very circumstance giving rise to
the s 156 claim (the insured’s inability to pay by reason of insolvency) is also the one preventing
the insurer incurring liability on the policy against the insured, and that again is a requirement
96 This is the leading position in English law (see Clarke et al Contracts par 14.4A2 n 3) and in German law (the
insurer’s liability arises when the third party’s claim is established with binding
544
Short-term insurance
25.54 Earlier South African decisions appeared to favour this narrow view, at least
when it came to determining whether the insured’s claim against the insurer had
become prescribed. 97
25.55 In Truck and General Insurance Co Ltd v Verulam Fuel Distributors CC98 the court thought the narrow rule
open to criticism99 and declined to follow it. Rather, it held
that under a liability insurance contract the insurer incurs liability to indemnify the
25
insured as soon as the insured suffers a loss, and that that happens when an event has
paragraphs
occurred which gives rise to the insured’s liability to the third party and as soon as 25.48–25.56
liability is thus incurred, even though the existence of the liability itself has not yet
formally been ascertained and determined nor its extent quantified. 100 Put differently,
according to this view “loss” in the context of liability insurance includes cases where
the insured’s liability to the third party has been incurred, although its existence and
extent still has to be formally or definitively established; the insured incurs legal
liability when the third party’s complete cause of action against him has arisen.
25.56 It may be that the appropriateness of the one or the other of these views
depends on the purpose of the enquiry as to when the insured suffered loss or
incurred liability. The wider view, namely that the insured incurs liability for purposes
of his liability insurance policy when the event causing the loss takes place, it may be
thought, is appropriate when the insurer’s liability against the insured has to be
determined. The narrow view, again, may be more appropriate when determining
whether, as statutorily provided, 101 the third party has a direct claim against the
________________________
97 See,
eg,
Shraga v Chalk 1994 (3) SA 145 (N), involving a contractual indemnity, Cape Town
Municipality v Allianz Insurance Co 1990 (1) SA 311 (C), involving liability insurance, both hold-
ing that indemnification does not fall due and that prescription of the insured’s claim against
the indemnifier or insurer commences to run only after the insured has actually paid the claim
against him, or at least only after the amount of the insured’s liability has been judicially de-
termined or conventionally fixed. See also Transnet Ltd v Mutual and Federal Insurance Co Ltd,
unreported (T), (1998) 1 Juta’s Insurance L Bul 40, holding that the insurer’s debt becomes due
for purposes of prescription of a claim on a liability policy only when the insured had paid the
third party or the amount of his liability towards the third party had been judicially or conven-
tionally determined.
98 2007 (2) SA 26 (SCA), on appeal from Verulam Fuel Distributors CC v Truck and General Insurance Co Ltd
2005 (1) SA 70 (W).
99 Thus, it agreed that the rule was too narrow and that an insured suffers a loss when the events have occurred
which give rise to the insured’s liability to the third party, even though the
amount of that liability has not yet been quantified; that the insured’s liability arises for pur-
poses of prescription when those events have occurred; and that the insured can at that time
sue the insurers for a declaration that they are liable under the policy and that on payment of
the third party by the insured, they will be obliged to indemnify it for a similar amount.
100 It referred to Reinecke v Incorporated General Insurances 1974 (2) SA 84 (A) where the insured, when sued
by third parties for damages but before the insured’s liability to them had been established, successfully instituted
action against the insurer, which had denied liability to in-
demnify the insured, and obtained a declaratory order that the insurer was liable in terms of
101 25.74–25.83.
102 Given that the third party should at least not be put in any better position in terms of the relevant legislation (in
South African law, Insolvency Act 24 of 1936 s 156) as against the insurer than was the insured, and should obtain
no better rights against the insurer than the insured
had, the insured’s liability may be taken to have been incurred for these exceptional purposes
only after the third party has obtained judgment against or an admission of liability from the
insured.
545
25.57 A liability insurer may in terms of a clause in the liability insurance contract103
be entitled to take over the defence of any third-party claim that may be brought
against the insured and to conduct such defence in the insured’s name, and to settle
taken up in the standard subrogation clause, 105 if not also because litigation takes
place in the name of the insured even though the insurer becomes dominus litis, this
right of defence is often referred to as (part of) the insurer’s right of subrogation.
rights, not with its defending claims against the insured. The right to conduct the
defence is taken up in the subrogation clause ostensibly because, like the express right
to subrogation, it is to be exercised before the insurer has indemnified the insured
liability under the policy, it may be estopped from later actually denying liability to
the insured. 106 Merely taking over the insured’s defence, though, is not an
unequivocal representation to the insured that the insurer accepts liability under the
policy and can accordingly not support an estoppel. 107 To be safe, the insurer may, of
of rights.
25.60 Should the insurer not exercise its discretion to defend third-party claims, for
instance if in its view the third-party claim is not covered by the policy, the insured
may do so himself and if the insurer is ultimately held liable on the policy, it cannot
complain as long the insured conducted such defence properly. In such a case, the
insurer can no longer rely on its right to be informed or to be consulted or to have its
consent obtained by the insured in the latter’s dealings with the third party.
25.61 Rather than giving the insurer an entitlement to defend a discretion in the
matter, the liability policy may in fact impose an obligation on the insurer to defend
liability insurer. Unless required by contract, though, there is no duty to defend. 108
________________________
103 See, eg, Cupido v Kings Lodge Hotel 1999 (4) SA 257 (EC); McClain v H Mohamed and Associates
105 18.139.
106 See further Merkin et al Colinvaux par 20.044 who suggest that a distinction may in this regard have to be
drawn between the situation in which the insurer has the right to avoid or to resile
from the insurance contract – and where estoppel may be possible – and the situation in which
the insurer is able to rely on a coverage defence, and where it will not be precluded from rely-
ing on that defence, at least as long as the insurer’s conducting of the insured’s defence cannot
108 American liability policies do so as a rule – there liability insurance policies are “litigation insurance” and
only exceptionally so-called “indemnity-only” policies – giving rise to an enormous volume of jurisprudence
involving bad-faith breaches by liability insurers of their duty to
defend. Such breaches result in a tortious liability in damages, including punitive damages, for
any loss suffered by the insured that is in addition to any liability on the insurance contract in
respect of the insured’s liability to the third party. See generally Jerry Understanding Insurance
546
Short-term insurance
25.62 Further, if there is such a duty, it will, in the absence of wording indicating
otherwise, not arise in respect of claims not coming within the scope of cover
provided by the policy, and not, in the case of layered insurance, unless the particular
insurer’s layer has been reached. By the nature of this duty, it will or may arise – be
25
the name of the insured and as far as the third party is concerned, the liability
paragraphs
insurer’s involvement or potential liability is irrelevant. 110 The insurer may, for 25.57–25.67
instance, appoint its own legal representatives to conduct the defence. 111
25.64 And in either case, if the third-party claim falls within the limitations imposed
by the policy as to the amount, the insured has no real interest in the success of the
defence and the outcome of any proceedings. However, if the third-party claim
exceeds the amount of cover afforded by the policy, or the insurer’s ultimate liability
is in doubt so that the insured’s liability may be uninsured, the insured most certainly
retains an interest in the outcome of any litigation or settlement. Then the insurer, as
well as the legal representatives it may have appointed, owe the insured a duty as to
the way in which the defence is conducted. The insurer must take account of and
protect also those – often diametrically opposed112 – interests of the insured, for
duty to settle, within the policy limits, if that is in the insured’s interest.
25.65 Whatever the basis of the insurer’s duty or duties in connection with the
defence of the third party’s claim against the insured, 114 it is clear that a breach may
involve the insurer incurring liability for damages in addition to any liability to
insured as far as the defence of third-party claims is concerned, some types of liability
insurance contract may contain a SC clause. In terms of this clause the insurer
undertakes to be liable and to pay on the policy without disputing or defending the
25.67 Concessions made by the insurer in its defence of the third-party claim – for
instance, the acceptance of liability, or the settlement of quantum – will bind the
________________________
109 Eg, when the insurer is notified of facts giving rise to potential liability, and not only once such liability has
been incurred or ascertained: Clarke et al Contracts par 17.4E.
111 See Mondi South Africa Ltd v Martens 2012 (2) SA 469 (KZP) (liability insurer instructing attorneys to defend
the action brought against its insured by a third-party plaintiff). As to the
112 Eg, the insured may want to avoid – the publicity or emotional stress involved in – litigation in his name and
rather favour a quick settlement, while the insurer may threaten protracted litigation with a view to a more
favourable settlement with the third party.
113 In America, in particular, but now also in England: Clarke et al Contracts par 17.4E4.
114 In English law, according to some, the insurer’s duty of defence is considered, as in American law, to be part
of its continuing duty of good faith and fair dealing, or of reasonable care (the
breach is a tort), but according to others it is based on an implied term of the insurance con-
547
insured. 116
Costs
25.68 Liability policies generally obligate the insurer to pay the costs of legal
proceedings to defend the claim against an insured, or the costs involved in settling
such a claim. 117 Insurers either actually provide the defence or, if not, fund it or
indemnify the insured against the costs involved118 when the third-party claim falls
within the scope of coverage provided by the policy. Such costs must have been
reasonably incurred, usually only with the consent of the insurer, and may include
not only the actual defence costs, but also related expenses, such as those involved in
investigating the claim or providing security and also any third-party costs awarded
25.69 In the absence of any express term as to costs, it may be thought that an
insurer’s undertaking to indemnify the insured against liability to third parties will, by
implication, include an indemnification not only against the amount of liability but
also against any costs the insured may incur or be held liable for in defending the
25.70 Depending on the policy wording, such costs may form part of and be
included in the overall sum insured, 120 or in the limited sum insured per claim or per
occurrence, 121 or may be treated separately and have their own limit in additional to
________________________
116 See Masunga v Mutema, unreported (ZH), (2008) 11 Juta’s Insurance L Bul 17, where the insurer’s authorised
acceptance of liability towards the third party bound the insured. The fact
that because of the third-party claim being in excess of policy limits, the insurer was only liable
as against the insured for a portion of the third party’s damage and only paid that portion of
the damages claimed from the insured, did not relieve the insured of liability towards the third
117 Coetzee v Attorneys’ Insurance Indemnity Fund 2001 (4) SA 1273 (O), 2003 (1) SA 1 (SCA); generally
Merkin et al Colinvaux pars 20.047–20.056; Clarke et al Contracts par 17.4E3.
118 Liability policies formerly provided for the insurer to pay an indemnity towards the costs
incurred by the insured in defending himself only after proceedings had been terminated, so
that the insured had to fund such defence himself. Modern practice is for insurers to fund the
costs in advance, or to pay the costs as and when they are incurred. Should it turn out that the
policy did not cover the insured’s liability for the claim defended, the insured will have to re-
turn the funded amount. Funding may be obligatory or discretionary, and may be limited only
119 See, eg, Scheibe v Heroldt and Louw (1867) 5 Searle 247 (indemnity clause); Executors Estate Richards v
Executors Estate Jonsson (1906) 27 NLR 593 (indemnity clause; indemnifier liable for
amount awarded against party to be indemnified plus (own and third-party) costs incurred by
latter in defending the action). In German law, liability insurance cover includes judicial and
extra-judicial costs necessarily incurred in defending third-party claims and such costs must, if
120 As in Coetzee v Attorneys’ Insurance Indemnity Fund 2001 (4) SA 1273 (O), 2003 (1) SA 1 (SCA) (costs and
expenses incurred by the insured were specifically in cluded in the contractual limit
121 25.37.
122 This is statutorily the position in German law in cases where the defence is undertaken at the insurer’s
insistence: VVG art 101(2). This has been likened to the effect of a suing and labouring clause in a marine
insurance contract: Lawsa Vol 12 Part 2 par 304; Clarke et al Contracts
par 17.4A3.
548
Short-term insurance
25.71 It is possible to obtain insurance against legal expenses that may be incurred,
either as plaintiff or as defendant, in legal proceedings that the insured may become
involved in, 124 either separately or with other insurance. Liability insurance ordinarily
already contains an element of legal expenses insurance to the extent that such
insurance may cover the insured’s costs and in that the insurer may conduct
25
paragraphs
25.72 The existence of such insurance is of no concern to the party opposing the 25.67–25.75
insured in any litigation. 125
25.73 Such insurance may even be taken out after the insured’s right to bring a claim
has already arisen. So-called “after the event” insurance126 or post-dispute litigation
insurance is taken out to fund litigation or arbitral proceedings. The insurer will
evaluate the success of the prospective insured’s claim before offering cover and
quoting a premium. Typically the payment of the – relatively high – premium for
litigation and then only if there is no adverse award of costs: so-called “no win, no
for the insurance – does not affect the validity of the insurance contract. 127 Should the
insured’s claim succeed, the premium is part of the costs to be recovered from the
defendant; should the claim fail, the insurer in effect pays the defendant’s costs, the
premium, as well as the insured plaintiff’s costs. In short, 128 the insured never actually
pays a premium.
25.74 A liability insurance contract is one between the (potentially liable) insured
25.75 Although the risk and the insurer’s liability under the liability insurance
contract may be described with reference to loss or damage suffered by the third
________________________
124 See generally Jacobs 2011 SA Merc LJ 464. The topic is regulated in detail in some jurisdictions: German
VVG arts 125–129; interestingly, art 128 provides the insured with a freedom of choosing from a panel of lawyers
one to represent his interests in court, the insurer to pay the law-
yer’s fees.
125 See Minister of Defence v Potsane; Legal Soldier (Pty) Ltd v Minister of Defence 2002 (1) SA 1 (CC) (where
the possibility of such insurance was raised); Foyle v D’Hooghe, unreported (C), (2006) 9
Juta’s Insurance L Bul 279 (the relevance in granting an application ordering the provision of
security for costs of an action, of legal assistance insurance on the part of the party from whom
such security was required); Els Inc v Gueorguieva, unreported (T), (2007) 10 Juta’s Insurance L
Bul 40 (an allegation in the plaintiff’s claim as to the existence of legal costs insurance on the
127 See Constantia Insurance Co Ltd v Compusource (Pty) Ltd, unreported (W), (2004) 7 Juta’s Insurance L Bul
204, holding that the fact that no premium is payable in the event of an adverse
award of costs does not render the agreement one of wagering, a pactum de quota litis or cham-
Compusource (Pty) Ltd 2005 (4) SA 345 (SCA): These matters were not considered on appeal.
The court there held that there was no consensus and hence no contractual liability between
the parties and accordingly no claim on the part of the insurer for the payment of any premi-
um, even though the insured had settled the claim and incurred an adverse order of costs
549
favour of the third party; 130 the third party is neither an insured under such a liability
policy, nor even a payee, and hence has no right at common law to claim directly
from the liability insurer of a defendant who incurred liability to him, even should
the insurer be liable under the liability insurance in respect of that liability.
25.76 The third party therefore cannot sue the insurer, only the insured131 and
insurer may therefore not be joined in that action as a co-defendant at the request of
the third party, although the joinder of the liability insurer by the service of a third-
25.77 In short, a liability insurance in the usual form is not – also – an insurance in
favour of a third-party claimant. The liability covered is not that of, but as against, a
third party.
25.78 Supporting the lack of any intention to benefit the third-party claimant in the
conventional sense, is the absence in the ordinary liability insurance contract of any
description by name or class or genus of such possible claimants, and of any provision
that or how133 a third party may claim from the insurer. There is also the fact that on
being indemnified by the liability insurer, the insured is ordinarily not even obliged,
under the insurance contract and as against the insurer, to use the insurance money
25.79 However, a liability insurance may, exceptionally, take that form, such as when
25.80 The third party is only in a very indirect and abstract sense the beneficiary of a
liability insurance policy. 135 It is only benefitted to the extent that the liable
defendant, being insured and having recovered or being able to recover from the
liability insurer, may be financially better able to meet its liability to the third party as,
equally, its other liabilities to other creditors. At common law, the third party
________________________
131 See Oehley v Erasmus (1909) 23 EDC 127 (the proper person to be sued was the party to be indemnified (the
principal), not the indemnifier).
132 Cf the earlier view in Jones v Richards and Executors; Richards v Executors Johsson (1905) 26 NLR
317 that an application of the party to be indemnified to join the indemnifier in the action
against it by the third party had to be refused as it would amount to a settlement of the dispute
between the party to be indemnified and the indemnifier at expense of the third party.
134 Eg, the usual authorised driver clause in comprehensive motor-vehicle policies provides liability cover not
only to the (named) insured but also to those who drive the (insured’s) vehicle with
his permission: 19.118–19.138. In that case the authorised driver is a third-party insured – and a
party to the contract – and those to whom he incurs liability are (if not fourth parties then at
least) third-party claimants but not parties to contract. For confusion in this regard, see Hollard
Insurance Co Ltd v Unitrans Fuel and Chemicals (Pty) Ltd unreported, GSJ, May 2012, case no
A5052/2010 15 Juta’s Insurance L Bul 62, where the court failed to distinguish between a third-
party claimant in terms of s 156 and a third-party insured (such as an authorised driver) in
terms of the insurance contract. See further Van Niekerk 2012 SA Merc LJ 449. See also German
VVG art 102(1), concerning the situation where liability insurance is taken out by a commercial
enterprise and where the liability cover is deemed to cover not only the enterprise itself but also
its employees, an instance of liability (as opposed to property) insurance for a third party (“für
fremde Rechnung”).
135 See Venfin Investments (Pty) Ltd v KZN Resins (Pty) Ltd t/a KZN Resins, unreported (SCA), (2011) 14 Juta’s
Insurance L Bul 156, where the court suggested that the liability insurance before it “is,
at least partly, for the benefit of the third party and not for the benefit of the insured’s credi-
tors who fall outside the circumscribed category”. However, the notion that the parties – the in-
sured and the liability insurer – may intend to confer some other benefit upon the third party
short of a direct claim against the insurer, should be very narrowly interpreted and understood.
The suggestion of some benefit to the third party, it may be thought, may well have been raised
simply to indicate the policy considerations – also underlying s 156 – of specifically not benefit-
550
Short-term insurance
certainly does not generally have any direct claim either against the liability insurer, 136
or upon the insurance payment it may have made to the insured, and no matter how
deserving its claim137 or precarious the position of the insured, 138 it remains a concurrent creditor of the insured.
25.81 However, it is conceivable that the liability insurer may by virtue of a separate
contractual arrangement become liable to pay the third party directly139 or that the
25
insured may cede his right against the insurer to the third party. 140
paragraphs
25.82 Further, statutory exceptions to this exist where a third-party claimant is 25.75–25.83
entitled to bring a direct claim against the liability insurer. The general exception
concerns the situation where the liable insured defendant is insolvent. 141 More
specific exceptions also exist, usually in the case of compulsory liability insurance. 142
– other than insured insolvency – so highly regarded that they are provided with a
direct action against a liable defendant’s liability insurer to ensure that the insurance
payment benefits them and does so directly. 143 One such example is where the third
________________________
136 By reason of the doctrine of privity of contract: Merkin et al Colinvaux par 20.008.
137 Eg, one for personal injuries and by an indigent third party.
138 Eg, he may be insolvent.
139 Eg, as part of a settlement of the third party’s claim against the insured: see Merkin et al Colinvaux par 20.008.
140 In German law, the insurance contract may not prohibit such a transfer: VVG art 108(2).
141 Insolvency Act s 156: 21.61–21.74; Van Niekerk 1999 SA Merc LJ 59.
142 Eg, in terms of the Marine Pollution (Control and Civil Liability) Act 6 of 1981 s 15 a claimant may bring
proceedings to enforce a claim in respect of the liability of a tanker owner for pollution damage against the insurer
who provided the – compulsory (s 13) – liability insurance the
143 Eg, in Dutch law, the third party has a direct claim against the liability insurer of the liable insured in all cases
where the third party suffered personal loss or damage: Wansink et al Assers
pars [594]–[621]; the third-party action is not one in own right, but a ius agendi, so that the in-
surer is directly liable only if and to the extent that it would have been liable to the insured. For
German law, see VVG art 115(1) in terms of which the third party has direct action against the
insurer in case of compulsory liability insurance, in case of insured insolvency, or where the
whereabouts of the insured is unknown; Van Niekerk 2012 SA Merc LJ 453; Van Niekerk 2012
SA Merc LJ 449.
551
26
Long-term insurance
A. Introduction
..............................................................................................................
553
B. The
LTIA.................................................................................................................... 554
D. Further
diversifications
.............................................................................................
559
E.
1
A. INTRODUCTION
26
Non-indemnity insurance
paragraphs
26.1 Insurance is all about the re-allocation of risk between the insured and the 26.1–26.3
insurer. Risk is the possibility of a future uncertain harmful event. In life insurance
the archetypal harmful event, the contemplated peril, is death. But death, which is
everyone’s fate, is not uncertain. What is uncertain is not if but when death will
supervene. The other typical manifestations of life insurance perils, such as birth,
and time. 2
26.2 Life insurance, epitomised by life policies, is doubtless the prime example of
consideration of premiums received, to pay the sum insured or the eventual maturity
value to the party entitled to it3 in the event, primarily, of the death of the life
insured.
________________________
1 These matters are treated in greater depth in Nienaber and Reinecke Life Insurance in South Africa pars 1.1–
1.46. The corresponding discussion on long-term insurance in Lawsa is to be
3 Depending on the terms of the provisions of the policy, to the insured policyholder, or the
553
compensation in the form of the payment of an agreed sum insured or the rendering
of a promised benefit as consolation for the grief, in some form or another, suffered
by the insured. 4
26.4 This distinction is tracked by what in South Africa is known as short-term and
dealing with life and death and health and wealth, but inevitably there is an overflow
from the one level to the other. So, a short-term insurance policy may include a
health component and a long-term insurance policy, such as a funeral policy, may
make provision, even if indirectly, for compensation for loss. 5 Long-term and short-
term insurance is each governed by its own Act and its own set of definitions.
26.5 Long-term and short-term insurance have much in common and what is said in
the chapters above is mostly of application to both forms of insurance. But there are
duration but also to the investment component which is a typical feature of modern
long-term insurance. 6 Flowing from these and other factors are not only the
differences in the nature of the promised benefits, but also other long-term
insurance issues, absent from short-term insurance, such as surrenders and surrender
values; 7 the application of surrender value to outstanding premiums; 8 loans on the strength of policies; 9 security
cessions; 10 making policies paid-up; 11 the early termination of investment policies; 12 the lapsing and
reinstatement of policies; 13 the sale of second-hand policies; 14 the replacement and churning of policies; 15 and
other comparable matters not encountered in the case of short-term insurance.
B. THE LTIA
26.6 The long-term insurance industry is governed in the main by the LTIA, 16 which
The terms, long-term insurance and long-term policies, are used in the Act in
defined as such in the LTIA but in the corresponding STIA. 18 A long-term policy is
policy, a fund policy, a health policy, a life policy and a sinking fund policy. 19
________________________
4 1.38 et seq.
6 26.11.
17 S (1).
18 25.1.
554
Long-term insurance
26.7 These policies may occur singly or in combination. Those identified in the LTIA
are discussed below, although these are not the terms by which such policies are
normally described in the industry. Further, the definitions in the Act do not always
conform to the essentials of life insurance. 20 That is because the distinction between
26
paragraphs
Life policies
26.3–26.11
26.8 Life policies were initially exclusively risk-based, catering for the risk of death,
separation of risk and investment. In the LTIA “life policy” is defined21 as a contract
benefits upon, and exclusively as a result of, a life event or to pay an annuity for a
period, and includes a re-insurance policy in respect of such a contract. “Life event” is
in turn defined22 as the event of the life of a person or an unborn having begun;
continuing; having continued for a period or having ended. The risk (the uncertain
Annuities
26.9 The rendering of a policy benefit as a result of a life event is contrasted in the
definition of “life policy” to the payment of an annuity for a period. “Annuity” has a
variety of manifestations. Its primary meaning, derived from the Latin word “annus”,
is a payment falling due in each year. It refers to a contract providing for fixed and
annuity depends on the continuance of some status, such as the survival of the
annuitant.
26.10 A traditional life annuity policy is one in which an annuitant pays a single
instalments for life. But in the case of an annuity certain, one for a fixed term of years
and subject to no contingency, a life event is not involved. Such an annuity does not
conform to a true insurance contract. The use of the word “or” in the definition,
disengaging annuities from “life events”, nevertheless shows that for the purposes of
the LTIA the word “annuity” in the definition extends beyond life annuities to
Composite policies
26.11 A life policy may be a stand-alone risk policy (ie, where the total premium is
utilised to pay for the cost of cover), or it may be merged with an investment-based
policy (where the premium also includes a portion which is applied towards a saving
or investment element). Depending on the requirements of the policyholder and the
terms of the policy, the one or the other aspect may be dominant. There are
numerous variations on the basic theme of life insurance, some of which are
described below. 25 Moreover, new types of policy are constantly being devised and
________________________
20 For the elements of life insurance, see Lawsa Vol 12 Part 2 par 311.
23 There are limitations and restrictions in s 55 to the benefits payable in the event of the death of an unborn or a
child younger than 14 years.
24 26.48 et seq. For tax aspects, see Lawsa Vol 12 Part 2 par 412.
25 26.30 et seq.
555
developed in the industry. Some life policies contain a clause to the effect that the
benefit will be increased if death is not due to natural causes but to an accident.
Assistance policies
26.12 In terms of the LTIA “assistance policy” means a life policy in respect of which
the aggregate of the value of the policy benefits, other than an annuity, to be
provided (not taking into account any bonuses to be determined in the discretion of
the long-term insurer) and the amount of the premium in return for which an
annuity is to be provided, does not exceed R18 000, or another maximum amount
policy. 26 An assistance policy may be described as a mini life policy. The prudential
than for other business because those insurers are not permitted to issue policies with
higher sums insured than those prescribed. The business is also usually written on a
“pay-as-you-go” basis, which means that the insurer does not have to set up reserves
benefit value not exceeding R18 000. 29 Funeral business has been described as life
insurance policies marketed as providing death benefits to meet funeral costs. 30
Where the policy benefit exceeds R18 000 the policy, duly issued, is no longer
regulation. 31
26.14 Although classified as a life policy a funeral policy can be either one of an
life insured may be a cash benefit or the provision of a service (eg, a funeral), or
both. When a cash benefit is paid, the amount so paid need not, however, have to be
term insurance and comes to an end at the expiry of the term, although such policies
Health policies
26.15 In a health policy the insurer undertakes, in return for a premium, to provide
the Act as an event relating to the health of the mind or body of a person or
________________________
27 Insurers catering for assistance policies are not, of course, restricted to register solely for this class of business.
29 Assistance policies are not, however, limited to funeral policies. Credit life insurance may also qualify as such,
but only if it is an unadorned credit life policy (without additional disability or
health cover) for less than R18 000 issued under a long-term licence. In as much as credit life
policies in practice covers more than merely the insured’s life and is more often than not taken
out under a short-term licence, credit insurance will not as a rule be assistance business.
31 Regulations issued under the LTIA part 3 Table item 7. One can only speculate as to the
rationale behind the exemption. One reason may be that there is so little “fat” for intermediaries
in such policies that commissions are naturally low and that it would stultify this sector of the
market if commission were regulated. See further the Consumer Credit Insurance Report ch 8
par 4.7 by the Panel of Enquiry on Consumer Credit Insurance in South Africa, commissioned
by the Life Offices’ Association of South Africa and the South African Insurance Association.
33 Idem 295.
556
Long-term insurance
unborn. 35 The peril insured against would include the occurrence of, or the expense
relating to, illness, bodily injury, disablement or its prevention. Excluded from the
definition of health policy in the Act are, inter alia, contracts in terms of which
benefits other than a stated sum of money are to be rendered and contracts where
the policyholder is a registered medical scheme and the contract relates to the
26
paragraphs
Disability policies
26.11–26.19
26.16 Prior to the passing of the LTIA in 1998, disability cover had to be issued as a
rider to a life policy. The Act enabled disability cover to be provided as a stand-alone
product. A disability policy is defined in the Act36 as a contract in terms of which the
insurer undertakes to provide policy benefits upon “a disability event” which in turn
means the impairment “of the functional ability of a person or an unborn”. Disability
26.17 A distinguishing feature of fund and fund member policies is that the insured
is a fund. A “fund policy”, as defined in the LTIA means “a contract in terms of which
a person, in return for a premium, undertakes to provide policy benefits for the
purpose of funding in whole or in part the liability of a fund to provide benefits to its
members in terms of its rules, other than such a contract relating exclusively to a
26.18 A fund policy will thus provide benefits to, amongst others, a preservation,
provident or pension fund. Fund policies are taken out on a group basis in respect of
member policy” 40 is described in the Regulations to the LTIA41 as an individual policy entered into by the fund,
with the fund as the policyholder and the member42 as the
life insured, for the exclusive purpose “of funding that fund’s liability to the member”
in terms of its rules. A fund member policy is designed to assist persons who do not
persons running a business or practising a profession and who wish, for example, to
26.19 A “sinking fund policy” is defined in the LTIA as a contract, other than a life
________________________
35 S 1(1) sv “health event”. See also Insurance Laws Amendment Act 27 of 2008 s 1(f).
36 S 1(1) sv “disability policy”; 26.63 et seq and Lawsa Vol 12 Part 2 pars 327 et seq.
37 For accident and health insurance policies under the STIA, see 25.10 et seq.
38 S 1(1) sv “fund policy”. Marx and Hanekom Manual par 10.14.4: “A fund policy is essentially a vehicle
through which funds, as defined in the 1998 Act, can invest with insurers in order to
accumulate the means to meet their liabilities to members under their rules.”
39 Group policies are priced actuarially on a group basis and are issued in respect of a group with a common
denominator as the policyholder, such as an employer or a trade union.
40 This links up with the words “other than” in the definition of “fund policy”. See Marx and
43 So, too, employed persons who wish to supplement the retirement benefits they enjoy under
557
treated as a long-term insurance policy in the Act, sinking fund insurance – also
does, the element of uncertainty (and hence any risk benefits) which is the hallmark
of insurance. What it has in common with some other insurance products proper is
policy, not being contingent on a life event, does not have a life insured. If the
policyholder dies before maturity, the policy benefit is payable to his estate.
26.20 The policyholder may appoint a nominee for ownership. 45 If the policyholder dies before the end of the
policy term, the nominee, on acceptance, becomes the
new policyholder. Where the policyholder has nominated a beneficiary for proceeds,
the policy benefit will be payable, if not revoked by the policyholder and if duly
accepted by the beneficiary, to the latter, failing which the benefit will devolve on the
Basic structures
26.21 The policies identified in the LTIA are the embodiments of some but by no
means all types of long-term insurance contract. There is a diversity of such contracts,
marketed singly or in different combinations, and new products are constantly being
developed. But all of them are structured on a few prototypes, namely whole life
26.22 This is the basic, initial life insurance policy. The policy benefit is paid at the
death of the life insured, whenever that occurs. For a given recurring premium (say
R100 per month) the policy guarantees to pay the sum insured (say R100 000) on the
death of the life insured. The premium rates are determined according to the age of
the life insured at the inception of the policy; the older the life insured, the higher
the monthly premium for a given sum insured. The premium and the sum insured
are fixed for the duration of the policy, that is, until the death of the life insured.
26.23 Since the mortality risk increases with age but the premium remains level for
the duration of the policy, the premium is higher than required to cover the
mortality risk in the initial years of a policy, and from that excess of premiums the
insurer builds up reserves for the later years when the level premium would become
insufficient to cover the increasing risk. Whole life policies normally build up a
surrender value. If a policy is terminated before the death of the life insured, the
surrender value of the policy is payable from the reserves built up.
26.24 If the policy is a with-profit policy, bonuses are declared on the sum insured
and existing vested bonuses. The premiums for non-profit policies are somewhat
lower than for with-profit policies, but most whole-life policies were (and are) with-
profit ones.
________________________
46 Nienaber and Reinecke Life Insurance pars 6.1–6.54 discuss the various long-term insurance products in a
historical framework. See also Van Niekerk 2007 SA Merc LJ 302; Lawsa Vol 12
558
Long-term insurance
Term insurance
26.25 With term insurance, the sum insured is paid out only if the life insured dies
within the term of the policy. There is no maturity value. This is the cheapest form of
life cover available since the insurer has no obligation if the life insured survives
beyond the end of the term. The shorter the term of the policy, the smaller the risk
to the insurer and the lower the premium. Term insurance is designed to provide
protection against the financial ramifications of death during a given period. Term
26
paragraphs
insurance runs for a specified period during which premiums are required to be 26.19–26.30
paid. Premiums normally remain constant during the initial term of the insurance.
26.26 Term insurance where the sum insured remains constant over the term of the
providing for an option to extend the cover for a further term or terms, usually
yearly, without further evidence of health but with the possibility of increased
“Decreasing term insurance”, providing for a reducing sum insured as time goes by,
the basic structure of mortgage protection policies. Term insurance policies are non-
profit, that is, no bonuses attach to them. So, too, there is no surrender value payable
Endowment insurance
policy additionally has a policy term and hence a maturity date. The maturity value
(the sum insured plus allotted bonuses) becomes payable to the party entitled to it
either on the death of the life insured or at the maturity date, whichever occurs first.
If the endowment policy is surrendered before the maturity date, only the surrender
value is payable. Endowment insurance combines both risk and investment elements
in a single policy.
26.28 Since the sum insured is payable not only at death but also on survival of the
life insured to the maturity date, the premium for a given sum insured will be higher
than for a whole life policy. The shorter the term, the higher the premium, since
premiums cease and the sum insured becomes payable sooner than in the case of a
whole life policy. The surrender value of an endowment policy should increase
substantially as the policy gets closer to the maturity date until it effectively runs into
the maturity value on that date. Most endowment policies are with-profit policies.
26.29 Pure endowment insurance differs from endowment and term insurance in
that the policy benefit (the sum insured) is payable only if the insured survives to a
certain date. If the policyholder dies during the term of the policy, only the
surrender value is payable. A pure endowment policy provides no life cover and is in
insurance.
D. FURTHER DIVERSIFICATIONS
26.30 In the course of time variations on and extensions of these basic themes were
________________________
47 For the range of permutations, mentioned in the paragraphs that follow, see Nienaber and
559
26.31 Joint life insurance, involving more than one life insured, for example a
husband and a wife, may be in the form of whole life or endowment or term
insurance that becomes payable, depending on the terms of the policy, at the death
26.32 Group life insurance is issued to benefit a group of persons with inter-related
in the regulations to the LTIA to mean a scheme or arrangement which provides for
the entering into of one or more policies, other than an individual policy, in terms of
which two or more persons without an insurable interest in each other, for the
purposes of the scheme, are the lives insured. 48 A group life insurance scheme is
which the former insures all the members who belong to the group (all the
employees or all the trade union members) and who are all subject to the same basic
contractual relationship and provisions (the master copy or the rules of the scheme).
The policyholder normally collects the premiums and pays them over to the insurer.
26.33 Membership of the group life scheme is normally compulsory for the members
of the group which allows the group life policy to be actuarially priced on a group
basis. This means that no, or very little, individual underwriting of the mortality risk is
done and all members are accepted without proof of sound health. The amount of
life cover is determined in the rules of the group scheme, and members in poor
health and hence with a high mortality risk cannot choose to select more cover.
26.34 Group life policies are usually (but not invariably) in the form of yearly
renewable term insurance. A premium rate for the year, based on the average age of
the group, is normally used, so that the premiums are not age-related as in the case of
individual insurance.
26.35 It may be an issue in each case, depending on the interpretation of the master
policy, whether each life insured is a beneficiary with a direct claim against the
insurer or whether any claim lies exclusively against the group’s common
Policies that do not provide for a contractual right to share in the profits of the
insurer are called non-profit or without-profit policies. These policies are be pure risk
policies like term insurance or the new generation of whole-life insurance (where
there is no asset build-up). Premiums may remain constant throughout and the sum
that is paid out is fixed. Premium rates are typically more competitive, with less
26.37 During the late 1970s and early 1980s a more flexible type of insurance
product was developed. The product was designed to separate the risk and savings
benefits in a policy and to give clients greater flexibility in deciding how much of
________________________
48 Reg 3.1, mainly for the purpose of determining the rate of remuneration payable to
intermediaries. For tax aspects see Lawsa Vol 12 Part 2 pars 141, 417.
560
Long-term insurance
policies are made up of different components: (i) a life cover element, the sum
insured; the risk premiums catering for the life cover are recalculated on an ongoing
basis relating to the age of the policyholder at the time and the amount at risk; and
(ii) an investment element, the investment account, which is built up from the
premium paid in plus the investment return earned on the assets in the account,
minus a deduction for the risk premium. Investment growth is added to the
26
paragraphs
growth. 51
26.31–26.41
26 . 38 During the late 1990s the financially more sophisticated sector of the market
became increasingly disenchanted with the universal life concept which blended risk
insurance and savings into one policy. The market for life cover became increasingly
competitive with higher levels of cover provided for the same premium, and the
savings element of maximum cover universal life policies becoming less significant.
26.39 During this period a new pure risk product with no savings element (ie, no
build-up of any fund value, and no surrender values on these policies) began to be
marketed and a new generation of policies resulted, with separate pure risk and pure
savings policies. This allowed for much innovation and flexibility within each of the
separate components.
26.40 The new generation, pure risk policies offer death cover and all the risk
elements previously available as rider benefits. Rider benefits were expanded and are
now being offered in a more flexible format. 52 As with universal life policies, the new
generation risk policies normally have a guaranteed term during which the premium
is guaranteed not to increase. At the expiry of the guaranteed term, the insurer has
the right to increase the premium if the insured population mortality has
the mortality risk increases with age. It is for this reason that whole life policies
accumulate surrender values, since the premium is initially more than sufficient to
cover the risk, and part of the premium must be reserved for later years when the
reverse is true.
________________________
(a) death cover, as before, but priced increasingly competitively, also using increasing premium
patterns;
(b) occupational disability, as before, but no longer directly geared to death cover;
(c) functional impairment, a new type of benefit offered as an alternative to the traditional
occupational disability benefits. In the case of the latter, a claim is acknowledged if the in-
sured is “totally and permanently disabled” from following his or her occupation. The func-
tional impairment benefit, by contrast, covers an extensive list of specific impairments with,
ideally, an accurate description of the degree of impairment. This leaves less scope for dis-
pute on claims and allows for partial payment in case of partial impairment;
(d) a combination of disability and impairment cover. The relative merits of occupational
disability versus functional impairment has been much debated, partly due to the overlap
that exists between disability cover and impairment cover, where both benefits will pay out
for the same condition. But there are also areas where the one benefit will apply and the
other not;
561
Health cover
26.42 Permanent health insurance, also known as disability, impairment and critical
illness cover, was introduced into the South African insurance market during the
1960s as a form of compensation for illness and injury and a resultant loss of income.
Prior to the LTIA insurers could only include lump sum disability cover as an extra
benefit on a life policy but the Act permitted stand-alone lump sum disability
policies. 53
disability event, which in turn is defined as the impairment of the functional ability of
26.44 Death cover is essential for a breadwinner who is anxious to provide for the
financial security of his dependants in the event of his untimely death. But disability
result of an accident or illness which may prevent him from earning a living and thus
26.45 Disability cover should ideally be in the form of a regular income to replace
the lost earnings. In South Africa, however, lump sum disability cover, payable at the
total and permanent disability of the insured life, is the norm. The disability cover
was typically equal to the sum insured plus bonuses, that is, the same amount as
death cover. The contractual definition of disability in the case of disability cover is
crucial, otherwise than with death which allows for little uncertainty. 55
26.46 Some disability policies provide for premium waiver at disability. This benefit
provides that the insurer will waive future premium payments on a policy (in effect
paying the premiums on behalf of the policyholder), usually in the event of total
disability of the person paying the premium. The disability need not necessarily be
permanent (as in the case of a lump sum disability benefit), since the insurer can
require proof of continued disability and stop paying the premiums if the person
recovers.
Accident cover
26.47 Accident benefits typically provide for the payment of a benefit equal to – and
in addition to – the sum insured, in the case of death resulting from an accident, as
opposed to a death from natural causes. This is a fairly inexpensive method to
increase the death cover on a policy, especially for younger people where the risk of
accidental death may be higher than the risk of death from natural causes. Accident
benefits typically also pay out varying percentages of the sum insured in the event of
Annuity insurance
26. 48 An annuity, also referred to in the definition of “life policy” quoted earlier, 57
refers to a contract providing for fixed and regular periodic returns on the
________________________
54 S 1(1).
56 The sum insured may be doubled if the life insured is, eg, killed in a traffic accident.
562
Long-term insurance
corresponding meaning and consists, in its most basic form, of a contract for the
repayment, by the insurer, of a series of fixed and regular amounts either for the
26.49 Annuities are purchased from life insurance companies in return for a lump
26
paragraphs
sum payment, that is, a single premium. 58 An annuity policy refers to an insurance 26.42–26.53
contract providing for such annuity payments commencing either immediately (an
period. 59 There are many variations on this basic theme. In each case the rights and
duties of the annuitant and the insurer will be governed by the terms of the annuity
policy. 60
26.50 A conventional single life annuity (or traditional annuity) is one in which an
annuitant pays a single, lump sum premium to an insurer in return for which he is to
receive regular guaranteed instalments for life. Should the annuitant die sooner than
the anticipated life expectancy on which the level of the annuities was premised, the
net benefit is that of the insurer; if the insured survives it, the net benefit would be
for the annuitant. 61 A life annuity generally terminates on the death of the annuitant,
but it may have a guaranteed period of say five or ten years. Should the annuitant die
within the stated period, either the annuitant’s estate or the party entitled to it in
terms of the contract will continue to receive the annuity for the remainder of the
period. If the annuitant does not survive the guaranteed period, the annuity expires
26.51 A fixed-term annuity does not depend on a life contingency and is merely a
series of payments made over a fixed period, that is, regardless of whether the
annuitant survives the period or not. One example of the use of a fixed-term annuity
was a product (also known as a back-to-back arrangement) that was popular in the
1990s. This was structured as a fixed-term annuity but coupled with a life policy,
generally designed to pay out the original capital invested tax free when the contract
of the annuity payments for as long as the annuitant is alive. This is the conventional
annuity described in the paragraphs above. In the case of guaranteed annuities, the
insurer carries the mortality risk and the investment risk. The annuity payment and
the level of any annual increase (if any) are fixed at inception and guaranteed for
life. 62
26.53 A with-profit annuity (or bonus annuity) is also guaranteed for the life of the
annuitant. The annual increase on the annuity, however, is not guaranteed but
depends on the bonuses declared by the insurer. In the case of with-profit annuities
the insurer therefore carries the mortality risk but the annuitant carries (most of) the
the smoothed bonus portfolio. The insurer declares an annual bonus based on the
________________________
58 The lump sum is invested by the insurer to produce the income to meet the annuity payments.
60 Whether the annuity would have a residual value would thus depend on its terms.
61 In the case of an annuity, an early death is the insurer’s gain; in the case of a life policy, an early death is the
insurer’s loss.
563
investment return of the portfolio, which determines the increase in the annuity. The
increase is normally fully vesting, that is, once declared it is guaranteed and cannot
be reduced again. The insurer in effect carries the investment risk of maintaining the
annuity including all previous increases, while the annuitant carries the investment
26.54 Voluntary annuities are annuities purchased with money not derived from
detail below; they are accordingly not compulsory purchase annuities. The purchaser
chooses to exchange a lump sum for an annuity for a fixed and regular payment from
an insurer. It could be a life annuity or a fixed term annuity. Annuities are taxable in
Retirement annuities
26.55 Retirement annuities are designed, as the name implies, to cater for a regular
income for the annuitant after his retirement. Any deferred annuity providing for
is envisaged, one before and one at retirement. The so-called retirement annuity is
entered into prior to retirement by the prospective retiree with a retirement annuity
fund. The term “retirement annuity policy” is somewhat misleading because the pre-
belong in order to invest money with the fund with a view to his eventual retirement.
The fund may make its own investments in its own name, or it may invest in long-
term retirement annuity policies with an insurer, in which case it is classified as a fully
underwritten fund. Many retirement annuity funds and preservation funds, 65 use only
long-term policies for the purpose of funding the fund’s liability to its members; such
policies are their only assets. The insurer underwrites the policy and mostly also acts
as the administrator of the fund in terms of an agreement between the fund and the
insurer.
26.57 With an endowment policy, the full proceeds are paid out in cash. With a
retirement annuity policy, a maximum of one-third of the maturity value may be paid
out by the fund in cash, while the balance must be used by the fund to purchase an
annuity from an insurance company on the life of the member. Retirement annuity
policies are fund member policies issued by long-term insurers to retirement annuity
funds. Retirement annuity funds are registered under the Pension Funds Act66 as
pension funds and approved by the income tax authorities in terms of the Income
Tax Act67 as retirement annuity funds. Tax relief is granted up to certain limits in
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63 58 of 1962 s 10A. For a comprehensive discussion of all relevant tax aspects, see, in general, Lawsa Vol 12 Part
2 pars 376 et seq and, in particular for annuities and retirement annuities,
65 A preservation fund is a vehicle for the preservation of retirement savings of employees who cease to be
members of the approved pension or provident funds in which the member’s
the fund. A provident fund is a retirement fund (other than a pension fund or a retirement
annuity fund) which is approved as such under the Income Tax Act 58 of 1962. Its distinguishing
feature is that the total benefit may be taken at retirement as a cash lump sum.
66 24 of 1956.
564
Long-term insurance
retirement annuity funds are tax free up to certain prescribed limits and the
investment income in the retirement annuity fund receives favourable tax treatment.
Annuities, however, are taxable as income. The purpose of the tax regime is to
26
paragraphs
the policy the fund must take out. The application for membership thus serves a dual 26.53–26.61
authority to the fund to apply to the insurer concerned to issue a policy to the fund
on acceptance of the application by the insurer on its own behalf, by the terms of the
retirement annuity policy. The policyholder is thus the fund and not the member. 69
A living annuity
26.59 A living annuity70 is a form of compulsory annuity that does not guarantee any
fixed level of annuity payment or any level of future increase. It allows the annuitant
the flexibility to choose his own level of income drawn from his capital invested. The
annuitant therefore carries the risk of depleting the capital if he lives too long and
draws too much. The annuitant also bears the responsibility of selecting the
These may be equities, unit trusts, money market accounts or life portfolios. The
investment risk lies with the annuitant who is also obliged to manage the investment
in such a manner as to provide him with an appropriate income until he dies. It may
thus be that living annuities are not ideal investment vehicles for individuals with
limited retirement resources who cannot afford to take investment risks and who are
26.60 Partners or business associates sometimes have a need to insure the lives of
each other to ensure stability in the business in the case of the death of the one or
the other. Each partner has a clear insurable interest in the life of the other to enable
the remaining partner to buy out the interest of the deceased partner in their
business. 71 So, too, an employer may have the need to insure the life of a key person
severely harm the business. The policyholder is the business as employer. The
proceeds of the policy may (but need not) be employed to enable the business to
key-person policy has certain tax advantages for the business. 72 In each case the policy
combination thereof.
taken out in terms of a so-called buy-and-sell arrangement, enables the survivor to buy
out the other’s share in the business should the latter die or become disabled while
still actively engaged in the business. The policyholder is not the business as such but
________________________
68 The LTIA s 1(1) defines “life insured” as the person to whose life, or the functional ability or health of whose
mind or body, a long-term policy relates.
70 Also referred to as an investment-linked life annuity or a flexible annuity; idem par 324.
71 For these insurable interests, see Lawsa Vol 12 Part 1 pars 68–69.
565
South African Insurance Law
protect both the mortgagee (as a form of additional security) and the estate of the
mortgagor in the event of the latter’s death. The insurance may be taken out by and
on the life of the mortgagor and ceded to the mortgagee, or it may be taken out by
the mortgagee who has an insurable interest in the life of the mortgagor. 73 The
insurance remains in place until the mortgage debt is redeemed in full or the
mortgagor dies, whichever occurs first. On the death of the life insured, the proceeds
of the policy is applied to the balance of the mortgage debt. The insured amount
decreases as the debt is repaid. The mortgagee is thus ensured of payment of the
entire debt and the estate is relieved of the duty of repaying the balance owing at the
time. The insurance may also be extended to cover disability, impairment critical
for illness or injury. Occupational disability cover additionally requires that the
insured should be unable to work and thus redresses the loss of income. Impairment
and critical illness policies pay out a benefit if certain defined health events occur.
The policy benefit may be in the form of the payment of either a lump sum or a
disabled by illness or injury that he is no longer able to work and earn an income.
Payment may be either in the form of a lump sum (sometimes called a capital
contract. Benefits may be for temporary or for permanent disability, as defined in the
policy, for example, where an employer takes out a group disability policy to cover its
employees. Some less expensive disability policies pay out only on the occurrence of
the loss, or the loss of the use of, for example, limbs, eyes or ears.
26.64 Impairment cover is the term used to describe a “new generation” form of
disability product. Benefits are paid if an insured suffers from one or more of a list of
perform specified activities of daily life, rather than according to whether the person
is able to work The ability or inability to work and earn an income is therefore not
26.65 Critical illness cover, also called “dread disease” cover, typically pays a benefit
in the form of a lump sum (a specified percentage of the “sum insured”) on the
occurrence of one of a defined list of critical illnesses such as cancer, heart attack,
stroke, kidney failure and whatever other conditions the insurer agrees to cover.
26.66 Other health policies pay benefits in the form of defined sums of money to a
defined daily amount for every day that the insured is medically booked off. The
________________________
74 This topic is treated more extensively in Nienaber and Reinecke Life Insurance pars 32.1–32.71.
What follows is predominantly based on that exposition. See also Lawsa Vol 12 Part 2 pars 327 et
seq.
75 Examples include: (i) waiting periods, usually anywhere between seven days and three months, which have to
elapse before a benefit will be paid. During the waiting period the cover and
premiums continue; (ii) exclusion clauses that set out eventualities for which the insurer will not
( continued)
566
Long-term insurance
Funeral insurance
provide for the prospect of suddenly having to assume the financial burden for the
costs of a funeral. It may be the policyholder’s own funeral, to safeguard his estate or
his family from incurring the expense of burying him, or it may be the funeral of a
close family member, to safeguard the policyholder from having to incur those
26
expenses himself. Funeral insurance may thus be described as an undertaking by an
paragraphs
funeral service, a cash benefit, or a combination of both, 77 on the death of the life
26.68 A feature of the funeral insurance market is that its patrons are often from the
less affluent and financially perhaps less-sophisticated sectors of society. 79 They are
commonly found in rural areas and could be vulnerable to sharp practice. But
because funeral insurance serves the basic needs of such a large number of less-
industry. In many cases the funeral policy will be the only financial arrangement that
a consumer will ever make. Frequently policyholders do not have bank accounts.
Since the proceeds of funeral insurance may be utilised for purposes other than
funeral expenses, this type of policy may also be a factor in the financial planning of
some households.
26.69 A funeral insurance policy with a benefit value not exceeding R18 000 is
doubtless the prime example of an assistance policy. 80 Such a policy may be issued by
an insurer under a licence for assistance policies, but it may also be marketed by
insurers under their life licences. Cover may be given on an individual or on a group
basis. In the case of a group scheme, the policyholder would normally be a fund or
________________________
pay. They may be general or specific. General exclusions include any health problem for which a
claim is made and that is causally connected to a health condition which existed before the cover
commenced (a so-called pre-existing condition clause), or any health condition that is the result
of risky activity such as skydiving and motor racing. A specific exclusion could be applied where
the insurer knows (because the applicant for insurance disclosed it, as he has a duty to do) that
an applicant already has a specific health problem; eg, an applicant who has a medical history of
depression may find that a clause is inserted into the policy specifically excluding any claims
related to mental illness; (iii) premium loading, which is a mechanism whereby higher
premiums may be charged if the insurer knows (because the applicant for insurance disclosed or
a medical examination revealed it) that the applicant has a health problem, such as controlled
hypertension, but the insurer is still prepared to offer cover. The insurer does not exclude cover
for any problems that might arise later from the hypertension (such as a heart attack or stroke),
but charges a higher premium, as the risk of a claim being made is greater than with someone
76 See in general Nienaber and Preiss 2006 SA Merc LJ 291 par 15.
77 Idem 291 par 2.2. When the undertaking is to perform a funeral service, either party to the
funeral policy may request that a policy benefit which is expressed otherwise than in a sum of
money, will be provided as a sum of money equal in value to the cost that would have been
incurred by the long-term insurer had the non-monetary benefit been provided. See also LTIA
52 of 1998 s 53(2) in respect of assistance (including funeral) policies entered into after 1 June
2009.
78 The policy itself will normally define the class of life insured in respect of whom the insurance may be taken
out, failing which it will include the policyholder’s spouse and dependants for the
costs of whose funeral the policyholder would in the normal course of events be responsible. See
80 Cf 26.12.
567
26.70 Funeral insurance serves as cover against costs, not against loss. The cash
proceeds of the policy do not have to be used to meet the costs of the funeral. 82 It is
continue to be paid, the risk of a sudden liability for funeral expenses is discounted. 83
Funeral insurance may in effect be a form of advance saving, but it is not a saving
vehicle. A funeral insurance policy will not normally have a cash (surrender) value.
26.71 Funeral insurance is generally written as term insurance and comes to an end
at the expiry of the agreed term but is customarily regarded as renewed by the
insurer for as long as the premiums continue to be paid. In effect it means that the
insurer has the option to terminate the policy, if so inclined, at the end of the term
while the policyholder can terminate it by simply ceasing to pay the premiums.
To contain the cost of premiums and to protect the insurer against anti-selection,
many such policies have a waiting period before a claim may be made on the policy
for death due to natural causes. 85 The inclusion of a waiting period in the policy in
effect amounts to a waiver by the insurer of the defence of non-disclosure. 86 So, too,
exclusion clauses. The issue is frequently not so much whether the excluded
condition existed, but whether the policyholder should reasonably have been aware
26.73 Premiums are, generally speaking, affordable88 and are normally required to
be paid in advance from month to month. A policyholder is covered only for as long
arrears with the payment of his premiums, his claim for payment may be resisted.
days to remedy any default. The cover will accordingly continue for at least that
period even if the relevant premium is in arrears. If, at the end of the period, a
premium is not paid, the policy, if it so provides, will automatically lapse but it may be
reinstated if the arrears are paid within a given further period. Once that period has
expired, no unilateral reinstatement can be made and all the benefits of the policy
will be lost. 90
________________________
83 The aggregate of premiums paid may thus exceed the sum insured. That is typical of most forms of risk
insurance.
88 The policy may permit the insurer to increase the premiums from time to time. When that
happens, a point may be reached where the policy is no longer affordable. If an insured is no
longer able to afford the premiums, he may simply discontinue paying them. An insured is not
liable to be sued for arrear premiums. But, of course, if payment ceases so does the cover. The
insured in that case has to decide whether he is prepared to continue with the existing cover or
89 S 52.
90 See also Nienaber 2007 SA Merc LJ 1 pars 5, 6, 7. The provision that premiums are to be paid within a stated
period is inserted in the contract primarily in the interest and for the benefit of
the insurer. The insurer may enforce it, but may also decide to waive compliance. The waiver
may be express or by conduct. The conduct may consist of the regular acceptance over a
prolonged period of accumulated late payments. Such conduct, even if not intended as a waiver,
may be treated as such if the insured would reasonably have been justified in believing, on the
strength of the insurer’s past conduct, that the latter did not insist on strict and prompt payment
and that arrear payments could accordingly be remitted even after the lapse of several months.
The insurer’s past pattern of conduct, in consistently accepting late payments without objection
or caution, could thus be raised by the insured as an answer to the insurer’s defence to the
insured’s claim to a benefit under the policy that the policy had lapsed for non- or late payment
568
Long-term insurance
26.74 Policy benefits are rendered on the death of the life insured to the policy-
holder, his successor in title (eg, a cessionary or his estate) or to the nominated
26.75 Consumer credit insurance, 91 simply stated, is the insurance that a consumer
26
paragraphs
takes out as cover for the repayment of a debt that the consumer has incurred to a 26.70–26.78
(consisting of the sale of the asset, the credit agreement, the product insurance and a
consumer credit insurance agreement), with a single composite instalment covering
the consumer’s various obligations to pay. More often than not it is taken out at the
insistence of the credit provider as a form of initial or collateral security in case the
consumer is unable, due to the occurrence of the insured event, to meet his
obligations.
dealership or to some other credit provider in case the consumer should die or
become disabled, suffer critical illness or is retrenched before the debt is fully repaid,
and, at least in South Africa, in case the asset in respect of which the debt is incurred
26.77 Credit life insurance, catering for the death of the life insured, is a subset of
consumer credit insurance. Credit life insurance may be written by an insurer under
warranty cover, top-up or shortfall cover, and “chips and dents” cover. 93 The cover
may consist of the redemption of the balance of the debt or of the maintenance of
26.78 Credit life insurance is designed to cover the outstanding balance of the life
insured’s indebtedness to the credit provider in respect of any of the following credit
loans, credit card facilities and asset financing. The insured event, strictly speaking, is
the debtor’s death, but this type of policy is commonly expanded to encompass, in
addition, the debtor’s disability, critical illness and retrenchment. Credit life
insurance differs from ordinary life insurance in that it provides coverage not for a
lump sum when the insured event occurs, but for the redemption of the then
outstanding balance of the insured debt. By the same token there is no maturity value
________________________
ance of the purchase price owing to a retailer or a motor dealer for the purchase of furniture
or a motor vehicle or some other article. Consumer credit insurance as such is transaction-
related. The insurance is essentially designed to protect both the insured and the credit pro-
vider against the eventuality that the insured may not be able, due to death, accident, critical
93 See
94 Credit life insurance, in common with other forms of consumer credit insurance, differs from other forms of
insurance in a number of significant respects. As it is put in the Consumer Credit
“(a) it is contingent on credit having been granted to the insured by someone other than the
insurer;
( continued)
569
26.79 “Credit life insurance” is defined in the National Credit Act95 to include cover
unemployment or other insurable risk that is likely to impair the consumer’s ability to
earn an income or meet the obligations under a credit agreement. 96 In terms of the
National Credit Act, 97 credit life insurance is not to exceed “the total of the
26.80 In the case of total and permanent disability, the outstanding balance of the
debt is paid. In the case of temporary disability, the cover is in respect of the life
instalments for a given period may be payable if the consumer is unable, because of
________________________
(b) the insurance contract is ancillary and subordinate, essentially a side-issue, to the loan or
sales agreement between the lender and the borrower or the retailer/dealer and the
(c)
the cost of supplying insurance is often not separated from the cost of supplying credit;
(d) there is little or no active involvement by the insured in the initiation of the insurance;
(e)
there is little if any broker-involvement, either in the initiation of the insurance (usually
(f)
the insurance;
(g) the immediate beneficiary of the policy is the credit-provider, either as nominated
To (e) one should perhaps add the qualification that mortgage protection cover is mostly initiat-
95 34 of 2005.
96 S
1.
97 34 of 2005 s 106(1).
570
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Abbreviations
Annual Survey
BML
CILSA
De Jure
JBL
MB
Butterworths 1979–1988
SA Merc LJ
SAILJ
SALJ
Stell LR
THRHR
Butterworths 1937–
TRW
TSAR
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A Becker & Co (Pty) Ltd v Becker [1981] 4 All SA 289 (A); 1981 (3) SA 406 (A) ........................................ 185,
193
AA Mutual Life Assurance Association Ltd v Singh [1991] 4 All SA 737 (A); 1991 (3) SA 514 (A)....................
516
Abakor Ltd v Standard General Insurance Co Ltd 1995 (2) SA 575 (W) ............................................................ ..
250
Abrahamson v Guardian Assurance Co Ltd (1907) 24 SC 594, (1907) 17 CTR 955 .............................................
299
ABSA Bank Ltd v Fouche [2002] 4 All SA 245 (SCA); 2003 (1) SA 176 (SCA) .....................................135, 139,
411
ABSA Bank Ltd v Scharrighuisen 2000 (2) SA 998 (C) ............................................................................ ...............
391
ABSA Bank Ltd v South African Commercial Catering and Allied Workers Union National Provident
Fund (under curatorship) [2012] 1 All SA 121 (SCA); 2012 (3) SA 585 (SCA) .............................................. 185
ABSA Bank Ltd v Swanepoel NO 2004 (6) SA 178 (SCA) ............................................................................ ...........
199
ABSA Insurance Brokers (Pty) Ltd v Luttig 1997 (4) SA 229 (SCA) .............................................................. 121,
484
Ackerman v Loubser 1918 OPD 31 .................................................. 16, 17, 18, 82, 387, 389, 391, 404, 405, 413,
415
Adriatic Insurance Co v O’Mant 1964 (3) SA 292 (SR) ........................................................................... ........ 361,
487
Aegis Assuransie Maatskappy Bpk v Van der Merwe [2000] 1 All SA 420 (T) .......................................................
213
Aegis Assuransie Maatskappy Bpk v Van der Merwe 2001 (1) SA 1274 (T) ......................... 201, 210, 212, 251,
252
Aegis Insurance Co Ltd v Consani 1996 (4) SA 1 (A) ............................................................................ ..272, 273,
274
Aetna Insurance Co v Dormer Estates (Pty) Ltd 1965 (4) SA 656 (N) ............................................................. ......
301
African Guarantee & Indemnity Co Ltd v Couldridge 1922 CPD 2................................................................ 119,
280
African Products (Pty) Ltd v AIG South Africa Ltd 2009 (3) SA 473 (SCA) ...................................................... ..
206
Afrisure v Watson [2009] 1 All SA 1 (SCA); 2009 (2) SA 127 (SCA) .............................................................. 387,
518
Afrox Healthcare Bpk v Strydom [2002] 4 All SA 125 (SCA); 2002 (6) SA 21 (SCA) .................................. 117,
193
Agiakatsikas v Rotterdam Insurance Co Ltd 1959 (4) SA 726 (C) ....................................... 241, 242, 251, 259, 271
Aida Real Estate Ltd v Lipschitz [1971] 3 All SA 421 (W); 1971 (3) SA 871 (W) .................................................
523
Airlink Cargo International (Pty) Ltd v Storgate Africa (Pty) Ltd, unreported (W),
1985 (1) SA 399 (A) ...............................................................................104, 119, 268, 270, 279, 284, 285, 297, 308
[1974] 3 All SA 497 (A); 1974 (3) SA 506 (A) .................................................................................. ....................
185
Allen v Sixteen Stirling Investments (Pty) Ltd [1974] 4 All SA 271 (D); 1974 (4) SA 164 (D) ...........................
528
Ameen v SA Eagle Insurance Co Ltd 1997 (1) SA 628 (D) ............................................................ 200, 202, 203,
272
583
Page
[1987] 2 All SA 307 (A); 1987 (3) SA 506 (A) .................................................................................. ............ 529,
530
[2000] Lloyd’s Rep IR 12. In Pickering v Syfin Holdings Ltd 1981 (4) SA 467 (Z) ......................................... 521
Anglo-African Merchants Ltd and Exmouth Clothing Company Ltd v Bayley [1970] 1 QB 311,
Anglo-Tvl Collieries Ltd v SA Mutual Life Assurance Society 1977 (3) SA 631 (T) ..............................................
209
Aris Enterprises (Finance) (Pty) Ltd v Protea Assurance Co Ltd 1981 (3) SA 274 (A) ....................................... 223
Armstrong (In his capacity as representative of Lloyds Underwriters) v Bhamjee 1991 (3) SA 195 (A) .............. 37
Arprint Ltd v Gerber Goldschmidt Group SA (Pty) Ltd 1983 (1) SA 254 (A) ......................................202, 204, 205
Arthur E Abrahams & Gross v Cohen 1991 (2) SA 301 (C) ....................................................................426, 428,
431
Ashton Insurance Brokers CC v IMATU [2002] 3 All SA 175 (A) ................................................................... .......
518
Associated Manganese Mines of SA Ltd v Claassens 1954 (3) SA 768 (A) .......................................................... ...
297
Auto Protection Insurance Co Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) .................... 210, 244, 300, 301, 302
Aveng (Africa) Ltd (formerly Grinaker-LTA Ltd) t/a Grinaker-LTA Building East v
Midros Investments (Pty) Ltd 2011 (3) SA 631 (KZD) ............................................................................ ............ 353
Avex Air (Pty) Ltd v Borough of Vryheid 1973 (1) SA 617 (A)...................................................... 402, 405, 414,
415
Aviation Insurance Co Ltd v Bates and Lloyd Aviation (Pty) Ltd, Bates and Lloyd Aviation (Pty) Ltd v
Aviation Insurance Co Ltd 1982 (4) SA 838 (T) ................................................................................. ................. 395
Aviation Insurance Co of Africa Ltd v Burton Construction (Pty) Ltd 1976 (4) SA 769 (A) ............................... 301
Bal v Van Staden 1903 TS 70 82; G v F 1966 (3) SA 579 (O) ..................................................................... .............
222
Ballenden v Salisbury City Council [1949] 1 All SA 396 (SR); 1949 (1) SA 240 (SR) ..........................................
529
Bank of Lisbon & SA Ltd v De Ornelas [1988] 2 All SA 393 (A); 1988 (3) SA 580 (A) .......................................
139
Bank of Lisbon & SA Ltd v The Master 1987 (1) SA 276 (A) 294I ................................................................. 459,
461
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd, The Good Luck
Banque Financière de la Cité SA v Westgate Insurance Co Ltd [1990] 2 Lloyd’s Rep 377 (HL) ........................ 195
Barkhuizen v Napier 2007 7 BCLR 691 (CC); 2007 (5) SA 323 (CC) ............................. 22, 110, 140, 364, 365,
368
Barkhuizen v Napier NO, unreported (T), (2005) 8 Juta’s Insurance L Bul 20 ................................................ 22,
364
Barloworld Capital (Pty) Ltd t/a Barloworld Equipment Finance v Napier NO 2005 (1) SA 57 (W) .................. 20
Barnabas Plein & Co v Sol Jacobson & Son 1928 AD 25 ........................................................................... ...............
210
Barnard v Protea Assurance Co Ltd t/a Protea Assurance 1998 (3) SA 1063 (C) ....................... 201, 204, 210, 213
Barnett v Abe Swersky & Associates 1986 (4) SA 407 (C) ........................................................................ ................
425
Bates & Lloyd Aviation (Pty) Ltd v Aviation Insurance Co; Bates & Lloyd Aviation (Pty) Ltd v
Aviation Insurance Co [1985] 2 All SA 428 (A); 1985 (3) SA 916 (A) ............................. 191, 298, 395, 447, 469
Bawden v London, Edinburgh & Glasgow Assurance Co [1892] 2 QB 534 (CA ........................................... 528,
531
BC Plant Hire CC t/a BC Carriers v Grenco (SA) Pty Ltd [2004] 1 All SA 612 (C); 2004 (4) SA 550 (C) .. 20, 519
Beck Helicopters Ltd v Edward Lumley & Sons (NZ) Ltd (1990) 6 ANZ Ins Cases 60-995 ................................
520
Bekazaku Properties (Pty) Ltd v Pam Golding Properties (Pty) Ltd 1996 (2) SA 537 (C) .................................. 479
Bekker v Western Province Sports Club (Inc) 1972 (3) SA 803 (C)................................................................ .......
204
Benlou Properties (Pty) Ltd v Vector Graphics (Pty) Ltd 1993 (1) SA 179 (A) ................................................... .
120
Benson v SA Mutual Life Assurance Society 1986 (1) SA 776 (A) ................................................................. ...........
45
Bethlehem Export Co (Pty) Ltd v Incorporated General Insurances Ltd 1984 (3) SA 449 (W) .........243, 245, 274
Beyers’ Estate v Southern Life Association 1938 CPD 8 ......................................................................... .......... 302,
304
Table of cases
Page
Bierman v Mutual and Federal Versekeringsmaatskappy Bpk 2004 (1) SA 205 (O) ............................................ 362
BK Tooling (Edms) Bpk v Scope Precision Engineering (Edms) Bpk 1979 (1) SA 391 (A) ...... 221, 222, 480, 485
Blaauw v Veenman, unreported (WCC), (2012) 15 Juta’s Insurance L Bul 109 ......................................................
417
Blackburn, Low & Co v Vigors (1886) 17 QBD 553 (CA) ........................................................................... .............
529
Blackshaws (Pty) Ltd v Constantia Insurance Co Ltd 1983 (1) SA 120 (A) .................................. 201, 243, 244,
250
Bob’s Shoe Centre v Heneways Freight Services (Pty) Ltd 1995 (2) SA 421 (A) .......................................... 221,
222
Bock v Duburoro Investments (Pty) Ltd 2004 (2) SA 242 (SCA) ................................................................... ........
408
Bodemer v American Insurance Co [1961] 2 All SA 615 (A); 1961 (2) SA 662 (A) .............. 97, 193, 509, 514, 516
Boenor Trading (Pvt) Ltd t/a Swankers Menswear v Total Insurance Co Ltd, unreported (ZHC),
Borman & De Vos v Potgietersrusse Tabakkorporasie Bpk 1976 (3) SA 488 (A).................................................. 426
Boshoff v South British Insurance Co Ltd 1951 (3) SA 481 (T) .................................................................. ... 364,
541
Botes v Afrikaanse Lewensversekeringsmaatskappy Bpk 1967 (3) SA 19 (W) .............................. 425, 426, 427,
434
Botha (now Griessel) v Finanscredit (Pty) Ltd [1989] 2 All SA 401 (A); 1989 (3) SA 773 (A) ...........120, 121, 139
Botha v Rondalia Versekeringskorporasie van SA Bpk 1978 (1) SA 996 (T) ........................................... 29, 287,
333
Botha’s Trucking v Global Insurance Co Ltd [1999] JOL 4496 (T); 1999 3 SA 378 (T) ............ 191, 210, 296, 304
Botswana Insurance Co Ltd v Mazwi, unreported (Botswana HC), (2007)
Brangus Ranching (Pty) Ltd v Plaaskem (Pty) Ltd 2011 (3) SA 477 (KZP) ......................................................... .
526
Bredenkamp v Standard Bank of South Africa Ltd 2010 (4) SA 468 (SCA),
[2010] 4 All SA 113 (SCA); 2010 9 BCLR 892 (SCA); 2010 (4) SA 468 (SCA) ................................... 95, 122, 140
Brightside Enterprises (Pvt) Ltd v Zimnat Insurance Co Ltd [1998] JOL 2448 (ZH);
Brisley v Drotsky 2002 12 BCLR 1229 (SCA); 2002 (4) SA 1 (SCA) ............................................................... 140,
193
British and Foreign Marine Insurance Co Ltd v Gaunt [1921] 2 AC 41 (HL) ..................................................... 243
British Oak Insurance Co Ltd v Atmore 1939 TPD 9 ................................................................ 97, 102, 119, 131,
279
Broli v London Assurance Co 1931 EDL 186 ........................................................................... 302, 304, 529, 530,
531
Brooks v Minister of Safety and Security 2009 (2) SA 94 (SCA) ................................................................. ............
264
Bruwer v Nova Risk Partners Ltd 2011 (1) SA 234 (GSJ).........................................................................200, 209,
213
Bulldog Hauliers (Pty) Ltd v Santam Insurance Ltd 1992 (1) SA 418 (W) ...........................................360, 361, 486
Bundshuh v Finnegan [1975] 1 All SA 654 (C); 1975 (1) SA 376 (C) .............................................................. .....
523
Burger v SA Mutual Life Insurance Society (1903) 20 SC 538; 1903 CTR 847 ......................................................
261
Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333 (HL) ..................................................................... ......
348
Bushby v Guardian Assurance Co Ltd 1915 WLD 65 ................................................................................ ... 40, 41,
107
Butcher & Co v Hawes & Hedley (1859) 3 Searle 270 ............................................................................. ................
278
C and B Motors (Pty) Ltd v Phoenix of SA Assurance Co Ltd 1973 (3) SA 919 (W) .................................... 301,
302
C’NS Agents and Distributors CC v Nova Risk Partners Ltd, unreported (D),
Cairns (Pty) Ltd v Playdon & Co Ltd 1948 (3) SA 99 (A) ............................................................... 208, 210, 211,
212
Caledonia North Sea Ltd v British Telecommunications Plc (Scotland) [2002] 1 Lloyd’s Rep 553 (HL) ........ 500
Cape Empowerment Trust Ltd v Fisher Hoffman Sithole (200/11) [2013] ZASCA 16 .............................. 138, 174
Cape of Good Hope Marine Insurance Co v Berg (1865) 1 Roscoe 289 .............................................................. ...
14
585
Page
Cape of Good Hope Permanent Land, Building and Investment Society (Liquidators of) v
Cape Produce Co (PE) (Pty) Ltd v Dal Maso NNO 2001 (2) SA 182 (W) .............................................................
426
Cape Town Municipality v Allianz Insurance Co Ltd 1990 (1) SA 311 (C) ...........................................478, 539, 545
Cape Town Municipality v Bakkerud [2000] 3 All SA 171 (A); 2000 (3) SA 1049 (SCA) ....................................
138
Capital Alliance Life Ltd v Simonsen [2005] JOL 13913 (N) ..................................................................... ............
437
Capnorizas v Webber Road Mansions (Pty) Ltd 1967 (2) SA 425 (A)................................................................ ....
207
Cargo Africa CC v Gilbeys Distillers & Vintners (Pty) Ltd 1998 (4) SA 355 (N) .......................... 202, 207, 212,
213
Cargo Africa CC v Gilbeys Distillers and Vintners 1996 (2) SA 324 (C) ...................................... 209, 248, 249,
252
Cart Blanche Marketing, unreported (ECG), (2012) 15 Juta’s Insurance L Bul 112 ......................................... 396
Castellain v Preston (1883) 11 QBD 380 (CA)....................................................................... 26, 59, 76, 348, 391,
392
Cave t/a The Entertainers and The Record Box v Santam Insurance Co Ltd 1984 (3) SA 735 (W) .................. 361
CDK Sekuriteit CC v Cookhouse Service Station CC, unreported (E), (2008) 11 Juta’s Insurance L Bul 226 .....
412
Certain Underwriters of Lloyds of London v Harrison [2003] JOL 11573 (SCA); 2004 (2) SA 446 (SCA) ....... 526
CGU Insurance of Zimbabwe Ltd v Chiduka, unreported (ZHC), (2007) 10 Juta’s Insurance L Bul 106 ... 328, 409
Chartaprops 16 (Pty) Ltd v Silberman [2009] 1 All SA 197 (SCA); 2009 (1) SA 265 (SCA) ...............................
527
Chem Alum (Pty) Ltd v Mutual and Federal Insurance Co Ltd, unreported (D),
Chemfos Ltd v Plaasfosfaat (Pty) Ltd 1985 (3) SA 106 (A) ...................................................................... ...............
472
Chetty v Investec Employee Benefits Ltd 2005 JOL 14183 (D) .................................................................... ... 434,
451
1980 (1) SA 796 (A) .............................................................................................. 200, 201, 202, 204, 205, 214, 215
Citibank NA, SA Branch v Paul NO 2003 (4) SA 180 (T) .......................................................................... ...... 336,
344
City Council of the City of Durban v Rumdel Construction (Pty) Ltd [1997] 3 All SA 20 (D) ...........191, 211, 268
City of Cape Town CMC Administration v Bourbon-Leftley
[2006] 1 All SA 561 (SCA); 2006 (3) SA 488 (SCA) .............................................................................. ..............
185
Clark v African Guarantee & Indemnity Co Ltd 1915 CPD 68 ...................................................................... ............
97
Clifford v Commercial Union Insurance Co of South Africa Ltd 1998 (4) SA 150 (SCA) ...................311, 315, 316
Cock v Cape of Good Hope Marine Assurance Co (1858) 3 Searle 114 .................................................. 14, 268,
269
Coertzen v Gerard 1997 (2) SA 836 (O)................................................................................... 203, 204, 207, 211,
444
Coetzee v Attorneys’ Insurance Indemnity Fund 2003 (1) SA 1 (SCA) .................................................325, 464, 548
Collen v AA Mutual Insurance Association Ltd 1954 (3) SA 625 (E) ............................................................. 358,
486
Collen v Rietfontein Engineering Works 1948 (1) SA 413 (A) .................................................................... ... 221,
223
Colonial Mutual Life Assurance Society Ltd v De Bruyn 1911 CPD 103 ........................................................ 309,
530
Colonial Mutual Life Assurance Society Ltd v MacDonald 1931 AD 412 ....................................................... 514,
527
Commercial Business Brokers v Hassen [1985] 2 All SA 146 (N); 1985 (3) SA 583 (N) .....................................
523
(Bophuthatswana) (Pty) Ltd 1998 (2) SA 718 (B)................................................................................. 44, 409, 412
586
Table of cases
Page
1995 (3) SA 751 (A) ............................................................................................... 199, 205, 206, 242, 250, 254, 273
Commercial Union Insurance Co of SA Ltd v Lotter 1999 (2) SA 147 (SCA) ......................... 27, 47, 389, 407, 409
Commissioner for Inland Revenue v Estate Crew 1943 AD 656 ..................................................................... .........
431
Compaan v Dorbyl Structural Engineering (Pty) Ltd t/a Brownbuilt Metal Sections 1983 (4) SA 107 (T) ..... 470
Concord Insurance Co Ltd v Oelofsen 1992 (4) SA 669 (A) ......................................... 207, 211, 248, 249, 251, 252
[1964] 2 All SA 316 (T); 1964 (2) SA 47 (T) ................................................................................... ............. 528,
530
Connolloy v The Southern Life Association Ltd, unreported (SEC), (2001) 4 Juta’s Insurance L Bul 9 ..... 437, 477
Consani’s Engineering Ltd v American International Insurance Co Ltd 1983 (2) SA 589 (C)........................... 210
Consol Ltd t/a Consol Glass v Twee Jonge Gezellen (Pty) Ltd [2004] 1 All SA 1 (SCA);
Consolidated Diamond Mines of SWA Ltd v Administrator, SWA 1958 (4) SA 572 (A) 632–633............... 202, 208
Consolidated Frame Cotton Corporation Ltd v Sithole 1985 (2) SA 18 (N)................................................. 425, 431
Constantia Insurance Co Ltd v Compusource (Pty) Ltd [2005] JOL 14053 (SCA);
Control Chemicals v Safbank Line Ltd 2000 (3) SA 357 (SCA)..................................................................... .........
271
Corrans v Transvaal Government and Coull’s Trustee 1909 TS 605 ................................................................ ......
391
Cregoe v Bezuidenhout and Lark Syndicate (1897) 4 Off Rep 95 103 .............................................................. ....
268
Croce v Croce 1940 TPD 251 ..................................................................................... 394, 413, 433, 443, 444, 446,
447
Cupido v Kings Lodge Hotel 1999 (4) SA 257 (EC) ............................................................................... .................
546
D & H Piping Systems (Pty) Ltd v Trans Hex Group Ltd [2006] 3 All SA 309 (SCA);
Dalby v India and London Life Assurance Co (1854) 15 CB 365 (Ex Ch), 139 ER 465 .............. 50, 64, 71, 78, 125
Daltron Forge (Pty) Ltd v Etana Insurance Co Ltd, unreported (GSJ),
2009 (6) SA 42 (C) ................................................................................................. 229, 264, 426, 427, 435, 450, 477
Davey, Paxman and Co v Langlaagte Star GM Co Ltd (1898) 5 Off Rep 216 ........................................................
541
David Trust v Aegis Insurance Co Ltd 2000 (3) SA 289 (SCA) ..................................................... 238, 321, 328,
464
Davidson v Bonafede [1981] 2 All SA 19 (C); 1981 (2) SA 501 (C) ............................................................... ........
528
De Chazal de Chamarel’s Estate v Tongaat Group Ltd 1972 (1) SA 710 (D) ............................................... 211, 212
De Coning v Monror Estate & Investment Co (Pty) Ltd [1974] 1 All SA 477 (E); 1974 (3) SA 72 (E) .............. 523
De Klerk v ABSA Bank Ltd 2003 (4) SA 315 (SCA) ................................................................................ ......... 332,
342
De Wet v Santam Bpk 1996 (2) SA 629 (A) ...................................................................................... 211, 271, 323,
417
Deacon v Royal Exchange Assurance Co Ltd 1927 SWA 107 ......................................................................... .........
362
Dealernet (Pty) Ltd v Mamahlodi 2009 (6) SA 259 (GNP) ......................................................................... ............
369
587
Page
Delphisure Group Insurance Brokers Cape (Pty) Ltd v Kotze [2011] 1 All SA 109 (SCA);
2010 (5) SA 499 (SCA) ......................................................................................................... ..................514, 519,
527
Department of Trade and Industry v St Christopher Motorists Association [1974] 1 Lloyd’s Rep 17 .................. 85
Desmond Isaacs Agencies (Pty) Ltd v Contemporary Displays 1971 (3) SA 286 (T) ............................................
334
DF Projects Properties v H Savy Insurance Co Ltd, unreported (T), (2008) 11 Juta’s Insurance L Bul 132 ........ 287
Dhlamini v Protea Assurance Co Ltd 1974 (4) SA 906 (A) ........................................................................ ...............
30
Dial Direct Insurance Ltd v Padarath, unreported (KZP), (2010) 13 Juta’s Insurance L Bul 90 ........................... 320
Diamond v Kernick [1947] 3 All SA 254 (A); 1947 (3) SA 69 (A) ................................................................. .........
514
Dickinson and Fischer v Arndt and Cohn (1909) 30 NLR 172 ...................................................................... .........
334
Dicks v SA Mutual Fire & General Insurance Co Ltd [1963] 4 All SA 303 (N);
1963 (4) SA 501 (N) ................................................................................................. 96, 102, 106, 107, 514, 515, 524
Dippenaar v Shield Insurance Co Ltd 1979 (2) SA 904 (A) ................................................................29, 75, 342,
434
Dirk Fourie Trust v Gerber [1986] 2 All SA 77 (A); 1986 (1) SA 763 (A) ........................................................ .....
189
Dormell Properties 282 CC v Renasa Insurance Co Ltd 2011 (1) SA 70 (SCA) ......................................................
93
Drake Insurance Plc v Provident Insurance Plc [2004] 1 Lloyd’s Rep 268 (CA) .................................................. 196
Droomer v Malmesbury Board of Executors and Trust and Fire Assurance Co (1908) 18 CTR 831 .................. 332
Drysdale v Union Fire Insurance Co Ltd (1890) 8 SC 63 ......................................................................... ..... 16, 17,
18
DS Yates t/a Double Y Charters v Coin Security Group (Pty) Ltd, unreported (T),
(1999) 2 Juta’s Insurance L Bul 134 .........................................................................................................301, 411,
412
Du Plessis v Road Accident Fund 2004 (1) SA 356 (SCA) ......................................................................... .......... 22,
54
Du Plooy v Sasol Bedryf (Edms) Bpk 1988 (1) SA 438 (A)......................................................................221, 222,
223
Du Toit v Standard General Insurance 1994 (1) SA 682 (W) ...................................................................... ...........
469
Durandt v Federal Insurance Ltd 2005 (3) SA 350 (SCA) ......................................................................... ..............
391
Durban’s Water Wonderland (Pty) Ltd v Botha 1997 (3) SA 245 (N) ............................................................... ....
411
Durban’s Water Wonderland (Pty) Ltd v Botha 1999 (1) SA 982 (SCA) ...............................................112, 116, 411
Durr v ABSA Bank Ltd [1997] 3 All SA 1 (A); 1997 (3) SA 448 (SCA) ............................................................. .....
519
Duze v Auto and General Insurance Co Ltd, unreported (D), (2006) 9 Juta’s Insurance L Bul 136 ............ 374, 375
Dykman v Die Meester 2000 (1) SA 896 (O) ...................................................................................... ......426, 439,
458
Eagle Star Insurance Co Ltd v Spratt [1971] 2 Lloyd’s Rep 116 (CA) ............................................................ .......
519
Eagle Star Insurance Co Ltd v Willey 1956 (1) SA 330 (A) ............................................ 241, 242, 271, 272, 274,
320
ED Sassoon and Co Ltd v Yorkshire Insurance Co Ltd (1923) 16 Ll L Rep 129 (CA) ........................................ 244
Edwards v London and Lancashire Fire Insurance Co (1896) 17 NLR 18 ............................................271, 382, 489
Eerste Nasionale Bank van Suidelike Afrika Bpk v Saayman [1997] 3 All SA 391 (A);
Ehrig and Weyer v Transatlantic Fire Insurance Co 1905 TH 117 ................................................................. ..........
14
Ehrig and Weyer v Transatlantic Fire Insurance Co 1905 TS 557...........................................................301, 353, 360
Ekurhuleni Metropolitan Municipality v Germiston Municipal Retirement Fund 2010 (2) SA 498 (SCA)....... 205
Elcock v Thomson [1949] 2 All ER 381 (KB) ..................................................................................... ........................
60
Elias Syndicate v Leyds NO and Responsible Clerk of Doornkop (1897) 4 Off Rep 248 .....................................
332
Ellanco International Trading v SA Botswana Hauliers (Pty) Ltd [1992] 3 All SA 664 (W);
Els Inc v Gueorguieva, unreported (T), (2007) 10 Juta’s Insurance L Bul 40 .........................................................
549
Engen Petroleum Ltd v Kommandonek (Pty) Ltd 2001 (2) SA 170 (W) .............................................................. 132
588
Table of cases
Page
Enviroserv Waste Management (Pty) Ltd v Wasteman Group (Pty) Ltd [2012] 3 All SA 386 (SCA) ................. 353
Equitable Trust & Insurance Co of SA Ltd v Registrar of Banks [1957] 2 All SA 233 (T);
Erasmus Ferreira and Ackerman v Francis 2010 (2) SA 228 (SCA)................................................................ 387,
391
Ericsen v Germie Motors (Edms) Bpk 1986 (4) SA 67 (A) ......................................................................... ............
127
Esso Standard SA (Pty) Ltd v Katz 1981 (1) SA 964 (A) ........................................................................ .................
332
Estate Castles v Southern Life Association (1906) 23 SC 338 ................................................................... ....... 361,
364
Estate Jonker v Liverpool and London and Globe Insurance Co Ltd 1931 AD 340 ..................................... 361, 364
Estate of late Basson v Law Accident Insurance Co (1903) 13 CTR 1094 .......................................................... ....
271
Estate Ralston v New York Life Insurance Co (1909) 26 SC 482; (1909) 19 CTR 808 .................. 102, 108, 109
277
Everton v Compass Insurance Co Ltd [2003] JOL 11268 (T) ....................................................................... ..........
487
Everton v Compass Insurance Co Ltd, unreported (T), (2007) 10 Juta’s Insurance L Bul 111 ............................. 301
Evins v Shield Insurance Co Ltd 1980 (2) SA 814 (A) ........................................................................... ....................
29
Ex parte Calderwood: In re Estate Wixley 1981 (3) SA 727 (Z) .................................................................. .... 441,
442
Ex parte Liquidators of Parity Insurance Co Ltd 1966 (1) SA 463 (W) ........................................................... ......
468
Ex parte Loudon: In re Drury Construction (Pty) Ltd v Incorporated General Insurances Ltd
Ex parte MacIntosh NO: In re Estate Barton 1963 (3) SA 51 (N), [1963] 3 All SA 221 (N) ....... 434,438, 442, 450
Ex parte Sapan Trading (Pty) Ltd [1995] 3 All SA 89 (W); 1995 (1) SA 218 (W) ................................................
185
Executors Estate Richards v Executors Estate Jonsson (1906) 27 NLR 593 ........................................................ ...
548
Eyer v Three Lions Parts CC, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 171 .............. 323, 332, 335,
336
Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C) ................................. 22, 129, 202, 207, 210, 212
Feasy v Sun Life Co of Canada [2003] Lloyd’s Rep IR 637 (CA) .................................................................. ...... 51,
52
Fedgen Insurance Ltd v Bankorp Ltd [1994] 3 All SA 209 (W); 1994 (2) SA 399 (W) ........................................
522
Fedgen Insurance Ltd v Leyds 1995 (3) SA 33 (A) 38B .......................................................... 200, 201, 210, 211,
212
Fedsure General Insurance Ltd v Carefree Investments (Pty) Ltd 2001 (4) SA 1309 (SCA) ............................... 269
Feldman v British Aviation Insurance Co Ltd 1949 (3) SA 1078 (SR) ............................................................. ......
515
Fielding v Jacobs NO, unreported (C), (2006) 9 Juta’s Insurance L Bul 46.............................................................
445
Fir and Ash Investments (Pty) Ltd v Cronje 2008 (1) SA 556 (C) ................................................................ .... 44,
412
First National Bank of SA Ltd v Lynn 1996 (2) SA 339 (A) ...................................................................... ...............
431
First National Bank of Southern Africa Ltd v Rosenblum 2001 (4) SA 189 (SCA) ...............................................
411
Firstrand Bank Ltd t/a Fiat Finance v Smith, unreported (T), (2009) 12 Juta’s Insurance L Bul 136.................. 412
Florida Road Shopping Centre (Pty) Ltd v Caine 1968 (4) SA 587 (N) ............................................................ ....
209
Foodcorp Insurance Fund v Eljoney Body Repairs (Pty) Ltd 2009 JDR 1522 (W) ............................................... 475
Forecourt Express (Pty) Ltd v Dalys Marine Insurance Brokers (Pty) Ltd, unreported (C),
Forsikringsaktieselskapet Vesta v Butcher, Bain Dawes Ltd and Aquacultural Insurance Service Ltd
Fortlaide Garages (Edms) Bpk v Schoeman 1959 (4) SA 533 (E) ................................................................... .......
107
Foster v Mutual & Federal Insurance Co Ltd, unreported, (2002) (T) 5 Juta’s Insurance L Bul 31–33 .... 35,47, 333
Fouche v The Corporation of the London Assurance 1931 WLD 145 .................................... 41, 301, 302, 456, 462
Fourie v Ince, unreported (T), (2007) 10 Juta’s Insurance L Bul 116 ......................................................................
414
589
Fourway Haulage SA (Pty) Ltd v SA National Roads Agency Ltd [2009] 1 All SA 525 (SCA);
Fraser v BN Furman (Productions) Ltd, Miller, Smith & Partners (Third Party) [1967] 1 WLR 898 (CA)....... 522
Fraser v Viljoen [2008] 3 All SA 233 (SCA); 2008 (4) SA 106 (SCA) ............................................................. ........
196
French Hairdressing Saloons Ltd v National Employers Mutual General Insurance Association Ltd
Fulton v Waksal Investments (Pty) Ltd 1986 (2) SA 363 (T)...................................................................301, 302,
305
G and C Shelf 103 (Pty) Ltd v Chemical Specialities (Pty) Ltd 2012 (4) SA 335 (KZD) .............................. 324,
412
Gallant v Minister of Safety and Security, unreported (ECG), (2010) 13 Juta’s Insurance L Bul 15 .....................
393
Gangat v Licenses and General Insurance Co Ltd, Gangat v SA National Trust and Assurance Co Ltd
Gani v Santam Insurance Co Ltd 1975 1 PH A36 (T) .............................................................................. ........ 515,
524
Genac Properties Jhb (Pty) Ltd v NBC Administrators CC (previously NBC Administrators (Pty) Ltd)
General Accident, Fire and Life Assurance Co Ltd v National British and Irish Millers’ Insurance Co Ltd
General Chemical Corporation (Coastal) Ltd v Interskei (Pty) Ltd 1984 (3) SA 240 (D) .......................... 301, 302
Geodis Wilson South Africa (Pty) Ltd v ACA (Pty) Ltd, unreported (SGJ),
Geue v Van der Lith [2003] 4 All 553 (SCA); 2004 (3) SA 333 (SCA) ............................................................. ......
189
Gibson v Van der Walt 1952 (1) SA 262 (A). .................................................................................... ........................
122
Glennie, Egan & Sikkel v Du Toit’s Kloof Development Co (Pty) Ltd 1953 (2) SA 85 (C) ................................. 210
Global Insurance Co Ltd v Botha’s Trucking 2001 (4) SA 1347 (T) ............................................................... .......
304
Glofinco v ABSA Bank Ltd t/a United Bank 2002 (6) SA 470 (SCA) ................................................................ ....
508
Golden Harvest (Pty) Ltd v Zen-Don CC 2002 (2) SA 653 (O) ..................................................................... .........
402
Golf Estates (Pty) Ltd v Malherbe 1997 (1) SA 873 (C).......................................................................... ...................
48
Goodman Brothers (Pty) Ltd v Rennies Group Ltd 1997 (4) NSA 91 (W) ........................................................... 411
Fibre Spinners and Weavers (Pty) Ltd 1977 (2) SA 324 (D) ..................................................... 256, 258, 263, 411
Fibre Spinners and Weavers (Pty) Ltd 1978 (2) SA 794 (A) ...................................................................... ......... 411
Grand Central Airport (Pty) Ltd v AIG South Africa Ltd 2004 (5) SA 284 (W)....................................203, 338, 471
Greenfield Engineering Works (Pty) Ltd v NKR Construction (Pty) Ltd 1978 (4) SA 901 (N) .......................... 202
Griessel v SA Myn en Algemene Assuransie Edms Bpk 1952 (4) SA 473 (T) ........................................240, 259,
271
Griffiths v Mutual and Federal Insurance Co Ltd 1994 (1) SA 535 (A) ........................................................... ......
343
590
Table of cases
Page
Guardian National Insurance Co Ltd v Springgold Investments (Pty) Ltd [2011] 1 All SA 301 (SCA) ............. 273
Guardrisk Insurance Co Ltd v Napier NO, unreported (W), (2007) 10 Juta’s Insurance L Bul 165 ............. 358, 359
Harding Maughan Hambly v CECAR [2000] 1 Lloyd’s Rep 316 ....................................................................... .....
523
Hartley v Pyramid Freight (Pty) Ltd 2007 (2) SA 599 (SCA) ..................................................................... ..... 116,
117
Harvest Trucking Co Ltd v PB Davis t/a PB Davis Insurance Services [1991] 2 Lloyd’s Rep 638 ............... 521,
522
Hassett (Claude) v Santam Insurance Co Ltd 2000 (1) SA 403 (C) ................................................................ .......
482
Haviland Estates (Pty) Ltd v McMaster 1969 (2) SA 312 (A) ..................................................................... ..... 203,
214
Hayne & Co Ltd v Central Agency for Co-operative Societies 1938 AD 352 ........................................................ ..
206
Hayne & Co v Kaffrarian Steam Mill Co Ltd 1914 AD 363 ......................................................................... .............
206
Hean v General Accident, Fire and Life Assurance Corporation Ltd 1931 NPD 215 ........................................... 358
Hees NO v Southern Life Association Ltd 2000 (1) SA 943 (W); [2000] 1 All SA 327 (W);
[2000] JOL 5928 (W) ............................................................................................. 424, 425, 428, 429, 439, 440; 450
Helderberg Car and Propshaft Centre CC t/a Propshaft Centre v Nexor 519 t/a Protec Crane Hire,
Heslop v General Accident, Fire and Life Assurance Corporation Ltd 1962 (3) SA 511 (A) ..............300, 302, 304
HK Outfitters (Pty) Ltd v Legal and General Assurance Society Ltd 1975 (1) SA 55 (T) .............................. 29, 346
Hlobo v Multilateral Motor Vehicle Accidents Fund [2001] 1 All SA 322 (SCA) ......................................... 114,
481
Hollard Insurance Co Ltd v Leclezio 1999 (4) SA 130 (N) ....................................................................... ...... 104,
105
Hollard Insurance Co Ltd v Unitrans Fuel and Chemicals (Pty) Ltd unreported, GSJ, May 2012,
Hollard Life Assurance Co Ltd v Van der Merwe NO [2006] 4 All SA 333 (SCA) ........................................ 258,
259
Hollely v Auto & General Insurance Co Ltd, unreported (W), (2007) 10 Juta’s Insurance L Bul 267 ................. 278
Hollet v Nisbet and Dickson (1829) 1 Menzies 391........................................... 16, 118, 275, 276, 278, 283, 522,
524
Holtzkamp v SA Polisie Versekeringsfonds, unreported (T), (1998) 1 Juta’s Insurance L Bul 55–58 .................. 315
Homeplus Investments (Pvt) Ltd v Kantharia Insurance Brokers (Pvt) Ltd, unreported (ZHC),
Homes for SA (Pty) Ltd v Rand Building Contractors (Pty) Ltd 2004 (6) SA 373 (W)........................................ 402
Consulting (Pty) Ltd 2008 (2) SA 608 (SCA) .................................................................................... ................... 353
Hosken Employee Benefits (Pty) Ltd v Slabe [1992] 3 All SA 919 (W); 1992 (4) SA 183 (W)............470, 481, 522
Hotels, Inns and Resorts SA v Underwriters at Lloyds 1998 (4) SA 147 (SCA) .................................................... .
411
Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 (HL) 14 ................................................................. ....
529
Human v CMC Chemicals (Edms) Bpk, unreported (GNP), (2011) 14 Juta’s Insurance L Bul 49....................... 481
591
Page
Hurwitz v Table Bay Engineering (Pty) Ltd 1994 (3) SA 449 (C) ................................................................. .........
132
Hurwitz’s Trustee v Magdeburg Fire Insurance Co 1917 TPD 443 ................................................................ 362,
486
Hurwitz’s Trustee v Salamander Fire Insurance Co 1917 TPD 216 ................................................................ .......
362
IGI Insurance Co Ltd v Madasa 1995 (1) SA 144 (Tk) ............................................................................ ........ 208,
210
Impala Distributors v Taunus Chemical Manufacturing Co (Pty) Ltd 1975 (3) SA 273 (T) .............................. 487
Imperial Group (Pty) Ltd v NCS Resins (Pty) Ltd [2007] 2 All SA 483 (SCA)......................................................
412
Imprefed (Pty) Ltd v American International Insurance Co Ltd 1983 (3) SA 335 (A) ........................301, 302, 304
In Pereira v Marine & Trade Insurance Co Ltd [1975] 4 All SA 635 (A); 1975 (4) SA 745 (A) .........191, 193, 195
In re Retmil Financial Services (Pty) Ltd, Case no 18779/12 (WC) .............................................................. . 459,
460
Incorporated General Insurances Ltd v Shooter t/a Shooter’s Fisheries 1987 (1) SA 842 (A)................... 200, 208
1987 (1) SA 842 (A) ........................................................................................................... .... 248, 249, 250, 252,
253
Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A) ........................................................... .......
411
Indrani v African Guarantee and Indemnity Co Ltd 1968 (4) SA 606 (D) .......................................................... ..
347
Inspan Motors (Pty) Ltd v Kock 1970 (4) SA 491 (N) ............................................................................ .................
107
Irving v Sun Insurance Office 1906 ORC 24 ................................................................................ 16, 17, 360, 485,
486
Isando Foods (Pty) Ltd v Fedgen Insurance Co Ltd 2001 (3) SA 1278 (SCA) ......................................................
263
Iscor Pension Fund v Marine & Trade Insurance Co Ltd 1961 (1) SA 178 (T) .......................................... 76, 82, 93
Isep Structural Engineering and Plating (Pty) Ltd v Inland Exploration Co (Pty) Ltd
Israel Bros v Northern Assurance Co and Union Assurance Society (1892) 4 SAR 175 .......................................
490
Ivanov v Santam Ltd, unreported (W), (2007) 10 Juta’s Insurance L Bul 4 .............................................325, 375,
382
Jaffit v Garlicke & Bousfield Inc (PFK (Durban) Incorporated and others as Third Parties)
Janse van Rensburg v Grieve Trust CC [1999] 3 All SA 597 (C); 2000 (1) SA 315 (C) ........................................
139
Janson v Driefontein Consolidated Mines Ltd [1902] AC 484 (HL) ................................................................ ......
126
JNG Express (Pty) Ltd v Botswana Insurance Co Ltd, unreported (Botswana CA),
Joel Melamed & Hurwitz v Cleveland Estates (Pty) Ltd, Joel Melamed & Hurwitz v
Vorner Investments (Pty) Ltd [1984] 2 All SA 110 (A); 1984 (3) SA 155 (A) .......................................... 424, 508
Johannesburg Livestock Auctioneers Association v President Insurance Co Ltd 1987 (1) SA 539 (W) ............. 536
John v North British and Mercantile Insurance Co (1902) 19 SC 414, (1902) 12 CTR 771 ................................ 309
1983 (1) SA 318 (A) ....................................................................................... 191, 303, 356, 359, 361, 455, 458, 459
Johnson v Jainodien 1982 (4) SA 599 (C) ....................................................................................... ..........................
481
Johnston (And All Other Members of Syndicate 964 at Lloyd’s, who were parties to the contract of
reinsurance) v Leslie & Godwin Financial Services Ltd [1995] LRLR 472 47 .................................................. 522
Johnston and Moulton v Commercial Union Assurance Co Ltd (1892) 13 NLR 56 ............................................ 371
Johnstone v Leal [1980] 2 All SA 366 (A); 1980 (3) SA 927 (A) ................................................................. ............
196
Jones v Richards and Executors; Richards v Executors Johsson (1905) 26 NLR 317 ............................................
550
1972 (2) SA 827 (A) .................................................................................31, 200, 201, 202, 203, 204, 212, 391, 405
592
Table of cases
Page
Joosub Investments (Pty) Ltd v Maritime and General Insurance Co Ltd 1990 (3) SA 373 (C) ................. 271, 273
Jordan v New Zealand Insurance Co Ltd 1968 (2) SA 238 (E) ...................... 104, 270, 296, 302, 303, 307, 309,
310
Joubert v ABSA Life Ltd 2001 (2) SA 322 (W) ................................................................................... ............... 310,
316
Joubert v Santam Versekeringsmaatskappy Bpk 1978 (3) SA 328 (T) ........................................................... 337,
338
Jurgens Eiendomsagente v Share [1990] 2 All SA 548 (A); 1990 (4) SA 664 (A) .................................................
523
Juriyasi v Global Insurance Co Ltd, unreported (ZHC), (2008) 11 Juta’s Insurance L Bul 62 ..............................
362
K
2001 (3) SA 652 (W) ........................................................................................................... ... 250, 252, 272, 361,
363
(1885) 5 EDC 61 .................................................................... 325, 327, 357, 471, 473, 474, 475, 485, 490, 502, 503
Kahn v African Life Assurance Society Ltd 1932 WLD 160 ........................................ 96, 97, 102, 103, 188, 283,
515
1976 (2) SA 179 (D) ...............................................................................191, 301, 337, 358, 359, 471, 472, 473, 474
Kannemeyer NO v The Sun Insurance Co (1896) 13 SC 451 ........................................................ 355, 357, 361, 484
Kantor Bros v Transatlantic Fire Assurance Co (1892) 4 SAR 185 ............................................................... .........
353
Kapeller v Rondalia Versekeringskorporasie van Suid-Afrika Bpk 1964 (4) SA 722 (T) ......................................
516
Kelly v Pickering (2) [1980] 4 All SA 19 (R); 1980 (2) SA 758 (R) ............................................................. ...........
521
Kemp v Santam Insurance Co Ltd 1975 (2) SA 329 (C) ............................................................................ ...... 248,
251
Kent v SA National Life Assurance Co 1997 (2) SA 808 (D) ...................................................................187, 233,
235
Kgaka v Statsure Insurance Co Ltd 2001 (4) SA 245 (T) ......................................................................... ................
363
Kievits Kroon Country Lodge (Pty) Ltd v Hollard Insurance Co & Others, unreported (T),
(2006) 9 Juta’s Insurance L Bul 23 ...........................................................................................................................
108
Kievits Kroon Country Lodge (Pty) v Hollard Insurance Co 2003 JDR 0289 (T) .................................................
517
Klempman v Law Union & Rock Insurance Co Ltd 1957 (1) SA 506 (W) ............................................292, 479, 480
Kliptown Clothing Industries (Pty) Ltd v Marine and Trade Insurance Co of SA Ltd
1961 (1) SA 103 (A) ................................................................................................. 82, 212, 213, 296, 299, 300, 301
Komichi v Tanner, unreported (Z), (2006) 9 Juta’s Insurance L Bul 190 ................................................................
338
Kontraktereg en Handelsreg 266; Union Free State Mining & Finance Corporation Ltd v
Union Free State Gold & Diamond Corporation Ltd 1960 (4) SA 547 (W) ..................................................... 482
KPMG Chartered Accountants v Securefin Ltd [2009] 2 All SA 523 (SCA); 2009 (4) SA 399 (SCA)......... 196,
214
Kriel v Hochstetter House Edms Bpk 1988 (1) SA 220 (T) ........................................................................ .............
132
KwaMashu Bakery Ltd v Standard Bank of SA Ltd 1995 (1) SA 377 (D) ............................................................. ..
411
Lake v Reinsurance Corporation Ltd 1967 (3) SA 124 (W) ............ 1, 5, 76, 77, 81, 86, 89, 118, 220, 233, 234, 468
(1867) 5 Searle 358 .................................................................................................. 16, 210, 491, 492, 495, 498, 503
Langemaat v Minister of Safety and Security 1998 (3) SA 312 (T) ............................................................... .... 22,
129
593
Page
Langford v Moore (1900) 17 SC 1................................................................................................ ..............................
391
Langley Fox Building Partnership (Pty) Ltd v De Valence [1991] 3 All SA 736 (A); 1991 (1) SA 1 (A)............ 527
Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd
[2003] 4 All SA 317 (SCA); 2004 (2) SA 1 (SCA) ................................................................................ ........ 519,
520
Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd, unreported (W),
Lappeman Diamond Cutting Works (Pty) Ltd v MIB Group (Pty) Ltd, unreported (W),
Law Union and Rock Insurance Co Ltd v De Wet 1918 AD 663 ...................................................................... .......
252
Lazy Lion Lodge (Johannesburg) (Pty) Ltd v South African Eagle Insurance Co (Pty) Ltd
Le Roux v Dey (Freedom of Expression Institute and Restorative Justice Centre as Amici Curiae)
2011 6 BCLR 577 (CC); 2011 (3) SA 274 (CC) .................................................................................... ................
138
Le Roux v Standard General Versekeringsmaatskappy Bpk 2000 (4) SA 1035 (SCA) ......................................... 464
Le Voy v New Zealand Insurance Co Ltd 1930 CPD 427 ............................................................................ .............
364
Leadtrain Assessments (Pty) Ltd v Leadtrain (Pty) Ltd 2013 (5) SA 84 (SCA) .................................................... .
353
Lean v Van der Mescht 1972 (2) SA 100 (O) ..................................................................................... ........... 43, 46,
402
Lehmbecker’s Earthmoving and Excavators (Pty) Ltd v Incorporated General Insurances Ltd
1984 (3) SA 513 (A) .................................................................................38, 195, 319, 373, 375, 378, 380, 381, 383
Lenaerts v JSN Motors (Pty) Ltd [2002] 2 All SA 337 (W); 2001 (4) SA 1100 (W) ..................... 518, 519, 520,
521
Lesotho National General Insurance Co Ltd v Ever Unison Garments Lesotho (Pty) Ltd,
unreported (Lesotho CA), (2010) 13 Juta’s Insurance L Bul 229 ................................................................ 359, 360
Letaba Sawmills (Edms) Bpk v Majovi (Edms) Bpk 1993 (1) SA 768 (A) ............................................................ ..
131
Lewis Ltd v Norwich Union Fire Insurance Co Ltd 1916 AD 509 ............................ 19, 221, 222, 296, 301, 302,
308
Lewis v Tressider Andrews Associates (Pty) Ltd & Andrews (1986) 4 ANZ Ins Cases 60-750, 74-515 .................
520
Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 (HL)............................ 250
Liberty Group Ltd v Jordaan, unreported (FB), (2012) 15 Juta’s Insurance L Bul 150............................................
56
Liberty Life Association of Africa Ltd v De Waal 1999 (4) SA 1177 (SCA) ................................................... 315,
316
Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A). ........................................................ 270, 282
Lifeguards Africa (Pty) Ltd v Raubenheimer [2006] 3 All SA 350 (D); [2006] 9 BLLR 857 (D);
Lindsay and Pirie v General Accident Fire and Life Assurance Corporation Ltd 1914 AD 574 .......................... 274
Lines v Liberty Life Association of Africa Ltd 1990 (3) SA 268 (T).......................................................... 99, 106,
491
Lipschitz v UDC Bank Ltd 1979 (1) SA 789 (A) .................................................................................. .....................
223
Lister v Romford Ice and Cold Storage Ltd [1957] AC 55 (HL) ................................................................... .........
395
Littlejohn v Norwich Union Fire Insurance Society 1905 TH 374 ....................... 17, 18, 27, 34, 42, 48, 49, 213,
343
Lloyd’s of London Underwriting Syndicates 969, 48, 1183 and 2183 v
Skilya Property Investments (Pty) Ltd 2004 (2) SA 276 (SCA).......................................... 110, 127, 204, 241, 261
Lockhat’s Estate v North British & Mercantile Insurance Co Ltd 1959 (3) SA 295 (A) ......................................... 67
Logista Inc v Van der Merwe 2010 (3) SA 105 (WCC).............................................................................. ...............
199
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd 2010 (2) SA 86 (SCA) ............................................. 93
London & Lancashire Insurance Co Ltd v Abrahamson’s Assignee 1924 WLD 130 ............................................
487
London & Lancashire Insurance Co Ltd v Puzyna 1955 (3) SA 240 (C) ................................................. 90, 235,
241
London & Scottish Assurance Corporation Ltd v Venter 1923 OPD 209 ..........................................16, 18, 302, 531
London and Lancashire Fire Assurance Co v Imperial Cold Storage and Supply Co Ltd
594
Table of cases
Page
2013 (5) SA 42 (WCC) ...............................................................................32, 35, 36, 48, 60, 81, 124, 126, 340, 341
Lourens v Colonial Mutual Life Assurance Society Ltd 1986 (3) SA 373 (A) ..... 1, 69, 201, 234, 235, 239, 240,
241
LTA Construction Bpk v Administrateur, Tvl [1992] 3 All SA 1007 (A); 1992 (1) SA 473 (A) .......................... 139
Lucena v Craufurd (1806) 2 Bos & Pul NR 269, 127 ER 630 (HL) .................................................................. .. 27,
76
Lufuno Mphaphuli and Associates (Pty) Ltd v Andrews 2008 (2) SA 448 (SCA); 2009 (4) SA 529 (CC) ......... 353
Luxor Paints (Pty) Ltd v Heritage Insurance Brokers, unreported (W), (2007) 10 Juta’s Insurance L Bul 53 .... 325
Lynco Plant Hire & Sales BK v Univem Versekeringsmakelaars BK 2002 (5) SA 85 (T) ............ 34, 48, 81, 16,
519
M
M Zahn Investments (Pty) Ltd v General Accident Insurance of SA Ltd 1981 (4) SA 143 (SEC).......207, 417, 418
Macaura v Northern Assurance Co Ltd [1925] AC 619 (HL) 35, 48, 632............................................................. ...
83
Mackenzie v Mutual Life Insurance Co of New York & Bilbrough 1906 TH 116 ..................................................
457
MacKenzie v Southern Life Association of Africa 1952 (4) SA 523 (A) ........................................................... ......
269
Magna Alloys & Research (SA) (Pty) Ltd v Ellis [1984] 2 All SA 583 (A); 1984 (4) SA 874 (A) .........121, 122,
139
Maharaj v Sanlam Life Insurance Ltd 2011 (6) SA 17 (KZD) ...................................................................... ...........
482
Malcher and Malcomess v Kingwilliamstown Fire and Marine Insurance and Trust Co
(1883) 3 EDC ................................................................................................. 4, 16, 17, 18, 44, 59, 82, 195, 303, 308
Man Truck and Bus (SA) (Pty) Ltd v Dorbyl Ltd t/a Dorbyl Transport Products and Busaf
1996 (3) SA 434 (D) ........................................................................................................... .............. 26, 31, 32, 36,
37
Manley van Niekerk (Pty) Ltd (now Video Sound Studios (Pty) Ltd v Assegai Safaris and
Film Productions (Pty) Ltd 1977 (2) SA 416 (A) ................................................................................ ................. 415
Maphango v Aengus Lifestyle Properties (Pty) Ltd [2011] 3 All SA 535 (SCA); 2011 (5) SA 19 (SCA) .... 140,
185
Marillac Bros v Equitable Fire Insurance and Trust Co (1862) 1 Roscoe 22 ...................................................... ...
361
Marine & Trade Insurance Co Ltd v J Gerber Finance (Pty) Ltd 1981 (4) SA 958 (A) ......................107, 435, 436
Marine and Trade Insurance Co Ltd v Van Heerden 1977 (3) SA 553 (A)...........................................191, 299, 301
Maritime and General Insurance Co Ltd v Sky Unit Engineering (Pty) Ltd 1989 (1) SA 867 (T) ..................... 259
Maritime and General Insurance Co v Sky Unit Engineering (Pty) Ltd 1989 (1) SA 867 (T) ............................ 272
Marnewicke’s Executor v South African Mutual Life Assurance Society (1895) 12 SC 43,
Marrok Plase (Pty) Ltd v Advance Seed Co (Pty) Ltd 1975 (3) SA 403 (A) ...................................................... .. 209
Marx v Hunze, unreported (Namibia HC), (2007) 10 Juta’s Insurance L Bul 176 .................................................
408
Masango v Lloyds of London, unreported (W), (2004) 7 Juta’s Insurance L Bul 169 ................... 103, 256, 321,
360
Masstores (Pty) Ltd v Murray and Roberts Construction (Pty) Ltd [2009] 1 All SA 146 (SCA) ................. 411, 539
Masterspice (Pty) Ltd v Broszeit Investments CC 2006 (6) SA 1 (SCA) ........................................................... ......
295
Matsoakeletse v Klaas, unreported (Lesotho HC), (2010) 13 Juta’s Insurance L Bul 17 ........................................
403
Mayor and Corporation of Boston v France, Fenwick and Co Ltd (1923) 15 Ll L Rep 85................................... 421
Maze v Equitable Trust and Insurance Co of SA Ltd 1938 CPD 431 ............................................. 191, 298, 302,
303
McCann v Goodall Group Operations (Pty) Ltd [1995] 3 All SA 276 (C); 1995 (2) SA 718 (C) ............... 138, 139
McCarthy Retail Ltd v Shortdistance Carriers CC 2001 (3) SA 482 (SCA) ......................................................... ...
476
McClain v H Mohamed and Associates [2003] 3 All SA 707 (C) ............................................................444, 543,
546
McCullogh v Fernwood Estate Ltd 1920 AD 204 ............................................................................. 426, 427, 429,
431
595
Page
McLelland v Hulett 1992 (1) SA 456 (D) ........................................................................................ ............................
48
mCubed International (Pty) Ltd v Singer [2009] 2 All SA 536 (SCA); 2009 (4) SA 471 (SCA) .........134, 136, 138
Medical Defence Union Ltd v Department of Trade [1979] 2 All ER 421 (Ch) 424f ...................................... 58, 78
Mehlape v Minister of Safety and Security 1996 (4) SA 133 (W) ................................................................. ...........
417
Melik & Co Ltd v Norwich Union Fire Insurance Society Ltd & Kemp [1980] 1 Lloyd’s Rep 523 (QB) ........... 521
Merchandise Exchange (Pty) Ltd v Eagle Star Insurance Co Ltd 1962 (3) SA 113 (C) ...................................... 300
Meskin v Anglo-American Corporation of SA Ltd [1968] 4 All SA 281 (W); 1968 (4) SA 793 (W) ............ 136,
139
Metro Western Cape (Pty) Ltd v Ross 1986 (3) SA 181 (A) ....................................................................... .............
121
Minister of Community Development v Koch [1991] 2 All SA 420 (A); 1991 (3) SA 751 (A) ............................
527
Minister of Defence v Potsane; Legal Soldier (Pty) Ltd v Minister of Defence 2002 (1) SA 1 (CC) ................... 549
Minister of Education v Stuttaford and Co (Rhodesia) (Pvt) Ltd 1980 (4) SA 517 (Z) ....................................... 501
2004 2 BCLR 133 (SCA); 2004 (3) SA 305 (SCA) .................................................................................. ..............
138
Minister of Safety and Security v Van Duivenboden [2002] 3 All SA 741 (SCA); 2002 (6) SA 431 (SCA) .........
138
Minister of Transport and Public Works: Provincial Government of the Western Cape v
Zanbuild Construction (Pty) Ltd 2011 (5) SA 528 (SCA) ......................................................................... ........... 93
Mint Security Ltd v Blair, Thos R Miller (Home) Ltd, & EL Darwin Clayton & Co Ltd
Modern Engineering Works v Jacobs 1949 (3) SA 191 (T) ......................................................................... ............
343
Molete v Safety and Security Bargaining Council, unreported (LC), (2010) 13 Juta’s Insurance L Bul 205 ....... 373
Momentum Group Ltd v Fire Control Systems (Cape) CC, unreported (C),
Mondi South Africa Ltd v Martens 2012 (2) SA 469 (KZP)......................................................................... ............
547
Monumental Art Co v Kenston Pharmacy (Pty) Ltd 1976 (2) SA 111 (C)............................................................. 341
Mooi v SA Mutual Life Assurance Society [1998] JOL 314 (Tk).................................................................... .........
434
Mooi v SA Mutual Life Assurance Society, unreported (Tk), (2007) 10 Juta’s Insurance L Bul 102.......................
22
Morkel v London & Scottish Assurance Corporation Ltd 1927 CPD 202 ........................................................ 51,
434
Morris v Northern Assurance Co Ltd 1911 CPD 293............................................................. 16, 18, 82, 301, 302,
380
Mostert v Cape Town City Council 2001 (1) SA 105 (SCA) ....................................................................26, 31, 33,
82
Mostert v Old Mutual Life Assurance Co (SA) Ltd 2001 (4) SA 159 (SCA) ......................................................... .
469
Motswagae v Rustenburg Local Municipality, unreported (NWM), (2012) 15 Juta’s Insurance L Bul 122 ................
388
Muller Bros v Kemp and Others (1858) 3 Searle 142 ............................................................................. ...................
20
Muller v Colonial Mutual Life Assurance Society Ltd 1925 WLD 103 .............................................................. ......
530
Munro, Brice and Co v War Risks Association [1918] 2 KB 78 (KBD) ...................................................241, 242,
274
Musonzoa (Pvt) Ltd v Standard Fire and General Insurance Co (Pvt) Ltd [2002] 4 All SA 174 (ZHC) ............ 353
Mutual & Federal Insurance Co Ltd v Ingram NO 2009 (6) SA 53 (EC) ..................................... 205, 251, 253, 520
Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A);
1985 (1) SA 419 (A) ........................................................................................................... 14, 15, 139, 195, 315, 316
596
Table of cases
Page
Mutual and Federal Insurance v Minister of Safety and Security, unreported (NGP),
Mutual and Federal Insurance Co Ltd v Chemalum (Pty) Ltd, unreported (N),
Mutual and Federal Insurance Co Ltd v Da Costa, unreported (T), (2006) 9 Juta’s Insurance L Bul 39 ............. 332
Mutual and Federal Insurance Co Ltd v Swanepoel 1988 (2) SA 1 (A) ............................................................. ....
387
Mutual and Federal Insurance Co v Chemalum (Pty) Ltd 2007 (2) SA 479 (SCA) .............................................. 502
Mutual and Federal Insurance Co v Da Costa, unreported (SCA), (2007) 10 Juta’s Insurance L Bul 142 ........... 273
Mutual and Federal Insurance Ltd v Gouveia 2003 (4) SA 53 (SCA) ............................................................... .....
248
Mutual and Federal Ltd v Rumdel Construction (Pty) Ltd 2005 (2) SA 179 (SCA) .............. 33, 245, 272, 321, 333
Mutual Construction Co (Tvl) (Pty) Ltd v Komati Dam Joint Venture 2009 (1) SA 464 (SCA) ........................ 412
Mutual Life Insurance Co of New York v Hotz 1911 AD 556 ............................. 16, 17, 423, 424, 426, 427, 435,
439
Mutual Life Insurance Co of New York v Ingle 1910 TPD 540 ..................................................................... ... 108,
483
MV Afris Pioneer: National Stevedores (Pty) Ltd v My Afris; Pioneer 2004 (3) SA 88 (N) ..................................
139
MV MSC Spain; Mediterranean Shipping Co (Pty) Ltd v Tebe Trading (Pty) Ltd
[2007] 2 All SA 489 (SCA); 2008 (6) SA 595 (SCA) .............................................................................. ..............
138
N and B Clothing Manufacturers (Pty) Ltd v British Traders’ Insurance Co Ltd 1966 (2) SA 522 (W) ............ 247
Nafte v Atlas Assurance Co Ltd 1924 WLD 239 .........................................82, 330, 331, 334, 336, 339, 374, 380,
489
Naidu v Naidoo [1967] 2 All SA 79 (N); 1967 (2) SA 223 (N)..................................................................... ...........
523
Namaqua Mining Co v Commercial Marine and Fire Insurance Co (1859) 3 Searle 231 ..................................... 16
Napier and Ettrick v Hunter [1993] AC 713 (HL) ................................................................................ ........... 399,
400
Napier NO v Van Schalkwyk 2004 (3) SA 425 (W) ................................................................................. ..357, 382,
383
Natal Marine Assurance and Trust Co (Trustees of) v Wood (1867) 5 Searle 291 295 ............................................ 3
Nathan v Ocean Accident & Guarantee Corporation Ltd 1959 (1) SA 65 (N) 72 ................................127, 256, 262
National Employers Mutual General Insurance Association v Gany 1931 AD 187........................................ 530,
531
National Employers’ Mutual General Insurance Association Ltd v Myerson 1938 TPD 11 .. 86, 119, 279, 280, 284
National Oilwell (UK) Ltd v Davey Offshore Ltd [1993] 2 Lloyd’s Rep 582 ....................................................... ..
520
NBS Boland Bank Ltd v One Berg River Drive CC, Deeb v ABSA Bank Ltd Friedman v
Standard Bank of SA Ltd 1999 (4) SA 928 (SCA) ................................................................................. ....... 131,
132
Nel v Santam Insurance Co Ltd [1981] 3 All SA 342 (T); 1981 (2) SA 230 (T).... 43, 127, 235, 242, 247, 269, 191,
Nell v Incorporated General Insurance Ltd 1976 (3) SA 776 (W) ................................................................. 259, 265
Nelson v Hodgetts Timbers (East London) (Pty) Ltd 1973 (3) SA 37 (A) .......................................................... ..
202
New Adventure Investments 193 (Pty) Ltd v Trustees for the time being of the SAS Trust
Newcastle Kings Hotel (Edms) Bpk v Safcam (Edms) Bpk, unreported (O),
597
Page
Newsholme Bros v Road Transport & General Insurance Co Ltd [1929] 2 KB 356 (CA) ........................... 529, 531
Ngqono v Auto & General Insurance Co, unreported (EC), (2008) 11 Juta’s Insurance L Bul 183 ..................... 278
Nicolaisen v Permanente Lewensversekeringsmaatskappy Bpk 1976 (3) SA 705 (C) .......................................... 256
Niemand v African Life Assurance Society Ltd 1969 (3) SA 259 (C) ............................................................. 258,
261
Niselow v Liberty Life Association of Africa Ltd [1998] JOL 2432 (A); 1998 (4) SA 163 (SCA) .........................
514
Nkosi v Mbatha, unreported (KZP), (2010) 13 Juta’s Insurance L Bul 188 .............................................................
402
Nnewe’s Commercial Farm (Pty) Ltd v General Insurance Botswana (Pty) Ltd, unreported (Botswana HC),
Noah v Union National South British Insurance Co Ltd 1979 (1) SA 330 (T) .....................................361, 362, 363
Norris v Legal & General Assurance Society Ltd [1962] 4 All SA 422 (C);
1962 (4) SA 743 (C) ...............................................................................191, 302, 303, 356, 357, 358, 359, 485, 487
North & South Trust Co v Berkley, Berkley v North & South Trust Co [1971] 1 WLR 470, [1970] 2 Lloyd’s Rep
North Vaal Mineral Co Ltd v Lovasz 1961 (3) SA 604 (T)......................................................................... ..............
483
Nteo v Patel, unreported (T), (2006) 9 Juta’s Insurance L Bul 34 .................................................................... 323,
335
Nyakambiri Farm (Pvt) Ltd v Zimnat Insurance Co Ltd 1996 LRZ 473 (HC)....................................................... 207
O & R Jewellers Ltd v Terry (Michael John) Jardine Insurance Brokers Ltd [1999] Lloyd’s Rep IR 436 .......... 520
O’Flynn v Equitable Fire Insurance and Trust Co; Joseph and O’Flynn v Commercial Assurance Co
(1866) 1 Roscoe 372 ....................................................................................... 270, 282, 325, 358, 372, 374, 497, 502
Oatorian Properties (Pty) Ltd v Maroun [1973] 4 All SA 1 (A); 1973 (3) SA 779 (A) ................................. 529, 530
Oblowitz Bros v Norwich Union Fire Insurance Society Ltd, Oblowitz Bros v
Ocean Cargo Line Ltd v FR Waring (Pty) Ltd [1963] 4 All SA 555 (A); 1963 (4) SA 641 (A) ............................
508
Odendaal v Ferraris [2008] 4 All SA 529 (SCA); 2009 (4) SA 313 (SCA) .......................................................... ....
528
Oelofsen v Cigna Insurance Co of SA Ltd 1991 (1) SA 74 (T) .................................................................... ... 250,
251
Oelrich v General Accident Fire & Life Assurance Corporation Ltd 1928 OPD 105 ..................................... 82, 380
Oerlikon SA (Pty) Ltd v Johannesburg City Council 1970 (3) SA 579 (A) ......................................................... ...
204
Okavango Foam & Bedding CC v New National Assurance Co Ltd & Another, unreported (C),
Okavango Foam & Bedding CC v New National Insurance Co Ltd [2006] JOL 16732 (C) ................................ 517
Old Mutual Fire & General Insurance Co of Rhodesia (Pvt) Ltd v Springer 1963 (2) SA 324 (SR)................... 443
[1976] 4 All SA 358 (A); 1976 (4) SA 446 (A) .................................................................................. ....................
514
Orban v Stead [1978] 2 All SA 659 (W); 1978 (2) SA 713 (W) .................................................................... ...........
139
Orda AG v Nuclear Fuels Corporation of SA (Pty) Ltd 1994 (4) SA 26 (W) ....................................................... .
334
Orenstein Arthur Koppel Ltd v Salamander Fire Insurance Co Ltd 1915 TPD 497 ....................................... 17, 274
Osman v J Ralph Moss Ltd [1970] 1 Lloyd’s Rep 313 (CA) ........................................................................ ............
520
Otto v Santam Versekering Bpk 1992 (3) SA 615 (O) ............................................................................. ................
475
598
Table of cases
Page
Outsurance Insurance Co Ltd v Brabant Panel Beaters CC 2007 JDR 0043 (T) ........................................... 420, 476
Owsianick v African Consolidated Theatres (Pty) Ltd 1967 (3) SA 310 (A) ....................................................... ..
206
Pace Real Estate (Pty) Ltd v Wilson [1983] 4 All SA 371 (W); 1983 (3) SA 753 (W) ...........................................
508
Pacific & General Insurance Co Ltd v Hazell [1997] LRLR 65 .................................................................... ...........
520
Padayachee v Union National South British Insurance Co Ltd 1983 (3) SA 246 (D) .................................. 361, 481
Paddock Motors (Pty) Ltd v Igesund [1976] 3 All SA 332 (A); 1976 (3) SA 16 (A) .............................................
139
Page v First National Bank 2009 (4) SA 484 (E) ................................................................................ .......................
411
Paintech CC v SA Eagle Insurance Co Ltd, unreported (W), (2004) 7 Juta’s Insurance L Bul 221 ......................
359
Palmer v President Insurance Co Ltd [1967] 2 All SA 112 (O); 1967 (1) SA 673 (O) ................ 231, 330, 426, 470
Palmer v SA Mutual Life Assurance Society 1910 CTR 393 ........................................................................ .............
457
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581 (HL);
Papagapiou v Santam Ltd, unreported (SCA), (2006) 9 Juta’s Insurance L Bul 42 ................................................
382
Papas v The General Accident, Fire and Life Assurance Corporation Ltd 1916 CPD 619 ................................... 380
Paradyskloof Golf Estate (Pty) Ltd v Stellenbosch Municipality 2011 (2) SA 525 (SCA) .....................................
483
Parsons Transport (Pty) Ltd v Global Insurance Co Ltd [2005] JOL 15610 (SCA);
2006 (1) SA 488 (SCA) .................................................................................................... 86, 188, 276, 280, 281, 308
Paterson v Aegis Insurance Co Ltd 1989 (3) SA 478 (C) ............................................... 205, 207, 210, 211, 243,
257
Paulus v New National Insurance Co Ltd, unreported (T), (2006) 9 Juta’s Insurance L Bul 142 ......................... 362
Paveley v Davidson, unreported (T), (2002) 5 Juta’s Insurance L Bul 115 ..............................................................
413
PB Wholesalers CC v Commercial Union Assurance Co of SA Ltd 1994 (1) SA 499 (D) ....................................
212
Penderis & Gutman v Liquidators, Short-term Business, AA Mutual Insurance Association Ltd
Pereira v Equitable Marine & Fire Assurance Co (1899) 16 SC 273 ............................................................... ........
528
Pereira v Marine and Trade Insurance Co Ltd 1975 (4) SA 745 (A) ................ 4, 211, 213, 355, 356, 360, 361, 375
Petersen v Maintenance Officer, Simon’s Town Maintenanance Court 2004 (2) SA 56 (C) ................................ 54
Petric Construction CC t/a AB Construction v Toasty Trading t/a Furstenburg Property Development
Phillips v General Accident Insurance Co (SA) Ltd 1983 (4) SA 652 (W) ..................................... 34, 35, 49, 81, 82
Pickering v Standard General Insurance Co Ltd, [1980] 4 All SA 699 (ZA); 1980 (4) SA 326 (ZA) .................. 521
2002 (3) SA 640 (C) 645 ....................................................................................................... ......... 14, 31, 35, 47,
333
Pienaar v Southern Insurance Association Ltd 1983 (1) SA 917 (C) .............................................................. .......
482
Pieterse v Shrosbree NO; Shrosbree NO v Love 2005 (1) SA 309 (SCA) .............................. 425, 431, 432, 433,
453
Pillay v SA National Life Assurance Co Ltd 1991 (1) SA 363 (D) .................................. 300, 301, 311, 315, 316,
383
Piskay v Autovermietung Savanna, unreported (Namibia HC), (2011) 14 Juta’s Insurance L Bul 97 .......... 387, 392
Platinum Asset Management (Pty) Ltd v Financial Services Board; Anglo Rand Capital House (Pty) Ltd v
Financial Services Board, unreported (W), (2006) 9 Juta’s Insurance L Bul 55 ................................................... 22
Polverini v General Accident Insurance Co SA Ltd [1998] 1 All SA 588 (W); 1998 (3) SA 546 (W) ..................
196
Potgieter v New York Mutual Life Insurance Society; Vermaak v New York Mutual Life Insurance Society
599
Page
PPS Insurance Company Ltd v Mkhabela 2012 (3) SA 292 (SCA) ............................................... 427, 431, 433,
439
Prentis Donegan & Partners Ltd v Leeds & Leeds Co Inc [1998] 2 Lloyd’s Rep 326 ...........................................
524
President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk 1989 (1) SA 208 (A) ................................
483
Pretorius v Aetna Insurance Co Ltd 1960 (4) SA 74 (W) ......................................................................... ....... 300,
301
Pretorius v Commercial Union Versekeringsmaatskappy van SA Bpk 1995 (3) SA 778 (O) ............................... 476
Pretorius v Natal South Sea Investment Trust Ltd (under judicial management)
[1965] 3 All SA 1 (W); 1965 (3) SA 410 (W) .................................................................................... ............ 136,
139
Price v Incorporated General Insurances Ltd 1983 (1) SA 311 (A) .............................................................. 211, 213
Price v Mutual and Federal Insurance Co Ltd 2007 (4) SA 51 (SEC) ....................................................241, 255, 272
Primich v Additional Magistrate, Johannesburg 1967 (3) SA 661 (T) ............................................................. ......
415
Pritchard Properties (Pty) Ltd v Koulis 1986 (2) SA 1 (A) ..................................................................... ......... 207,
214
Privest Employee Solutions (Pty) Ltd v Vital Distribution Solutions (Pty) Ltd 2005 (5) SA 276 (SCA) ............. 204
Protea Property Holdings (Pty) Ltd v Boundary Financing Ltd, unreported (C),
Prudential Insurance Co v Inland Revenue Commissioners [1904] 2 KB 658 ............................................ 76, 78, 90
Pryke (John W) v Gibbs Hartley Cooper Ltd [1991] 1 Lloyd’s Rep 602 ............................................................ ....
523
Purpose Paper Products (Pty) Ltd v Swaziland Royal Insurance Corp, unreported (Swaziland HC),
Qilingele v SA Mutual Life Assurance Society 1993 (1) SA 69 (A) ................................ 296, 310, 311, 314, 315,
491
Qilingile v SA Mutual Life Assurance Society Ltd 1991 (2) SA 399 (W) .......................................................... ......
490
Queensland Insurance Co Ltd v Banque Commerciale Africaine 1946 AD 272 ................................................... 290
1980 (1) SA 403 (W) ...................................................................................................... 248, 249, 251, 518, 520, 528
Radar Holdings Ltd v Eagle Insurance Co Ltd, unreported (ZHC), (1999) 2 Juta’s Insurance L Bul 46 ............. 358
Rademeyer v Evenwel [1971] 3 All SA 387 (T); 1971 (3) SA 339 (T) .............................................................. 73,
124
Ralston, Estate v New York Life Insurance Co (1909) 26 SC 482, (1909) 19 CTR 808 .........................................
278
Rand Mutual Assurance Co Ltd v Road Accident Fund 2008 (6) SA 511 (SCA) ........................... 18, 389, 403, 406
Rand Rietfontein Estates Ltd v Cohn 1937 AD 317 ............................................................................... ...201, 202,
208
1965 (2) SA 456 (W) .......................................................................................................... ... 526, 528, 529, 530, 537
Randbank Bpk v Santam Versekeringsmaatskappy Bpk [1965] 4 All SA 337 (A); 1965 (4) SA 363 (A) .... 526, 529
Rayi NO v Road Accident Fund, unreported (WCC), (2011) 14 Juta’s Insurance L Bul 20 ........................... 391,
411
600
Table of cases
Page
Refrigerated Trucking (Pty) Ltd v Zive NO (Aegis Insurance Co Ltd, third party)
1996 (2) SA 361 (T) ........................................................................................... 34, 35, 443, 444, 491, 492, 494, 498
Regent Insurance Co Ltd v Maseko 2000 (3) SA 983 (W) .............................................................. 357, 363, 482,
484
Representative of Lloyd’s v Classic Sailing Adventures (Pty) Ltd 2010 (5) SA 90 (SCA) .....................................
109
Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd [1963] 2 All SA 45 (A);
Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1962 (3) SA 565 (C) ...............................................
482
Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1962 (3) SA 632 (A) ...............................................
487
Resisto Dairy (Pty) Ltd v Auto Protection Insurance Co Ltd 1963 (1) SA 632 (A) .............. 297, 300, 320, 356, 487
Richard Ellis SA (Pty) Ltd v Miller 1990 (1) SA 453 (T) ....................................................................... ..395, 416,
485
Rixom v Southern Life Association of Africa & Collins & Bain 1939 SR 70 ....................................................... 51,
53
RM Insurance Co (Pvt) Ltd v GCM (Pvt) Ltd 1995 (1) SA 698 (ZS) .............................................................. 250,
251
Road Accident Fund v Lechner, unreported (SCA), (2012) 15 Juta’s Insurance L Bul 16 .................................... 387
Road Accident Fund v Mdeyide 2011 (2) SA 26 (CC) .............................................................................. ....... 364,
369
Road Accident Fund v Mothupi 2000 (4) SA 38 (SCA) ............................................................................. ...... 484,
487
1984 (4) SA 558 (A) ....................................................................................................... 122, 131, 185, 201, 203, 204
Rockbreakers and Parts (Pty) Ltd v Rolag Property Trading (Pty) Ltd
[2010] 1 All SA 291 (SCA); 2010 (2) SA 400 (SCA) .............................................................................. ..............
184
Roman Catholic Church (Klerksdorp Diocese) v Southern Life Association Ltd 1992 (2) SA 807 (A) ....... 55, 459
Roome v Southern Life Association of Africa 1959 (3) SA 638 (D) ...................................... 193, 292, 300, 302,
304
Roos v SA Eagle Insurance Co Ltd and Another [2002] 2 All SA 315 (T) .......................................................... ...
257
Rosen v Wasserman 1984 (1) SA 808 (W) ......................................................................................... ............ 73, 79,
121
Rouwkoop Caterers (Pty) Ltd v Incorporated General Insurance Ltd 1977 (3) SA 941 (C) ...............210, 256, 469
Royal Mutual Insurance Co (Pvt) Ltd v Mubaiwa 1990 (4) SA 177 (ZH) ..............................................207, 211,
359
Ruskin v British Aviation Insurance Co Ltd 1951 (4) SA 24 (W) ................................................................. ..... 43,
436
[1975] 1 All SA 344 (A); 1975 (1) SA 110 (A) ..................................................... 191, 302, 303, 356, 358, 359, 539
Ruto Flour Mills (Pty) Ltd v Moriates [1957] 3 All SA 28 (T); 1957 (3) SA 113 (T) ............................................
527
SA Bank of Athens Ltd v Van Zyl 2005 (5) SA 93 (SCA) .......................................................................... ......... 22,
460
SA Eagle Insurance Co Ltd v Hartley 1990 (4) SA 833 (A) ....................................................................... ..............
343
SA Eagle Insurance Co Ltd v KRS Investments CC 2005 (2) SA 502 (SCA) ..........................................................
380
1991 (4) SA 841 (A) ........................................................................ 87, 118, 268, 276, 279, 281, 282, 283, 284, 285
601
Page
SA Estates & Finance Corporation Ltd v Commissioner for Inland Revenue 1927 AD 230 ................................ 209
SA Mutual Medical Aid Society v Cape Town Chamber of Commerce 1962 (1) SA 598 (A) ..............................
200
SA Sentrale Ko-op Graanmaatskappy Bpk v Shifren 1964 (4) SA 760 (A) ........................................................... ..
487
Sage Life Ltd v Van der Merwe 2001 (2) SA 166 (W) ............................................................................. .................
437
Salvage Association of London v SA Salvage Syndicate Ltd (1906) 16 CTR 225 ...................................................
421
Samancor Ltd v Mutual and Federal Insurance Co Ltd 2005 (4) SA 40 (SCA) ........................... 493, 495, 497, 500
Sampson v Union & Rhodesia Wholesale Ltd 1929 AD 468 .......................................................................... ..........
528
Sandberg Transport BK t/a Sandberg v African Truck Accident Repairs (Edms) Bpk
t/a Hermans Truck Accident Repairs 2009 JDR 0262 (GNP) ........................................................................ .... 475
Santam Bpk v CC Designing BK [1998] 4 All SA 70 (C) ................................................................ 200, 202, 207,
210,
Santam Bpk v De Wet Boerdery and Transport 2007 (3) SA 358 (C) ................................................................ ....
241
Santam Bpk v Potgieter 1997 (3) SA 415 (O) .................................................................. 204, 374, 379, 381, 382,
420
Santam Bpk v Van Schalkwyk 2002 (4) SA 193 (O) ................................................................................ ............. 27,
30
Santam Insurance Ltd v Cave t/a The Entertainers and The Record Box 1986 (2) SA 48 (A)................... 361, 372
Santam Insurance Ltd v Ferguson 1985 (4) SA 843 (A) ........................................................................... .................
30
Santam Ltd and Emerald Insurance Co Ltd, unreported (CT), noted in (2010) 13 Juta’s Insurance L Bul 9 ........ 3
Santam Namibia Ltd v Bank Windhoek Ltd 2000 (1) SA 889 (Nam SC) ...................................................... 201,
222
Santam Versekeringsmaatskappy Bpk v Byleveldt [1973] 2 All SA 173 (A); 1973 (2) SA 145 (A) ........ 29, 346,
347
Sasfin (Pty) Ltd v Beukes [1989] 1 All SA 347 (A); 1989 (1) SA 1 (A) .......................... 120, 121, 122, 123, 139,
221
SASRIA Ltd (Formerly SA Special Risks Insurance Association) v Certain Underwriters at Lloyds
SASRIA Ltd v Slabbert Burger Transport (Pty) Ltd 2008 (5) SA 270 (SCA) ........................................................ .
209
Sassoon Confirming & Acceptance Co (Pty) Ltd v Barclays National Bank Ltd
Sauermann v English & Scottish Law Life Assurance Association (1898) 15 SC 84, (1898) 8 CTR 103 .............
277
SBV Services Ltd v Kogana, unreported (ECP), (2011) 14 Juta’s Insurance L Bul 101 .................................. 328,
409
Schmidt Plant Hire (Pty) Ltd v Pedrelli 1990 (1) SA 398 (D).................................................................... ....... 31,
337
Schoeman v Administrateur (OVS) [1961] 4 All SA 493 (O); 1961 (4) SA 856 (O) ............................................ 529
Schoeman v Constantia Insurance Co Ltd [2003] 2 All SA 642 (SCA) .............................................................. ....
194
Schoeman v Constantia Insurance Co Ltd 2002 (3) SA 417 (W)............................................................375, 379, 380
Schoeman v Constantia Insurance Co Ltd 2003 (6) SA 313 (SCA) ................................................ 19, 272, 374, 381
Scholtz v Scholtz [2012] 2 All SA 553 (SCA); 2012 (5) SA 230 (SCA) ........................................................... 184,
196
Schwerin v German Sick & Funeral Society,“Amicita” (1909) 19 CTR 434 .......................................................... .
286
Scottish Union and National Insurance Co Ltd v Native Recruiting Corporation Ltd
Seagull and Co (Insolvent Estate) v New Zealand Insurance Co (1906) 16 CTR 289 .......................................... 363
Securefin Ltd v KNA Insurance & Investment Brokers (Pty) Ltd [2001] 3 All SA 15 (T).................................... 462
Sharp (Anthony John) & Roarer Investments Ltd v Sphere Drake Insurance Plc,
Minster Insurance Co Ltd & EC Parker & Co Ltd (The Moonacre) [1992] 2 Lloyd’s Rep 501 ..................... 521
Shatz Investments (Pty) Ltd v Kalovyrnas 1976 (2) SA 545 (A) .................................................................. ............
343
Shelfaerie Property Holdings CC v Midrand Shopping Centre (Pty) Ltd 1995 (3) SA 179 (A) ..................... 480
Shell Auto Care (Pty) Ltd v Laggar 2005 (1) SA 162 (D) ........................................................................ ................
495
602
Table of cases
Page
1984 (4) SA 269 (D) ........................................................................................................... .... 209, 258, 261, 262,
486
Sikweyiya v Aegis Insurance Co Ltd 1995 (4) SA 143 (E) ........................................................................ ........ 200,
259
Silverstone v North British and Mercantile Insurance Co 1907 ORC 73 ................................................. 17, 200,
299
Simon v Air Operations of Europe AB 1999 (1) SA 217 (SCA) ..................................................................... .........
461
Simon v Equitable Marine and Fire Insurance Co (1892) 9 SC 455 ................................................................ .......
417
Singh v Santam Insurance Ltd 1997 (1) SA 291 (A) .............................................................................. ..................
476
Sinovitch v General Accident, Fire and Life Assurance Corporation Ltd 1946 TPD 692 ..................................... 364
Sleightholme Farms (Pvt) Ltd v National Farmers Union Mutual Insurance Society Ltd
Slip Knot Investments 777 (Pty) Ltd v Dun Toit 2011 (4) SA 72 (SCA) ........................................................... .....
116
SM Goldstein & Co (Pty) Ltd v Cathkin Park Hotel (Pty) Ltd [2000] 4 All SA 407 (A).......................................
138
SM Goldstein and Co (Pty) Ltd v Gerber 1979 (4) SA 930 (A)..................................................................... .. 332,
335
Smit v Rondalia Versekeringskorporasie van SA Bpk 1964 (3) SA 338 (A) ...........................................362, 471,
472
Smit v Saipem 1974 (4) SA 918 (A).............................................................................................. ..... 42, 43, 46, 47,
333
Smit v Workmen’s Compensation Commissioner [1979] 1 All SA 152 (A); 1979 (1) SA 51 (A) ........................ 514
Snodgrass v Hart (Santam Ltd Third Party) 2002 (1) SA 851 (SEC) ............................................................. 358,
359
Sonap Petroleum (SA) (Pty) Ltd v Pappadogianis 1992 (3) SA 234 (A) 240 ........................................114, 115, 117
Sonarep (SA) (Pty) Ltd v Motorcraft (Pty) Ltd 1981 (1) SA 889 (N) ............................................................ 214,
215
Sorge v Estate Preuss 1933 CPD 61 ............................................................................................. ...............................
459
South African Eagle Insurance Co Ltd v KRS Investments CC [2007] 1 All SA 566 (SCA);
South African Eagle Insurance Co Ltd v Norman Welthagen Investments (Pty) Ltd 1994 (2) SA 122 (A) ....... 313
South African Fire Insurance Co v Dunstan (1894) 1 Off Rep 272 ............................................................... 378, 382
South African Forestry Co Ltd v York Timbers Ltd [2004] 4 All SA 168 (SCA);
[2010] 5 BLLR 488 (SCA); 2010 (3) SA 601 (SCA) ................................................................................ .............
185
South British Insurance Co v Union Government (Minister of Finance) 1914 CPD 822 .......................... 17, 82, 92
Southern Era Resources Ltd v Farndell [2010] 2 All SA 350 (SCA); 2010 (4) SA 200 (SCA) .............................
523
Southern Insurance Association Ltd v Bailey 1984 (1) SA 98 (A) ................................................................ ..........
343
Southern Insurance Association Ltd v Cooper 1954 (2) SA 354 (A)............. 102, 104, 105, 222, 283, 284, 285, 485
Southern Life Assurance Society v Trollip (1907) 3 Buchanan AC 188 ............................................................ .....
371
Spencer v London and Lancashire Insurance Co (1884) 5 NLR 37 .......................................................... 14, 15, 378
Sprangers v FGI Namibia Ltd, unreported (Namibia HC), (2006) 9 Juta’s Insurance L Bul 272 ..........255, 256, 272
Sprung v Royal Insurance (UK) [1999] 1 Lloyd’s Rep IR 111 (CA) ................................................................ ......
195
St Helena Primary School v MEC, Department of Education, Free State Province 2007 (4) SA 16 (O)...... 47, 392
St Helena Primary School v MEC, Department of Education, Free State Province, unreported (O),
Stadsraad van Pretoria v Body Corporate Faeriedale 2002 (1) SA 804 (T) ........................................................ .....
32
Stalwo (Pty) Ltd v Wary Holdings (Pty) Ltd [2007] JOL 20726 (SCA); 2008 (1) SA 654 (SCA) .........................
184
603
Page
Standard Bank of SA Ltd v Prinsloo [2000] 1 All SA 145 (C); 2000 (3) SA 576 (C)..................................... 140,
529
Standard Bank of SA Ltd v Sham Magazine Centre 1977 (1) SA 484 (A)............................................................. .
202
Standard General Insurance Co Ltd v Croucamp 1959 (3) SA 162 (A) .............................................................. ..
212
Standard General Insurance Co Ltd v Dugmore [1996] 4 All SA 415 (A); 1997 (1) SA 33 (A) .................... 65, 387
[1994] 2 All SA 360 (A); 1994 (3) SA 356 (A) .................................................................................. ....227, 491,
505
Standard Kredietkorporasie Bpk v JOT Motors (Edms) Bpk h/a Vaal Motors 1986 (1) SA 223 (A) ................. 476
Standard Products (Zimbabwe) (Pvt) Ltd t/a Cellphone World v Commercial Union Insurance Co of
Zimbabwe Ltd, unreported (ZHC), (2008) 11 Juta’s Insurance L Bul 60............................................................ 358
Stander v Raubenheimer 1996 (2) SA 670 (O) ....................................................................... 470, 518, 519, 520,
521
Stannic v Samib Underwriting Agents & Guardrisk Insurance Co Ltd [2006] 3 All SA 314 (T) ................. 435, 461
Stannic v Samib Underwriting Managers (Pty) Ltd [2003] 3 All SA 257 (SCA) ........................................... 435,
457
Stearns v Village Main Reef Gold Mining Co Ltd (1905) 21 TLR 236 (CA) ................................................. 392,
393
Stellenbosch Farmers’ Winery Ltd v Distillers Corporation (SA) Ltd 1962 (1) SA 458 (A) .................................. 48
Stephens v Whitford 1903 TH 231 ............................................................................................... ..............................
334
Sterklewies (Pty) Ltd t/a Harrismith Feedlot v Msimanga [2012] 3 All SA 655 (SCA);
Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A) ...................................................................... .............
478
Steyn v AA Onderlinge Assuransie Assosiasie Bpk 1985 (4) SA 7 (T) ........................................... 47, 51, 81, 82,
529
Steyn v Malmesbury Board of Executors and Trust and Assurance Co 1921 CPD 96 .......................33, 37, 327, 503
1948 (1) SA 359 (C) .................................................................................87, 271, 276, 279, 283, 482, 484, 485, 487
Stirling v Federated Insurance Co Ltd 1983 (1) SA 897 (W) ..................................................................... ..... 481,
482
Stone v Reliance Mutual Insurance Society Ltd [1972] 1 Lloyd’s Rep 469 (CA) ..................................................
531
Storgate Africa (Pty) Ltd v Airlink Cargo International (Pty) Ltd, unreported (SCA),
Strydom v Certain Underwriting Members 2000 (2) SA 482 (W)...........................................................376, 379, 381
Strydom v Coach Motors (Edms) Bpk 1975 (4) SA 838 (T) ......................................................................... ...........
214
Strydom v Duvenhage [1998] 4 All SA 492 (A); 1998 (4) SA 1037 (SCA) ........................................................... ..
185
Stuurman v Mutual and Federal Insurance Co of Namibia Ltd, unreported (Namibia SC),
Super Chem Products Ltd v American Life and General Insurance Co Ltd
Swart v Mutual and Federal Insurance Co Ltd, unreported (WCC), (2009) 12 Juta’s Insurance L Bul 242 ........ 380
Swart v Van der Vyver 1970 (1) SA 633 (A) ..................................................................................... ..........................
340
Swinburne v Newbee Investments (Pty) Ltd 2010 (5) SA 296 (KZD) ................................................................ ....
411
1972 (1) SA 478 (W) ................................................................. 1, 5, 18, 74, 75, 76, 86, 91, 234, 235, 236, 237, 308
Syfin Holdings Ltd v Pickering [1982] 4 All SA 14 (ZS); 1982 (2) SA 225 (ZS) .................................................. .
521
SZ Tooling Services CC v SA Eagle Insurance Co Ltd 1993 (1) SA 274 (A) ..........................................203, 208,
212
Tayler & Ries Ltd v Clift 1935 GWL 1 .......................................................................................... ...................... 455,
461
Taylor v National Mutual Life Association of Australasia Ltd 1988 (4) SA 341 (E) ..............................................
251
604
Table of cases
Page
Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA) .............................................................. ....
353
Telecall (Pty) Ltd v Logan 2000 (2) SA 782 (SCA) .............................................................................. ....................
353
Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority of SA
Tension Overhead Electric (Pty) Ltd v National Employers General Insurance Co Ltd
The MT “Yeros” v Dawson Edwards and Associates [2007] 4 All SA 922 (C) ........................................................
403
Theodorides v AA Mutual Assurance Association Ltd 1986 (3) SA 906 (O) ................................................ 301,
302
1995 (4) SA 361 (A) ........................................................................................................... .... 311, 315, 316, 514,
516
Thomas Construction (Pty) Ltd (in liquidation) v Grafton Furniture Manufacturers (Pty) Ltd
Thompson v Federated Timbers, unreported (KZD), (2011) 14 Juta’s Insurance L Bul 7 ....................358, 543, 544
Thornicroft v The British Oak Insurance Co Ltd 1932 SR 45 ..................................................................... .... 108,
109
Tiego v Proctor, unreported (Botswana HC), (2009) 12 Juta’s Insurance L Bul 252 .............................................
402
Total SA (Pty) Ltd v Bekker NO 1992 (1) SA 617 (A) ............................................................................ .................
425
Total Support Management (Pty) Ltd v Diversified Health Systems (SA) (Pty) Ltd
Totalisator Agency Board, OFS v Livanos [1987] 3 All SA 192 (W); 1987 (3) SA 283 (W) ..................................
508
Town Council of Barberton v Ocean Accident & Guarantee Corporation Ltd 1945 TPD 306 ...........528, 529, 530
Trans-Africa Credit & Savings Bank Ltd v Union Guarantee & Insurance Co Ltd
1963 (2) SA 92 (C) ............................................................................................................ ....... 86, 89, 92, 93, 99,
220
Transnet Ltd v Mutual and Federal Insurance Co Ltd, unreported (T), (1998) 1 Juta’s Insurance L Bul 40 ...... 545
Transnet Ltd v Rubenstein [2005] 3 All SA 425 (SCA); 2006 (1) SA 591 (SCA) ..................................................
188
Transnet Ltd v Sechaba Photoscan (Pty) Ltd 2005 (1) SA 299 (SCA) .............................................................. .....
342
Transport and Crane Hire (Pvt) Ltd v Hubert Davies and Co (Pvt) Ltd 1991 (4) SA 150 (ZSC) ....................... 411
Trautman v Imperial Fire Insurance Co (1895) 12 SC 38, (1895) 5 CTR 68 .................................................. 17, 475
Trollip v Southern Life Association (1907) 17 CTR 940 ......................................................................... ......... 357,
363
Trucar Finance & Acceptance Corporation Ltd v Jones’ Garage & Service Station
[1963] 1 All SA 546 (T); 1963 (1) SA 588 (T) .................................................................................. ....528, 529, 530
Truck & General Insurance Co (Pty) Ltd v Simrak Trucking 2005 JDR 0007 (SCA) ...........................................
459
Truck & General Insurance Co Ltd & Another v Riasal Tours CC, unreported (N),
Truck and General Insurance Co Ltd v Verulam Fuel Distributors CC 2007 (2) SA 26 (SCA) ........................... 545
Trust Bank Bpk v President Versekeringsmaatskappy Bpk 1988 (1) SA 546 (W) 552 ...................................... 15,
19
Trust Bank of Africa Ltd v Frysch 1977 (3) SA 562 (A) ......................................................................... ..................
113
Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd [2007] 1 All SA 240 (SCA);
Tuckers Land & Development Corporation (Pty) Ltd v Strydom [1984] 1 All SA 215 (A);
Tuckers Land and Development Corporation (Pty) Ltd v Hovis [1980] 1 All SA 358 (A);
Turdeich v National Employers’ General Insurance Co Ltd 1982 (2) SA 219 (C) ...............................192, 243, 301
Tyali v University of Transkei [2002] 2 All SA 47 (Tk) ........................................................................ ......................
54
Union & National Insurance Co Ltd v Schwartz 1968 (1) PH A15 (N) ......................................................... 471,
473
605
Page
Union & National Insurance Co v Buxsons Butchery 1970 (3) SA 692 (N) ..........................................................
479
Union and National Insurance Co Ltd v Coetzee 1970 (1) SA 295 (A) ............................................................. ....
343
Union Free State Mining & Finance Corporation Ltd v Union Free State Gold &
Diamond Corporation Ltd 1960 (4) SA 547 (W) ................................................................................... .............. 483
Union National South British Insurance Co Ltd v De la Rose 1977 (4) SA 447 (W)............................................ 208
Union National South British Insurance Co Ltd v Padayachee 1983 (3) SA 246 (D) .......................................... 356
Union National South British Insurance Co Ltd v Padayachee 1985 (1) SA 551 (A)...........................360, 361, 363
United Building Society v Smookler’s Trustees & Golombick’s Trustee 1906 TS 623 .........................................
476
Unitrans Freight (Pty) Ltd v Santam Ltd 2004 (6) SA 21 (SCA) ................................................... 425, 444, 445,
446
Valdave Investments (Pty) Ltd v Total SA (Pty) Ltd 1977 (2) SA 94 (D) ....................................................... 206,
207
Van Achterberg v Walters 1950 (3) SA 734 (T) .................................................................................. .................. 44,
45
Van Buuren and Co v Caledonian Insurance Co (1896) 3 Off Rep 52 ..................................................332, 374, 498
Van der Linde v Calitz 1967 (2) SA 239 (A) 246 ................................................................................ ........................
16
Van der Merwe v Nedcor 2003 (1) SA 169 (SCA) .................................................................................. ..................
456
Van der Walt v Bosman, unreported (SEC), (2011) 14 Juta’s Insurance L Bul 17 ..................................................
414
Van der Westhuizen v “De Zeven Provincien” Assuransie MaatskappyBpk 1959 (3) SA 690 (C)........................ 364
Van der Westhuizen v Arnold [2002] 4 All SA 331 (SCA); 2002 (6) SA 453 (SCA) .............................................
139
Van der Westhuizen v Santam Versekeringsmaatskappy Bpk 1975 (1) SA 236 (E) .......................................... 31, 43
Van Heerden v Hermann [1953] 3 All SA 200 (T); 1953 (3) SA 180 (T) ............................................................ ..
523
Van Immerzeel v Santam Ltd 2006 (3) SA 349 (SCA) .............................................................................. ...............
544
Van Jaarsveld v Coetzee [1973] 3 All SA 285 (A); 1973 (3) SA 241 (A) .......................................................... .......
190
Van Reenen Steel (Pty) Ltd v Smith [2002] JOL 9515 (A); 2002 (4) SA 264 (SCA) ............................................
188
Van Reenen v Santam Ltd 2013 (5) SA 595 (SCA) ................................................................................. .................
464
Van Rensburg v First National Insurance Co Ltd [2002] 1 All SA 173 (O) ........................................................ ...
362
Van Wyk v Ou Mutual Lewensversekeringsmaatskappy (SA) Bpk 2005 JDR 0611 (T) .........................................
478
Van Wyk v Santam Bpk 1998 (4) SA 731 (K) ...................................................................................... ......................
387
Van Zyl & Maritz v SA Special Risks Insurance Association 1995 (2) SA 331 (SE) ...............................................
104
Van Zyl NO v Kiln Non-Marine Syndicate No 510 of Lloyds of London [2002] All SA 355 (SCA)............. 259,
272
Van Zyl v Credit Corporation of SA Ltd 1960 (4) SA 582 (A) .................................................................... ..... 481,
526
Venfin Investments (Pty) Ltd v KZN Resins (Pty) Ltd t/a KZN Resins, unreported (SCA),
Venfin Investments (Pty) Ltd v KZN Resins (Pty) Ltd t/a KZN Resins [2011] 4 All SA 369 (SCA) ....................
539
Venter Agentskappe (Edms) Bpk v De Sousa 1990 (3) SA 103 (A)................................................................... .....
523
Venter v Certain Underwriting Agents of Lloyds of London 1994 (4) SA 657 (W) .............................................. 364
Verulam Fuel Distributors CC v Truck and General Insurance Co Ltd 2005 (1) SA 70 (W) .............................. 545
Videtsky v Liberty Life Insurance Association of Africa Ltd 1990 (1) SA 386 (W) ......... 19, 375, 376, 378, 379,
381
Vink, Estate v New Zealand Insurance Co (1905) 22 SC 470 ...................................................................... .... 361,
364
Visser v Incorporated General Insurances Ltd 1994 (1) SA 472 (T) .............................................................. 405,
408
606
Table of cases
Page
Viv’s Tippers (Edms) Bpk v Pha Pharma Staff Services (Edms) Bpk h/a Pha Pharma Security
2010 (4) SA 455 (SCA) ......................................................................................................... ..................................
411
Vorster v Marine & Trade Versekeringsmaatskappy Bpk 1968 (1) SA 130 (O) .................................................... 470
Wacks v Record [1955] 2 All SA 165 (C); 1955 (2) SA 234 (C) ................................................................... ...........
523
Wakefields Real Estate (Pty) Ltd v Attree [2011] JOL 27977 (SCA); 2011 (6) SA 557 (SCA) .............................
523
Waksal Investments (Pty) Ltd v Fulton 1985 (2) SA 877 (W) ..................................................................... ..... 202,
213
Walker v Santam Ltd 2009 (6) SA 225 (SCA) .......................................................................... 320, 328, 332, 420,
491
Walker’s Fruit Farms Ltd v Sumner 1930 TPD 394 ................................................................................ ..................
480
Warricker NNO v Liberty Life Association of Africa Ltd 2003 (6) SA 272 (W) .................................................... .
453
Watson v Fintrust Properties (Pty) Ltd [1987] 2 All SA 62 (C); 1987 (2) SA 739 (C) ..........................................
523
Wayne Tank and Pump Co Ltd v Employers’ Liability Assurance Corporation Ltd
Wedzera Petroleum (Pvt) Ltd v Zimmat Life Assurance Co of Zimbabwe, unreported (ZH),
Wells v Shield Insurance Co Ltd 1965 (2) SA 865 (C) ........................................................................... ..................
251
Wessels v De Jager 2000 (4) SA 924 (SCA) ...................................................................................... . 429, 430, 433,
454
West Rand Estates Ltd v New Zealand Insurance Co Ltd 1926 AD 173 .............................................................. ...
469
West Rand Steam Laundry Ltd v Waks 1954 (2) SA 394 (T) ........................................................................ ...........
330
Wholesale Builders & Plumbers Suppliers (Pty) Ltd v Van den Heever [1985] 4 All SA 273 (W);
Whyte’s Estate v Dominion Insurance Co of SA Ltd 1945 TPD 382 .............................. 193, 270, 282, 284, 285,
307
Wijtenburg Holdings t/a Flamingo Dry Cleaners v Bobroff 1970 (4) SA 197 (T) ................................................ 207
Wilcocks v Visser & New York Life Insurance Co 1910 OPD 99 .................................................................... ..........
455
Wilkens v Potgieter [1996] 2 All SA 546 (T); 1996 (4) SA 936 (T) .............................................................. ..........
529
Wilkins v Voges [1994] 2 All SA 349 (A); 1994 (3) SA 130 (A) ...............................................................185, 200,
529
Wilson Bayly Holmes (Pty) Ltd v Maeyane [1995] 2 All SA 173 (T); 1995 (4) SA 340 (T) ..................................
188
Wilson v Avec Audio-Visual Equipment Ltd [1974] 1 Lloyd’s Rep 81 (CA) ......................................................... .
523
Witbooi v Leandra Transport CC unreported (WCC), (2010) 13 Juta’s Insurance L Bul 232 ....................... 272,
301
Witwatersrand Township Estate & Finance Corporation Ltd v Ritch 1913 AD 423 ..............................................
211
Wylock v Milford Investments (Pty) Ltd 1962 (4) SA 298 (C) .................................................................... ............
121
Wynland Properties CC v Potgieter [1999] 3 All SA 567 (C); 1999 (4) SA 1265 (C) ...........................................
523
Yankelowitz v SA Mutual Life Assurance Society, unreported (C), (2000) 3 Juta’s Insurance L Bul 74 ....... 360,
362
Ying v South British Insurance Co Ltd [1957] 1 All SA 19 (E); 1957 (2) SA 194 (E) ...........................................
529
Yorkshire Insurance Co Ltd v Dippenaar 1963 (3) SA 414 (W) .................................................................... ..... 86,
93
607
Page
1957 (1) SA 353 (T) ...................................................................... 106, 297, 300, 301, 302, 303, 304, 308, 309, 529
Youell v Bland Welch & Co Ltd (The Superhulls Cover Case) (2) [1990] 2 Lloyd’s Rep 431............................. 521
Zava Trading (Prop) Ltd v Santam Insurance Ltd, unreported (D) ................................................................ ...... 131
Zimoplast Industries CC v Vanguard Rigging (Pty) Ltd, unreported (T), (2006) 9 Juta’s Insurance L Bul 29 ... 412
Zysset v Santam Ltd 1996 (1) SA 273 (C); Road Accident Fund v Cloete NO 2010 (6) SA 120 (SCA) ..............
387
608
Table of statutes
This table of statutes is arranged alphabetically under the short titles of the statutes. References to
pre-Union Acts, provincial ordinances and foreign Acts follow after the alphabetical table and
Page
s 1 ........................................................................... 371
s 4 ........................................................................... 383
s 31......................................................................... 353
s 40......................................................................... 540
Act 2001
s 50......................................................................... 391
s 13 ......................................................................... 540
s 17......................................................................... 118
s 1 ........................................................................... 100
s 23 ......................................................................... 100
s 78 ..................................................................... 540
s 24 ......................................................................... 100
s 23 ......................................................................... 540
s 2 ............................................................................. 21
s 7(1) ....................................................................... 21
s 9 ........................................................................... 129
s 9(4) ....................................................................... 22
s 9(5) ....................................................................... 23
s 9–35....................................................................... 21
s 1 ........................................................................... 511
s 36(1) ..................................................................... 23
s 7 ........................................................................... 512
s 8 ........................................................................... 511
s 1 ............................................................................. 21
s 9 ........................................................................... 511
s 10........................................................................... 21
s 11 ......................................................................... 511
609
Page
Page
37 of 2002 ( continued)
s 19 ......................................................................... 310
s 12......................................................................... 511
s 14......................................................................... 512
s 15......................................................................... 512
s 16......................................................................... 513
s 1(f) ...................................................................... 557
s 17–19................................................................... 513
s 20–39................................................................... 513
51 of 1998 .............................................................. 8
s 34......................................................................... 513
s 35......................................................................... 513
s 36......................................................................... 512
s 4(2)–(5) ................................................................ 20
s 7 ........................................................................... 226
s 7(f) ........................................................................ 11
s 9 ........................................................................... 128
s 6 ............................................................................. 92
s 9(3)(a) .................................................................... 7
s 10 ......................................................................... 128
s 11 ......................................................................... 128
s 12 ......................................................................... 128
s 10(A)................................................................... 564
s 15 ......................................................................... 128
s 20 ......................................................................... 101
s 2 ........................................................................... 453
s 34(1)(d)................................................................ 93
s 37 ......................................................................... 462
s 38 ......................................................................... 463
s 39 ......................................................................... 463
80 of 1998 ............................................................ 21
s 40 ......................................................................... 463
s 3 ............................................................................. 22
s 4 ............................................................................. 22
s 20(2)(b) ............................................................... 92
s 25............................................................................. 8
s 49 ......................................................................... 524
s 42(1) ..................................................................... 54
s 43........................................................................... 54
s 44(2) ..................................................................... 22
s 49......................................................................... 316
610
Table of Statutes
Page
Page
52 of 1998 ( continued)
s 1 ........................................................................... 536
s 18 ......................................................................... 124
s 54......................................................................... 186
s 57........................................................................... 95
r 6.1–6.3................................................................. 479
r 16 ......................................................................... 365
s 60......................................................................... 101
s 61......................................................................... 478
s 62........................................................................... 20
s 65......................................................................... 452
r 19.1...................................................................... 370
s 66......................................................................... 128
s 72........................................................................... 20
s 13......................................................................... 540
611
Page
Page
r 8 .......................................................................... 370
r 17 .......................................................................... 98
s 1(1) ................. 7, 11, 74, 86, 89, 93, 107, 109, 110,
s 7 ........................................................................... 226
s 7(2) ....................................................................... 74
s 2A ........................................................................ 470
s 7(2(e) .................................................................... 11
s 2A ........................................................................ 470
s 9 ........................................................................... 128
s 2A(5)................................................................... 470
s 9(3)(a) .................................................................... 7
s 10 ......................................................................... 128
s 11 ......................................................................... 128
s 12 ......................................................................... 128
s 19 ......................................................................... 101
s 19(1) ....................................................................... 8
s 35 ......................................................................... 462
s 37 ......................................................................... 463
of Unfair Discrimination
s 38 ......................................................................... 463
s 39 ......................................................................... 463
s 1(1) ....................................................................... 23
s 43 ......................................................................... 534
s 29........................................................................... 23
s 44 ......................................................................... 534
s 46 ......................................................................... 534
s 47 ......................................................................... 534
80 of 1991
s 25......................................................................... 391
s 49 ......................................................................... 535
s 51(c)................................................................ 8, 506
Act 2 of 2010
s 25......................................................................... 540
s 52 ......................................................................... 535
s 37(4) ..................................................................... 32
57 of 1993 ............................................................ 45
s 30......................................................................... 540
612
Table of Statutes
Page
Page
GERMANY
53 of 1998 ( continued)
German VVG
s 56......................................................................... 110
art 76 ....................................................................... 61
s 57......................................................................... 110
s 61......................................................................... 110
s 63......................................................................... 110
s 64......................................................................... 128
s 65......................................................................... 128
s 70........................................................................... 20
UNITED KINGDOM
30 of 1966 ............................................................ 12
PRE-UNION
CAPE
s 2 ............................................................................. 16
s 3 ............................................................................. 16
s 4 ........................................................................... 125
ORDINANCES
(6 Edw 7 c 41)
s 4(2) ....................................................................... 79
OTHER COUNTRIES
AUSTRALIA
s 18........................................................................... 52
613
Page
Page
(6 Edw 7 c 41)
(6 Edw 7 c 41)
s 84(3)(f)............................................................... 290
s 78......................................................................... 264
614
Index
FAIS – continued
Agent
Authority to:
24.28
Intermediaries
Circumscribed 24.9
Independent 24.15
Lloyd’s
Brokers
Authority of 24.55–56
Misrepresentation by agent
Circumscribed 24.35–38
Duties of 24.39–50.
Premiums
Proposal forms
Rights of 24.51–54
Representatives
knowledge
FAIS
Codes 24.18–19
Aleatory contracts
Circumscribed 24.13–17
Definition 7.64
615
Conditions – continued
Wagers
Resolutive 9.25
Good faith
Unenforceable 7.66
fraudulent claims
Arbitration
Suppositions 9.20–22
Terms of contract
policy
9.33–35,
9.14–17
Basis of insurance
Warranties 9.16, 9.22, 9.29, 9.30. See warranties Purpose of transferring risk 4.69–75, 5.91–94
20.18–28
Double insurance
Contribution
Contents of contract
Right to 23.20–53
Conditions
616
Index
Amendment 6.72
Duration
Quotations 6.38–43
Enforcement of claims
Fraudulent claims
17.29–33
misrepresentation
contents of claim
Classification of contracts
Insolvency
5.11–21
policy
Indemnity clause
Definition 3. 11–16
Functions 3.1–3
Insurable interest, not an essential 5.22–50
7.76–78, 16. 17
Buyer 3.87–91
617
Insurance – continued
Creditor 3.100
Lessee 3.101–106
Mortgagee 3.107–108
Partner 3.111–113
Possessor 3.114–119
party insurance
Seller 3.92–99
Shareholder 3.120–122
Insurance of
insurance
also essentials
Examples
Spouse 3.156–158
insurance
Partner 3.169
Idea of insurance
26.36–37
Reform 4.51–55
Valuation 3.146
Interpretation
Insurance
Context 10.29–36
Classes of insurance
insurance
25.22
618
Index
3.125
Long-term insurance
Liabilities 3.31
Annuity insurance
Types of 26.50–59
claim
Misrepresentation
Life insurance
Description 8.16
Fault 8.122–124
Good faith
Pre-contractual 8. 21–45
Utmost 8. 24–27
Policy, life
Materiality
Composite 26.11
Examples 8.119–121
Loss or damage
Assets 3.29–30
8.58–59
contents
Non-disclosure
Compensation (damages)
16.25–30
4.44–47
8.151–152
4.34–35, 16. 17
619
Misrepresentation – continued
Non-disclosure – continued
Divisibility 11.26–41
11.9–16
8.87–90
Opinions 8.50–52
interpretation
Parties
Post-contractual 8.152
Insured 12.1–4
Pre-contractual 8.8
8.70–74, 8.87
Relief
Forms of 8.32–150
contracts
Waiver
No underwriting 8.68–69
Premium
Warranties
Wrongfulness
Misselling
Payment
8.153–160
How 14.52
By whom 14.53–57
To whom 14.58–61
Where 14.62–64
Periods of grace
Contractual 14.43–45
Statutory 14.46–49
Return of premium
Over-insurance 14.79–80
620
Index
Premium – continued
Time of payment
Periods of grace
Contractual 14.40–45
Statutory 14.46–49
Reinsurance
General 23.67–71
Consensus 7.4–39
Successive losses16.40–42
Formalities 7.42–51
Lawfulness
7.94–102
Imputation of benefits
Quantification of loss
Severance 7.54–55
Betterment 16.114–120
Contractual quantification
Risk
Arson 13.149
Burden of proof
Incidence 13.179–188
Causation
16.25–30
Insured’s conduct
621
Risk – continued
Causation – continued
Indemnity 25.34–40
General 13.100–107
Intentional 13.125–132
Costs 25.68–70
Negligent 13.111–124
Notification 25.46–49
Types of 25.32
13.164–173
Subrogation
Duration 13.164–178
Basis of 18.22–25
General 13.150–154
Contractual extension 18.130–139
Fortuitousness 13.13–23
18.114–116
Meaning 18.13–17
Purpose 18.7–12
Requirements 18.50–73
Peril 13.33–34
13.44
Subrogation must not be excluded 18.73
Rights of insurer
Suicide 13.149
18.74–89
Salvage
Constitution 2.38–46
Custom 2.31
Scope of
Co-insured 18.39–44
Short-term insurance
Liability insurance
622
Index
Termination
Cancellation 22.74–86
Requirements 19.62–67
Compromise 22.87–90
19.109–111
Delegation 22.64–65
Estoppel 22.116–117
Novation 22.62–63
Payment 22.6–25
Cession
21.24–26
Consequences of 21.15–23
Prescription 22.66–73
Transfer of rights and duties by operation of
law 21.61–65
21.66-79
Set-off 22.91
Waiver 22.92–115
Under-insurance
Vesting of a claim
Third-party contracts
Beneficiary 19.6
Definition of 19.6–11
Warranties
19.118–138
contract, misrepresentation
623
Warranties – continued
Warranties – continued
Purpose of 15.13–16
Representations 15.79–96
Types
Statutory curtailment
Materiality 15.97–105
Non-disclosures 15.93–96
624
Document Outline
Cover Page
South African Insurance Law
Title Page
Copyright Page
Preface
Contents
Chapter 1: Introduction: insurance and insurance contracts
A. INSURANCE IN ECONOMIC AND LEGAL SENSE
Incidence of risk
Managing risk
Idea of insurance
Insurance in its legal sense
Preliminary definition of “insurance contract”
Description and nature of insurance law
B. CLASSIFICATION OF INSURANCE CONTRACTS
Purpose of and criteria for classification
For-profit insurance and not-for-profit insurance
Consumer insurance and commercial insurance
Indemnity insurance and non-indemnity insurance
Personal insurance and non-personal insurance; property insurance and liability insurance
Classification according to nature of event insured against
Long-term insurance and short-term insurance
Private insurance and social insurance
Chapter 2: Sources of South African insurance law
A. INTRODUCTION: INSURANCE LAW AND GENERAL PRINCIPLES
B. SPECIFIC SOURCES OF SOUTH AFRICAN INSURANCE LAW
Roman-Dutch insurance law
English insurance law
Foreign insurance law and comparative method
Custom and statutory law
The Constitution
Private international law
Chapter 3: Object of an insurance contract: insurable interest
A. INTRODUCTION
Concept and functions of insurable interest
Insurable interest as object of insurance
Object of insurance distinguished from object of risk
Specification of insurable interest
Definition of insurable interest
B. INDEMNITY INSURANCE
(a) NATURE AND EXTENT OF INTERESTS INSURABLE UNDER INDEMNITY
INSURANCE
Concept of patrimonial damage in the law of damages
Patrimonial loss: theory of difference
Patrimonial loss: concrete approach
Composition of a person’s patrimony or estate
Relationship between patrimonial damage and insurable interest
Rights and liabilities as insurable interests
Liberalisation of insurable interest
Boundaries of insurable interest
Contractual broadening or limitation of interest
Usefulness of insurable interest as the object of insurance
(b) TIME WHEN INTEREST MUST EXIST
Rationale
Insuring a specific existing interest
Insuring an ascertainable interest
Insuring a specific future interest
(c) LAPSE OF INTEREST
Lapse of interest prior to occurrence of peril where specific interest insured
Lapse of interest prior to occurrence of peril where ascertainable interest insured
(d) CHANGE OF INTEREST
Change not affecting nature of interest
Change affecting nature of interest
(e) TRANSFER OF INTEREST
An insurance contract a personal contract
Exceptions
(f) EXAMPLES OF INTERESTS INSURABLE UNDER INDEMNITY INSURANCE
Interest of buyer in property bought
Interest of seller in property sold
Interest of creditor in property of debtor
Interest of lessee in leased property
Interest of mortgagee and pledgee in encumbered property
Interest of owner of insured motor vehicle in liability of authorised driver
Interest of partner in partnership property
Interest of possessor in property possessed
Interest of shareholder in property of company
Interest of person in property of spouse
C. NON-INDEMNITY INSURANCE
(a) GENERAL
Gambling on lives
English law: traditional views on insurable interest
English law: proposed reform of insurable interest in context of life insurance
(b) NATURE AND EXTENT OF INTERESTS INSURABLE UNDER NON-INDEMNITY
INSURANCE
(c) TIME WHEN INTEREST MUST EXIST
(d) EXAMPLES OF INTERESTS INSURABLE UNDER NON-INDEMNITY INSURANCE
Interest in own life
Interest in life of husband or wife
Interest in life of parent or child
Extended family members
Interest in life of employee, employer or key person
Interest in life of partner
Chapter 4: Basis of an insurance contract
A. INTRODUCTION
Nature of issues
Terminology
Concept of loss or damage in law of damages
Concept of non-patrimonial damage
B. BASIS OF INDEMNITY INSURANCE
Traditional indemnity theory
Principle of indemnity and valued policies
Principle of indemnity and new-value insurance
Principle of indemnity and insurance in favour of third parties
Deviations from the principle of indemnity
Adapted indemnity theory as basis for indemnity insurance
Conclusion
C. BASIS OF NON-INDEMNITY INSURANCE
Special nature of whole-life insurance on own life
Traditional indemnity theory as basis of non-indemnity insurance
Purpose and basis of non-indemnity insurance
Insurance of pure pecuniary interests under non-indemnity insurance contract
D. UNITARY BASIS FOR ALL FORMS OF INSURANCE
(a) ALTERNATIVES FOR THE INDEMNITY THEORY
The theory of estate formation
The theory of need protection
(b) THE ADAPTED INDEMNITY THEORY AS UNITARY BASIS FOR INSURANCE
Contents of the adapted indemnity theory
The adapted indemnity theory: transfer of risk
Distinction between insurance and wagers by means of adapted indemnity theory
Object of insurance under adapted indemnity theory
E. CONCLUSION
Chapter 5: Essentials of an insurance contract
A. DEFINING AN INSURANCE CONTRACT
Significance of definition of insurance contract
Contract’s distinguishing features
Main purpose of contract decisive
Definition of insurance in Roman-Dutch law
Judicial definition
Defining insurance contract in terms of its basis
B. THE SIGNIFICANCE OF INSURABLE INTEREST
The issue
Origin and history of doctrine of interest
Insurable interest an essential of insurance contract in English law
Shortcomings of insurable interest as essential of indemnity insurance
Shortcomings of insurable interest as essential of non-indemnity insurance
Insurable interest in Roman-Dutch law
Adoption of English doctrine of insurable interest in South Africa
Conclusion: insurable interest
C. ESSENTIAL TERMS OF AN INSURANCE CONTRACT
(a) A TERM THAT THE INSURER WILL COMPENSATE OR SATISFY THE INSURED FOR
EITHER A PATRIMONIAL OR A NON-PATRIMONIAL LOSS
Indemnity insurance
Non-indemnity insurance
Direct and indirect compensation
Indemnity clause: difference between insurance contract and wager
Nature of duty created by indemnity clause
(b) A TERM THAT THE INSURED WILL PAY A PREMIUM OR ELSE A TERM MAKING
THE CONTRACT DEPENDENT ON THE PAYMENT OF A PREMIUM
Bilateral insurance contracts
Unilateral insurance contracts
Rationale for premium
Nature of premium
(c) A TERM MAKING THE INSURER’S OBLIGATION DEPENDENT ON THE
OCCURRENCE OF AN UNCERTAIN OR UNPLANNED EVENT
Transfer of a risk
Insurance “lost or not lost”
Insurance against events that are certain
Absence of control by insurer over event
Object of risk
D. INSURANCE AS PRINCIPAL AND NOT ACCESSORY CONTRACT
Similarities between insurance and suretyship
Distinction between insurance and suretyship
Insurer undertakes principal and not accessory debt
Chapter 6: Formation of an insurance contract
A. ORDINARY INSURANCE CONTRACTS
Introduction: consensus
Offer
Offer by means of written application or proposal
Collateral agreements in application form
Offers by insurers
Electronic applications
Quotations
Restrictions on terms insurer may offer
Duration of offer
Acceptance
Time and place of contract
Concluding insurance wrapped into another contract
Renewal of insurance contract
Reinstatement of insurance contract
Amendment of insurance contract
B. TEMPORARY INSURANCE
Purpose of temporary insurance
Nature of temporary insurance
Formation of temporary insurance contract
Premium for temporary insurance
Terms and duration of temporary insurance
C. INSURANCE AT LLOYD’S
Chapter 7: Requirements for the validity of an insurance contract
A. RATIONALE AND EFFECT OF REQUIREMENTS FOR VALIDITY OF CONTRACTS
B. CONSENSUS
Consensus as basis of contractual liability
Actual consensus
Essential mistake
Reliance theory
Iustus error approach
Signing without reading; fine print and unexpected terms in policy
Snatching at a bargain
Conclusion
C. CAPACITY TO ACT
Age of majority
Legislative provisions relating to capacity to enter into insurance contract
D. FORMALITIES
Formalities required by law
Formalities imposed by parties
E. LAWFULNESS
(a) GENERAL
When is a contract unlawful?
Severance
Consequences of illegality
(b) INSURANCE CONTRACTS CONTRARY TO COMMON LAW
Meaning of public policy
Public policy and aleatory contracts
Public policy and insurance contract as aleatory contract
Effect on insurance contracts if wagers became enforceable
Requirement of insurable interest for validity of insurance contract in English law
Insurable interest as requirement in Roman-Dutch law
Insurance contracts with enemy
Unlawful performance
Unlawful purpose
(c) INSURANCE CONTRACTS CONTRARY TO STATUTE
Contracts contrary to insurance legislation
Validity of contracts contrary to insurance legislation
Invalidity of certain terms in insurance contracts
Contracts contrary to the Constitution
F. PERFORMANCE MUST BE POSSIBLE
Applicability of requirement of possibility of performance to insurance contracts
Impossibility of condition precedent
G. PERFORMANCE MUST BE CERTAIN OR ASCERTAINABLE
Certainty of premium
Certainty of insurer’s performance
Chapter 8: Misrepresentation and misselling
A. A CONSPECTUS
Improperly induced consent
Delictual nature
Positive or negative misrepresentation
By whom
Pre-contractual
Three aspects of materiality
Wrongfulness
The boni mores criterion
Causation
Description
B. WRONGFULNESS IN THE CONTEXT OF NON-DISCLOSURE
Test for wrongfulness
Relevant factors
C. GOOD FAITH IN THE CONTEXT OF NON-DISCLOSURE
Good faith reviewed
Utmost good faith
The range of good faith
Rationale
Good faith and renewal of the insurance contract
Harmonising good faith and wrongfulness
D. POSITIVE MISREPRESENTATIONS
Positive statements
False, inaccurate and misleading and wrongful statements
The importance of context
Substantial inaccuracy, ambiguity and wrongfulness
Opinions
Past facts and future events
Misstatement of law
E. NEGATIVE MISREPRESENTATIONS
Misrepresentation by omission
Scope of the duty to disclose
The sufficiency of information furnished
Refining the duty of disclosure
If no underwriting
Proposal form
Absence of knowledge on the part of the insured
Constructive knowledge
Facts known or presumed to be known to the insurer
Factors reducing the risk
Warranties
Waiver by an insurer of its right to rely on a non-disclosure
The non-disclosed information does not have to be related to the insured event
A critique of the reasoning underpinning the disclosure regime
F. MATERIALITY
Relevance
Materiality and fraud
Objective test
Two early approaches
The reasonable person test
Legislative intervention on materiality
Proof of materiality
Examples of material facts
G. FAULT
H. CAUSATION OR INDUCEMENT
The false representation must be an effective cause of the contract or its terms
I. RELIEF
Forms of relief
Voidability and rescission
The representee’s election
Restitution and the refund of premiums
Reconstruction of the policy
Damages
J. THE DURATION OF THE DUTY OF DISCLOSURE
A precontractual duty
K. MISSELLING BY OR ON BEHALF OF THE INSURER
Misselling distinguished from misrepresentation
Chapter 9: Contents, proof and rectification
A. CATEGORIES OF CONTRACTUAL TERMS
Terminology
Express, tacit and implied terms
Obligationary and non-obligationary terms
Standard terms
Suppositions
Conditions
Conditions in English law
Circumscribing risk
Time clauses
B. GOOD FAITH AS A SOURCE OF CONTRACTUAL TERMS
Aspects of good faith
Fraud at claim stage
The insurer’s duty of good faith
C. PROVING THE CONTENTS OF THE CONTRACT
The integration rule
D. RECTIFICATION OF THE POLICY
Rectifying errors
Chapter 10: Interpretation of an insurance contract
A. THE PROCESS OF INTERPRETATION
B. HIERARCHY OF RULES
C. RULES OF INTERPRETATION
Ordinary grammatical meaning of words: the basic rule
Ordinary grammatical meaning of words: exceptions
Context of contract as whole
Effect to be given to every word in the contract
Ambiguity remaining after application of primary rules
Immediate language of parties prevails
Nature and purpose of contract or term in contract
Parties’ subsequent conduct
Rule favouring validity
Equitable interpretation
Eiusdem generis rule
Expressio unius est exclusio alterius rule
Strict interpretation of penal and limiting clauses
Quod minimum rule
Contra proferentem rule
Rule favouring insured
Contract void for vagueness
D. EXTRINSIC EVIDENCE AND PAROL EVIDENCE
Chapter 11: Nature and operation of obligations stemming from an insurance contract
A. OBLIGATIONS FROM AN INSURANCE CONTRACT
Consequences of a contract
Content and operation of obligations
Nature and duration of insurer’s obligation
B. INSURER’S OBLIGATION AS PRINCIPAL OBLIGATION
C. RECIPROCITY OF PRINCIPAL OBLIGATIONS
General rule on reciprocity
Exceptions to rule on reciprocity
D. DIVISIBILITY OF PERFORMANCE AND CONTRACT
Divisibility of performance
Divisibility of contract
Chapter 12: Parties and participants
Terminology
Parties to obligations
Insurer
Multiplicity of insurers
The insured as the policyholder or policy owner
Joint insured
Life insured
Multiple life insured
Premium payer
Payment receiver
Chapter 13: Risk
A. INTRODUCTION
General nature
Possibility of harm: general
Objective and subjective possibility of harm
Fortuitousness and risk: risk-bearer’s control over risk
B. DESCRIPTION OF RISK
General
Event insured against
Object of risk
Peril
Circumstances affecting risk
Qualifications of risk and risk circumstances regarding time and place
Qualifications as to extent of insurer’s performance
Limitations and exceptions
Excluded risks: war, riot, disturbance and related political risks
All risks insurance: inherent vice and wear and tear
C. ALTERATION AND INCREASE OF RISK
D. CAUSATION
Test for causation in insurance context
Proximate cause test
Exclusion and adaptation of proximate cause test
Multiple and intervening causes
E. INSURED’S CONDUCT
General
Insured’s conduct unaccompanied by fault
Negligent conduct of insured
Intentional conduct of insured
Unlawful or wrongful conduct of insured
Conduct of third-party claimant
Suicide and arson
F. INSURED’S DUTY TO AVERT OR MINIMISE LOSS
General
Loss caused by compliance
Expenses incurred in compliance
Non-compliance
G. DURATION
General
Renewal and revival
H. BURDEN OF PROOF
Incidence
Contractual arrangement
Chapter 14: Premium
A. GENERAL
B. AMOUNT AND DETERMINATION OF PREMIUM
C. COMMON TERMS RELATING TO PREMIUM
General
Consequences where duty to pay premium created
Consequences where payment of premium a suspensive condition for insurer’s liability
Consequences where non-payment of premium resolutive condition attached to insurer’s duty
D. LEGISLATIVE PROVISIONS PERTAINING TO PREMIUM
E. TIME OF PAYMENT OF PREMIUM
Relevance of time of payment
Periods of insurance
Time for payment of premium where insured under duty to pay but no time for payment specified in
contract
Time for payment of premium where insured under duty to pay and time for payment specified in
contract
Time for payment of premium where no duty to pay
Renewal of contract for single period by payment of premium: contractual periods of grace
Continuing contracts: contractual periods of grace
Statutory periods of grace
Defence of reciprocity
F. PAYMENT OF PREMIUM: HOW, BY WHOM, TO WHOM, AND WHERE
How premium should be paid
By whom premium should be paid
To whom premium should be paid
Place of payment
G. RETURN OF PREMIUM
General
Void and inoperative contract
Voidable contract
Absence of insurable interest
Impossible suspensive condition
Breach of contract
Over-insurance
Contractual provisions
Chapter 15: Warranties
A. GENERAL
Adoption of English law on warranties
Purpose of warranties
Nature of obligations created by warranties
B. TYPES OF WARRANTIES
Affirmative and promissory warranties
Warranties of fact, knowledge or opinion
C. BREACH OF WARRANTY
Time of breach
Proof of breach
Breach: relative and absolute warranties
Rectification of breach
D. DEFENCES AVAILABLE TO INSURED
General
Materiality: link between warranty and risk
Causality: link between breach of warranty and loss
Justification and impossibility
Waiver
Renewal of insurance contract
E. REMEDIES FOR BREACH OF WARRANTY
(a) GENERAL: POSITION AT COMMON LAW
(b) STATUTORY CURTAILMENT OF REMEDIES FOR BREACH
Introduction
Retrospective effect
Representations
Non-disclosures
Materiality
Incorrect statement of age
F. CONCLUSION
Terminological uncertainty
Unsatisfactory features
Chapter 16: Vesting and quantification of insured’s claim
A. INDEMNITY INSURANCE
General
Vesting of insured’s claim
Enforcement of insured’s claim
Quantification of insured’s claim
B. INDEMNIFICATION: LOSS OR DAMAGE
Concept of loss or damage: contents of indemnity clause
Contractual exclusion of certain loss or damage: consequential loss
Theft and disappearance of object of risk as “loss”
Indemnification for patrimonial loss: direct or indirect; reinstatement or payment
C. GENERAL CONTRACTUAL LIMITATION ON INDEMNIFICATION
Introduction
Sum insured
Successive losses and limits per claim or occurrence
Rateable proportion clause
Compulsory under-insurance clause
Average clause
Excess clause
Franchise clause
D. MEASURE OF INDEMNITY
Quantification defined
Principles of quantification
Proving extent of loss
Market value as primary measure for quantification of loss in case of unlimited interest
Shortcomings of market value as primary measure for quantification of loss
Cost of repair as alternative measure for quantification of loss in case of unlimited interest
Replacement value as alternative measure for quantification of loss in case of unlimited interest
Betterment
Quantification of limited interests
Quantification of expectancies
Contractual quantification: valued policies and replacement-value insurance
E. IMPUTATION OF BENEFITS
Benefits resulting from insured event
Imputing benefits in terms of theory of difference
Current doctrine of imputation of benefits
Indemnification aliunde
Considerations of justice and fairness
F. NON-INDEMNITY INSURANCE
General
Vesting of claim
Enforcement of claim
Quantification of claim
Chapter 17: Institution and resolution of claims against insurers
A. APPROPRIATE FORUM
Overview
Formal judicial process
Arbitration
Ombudsman schemes
B. TERMS RELATING TO INSURANCE CLAIMS PROCESS
No antecedent common-law demand
Contractual requirements
Nature of contractual terms
Effect of repudiation or waiver by insurer
Need for reform of terms regulating claims process
Terms requiring notification
Terms requiring formal claim, further particulars, or proofs
Contractual time limits: time bars or time-limitation clauses
Statutory regulation of aspects of claims process
C. TERMS RELATING TO ARBITRATION
Arbitration clauses
Effect of arbitration clauses
Legislative intervention
Time-limitation clauses
D. TERMS RELATING TO FRAUDULENT CLAIMS
Purpose
Position at common law
Fraudulent claims clauses
Chapter 18: Subrogation and salvage
A. NATURE OF SUBROGATION
Context
Purpose of subrogation
Meaning of “subrogation”
Adoption of subrogation
Basis of subrogation
Abolition and reform of subrogation
B. SCOPE OF SUBROGATION
Subrogation and indemnity insurance
Types of rights against third parties
Gifts to insured
Insurer for purposes of subrogation
Third party for purposes of subrogation
C. SUBROGATION DISTINGUISHED
D. REQUIREMENTS FOR SUBROGATION
Introduction
Valid insurance contract
Insurer must have performed fully under insurance contract
Insured’s loss must have been fully indemnified
Insured’s right must be susceptible to subrogation
Subrogation must not be excluded
E. RIGHTS OF INSURER UNDER SUBROGATION
Right to conduct proceedings against third party
Right of recourse
F. CONDUCT OF PROCEEDINGS AND SETTLEMENT AND RELEASE OF CLAIM AGAINST
THIRD PARTY
Insured’s duties
Insurer’s duties
G. EFFECT OF SUBROGATION ON THIRD PARTIES
Subrogation a matter between insured and insurer
Defences not available to third party
Defences available to third party
H. EXPRESS PROVISIONS AS REGARDS SUBROGATION
Contractual extension of subrogation
Contractual exclusion of subrogation
I. INSURER’S RIGHT TO SALVAGE
Introduction
Requirement of total loss
Insurer’s entitlement to remaining or recovered property
Nature and content of right
Chapter 19: Rights and duties of parties under a third-party contract
A. ORIGIN, PURPOSE, NATURE AND CONSEQUENCES OF A THIRD-PARTY CONTRACT
Origin and purpose of a third-party contract
Definition of third-party contract
Independent nature of third-party contract
Third-party contracts distinguished from other phenomena
Acceptance of benefit to complete life cycle of third-party contract
Protection of third party prior to acceptance
B. CONSTRUCTION OF A THIRD-PARTY CONTRACT
Different approaches
Two-contracts approach
Hybrid approach
Conclusion
C. REQUIREMENTS AND FORMS OF A THIRD-PARTY CONTRACT
Requirements for the validity of a third-party contract
Forms of third-party contract
Noting a third-party interest: third-party contract
Group insurance schemes
D. THIRD-PARTY PROVISIONS IN NON-INDEMNITY INSURANCE
Forms of third-party provisions in non-indemnity insurance
Nomination for ownership
Revocable and irrevocable nominations
Revocation of revocable nomination
Formalities for revocation of a nomination
Who may revoke a nomination?
Insolvency of insured or beneficiary
Surrender of, or cession of rights under, life policy subject to beneficiary nomination
Relationship between third-party contract and collateral contracts
E. THIRD-PARTY PROVISIONS IN INDEMNITY INSURANCE
Extension clauses in motor-vehicle policies
Extension clauses in other indemnity insurance contracts
Chapter 20: Rights of creditors to attach policies
A. TERMINOLOGY
B. RIGHTS OF CREDITORS TO ATTACH LIFE POLICY OF SOLVENT INSURED
C. RIGHTS OF CREDITORS TO LIFE POLICY OF INSOLVENT INSURED
D. PROTECTION OF LIFE POLICIES UNDER THE LTIA
E. RIGHTS OF CREDITORS TO ATTACH LIFE POLICY ENCUMBERED BY BENEFICIARY
NOMINATION OR A SECURITY CESSION
F. RIGHTS OF CREDITORS TO ATTACH AN INDEMNITY POLICY
Chapter 21: Transfer of rights and duties from an insurance contract
A. CESSION
Definition
What may be ceded?
Formalities for cession
Consequences of cession
Cession of policyholder’s right flowing from policy subject to beneficiary nomination
Security cession: nature and effect
Security cession: realising the security
B. ASSIGNMENT OF DUTIES
Nature and effect of assignment
Assignment distinguished from cession and novation
Sale of second-hand long-term policies
Transfer of insurer’s rights and duties in terms of the Insurance Acts
C. TRANSFER OF RIGHTS AND DUTIES BY OPERATION OF LAW
D. THE EFFECT OF SECTION 156 OF THE INSOLVENCY ACT
Chapter 22: Termination of obligations arising from an insurance contract
A. WAYS OF DISCHARGING OBLIGATIONS
B. PAYMENT
Nature and consequences
Late payment
Payment to or by third parties
Recovery of undue payment
C. REINSTATEMENT
Purpose of reinstatement clause
Election to reinstate
Effect of election to reinstate
Nature of insurer’s obligation to reinstate
Breach of duty to reinstate
Relationships with third parties contracted to reinstate; liens
D. NOVATION AND DELEGATION
Novation as agreement
Delegation
E. PRESCRIPTION
Effect of prescription
When an insurance debt is due
Interruption of prescription
Time bars
F. CANCELLATION
Nature of cancellation
Source of right to cancel
Cancellation clauses
Exercising the right to cancel
Consequences of cancellation
Rescission of contract
G. COMPROMISE
H. SET-OFF
I. WAIVER
Definition and scope
Waiver by insurer
Waiver by insured
Waiver and repudiation
Exclusion of waiver
J. ESTOPPEL
Chapter 23: Over-insurance, double insurance, under-insurance, and reinsurance
A. OVER-INSURANCE
B. DOUBLE INSURANCE
Nature and effect
Requirements for double insurance
Contractual provisions concerning double insurance
Right to contribution: nature and basis
Right to contribution: requirements
Right to contribution: apportionment of loss
Contribution and subrogation
C. UNDER-INSURANCE
Nature and effect
Contractual provisions limiting insurer’s liability: average
D. REINSURANCE
General
Types and nature of reinsurance
Governing general principles
Chapter 24: Agents, representatives and intermediaries
A. INTRODUCTION
Representation as a legal concept
Influence of English law of agency
Mandate and representation in insurance law
Agent for whom?
B. THE LEGISLATIVE REGIME
Independent intermediaries and representatives
Market conduct regulation in terms of FAIS
Financial services providers
Advice
Representatives
Clerical personnel
Ancillary measures
Codes
The effect of FAIS on underlying relationships
C. TYPES OF AGENCY
(a) INSURANCE AGENTS
Agent for the insurer
Authority of insurance agent to collect and receive premiums
Remuneration of insurance agent
Authority of insurance agent to conclude an insurance contract
Authority of insurance agent to grant temporary insurance
Authority of insurance agent to acknowledge liability on behalf of insurer
Completion of proposal form by insurance agent
Authority of insurance agent to cancel policy on behalf of insured
Underwriting managers: binder agreements
(b) BROKERS
Agent for the insured
Duty of broker to act in good faith
Duty of broker to advise client
Duty of broker to obtain insurance coverage
Duty of broker to insure with solvent insurer
Duty of broker to advise insured to disclose material information
Duty of broker to explain meaning of policy
Duty of broker to advise insured that cover has lapsed
Renewal of insurance contract
Duty of broker to assist with claim
Duty of broker to account
Broker’s right to lien
Broker’s right to be reimbursed and indemnified
Broker’s right to be paid commission
Broker’s authority to grant temporary insurance and issue cover notes
Broker’s authority to collect and receive payment of premium
Broker’s liability for payment of premium in marine insurance
(c) BROKER CONSULTANTS
Liaising function
(d) LLOYD’S BROKERS, REPRESENTATIVES AND CORRESPONDENTS
Lloyds functionaries
Lloyd’s brokers
Lloyd’s representative
Lloyd’s correspondent
D. MISREPRESENTATION BY AGENTS
Legal consequences
Direct liability of principal
Vicarious liability of principal
Extended vicarious liability of principal
E. IMPUTING AGENT’S KNOWLEDGE TO PRINCIPAL: CONSTRUCTIVE KNOWLEDGE
Imputing knowledge
Scope and requirements
Constructive knowledge: medical practitioners
Contractual exclusion of doctrine of constructive knowledge
Summary
Chapter 25: Short-term insurance
A. GENERAL
B. ACCIDENT AND HEALTH INSURANCE
C. GUARANTEE INSURANCE
D. LIABILITY INSURANCE
General
Types of liability insurance
Application of general principles: duty to disclose
Application of general principles: indemnity
Application of general principles: risk and insured’s conduct
Notification
Determining the insurer’s liability on the insurance contract
Defence of third-party claim
Costs
Legal costs insurance
Relationship between third party and insurer
Chapter 26: Long-term insurance
A. INTRODUCTION
Non-indemnity insurance
Long-term and short-term insurance
B. THE LTIA
Relevant definitions in the LTIA
Life policies
Annuities
Composite policies
Assistance policies
Health policies
Disability policies
Fund and fund member policies
Sinking fund policies
C. LONG-TERM INSURANCE PROTOTYPES
Basic structures
Whole life insurance
Term insurance
Endowment insurance
Pure endowment insurance
D. FURTHER DIVERSIFICATIONS
Joint life insurance
Group life insurance
Profit sharing products
Universal life cover
Pure risk cover
New generation products
Health cover
Lump sum disability cover
Accident cover
E. TYPICAL LONG-TERM INSURANCE CONTRACTS
Annuity insurance
Retirement annuities
A living annuity
Key-person and partnership insurance
Mortgage protection insurance
Disability, impairment and critical illness insurance
Funeral insurance
Consumer credit insurance
Bibliography
Table of cases
Table of statutes
PRE-UNION
ORDINANCES
OTHER COUNTRIES
Index