Question 1

1. Contra proferentem rule in the event of ambiguity, the contract will be construed against
the party that drafted it. This rule may be applied only if all the other rules of interpretation
have been applied and a real ambiguity still exists. The contra proferentem rule is a
subordinate or tertiary rule of interpretation. The rule applies against the drafter of the
insurance contract, who is not necessarily the insurer. The contra proferentem rule is
different from the rule of interpretation that is in favour of the insured.

2. The requirements for a valid insurance contract are:

(a) Agreement or consensus.
(b) The capacity to act.
(c) Legality or Lawfulness.
(d) The need for the performance to be possible and ascertainable.
(e) Compliance with any formalities.

3. The distinction between indemnity and non-indemnity lies largely in the nature of the
insurable interest the cover sought to protect in both forms or types of insurance. In the
case of indemnity insurance, the interest must be of a patrimonial nature, whereas in non-
indemnity insurance the interest is regarded as non-patrimonial in substance. In indemnity
insurance, the insurer indemnifies the insured either by replacing or repairing the object
of risk or by paying the insured an ascertainable sum of money. In non-indemnity
insurance, the insurer undertakes to pay a specified amount on the occurrence of the
event insured against. The necessity to distinguish between the two types of insurance
lies in the fact that significant consequences are attached to the distinction between
indemnity and non-indemnity insurance contracts. For example, a non-indemnity insurer
cannot claim a proportionate contribution from other insurers where there is double
insurance or cannot exercise a right of subrogation against the insured in respect of
claims the latter may have against third parties. On the other hand, principles relating to
contribution and subrogation applies automatically to an indemnity insurer whose insured
is double insured or has a claim against a third party.

4. A valuation may be an over-valuation or an under-valuation (thus, a ship with a real

market value of R300 000 may be valued in the insurance contract at R350 000 or at
R250 000). On over-insurance, an insured will not be able to recover more than an
indemnity because he or she is over-insured. Example, although A may insure her house
(which is worth R500 000) for R600 000 (she may probably be wasting premiums by doing
so); in the case of a loss relating to the house, A will not be able to recover more than the
amount of her loss, which (even if it is a total loss) cannot exceed the value of the house.
Over-insurance should be differentiated from over-valuation (a ship with an actual value
of R300 000 may be valued at R400 000 and insured for R450 000, in which case it is
both over-valued and over-insured). Also, over-insurance should be distinguished from
double insurance which may (but need not) involve over-insurance. An insured may also
be under-insured. The insured will recover less than a full indemnity, either less than the
amount of his or her loss or less than the sum insured if the average principle applies.
This principle applies automatically in the case of marine insurance or is expressly made
applicable in the case of nonmarine insurances.

5. Insurance contracts and wagering contracts are similar in that the performance of one
of the parties (insurer, loser) depends on the occurrence of an uncertain event. The
insurance contracts differ from wagering contracts in that the performance of one of the
parties to an insurance contract (the insurer) is aimed at indemnifying the other party
against a loss. Whereas that is not the case with a wagering contract, there is an
obligation for the loser to pay the winner irrespective of any loss the latter may have
suffered.

Question 2

1. The values and beliefs that govern the running of business operations are based on
constitutional values and principles and often reflect African values that comprise
amongst others, the concept of ubuntu. Insurance law may, at first glance, seem a
technical commercial subject based mainly on statutes and reported cases. However,
upon scrutiny several transformation values are reflected in the course content, eg,
regarding customary insurance law, microinsurance and the most recent Policy holder
Protection Rules. The prescribed study material has been infused with constitutional
principles and values in the interpretation and application of the law regulating insurance
contracts. The Constitution of the Republic of South Africa, 1996 and its values that also
imbue values of ubuntu play an important role, particularly in the interpretation of
legislation. Promoting these values in the development of the common law plays a pivotal
role in ensuring that the law adapts to suit the community it serves. This evolving nature
of law is foundational to the principle of transformative constitutionalism. This statement
is therefore correct.

2. A third party may obtain rights under the insurance contract in the following ways:

(a) Through cession.

(b) Through a stipulation in favour of a third party. There are various possibilities
here:

(i) The third party may be a beneficiary under a life insurance contract and may as
such be entitled to claim payment from the insurer on the death of the life insured.

(ii) The third party may himself or herself be an insured under the insurance contract.

(iii) The third party's interest in the object of risk may be noted on the policy.

(c) Through a statutory provision. An example of this in our law pertains to liability
insurance. In common law, there is no contractual relationship between the liability insurer
and a third party to whom the insured has incurred a liability covered by the insurance
contract in question.

3. Subrogation clauses confirm the insurer's right of subrogation at common law but also,
in some significant respects, add to those rights and thus improve the position of the
insurer. Subrogation clause affect the requirements of subrogation. The important
requirent that this clause affect is that the insurer must already have indemnified the
insured in full against the loss for which compensation may also be recovered from a third
party.

4. in terms of the enforcement of claims on insurance contracts, and the insured's duties
in this regard, are largely matters regulated by express terms in the insurance contract
itself. The insured must give notice of his or her loss and his or her claim to the insurer
and must do so within prescribed time limits. Provision may be made for disputed claims
to be referred to arbitration. The clause about the institution of fraudulent claims by the
insured is more important for present purposes. Such clauses seek to add to the insurer's
common-law rights in this regard and should be seen against the common-law
background pertaining to fraudulent claims. Several questions arise. Firstly, it is uncertain
whether or not the institution of a fraudulent insurance claim constitutes a breach by the
insured of his or her duty of good faith and secondly, it has to be determined what the
effect of such a claim is on the rights of the insured and how the position may be affected
by express terms in the contract.

5. A person may in various cases have an interest in the property of another. In the case
of spouses, our courts have held that such an interest will exist if the one spouse lives off
and has a financial interest in the property of the other spouse. A husband may insure his
wife’s business if they both live off the income it generates. The loss of her business in
such case may cause the husband a financial loss against which he may insure. What
our courts have not yet addressed is whether such an interest may be limited in extent.
The wife, being the owner, can also insure her interest in her business and it seems clear
that both husband and wife cannot recover in full from their respective insurers. As an
alternative to the husband insuring his interest in his wife’s property, there is of course
the possibility that the husband merely insured his wife’s interest in her property and that
she will be able to recover from the insurer in the event of its loss on the basis of being a
third party to the contract concluded by the husband with the insurer in her favour.

Question 3

1. Informal risk-spreading mechanisms are described as a function of risk management

within the African customary law. These mechanisms enables the community members
to deal with creditors and finance providers who are known to them and who are available
to deal with them in their community. These mechanisms allows for less official
procedures in accessing reimbursement in the case of an event, and there are less issues
with insurance companies avoiding payment on technical grounds. For these
mechanisms to work, trust and community connections are a major component of this
sector, as problems faced by private insurers, such as adverse selection and moral
hazard, are lessened because the character and habits of covered parties are known to
service providers. However, there are various concerns such as the members of the
savings clubs or burial societies to mismanage the savings. In a situation where mere
faith is the collateral, the lack of penetration of formal law and the cost of formal legal
procedures makes it impossible to enforce payment by stubborn borrowers. Hutchison
names five informal risk-spreading mechanisms.
2. Although Suicide is an intentional act, it is not an unlawful act. An insurer is in principle
not liable in the event of suicide, but the insurer may, expressly or by implication, provide
cover against such an act. In practice life insurance policies provide that the insurer will
not be liable in the event of the insured’s suicide within the first two years. Lelethu’s policy
also contained a clause stating that the insurer will not be liable for suicide committed
within two years of its existence. Lelethu committed suicide on the third year or three
years after concluding the contract. This means that the insurer will be liable in terms of
South African insurance law in the case of suicide after that period and Konrad will
successfully claim the 5 million from Lelethu’s insurer.

3. The statement is valid. The Constitution of 1996, and more specifically, the Bill of Rights,
is an important source of our law. Insurance law, including its legislation, common law,
contract terms, and practices, are subject to the Constitution. The Bill of Rights prohibits
unfair discrimination against anyone on one or more of the listed grounds, which include
race, gender, pregnancy, marital status, sexual orientation, age, and disability. These
grounds are often used as a basis upon which insurers differentiate between persons or
a group of persons, in deciding whether to insure them or not. In determining whether
differentiation by insurers is unfair discrimination, two factors are relevant. Firstly, section
36(1) of the Constitution allows for limitations of rights enshrined in the Bill of Rights only
to the extent that a limitation is reasonable and justifiable. Secondly, section 9(5)
presumes discrimination on the listed grounds unfair, unless it is established that the
discrimination is fair. Of particular importance in this regard is the Promotion of Equality
and Prevention of Unfair Discrimination Act 4 of 2000 as it provides illustrative and
nonconclusive lists of practices in certain sectors that are or may be unfair, widespread
and may have to be addressed. The Act makes specific mention of insurance and certain
prohibited insurance practices. Amongst the list is the practice of unfairly disadvantaging
a person or persons by unfairly and unreasonably refusing to grant insurance services to
persons solely on the basis of HIV status.

4. The risk taken over by the insurer in the case of all risks insurance is not qualified by
reference to an event insured against. The insured house is covered against all risks.
However, there are some implied limitations on all risks cover. Cover against all risks
clearly does not mean cover against all losses. Some form of uncertainty is still required
and there can be no valid insurance against loss or damage that has already occurred or
is certain to occur. Even though it is accepted that fortuitousness in the sense of
uncertainty is required for a true contract of insurance, it is often difficult to establish
whether such uncertainty is present when the event insured against materialises because
of the conduct of the insured himself or herself or whether the insurer will be relieved of
liability if the loss occurs through such conduct. The same applies if the insured's conduct
causes either an increase or changes in the risk taken over by the insurer.

5. An insurer cannot rely on a positive misrepresentation if Lentumetse Padi did not make
any actual representation to it, such as in the form of an incorrect answer to a question in
a proposal form. The insurer cannot rely on positive misrepresentation. As far as negative
misrepresentation is concerned, there are several instances where the insured’s duty to
disclose is limited. The most obvious is where the non-disclosed fact is not material. There
is no duty to disclose facts of which the Lentumetse Padi was not aware at the time she
applies for insurance. Lentumetse Padi cannot disclose what she does not know.
Lentumetse Padi does not need to disclose the fact of her disease as she was unaware
of it. The fact that it was material makes no difference and neither does the fact that it
caused her death. Therefore, the insurer would not be able to avoid liability.