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[2014] ZASCA 176
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Regent Insurance Company Ltd v King (5/2014) [2014] ZASCA 176; 2015 (3) SA 85 (SCA); [2015] 2 All SA 137 (SCA) (21 November 2014)
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 5/2014
Reportable
In the matter between:
Regent Insurance Company
Ltd
.............................................................................................
Appellant
and
King’s Property Development
(Pty) Ltd t/a King’s
Prop
...................................................
Respondent
Neutral Citation:
Regent
Insurance v King’s Property
(5/2014) [2014] ZASCA
(176) 21November 2014
Coram:
Lewis, Wallis and Pillay
JJA and Fourie and Meyer AJJA
Heard: 3 November 2014
Delivered: 21 November 2014
Summary:
Failure to disclose that
a building was occupied by a tenant which manufactured truck and
trailer bodies using flammable materials
when insurance cover was
requested for the premises amounted to a material non-disclosure
under
s 51(1)
of the
Short-Term Insurance Act 53 of 1998
: the
non-disclosure induced the insurer to enter into the insurance
contract: defence of estoppel raised on ground that insurer
had led
insured to believe that insurance was effective not established.
ORDER
On appeal from:
North
Gauteng High Court, Pretoria (Hughes J sitting as court of first
instance)
(a) The appeal is
upheld with costs including those of two counsel.
(b) The order of
the high court is set aside and replaced with:
‘The
plaintiff’s claim is dismissed with costs, save for those
occasioned by the defendant’s applications for
leave to amend
its rejoinder.’
JUDGMENT
Lewis JA (Pillay JA and Fourie and
Meyer AJJA concurring)
[1] This appeal turns on whether an
insurance claim was properly rejected and the policy treated as void
by the insurer because
of the insured’s failure to disclose the
nature of a business carried on by a tenant in a building damaged by
a fire. On
24 May 2010 premises at 8 Press Avenue, Crown Mines,
Johannesburg (the premises) burned down. The owner, King’s
Property
Development (Pty) Ltd (King’s Property), the
respondent in this matter, claimed the cost of repairs and payment in
respect
of rental income lost, from its insurer, Regent Insurance
Company Ltd (Regent), the appellant.
[2] Regent rejected the claim, alleging
a material non-disclosure by King’s Property when applying for
the insurance policy
in respect of the premises. The non-disclosure
lay in failing to advise Regent that the premises were occupied by a
tenant, Elite
Fibre Gauteng CC (Elite Fibre), which manufactured
truck and trailer bodies using resin and fibreglass, highly flammable
materials,
a risk that Regent said it would not have undertaken had
it known of the nature of the business. The fire was caused by
employees
of Elite Fibre in the course of manufacturing.
[3] King’s Property accordingly
instituted action in the North Gauteng High Court against Regent for
R9 031 717 plus interest,
as the reasonable cost of repairs, and R1
111 800 in respect of loss of rental. (These sums represent the
quantum of the loss agreed
by the parties.) The high court (Hughes J)
found that Regent was liable to pay the sum claimed on the basis that
it was estopped
from relying on the defence of non-disclosure
because, when the insurance broker for King’s Property, Mr
Stuart Riley, had
requested the insurance, he had asked Regent’s
representative, Mr Guy Lewis, to do an urgent survey of the premises.
Although
Lewis had in turn requested an assessor at Regent to do the
survey, it was in fact not done before the fire.
[4] The high court held that King’s
Property had been misled into believing that the survey had been
done, and had accordingly
paid the premiums on the assumption that
the insurance covered the premises. Hughes J ordered Regent to pay
the full amount claimed.
Regent appeals against that order with the
leave of the high court.
[5] On appeal the issues to be
determined are, first, what was in fact disclosed to Regent about the
premises; second, whether Regent
established a material
non-disclosure in terms of
s 53(1)
of the
Short-Term Insurance Act 53
of 1998
which induced Regent to enter into the contract; and third,
if there was a material non-disclosure, whether King’s Park
established
either estoppel or waiver of reliance on non-disclosures.
[6] It was common cause on the pleadings
that on 16 March 2010 the parties concluded a contract of insurance
in respect of the premises,
Regent insuring against risks set out in
the policy, which included fire damage under the ‘Buildings
Combined’ section
of what was known as a Multimark policy.
Regent also admitted that it was liable to indemnify King’s
Property for loss of
rent should the premises become ‘untenantable’.
However, Regent alleged that it was not bound by the policy because
it was not advised by King’s Property that the premises were
occupied by Elite Fibre.
[7] The failure to advise of Elite
Fibre’s tenancy and of the nature of its business
(manufacturing truck and trailer bodies
with material including resin
and fibreglass which are highly flammable), Regent pleaded, amounted
to a material and wrongful non-disclosure,
which affected the risk.
Regent would not have assumed the risk, it pleaded, had it been aware
of the material facts and the nature
of Elite Fibre’s business.
[8] King’s Property replicated to
this plea alleging both that there had been a disclosure of the
existence of a warehouse
on the premises, and that Riley had
requested Lewis to arrange as a matter of urgency for a survey to be
done on the premises to
determine the relevant insurance risks. The
disclosure was alleged to have been made in an email written by Riley
and sent to Lewis
on 9 February 2010 in which Riley asked for a
quotation for insurance in respect of the premises, which were
identified as ‘offices/warehouse
in Crown Mines’. On 10
March 2010, said King’s Property, Lewis informed Riley orally
that the premises would be insured
at a rate of 0.1 per cent.
[9] On 16 March 2010 Riley requested
Lewis to have a survey done in respect of the premises. The survey
was admittedly not done.
Thus, pleaded King’s Property, Regent
was aware when the policy was issued that the premises comprised
offices and a warehouse
and that the risks pertaining to a warehouse
included that of having flammable material on the premises: there was
thus no failure
to disclose that risk. The survey requested would
have revealed the precise nature of the risk. Despite not having done
the survey
the insurance policy in respect of the premises was issued
unconditionally. The result, pleaded King’s Property, was that
Regent had waived its rights to rely on any non-disclosure;
alternatively Regent had represented to King’s Property that
it
had accepted the risk and, relying on this representation, the latter
had paid the premiums, and had not made alternative arrangements
to
insure the premises – Regent was accordingly estopped from
relying on any non-disclosure.
[10] Regent’s rejoinder (amended
after Lewis had given evidence, withdrawing an admission as to the
subject of the discussion
between Riley and Lewis on 10 March 2010)
was that Lewis’s response in quoting for the insurance of the
premises was not
related to the email of 9 February 2010; it was in
response to a second email which Riley had sent on 16 March 2010
requesting
the addition of the premises to the policy with effect
from 15 March. The terms of the emails are argued by King’s
Property
to be important and I shall return to them. The gravamen of
this defence was that Lewis had not related the emails to each other
and had not realized that they both referred to the same premises. It
was also denied that Lewis knew that the reason for the survey
requested was to ascertain the risks in respect of the premises. In
any event, the reason for the request, Riley testified, was
to ensure
that all the King’s Property premises were surveyed.
Regent also alleged that since the premises were believed
to be
offices only, such that the risk of fire was considerably less, the
survey was regarded as unnecessary or, at the least,
less urgent.
The background to the request for
insurance for the premises
[11] It is useful to consider, in so
far as relevant, the history of the insurance arrangements between
King’s Property and
Regent. The Multimark policy was first
issued by Regent to King’s Property in April 2008. On 21 April
2008 Riley, representing
his brokerage, Paradime Asset Management CC,
wrote to Lewis requesting cover on a building, stating that ‘Client
does property
development and supplies bedding covers etc’. He
also asked for a quotation for insurance on a vehicle. Regent issued
a policy
with effect from 17 April 2008, reflecting the insured as
‘King Prop’ and describing its business as ‘Property
Developer/suppliers Of Bedding Goods’. The premises were listed
under the ‘Fire’ section of the policy, and included
plant, machinery and landlord’s fixtures and fittings for which
the insured was responsible.
[12] On 1 October 2008 Riley requested
Lewis, by email, to remove the plant and machinery from the fire
cover, and asked that additional
properties and another vehicle be
added to the policy. On 20 August 2008 Regent included the premises
in the fire section but a
value of R92 275 000 was ascribed to them.
This value was incorrect: it related not to the premises, but to
other property in the
King’s Property portfolio, Kings Square,
also in Crown Mines. But on 9 September 2008 the fire insurance in
respect of the
premises was deleted. On 6 October 2008 the risk
address was changed to
Section 3
Kings Square, and erven 51 and 52
Prelude Avenue, Crown Mines. Stock to the value of R10 million was
also added. And on 3 November
2008 Riley asked Lewis to add three
residential properties in Johannesburg to the policy under the
‘combined’ section
(presumably the buildings combined
section).
[13] On 27 February 2009 Riley requested
Regent to amend the policy so as to cover the premises again, at a
sum insured of R15 million.
The amendment was effected on 25 March
2009. But the premises were again removed from the buildings combined
cover on 15 October
2009, although the office contents of the
premises remained insured. (This revision appeared only on the
schedule dated 25 January
2010.)
[14] On 9 February 2010 Riley sent the
first email in issue requesting cover for the premises. The email
read:
‘Hi Guy
[Lewis]
I need a rate on
the following buildings.
R165 000 000
Offices in Sandton
R255 000 000
Shopping center in Sandton
R15 000 000
Offices/warehouse in crown mines (we had this on the policy)
We had a rate of
.150% but in view of the SI [sum insured] I think we need to review
the rate bearing in mind Kings Square has a
rate of .100% based on a
SI of R214 000 000.’
[15] Lewis responded by email an hour
later, saying that King’s Property would ‘have to go
collective on the 2 larger
accounts’ based on ‘eml’
(the estimated maximum loss), ‘as discussed telephonically’.
He added: ‘We
will not be able to go on risk until both
buildings are surveyed and the eml falls within our treaty limit’,
also as discussed
telephonically. Regent was not able (or willing) to
cover the sums insured on its own.
[16] There was no further correspondence
in respect of the Sandton buildings. But there were other emails in
respect of the policy,
one written by Riley on 15 February which
asked for cover for another vehicle, changed the risk address to the
premises, deleted
stock at Kings Square and asked for a reduction in
the rates for three other vehicles. And then on 16 March Riley wrote
another
email to Lewis stating:
‘Please add
the following building to the policy wef [with effect from] 15/3/2010
Risk address to 8
Press Ave Crown Mines JHB. This is their offices.
R15 000 000
Rate .100%
Add Sasria’
The policy was revised to add the
premises under the ‘buildings combined’ section of the
policy at the rate requested,
which was favourable to King’s
Property.
[17] As I have said, Hughes J held that
Regent was estopped from relying on any defence of non-disclosure of
the risk of fire in
premises used for construction of trucks and
trailers with flammable materials. She made no finding, however, as
to whether there
had been a material non-disclosure as to tenancy of
the premises.
[18] On appeal, Regent argued that there
was a material non-disclosure that entitled it to reject the claim
and regard the insurance
contract as void, and that the defence of
estoppel had not been established as it was not shown that King’s
Property had
been induced to act to its prejudice by Regent’s
failure to carry out the survey. The cause of prejudice, argued
Regent on
the other hand, was the failure to disclose that the
premises were occupied by a tenant which manufactured goods using
highly flammable
materials such as fibreglass and resin.
[19] I shall deal first with the legal
principles governing material non-disclosure and then turn to whether
there was in fact a
failure to disclose a fact material to the risk
on the part of King’s Property, represented by Riley, that
induced Regent
to conclude the contract of insurance.
The legal principles covering
material non-disclosure
[20] It is trite that, at common law, an
insured, when requesting insurance cover, must make a full and
complete disclosure of all
matters material to the insurer’s
assessment of the risk. Failure to do so will entitle the insured to
reject a claim under
a policy and to treat it as void. Legislation
has been enacted, however, to preclude insurers from treating
misrepresentations
that are trivial, and more recently
non-disclosures that are trivial, as grounds for avoiding insurance
contracts and rejecting
claims.
[21]
Section 53(1)
of the
Short-Term
Insurance Act provides
:
‘Misrepresentation
and failure to disclose material information
(1)
(a)
Notwithstanding anything to the contrary contained in a
short-term policy, whether entered into before or after the
commencement
of this Act, but subject to subsection (2) –
(i) the policy
shall not be invalidated;
(ii) the obligation
of the short-term insurer thereunder shall not be excluded or
limited; and
(iii) the
obligations of the policyholder shall not be increased,
on account of any
representation made to the insurer which is not true, or failure to
disclose information, whether or not the representation
or disclosure
has been warranted to be true and correct, unless that representation
or non-disclosure is such as to be likely 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 renewal
or variation thereof.
(b)
The
representation or non-disclosure shall be regarded as material if a
reasonable, prudent person would consider that the particular
information constituting the representation or which was not
disclosed, as the case may be, should have been correctly disclosed
to the short-term insurer so that the insurer could form its own view
as to the effect of such information on the assessment of
the
relevant risk.’
[22] The section was preceded by s 63(3)
of the Insurance Act 27 of 1943, but that was limited to
representations and did not cover
non-disclosures. That resulted in
an inconsistency that was not rational. The history of the case law
dealing with the distinction
between material positive
misrepresentations and material non-disclosures is set out with great
clarity by Schutz JA in
Clifford v Commercial Union Insurance Co
of SA Ltd
[1998] ZASCA 37
;
1998 (4) SA 150
(SCA). This court endorsed the view
that the test for whether a non-disclosure is material to the
assessment of the risk is objective.
In this regard the court in
Clifford
confirmed the principles adopted in
Mutual and
Federal Insurance Co Ltd v Oudtshoorn Municipality
1985 (1) SA
419
(A) at 435G-I in finding that the test was whether the reasonable
person would have considered that the risk should have been disclosed
to the insurer. But, in interpreting s 63(1) of the former Insurance
Act, this court held that the test for determining whether
a
misrepresentation was material was a subjective one:
Qilingele v
South African Mutual Life Assurance Society
1993 (1) SA 69
(A).
In
Clifford
Schutz JA (delivering the majority judgment)
considered, but did not decide, that that aspect of
Qilingele
was wrongly decided. (The minority considered that it was not
necessary for the decision to pronounce on the correctness or
otherwise
of
Qilingele
and refrained from doing so.)
[23] It is clear now, however, that
since the introduction of
s 53(1)
of the
Short-Term Insurance Act
(and
pursuant to its amendment in 2003) the test in respect of both
misrepresentations and non-disclosures is an objective one, thus
bringing the legislation in line with the common law. Two principles
enunciated in
Clifford
remain applicable. First, the onus
rests on the insurer to prove materiality (at 155E-G), this in
accordance with the decision
in
Qilingele
; and second, the
insurer must prove that the non-disclosure or representation induced
it to conclude the contract. Thus the insurer
must show that the
representation or non-disclosure caused it to issue the policy and
assume the risk. As Schutz JA pointed out
(at 156E-I), however, once
materiality has been proved it would be difficult for the insured to
overcome the hurdle of showing
no causation, a matter to which I
shall return.
[24] In
Mahadeo v Direct Insurance
Ltd
2008 (4) SA 80
(W) paras 17 and 18 the court confirmed that
the test in
s 53(1)
of the
Short-Term Insurance Act is
objective:
whether information should have been disclosed is judged not from the
point of view of the insurer but from that of
the notional reasonable
and prudent person. The question is thus whether the reasonable
person would have considered the fact not
disclosed as relevant to
the risk and its assessment by an insurer.
[25] Regent argued on appeal that the
test for inducement remains subjective (see
Clifford
at
157G-H), and that the court in
Mahadeo
failed to appreciate
this. It relied in this regard on the judgment in this court in
Representative of Lloyds & others v Classic Sailing Adventures
(Pty) Ltd
2010 (5) SA 90
(SCA) para 24. As I see it, no such
finding was made by this court. It dealt not with the question of
inducement but with whether
an insured can waive the benefits
conferred by the statute in
s 53.
And
Mahadeo
dealt only with
the test for materiality, and not the question of inducement.
[26] There is, however, a dictum in
Mutual & Federal Insurance Co Ltd v Da Costa
2008 (3) SA
439
(SCA) para 12, relied on by King’s Property, that suggests
that the test for whether an insurer was induced to issue a policy,
or one at a lesser rate, is objective: would the reasonable insurer
have refused to extend the cover had it known the truth? But
in fact
this court in
Da Costa
was dealing with the question whether
the misrepresentation was material and did not consider the question
of inducement.
[27] I consider that the test for
inducement remains subjective – was the particular insurer
induced by the failure to disclose
a material fact to issue the
policy? In making the enquiry, ‘evidence that the insurer had a
particular approach to risks
of the kind in question would be
relevant and could be cogent’ (Qilingele at 75C-D). But, as
Schutz JA said in Clifford (at
156G-I), referring to
Pan Atlantic
Insurance Co Ltd v Pine Top Insurance Co Ltd
[1995] 1 AC
501
(HL), ‘once materiality has been established, the insured
is likely to face an uphill struggle in trying to demonstrate that
his non-disclosure or misrepresentation bearing this stamp had no
effect’.
Was there a failure to disclose the
nature of the risk?
[28] It is clear that Riley,
representing King’s Property, did not disclose the actual risk.
He did not himself know who occupied
the premises and what business
was conducted there. He thus did not disclose that Elite Fibre
occupied the premises and manufactured
truck and trailer bodies
using fibreglass and resin. The question that then arises is whether
the argument that there was sufficient
disclosure of a similar risk,
advanced by King’s Property, bears scrutiny. It argued that the
many requests for quotations
in respect of cover in respect of the
premises over the period from April 2008 to March 2010, and the
various revisions to the
policy pursuant to those requests, were
sufficient to disclose to Regent that the premises were occupied by a
business using flammable
materials.
[29] Regent argued that the only basis
on which it could be said that the risk was in some way disclosed to
it was if Lewis should
have ‘tied’ the emails of 9
February 2010 and 16 March 2010 or that in the discussion between
Lewis and Riley on 10
March 2010 the request for a quotation for the
premises was considered. It should not be required of Lewis that he
put all the
pieces of the puzzle together and make sense of the
respective requests, Regent argued.
[30] Lewis testified that he did not in
fact realize that the second email, which referred only to the
premises, and stated that
the building was ‘their offices’,
related to the same premises as those in the earlier email. He
claimed that on reading
the first email, which referred to three
buildings, he focused on the larger ones for which collective
insurance would have been
necessary. He conceded that if he had
considered the request for cover for the premises he could have
ascertained what the building
was simply by looking at his own
records.
[31] The premises, argued King’s
Property, had been covered for fire insurance on and off, on the same
policy, since April
2008. Had Lewis looked at the schedules to the
policy he would have realized that the premises had previously been
described as
being occupied by ‘Property Developers/suppliers
of Bedding Goods’. And had he looked at the email sent but five
weeks
earlier on 9 February he would have seen that it referred to
the premises as offices/warehouse.
[32] Mr David Fry, called as an expert
in the insurance industry by King’s Property, testified that
Regent, had it looked
at its records, would have established that the
premises referred to in the email of 16 March were the same as those
previously
on the schedules to the policy, and had been variously
described as a warehouse, as the premises of a bedding supplier and
as offices.
[33] Despite this, Regent argued that
Riley was responsible for non-disclosure: he ‘contented’
himself with assuming
that Lewis would recall his email of 9 February
2010 when the second email was received on 16 March 2010. King’s
Property
on the other hand, argued that Riley did not content himself
at all; he asked for an urgent survey to be done of the premises. The
only purpose of that could have been so that Regent could ascertain
the risk. I shall return to the question of the survey.
[34] In my view, while Lewis possibly
could have ascertained information about the premises from the
records available to him, what
he would
not
have discovered
was that the premises were occupied by a tenant which manufactured
truck bodies and trailers, using flammable materials.
The presence of
Elite Fibre in the building, and the fact that it occupied a
substantial portion of the building, made a material
difference to
the risk. I consider that the reasonable person would have regarded
that fact as material and disclosed it to Regent.
The request for a survey
[35] King’s Property contended,
however, that Regent was able to ascertain the risk by doing the
survey that was requested
by Riley. The evidence established that
within minutes after sending the email on 16 March 2010 requesting
cover on the premises
at a rate of 0.1 per cent, Riley phoned Lewis
and asked him to conduct an urgent survey in respect of the premises.
While there
was some dispute as to the content of the discussion and
the reason for the request, what cannot be disputed is that Lewis,
only
20 minutes after receiving the email, gave instructions to his
assistant, Mr Ziaad Kyriakidis, to arrange an urgent survey.
[36] The instruction was not followed
up. Only on 26 April, when Lewis realized that the survey had not yet
been done, did he give
Kyriakidis Riley’s contact number. Riley
in turn referred Kyriakidis to the shareholder of King’s
Property, Mr D Zhang.
On 30 April, Kyriakidis completed a request for
a survey for the purpose of giving it to Regent’s surveyor, Mr
Shaun Harper.
[37] Harper had previously done a survey
of the premises when working for another insurer. He knew that a
supplier of bedding goods
had previously been situated in the
premises. Had he been told by Regent that a bedding supply concern
was still in the premises
and been asked to do the survey timeously,
he said, he would have prioritized the work and gone to the premises
when asked to do
so. The survey request said that the premises were
occupied by property developers, and was thus inaccurate in any
event.
[38] Regent argued that the purpose of
the survey was to ascertain how well run and managed the risk at the
premises was. It should
have been advised what the risk was in the
first place: King’s Property should have told Regent that Elite
Fibre occupied
the premises, and, if the risk had been accepted
which, for the reasons that follow, was unlikely, the surveyor would
then have
determined how the risk was being managed. In the
end, though, even if the purpose were to ascertain the risk, the
survey
was not requested before the policy was revised to include the
premises, and the insurance was not made conditional on the survey
being completed. The request for the survey did not relieve King’s
Property of the duty to make a full disclosure as to the
use of the
premises.
Did the failure to disclose the
business of Elite Fibre induce Regent to insure the premises?
[39] If Riley had disclosed that Elite
Fibre was a tenant in the premises, would Regent have declined to
assume the risk or accepted
it on different terms? Was disclosure of
the presence of a warehouse sufficient in the circumstances? Regent
argued that, on the
assumption that Lewis knew, or at least should
have known, that there was a warehouse at the premises, this would
not have alerted
him to the risk of flammable materials being used in
the premises. That risk is quite different, it was argued, from the
risk attendant
on a warehouse where goods are stored, or even the
risk attendant on a business supplying bed covers. Regent’s
assessment
of the risk would have been different, it argued.
[40] Lewis referred in this regard to
the Regent Rating Guideline which classified fibreglass goods
manufacturers, retailers or
wholesalers as a ‘Z’, which
meant that the risk would not be accepted without the technical
management’s assessment
and the decision of the general
manager. The risk, he said, would have to be surveyed before
insurance cover was issued. And even
if those hurdles had been
overcome, Regent would still not have insured the premises against
fire under the building combined section
of the policy. That section
expressly precluded cover in respect of buildings used for
manufacturing. The policy also stated that:
‘A category
has been introduced into the rating guide, known as ‘Z’
which means “Decline”. Due to
high hazard
of this
category, we, nor our treaty reinsurers wish to underwrite this
business.’
Thus had Regent known that the premises
were used for manufacturing it would have declined to extend
insurance under the buildings
combined section; and a fortiori, had
it known that fibreglass was being used it would have declined to
extend the cover at all.
Lewis was not authorized to extend cover for
this risk and would have jeopardized his job had he done so. His
evidence that he
did not know that there was any fire risk at the
premises is supported by this factor.
[41] King’s Property, on the other
hand, argued that the risk in respect of premises occupied by
fibreglass manufacturers
was no greater than in respect of premises
used for a warehouse where goods are stored or premises occupied by a
supplier of bedding
materials. This was the view of Fry and Harper.
And it will be recalled that Harper had previously surveyed the
premises (when
the bedding supply business was in occupation) and had
considered the risk well-managed.
[42] Moreover, King’s Property
argued, Mr Paul Moremi, its first witness, had surveyed the premises
for the purpose of insuring
Elite Fibre’s business, and
considered that the risk was well-run. On the strength of that view,
Mutual and Federal had issued
a policy in October 2009 to Elite
Fibre.
[43] In my view, that is of no
consequence. As shown, Regent would not have extended cover under the
buildings combined section
had it known that there was a
manufacturing business in occupation, and it would have declined the
risk altogether had it been
advised that Elite Fibre was
manufacturing goods using fibreglass and resin. Regent was clearly
induced to enter into the contract
by the non-disclosure of the
tenant’s business. It would have accepted the risk only in
special circumstances and after further
investigation. Had Lewis
known the facts that were not disclosed he would not have issued
cover at all – or at least, not
on the terms that he did.
Waiver
[44] King’s Property, as indicated
earlier, in response to Regent’s plea of non-disclosure,
replicated that it had requested
an urgent survey as soon as it asked
for insurance cover for the premises; Regent had issued the policy
without stating that it
was subject to a survey; and in so doing it
had waived its right to rely on the non-disclosure. The argument was
not pressed on
appeal since it was clear that Regent had not
knowingly abandoned its right to rely on something of which it was
ignorant. Waiver
of a right entails knowledge of it: where there has
been a non-disclosure there clearly cannot be an intention to give up
the right
to rely on it.
Estoppel
[45] In the alternative, King’s
Property argued that when Regent issued the policy despite not having
done the survey requested
by Riley, and accepted payment of the
premiums, Regent lulled it into a false sense of security. Had it
known that the survey had
not been done, and that cover would not
have been issued, it would have attempted to obtain insurance from
another company, instead
of which it had been misled and acted to its
detriment. The high court found that Regent was estopped from relying
on the non-disclosure
in the circumstances.
[46] As Regent argued, however, what
actually caused prejudice to King’s Property was its failure to
disclose Elite Fibre’s
tenancy and the nature of its business.
Had it made a proper disclosure Regent would have given priority to
the survey. Moreover,
Riley had asked Lewis to extend the cover with
effect from 15 March 2010, the day before he requested that the
survey be done.
The policy was revised to cover the premises before
the survey was even requested. And when Kyriakidis contacted Riley on
26 April
2010 to ask for a contact number so that the survey could be
done, Riley became aware that Regent had not complied with his
request
to do the survey urgently. No misrepresentation was proved
and no estoppel was established.
[47] I conclude, therefore, that King’s
Property’s non-disclosure of the fact that there was a
manufacturing business
that used highly flammable materials in the
process of manufacturing to Regent was material, in that the
reasonable, prudent person
would consider that it should have been
disclosed so that Regent could have formed its own view as to the
effect of the information
on the assessment of the risk
(s 53(1)
(b)
of the
Short-Term Insurance Act). The
non-disclosure quite obviously
induced Regent to extend the cover. And thus Regent was
entitled to reject the claim and to
regard the policy as void.
[48] In the result:
(a) The appeal is
upheld with costs including those of two counsel.
(b) The order of
the high court is set aside and replaced with:
‘The
plaintiff’s claim is dismissed with costs, save for those
occasioned by the defendant’s applications for
leave to amend
its rejoinder.’
___________________
C H Lewis
Judge of Appeal
Wallis JA (concurring)
[49] I arrive at the same conclusion as
Lewis JA, but by a slightly different route. Regent repudiated
liability under the policy
on the grounds of a material
non-disclosure inducing it to provide cover. It was not told that
Elite Fibre, a tenant that was manufacturing
vehicle bodies on the
premises out of fibreglass and resin and associated chemicals,
occupied the premises that burned down. Mr
Riley, the broker
representing King’s Property, was unaware of that fact and
could not disclose it. He said that had he known
he would have
informed Mr Lewis, the underwriter representing Regent, of that fact.
Mr Fry, the expert witness called on behalf
of King’s Property,
testified that a full disclosure of the nature of the business
conducted at the premises must be made
by the insured.
[50] King’s Property sought to
overcome this non-disclosure by invoking the principle that the
insured need not disclose information
in the possession of the
insured (
Malcher & Malcolmess v Kingwilliamstown Fire &
Marine Insurance & Trust Co
(1883) 3 EDC 271
at 288). It
contended that if Regent had examined its records and prior
correspondence it would have discovered that the business
of King’s
Property had been described as ‘Property Developer/suppliers Of
Bedding Goods’ and that, in one earlier
email, the building on
the property had been described as both offices and a warehouse.
That, taken together with the request that
the property be surveyed,
albeit only so that all the properties in the portfolio had been
surveyed, was alleged to have disclosed
a risk at least equivalent in
nature to the actual risk and accordingly there had been sufficient
disclosure of the nature of the
risk being underwritten. The
contention was that Mr Lewis should have inferred that the premises
were being used to manufacture
bedding and that this was an
equivalent fire risk to the risk posed by manufacturing fibreglass
vehicle bodies in the premises.
I disagree with both legs of this
argument.
[51] As to the first leg King’s
Property sought to place a duty upon the insurer to make enquiries
that it did not in law
bear and that was inconsistent with its own
duty of disclosure. It required that Mr Lewis fossick around Regent’s
records
unearthing little bits of information that had been disclosed
to it in the past and assemble them into a picture that would enable
him to determine the nature of the risk and assess whether Regent
wished to grant cover and, if so, on what terms. There may be
some
uncertainty regarding the extent to which an insurer must consult its
own records or search its own or some other data base
in search of
information before going on risk (12,
Part 1
LAWSA
2 ed, para
217, fn2). But the suggestion that in this case Mr Lewis needed to
read the entire file and put together a picture of
the risk from an
email written over a month earlier, read in the light of some
previous schedules to the policy and a general description
of the
nature of the insured’s business, in my view goes too far. He
was being asked to provide cover in respect of a building
described
to him as offices. The cover was sought under the buildings combined
section of the policy, which was not available to
cover a
manufacturing facility. He was entitled without more to accept that
he was being asked to provide cover for that risk.
He was not alerted
to the fact that he needed to explore further.
[52] An underwriter such as Mr Lewis
will in the course of a day receive many requests for cover or
amendments to existing policies,
either telephonically or by email.
His evidence was that he received around 100 emails a day. King’s
Property suggests that
he was obliged, before responding to Mr
Riley’s request for cover for an office building, under the
buildings combined section
of the policy, to go back to the file in
respect of this client, and peruse its contents over a two year
period. There he would
have discovered a single email written in
February referring to an unidentified property in Crown Mines, but
saying that the property
had previously been ‘on the policy’.
That email described the building on the property as
‘Offices/warehouse’.
Exploration would have revealed that
the property had to be 8 Press Avenue, Crown Mines. Taking that
together with the description
of King’s Property as a ‘Property
Developer/supplier Of Bedding Goods’ it was argued that Mr
Lewis would have
realised that there was a manufacturing operation on
the premises using flammable materials.
[53] That this argument involved a
number of leaps of logic is plain. The following two are glaring. A
supplier of bedding goods
is not necessarily engaged in the
manufacture of those goods and a warehouse is ordinarily used for
storage not manufacturing purposes.
And even had Mr Lewis followed
this tortuous course he would not have known that a tenant was in
occupation of 80 per cent of the
premises and using it to manufacture
bodies for vehicles out of fibreglass and resin and associated
chemicals. Nor would he necessarily
have equated the risk of
flammable bedding materials with the risk of working with fibreglass.
That brings me to the fallacy underpinning
the second leg of the
argument.
[54] The contention that there was
adequate disclosure of a comparable risk is incompatible with the
basic principle stated in para
20 of Lewis JA’s judgment, that
the insured seeking cover is obliged to disclose to the insurer all
matters material to an
assessment of the risk. This, as King’s
Property’s own witnesses accepted, necessarily included, in the
present case,
the occupancy of the premises and the nature of the
manufacturing operations being conducted on the premises. That was
not disclosed.
The proposition that disclosure of some other risk,
that was not in fact the risk in respect of which cover was being
sought, discharged
the insured’s obligations, is utterly
inconsistent with that basic principle. It is a proposition for which
no authority
in the long history of insurance was produced and I have
found none. The reason why an insured must make a proper disclosure
is
to enable the insurer to make a proper assessment of the risk it
is being asked to cover. It cannot do that if it is not told what
that risk is. This is not a case of a slightly inaccurate or
insufficient description of the actual risk being covered, which may
raise issues of materiality. It is a case where there was no
disclosure at all of the particular risk. It is hard to see how a
complete non-disclosure of the risk could not be material.
[55] The evidence of Messrs Riley and
Fry on behalf of King’s Property that the nature of the
manufacturing activities in
the premises should have been disclosed
as material is of itself decisive on the issue of materiality. In any
event it is plain
that had the risk been disclosed, in accordance
with Regent’s underwriting policy, it was not one that would
have been covered
under the buildings combined section of the policy.
Indeed it would have been classed as a Z risk that could only be
covered after
a survey, reference to the Broker Division Technical
and on the authority of the General Manager of Regent. There could
hardly
be a clearer case of the insurer’s approach to risk
being relevant and cogent on the issue of materiality.
[56] Regent was accordingly entitled to
repudiate liability on the policy. The estoppel that found favour
with the court below was
based on the proposition that King’s
Property was lulled into a sense of false security and thought that
it had insurance
cover, with the result that it did not seek cover
elsewhere. The answer is that the only representation made to it was
that cover
had been extended on the terms of the policy and those
terms included the right of the insurer to avoid liability if the
insured
was guilty of a material non-disclosure inducing the
contract. There was no representation that the insurer would not rely
on this
right if such a non-disclosure came to light as it did when
the premises were destroyed by fire and it discovered the true nature
of the manufacturing activities being carried on in the premises.
[57] I accordingly concur in the order
proposed by Lewis JA.
_____________________
M J D Wallis
Judge of Appeal
APPEARANCES
For Appellant: G Kairinos SC, A Schluep
Instructed by: Couzyns Inc, Rosebank
Hugo & Bruwer Attorneys,
Bloemfontein
For Respondent: E C Labuschagne SC
Instructed by: Savage Jooste and Adams,
Pretoria
Webbers Attorneys, Bloemfontein