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[2015] ZAGPPHC 1088
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RMB Structured Insurance Ltd v Danresa Boeedery (Pty) Ltd (72663/2012) [2015] ZAGPPHC 1088 (20 August 2015)
REPU
BLIC OF SOUTH AFRICA
IN
THE GAUTENG DIVISION OF THE HIGH COURT, PRETORIA
CASE
NO: 72663/2012
DATES
HEARD: 7, 11& 12/8/ 2015
DATE:
20/8/15
NOT
REPORTABLE
In
the matter between:
RM
B
STRUCTU
RED
INS
U
RANCE
LTD
Plaintiff
and
DAN
RESA BOERDERY (PTY)
LTD
Defendant
J
U
DG
M
ENT
J
W LOUW, J
[1]
During 2011, the defendant was the owner of a game farm in the
Timbavati nature reserve which borders on a tributary of the
Timbavati river and on which a five star lodge had been erected. The
lodge was operated by Status Hotels (Pty) Ltd in terms of
an
agreement it had with the defendant. The property was insured with
SantamInsurance Co Ltd in terms of a short term insurance
policy which the defendant, represented by its director and only
shareholder, Mr. Hennie de Beer, had obtained through Daan Schoeman
Insurance Brokers in Polokwane, represented by Mr. Jannie Steyberg.
[2]
During May 2011, Mr. Frik Nel of Brilliant Brokers (Pty) Ltd
(Brilliant) approached Mr. de Beer and inquired whether he could
make
a proposal to the defendant regarding short term insurance. Mr. de
Beer had previously been introduced to Mr. Nel by Mr. Nel's
brother,
Mr. Jannie Nel, who had been interested in purchasing the defendant's
farm. Mr. de Beer provided Mr. Frik Nel with a copy
of the Santam
policy and told him that the quotation should be for exactly the same
cover as provided for in the Santam policy.
The policy provided
cover for damage to the property, including to the lodge.
[3]
The first quotation, which was from Risk Guard Alliance (Pty) Ltd
(Risk Guard), was provided by Mr Nel during May 2011. Risk
Guard
were the underwriting managers for SaxumInsurance Ltd and acted
as its agent.
The
quotation was for a better rate with more benefits than the Santam
policy. Further quotations were provided as a
result
of further negotiations between Mr. de Beer and Mr. Nel.
The commencement date of the policy
which was issued
pursuant to the final quotation, which was accepted by Mr de Beer on
behalf of the defendant, was 1July 2011.
Mr. de Beer was not
asked to complete any application form prior to the issue of the
policy. The policy was subsequently
taken over from Saxum by the
plaintiff. Risk Guard also acted as underwriting managers and agents
for the plaintiff.
[4]
On 17 January 2012, a flooding of the Timbavati river occurred as a
result of heavy rains in the area. The flood caused
extensive
damage to the lodge. The defendant thereafter submitted a claim to
Risk Guard for compensation for the damage. The assessors
appointed
by Risk Guard estimated the loss in an amount of R13 818 793.86. Risk
Guard accepted liability for the loss on behalf
of the defendant and
made an interim payment of R2 980 030.00 to the defendant on 28
February 2012.
[5]
On 29 May 2012, Risk Guard wrote to the defendant and advised it that
Risk Guard had elected to avoid the policy because the
defendant had
failed to disclose certain material facts, to which Iwill refer in
more detail below, at the time of the conclusion
of the insurance
contract. It claimed repayment of the amount of R2 729 623.90, being
the amount of the interim payment of R2 980
030.00 less the premiums
of R250 406.19 which had been paid by Status Hotels on behalf of the
defendant.
[6]
The amount claimed was not repaid by the defendant, and the plaintiff
thereafter, during December 2012, issued
summons
against the defendant under case no.
72633/2012 for repayment thereof.
During
April 2014, the defendant instituted action against the
plaintiff under case no. 29142/2014
for payment of the
amount of R10 838 763.86, being the difference between the amount of
the claim it submitted and the interim
payment which was made. The
two cases have been consolidated in
terms of a court order.
[7]
The non-disclosures on which the plaintiff relied as being material
as contemplated by s 53 of the Short TermInsurance Act,
53 of 1998
(the Act), and entitling it to avoid the policy, were pleaded as
follows in its particulars of claim:
"7.
At
the
time
of
the conclusion
of
the policy,
the defendant
knew,
but
failed
to disclose
to
the
plaintiff,
that:
7.1
its
previous
insurer,
Santam,
had
cancelled
its
previous
insurance
policy
in
respect
of
the property that
was
the subject
matter
of
the
policy
due to the non-payment
of premiums;
7.2
It was indebted
to Nedbank
in the
sum
of R 30 million;
7.3
It executed
a mortgage
bond
over its immovable
property
in
favour of Nedbank on 21 January 2008;
7.4
It
was
unable
to
discharge
its
indebtedness to
Nedbank with
the
result
that
Nedbank
instituted
action
against
it
for
the
recovery
of
the R30 million;
7.5
It
concluded a
settlement
agreement
with
Nedbank on 12
June
2009
in
terms
of
which
it
declared
executable
the immovable
property
at the
instance of Nedbank and
which
settlement
agreement
was made an order of
court on 7
July 2009;
7.6
It
breached
its obligations
under
the settlement agreement
resulting
in
the
immovable
property being
attached
on
2
October
2010.
7.7
It
was
in
financial
difficulty,
alternatively
was
unable
to
meet
its
debts as and
when they fell due."
[8]
These allegations were denied by the defendant, but when the trial
commenced Iwas informed that the defendant admitted that
the facts
alleged in paragraphs 7.1 to 7.6 were not disclosed by the defendant
at the time of the conclusion of the insurance contract.
In respect
of the allegation in paragraph 7.7, the admission was a qualified
one. Iwas informed by Adv. Geach SC, who appeared
for the defendant,
that the defendant's answer to the allegation was that it was not
insolvent at the time. The parties were in
agreement that the only
issue to be decided at this stage of the proceedings was whether the
non-disclosures were material. It
was common cause that the plaintiff
bore the onus to prove that they were. The
quantum
of the
defendant's claim was by agreement postponed
sine die
for
later determination.
[9]
The test for determining whether a non-disclosure is material, is an
objective one. In
Commercial
Union
Insurance
Co
of
SA
Ltd v
Wallace NO;
Santam
Insurance
Ltd
v Affric
Addressing
(Pty)
Ltd
1
Nugent JA said the following
2
:
"In
Oudtshoorn
Municipality
3
(supra
at 435F
-
I), it
was
held
by
this
Court
that
the
test
of
materiality is
an
objective
one,
to
be
determined
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'.
What is meant by
that was
expanded
upon by
Van
Heerden
JA
in
President
Versekeringsmaatskappy
Bpk
v
Trust
Bank
van Afrika Bpk
en
'n
Ander
1989 (1)
SA 208 (A), when he said
the following
at
216E
-
G:
'(
D
)ie
vraag
(is)
dus
nie
of
na
die
oordee/
van
'n
redelike
man
die
betrokke
inligting
we/
die risiko bei"nvloed nie, maar of dit redelikerwyse
'n
effek mag he
op
'n voornemende
versekeraar se besluit
om al of nie die risiko
te aanvaar
of
'n
hoer premie as
die normale te verg. Anders gestel, is die toets of die redelike
man sou geoordee/
het dat die inligting
oorgedra
moes
word sodat die
voornemende
versekeraar
self tot
'n besluit
kan kom.
En so
'n oordeel sou
hy
bereik
het
indien
die
inligting
na
sy
mening die
voornemende
versekeraar
redelikerwyse
kon
beinvloed
het.
'
[10]
The objective nature of the test for materiality also appears from s
53(1)(b) of the Act, which deals with misrepresentation
and failure
to disclose material information. Section 53(1) provides as
follows:
(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.
[11]
The definition of materiality in s 53(1)(b) is effectively the same
as the test formulated in
President
Versekeringsmaatskappy
(supra).
In
Mahadeo v
Dial Direct
Insurance Ltd
4
emphasised
5
that 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 test, according to Boruchowitz
J ,
was not whether the reasonable person would have disclosed the fact
in question, but whether the reasonable person would
have
considered that fact reasonably relevant to the risk and its
assessment.
5
[12]
Section 59(1) of the Long Term Insurance Act, 52 of 1998, is in
exactly the same terms as s 53(1)(b) of the Sort TermInsurance
Act. Nienaber and Reinecke,
Life
Insurance
in
South
Africa,
have formulated the
test for materiality as follows:
"The
test
is would
such
a
person
(i.e. the notional reasonable and prudent
person),
imbued with
the
common
knowledge
and
common
sense
of
a
common consumer,
believe
that
the
non-disclosed information
was
essential
to
enable
the underwriter to
decide
whether
to
accept
the
risk
and
if
so,
on
what
terms?
It is
a
test
designed
to
be
more
generous to
the
insured than
the
postulate of
a reasonable
underwriter
since
it
would exclude
matters
(such as actuarial considerations
and
pricing
policies)
the
underwriter would probably regard
as important
but
of
which
the
ordinary insured
would
be
unaware."
[13]
There are two categories of facts relating to non-disclosure on which
the plaintiff relies. The first is the cancellation
of the
defendant's previous Santam policy. The second is the facts
surrounding the defendant's indebtedness to Nedbank.
The
Santam facts
[14]
The evidence of Mr. de Beer was that he instructed Mr. Steynberg of
Daan Schoeman Makelaars to cancel the Santam policy after
he had
arranged the new insurance through Mr. Nel of Brilliant. In terms of
his arrangement with Status Hotels, the operators of
the lodge, they
had to pay the monthly insurance premiums for the Santam policy to
Daan Schoeman Makelaars before accounting to
the defendant. Mr. de
Beer testified that Status Hotels had not reported to him that they
had failed to pay the premiums for May
and June 2011, and he was
therefore unaware of the non-payment when he instructed Mr. Reyneke
to cancel the Santam policy. He only
heard later that there had been
a problem with Status Hotel's debit orders which had been
dishonoured.
[15]
Mr. de Beer was referred during his evidence in chief to a letter
which Santam had addressed to Royal Legend Lodges,
the previous
operator of the lodge, on 26 May 2011. The letter refers to the fact
that the latest debit order had been dishonoured
by the bank, that
Santam would present two debit orders at the following request for
payment, but that the policy would be cancelled
if a debit order was
unpaid for two consecutive months. The address to which the
letter was addressed was P.O. Box 222, Wapadrand.
Mr. de Beer
confirmed that that was his postal address, but said that he could
not recall receiving the letter.
[16]
During cross-examination, Mr. de Beer was referred to a
further letter which Santam had addressed to Royal
Legend
Lodges at the same postal address and in which they advised that the
policy had been cancelled due to non-payment of the
premium. The
letter was dated 20 June 2011. Mr. de Beer denied receiving the
letter and said that he only saw it later.
[17]
Mr. de Beer was then referred to an e-mail which he had received from
Mr. Steynberg on 24 June 2011 and which he had forwarded
to Brilliant
the same day, requesting confirmation that their insurance was in
place. The e-mail of Mr Steynberg which Mr. de beer
forwarded
to Brilliant read:
"Ons telefoniese
gesprek
van
24-0l(si
c)-201 1 verwys.
Aangeheg die
skrywe
dat
die
versekering
nou
gekanselleer is."
Mr. de Beer accepted that the cancellation letter had been
attached to the e mail, but said that he received the
cancellation
letter
"op
'n stadium",
and at that stage he had already cancelled the Santam policy and
the new insurance policy had been in place.
[18]
Mr. de Beer was then referred to a copy of a string of e-mails which
had been brought to court by representatives of Santam
who had been
subpoenaed
duces
tecum
by the plaintiff
and which, according to what is reflected in the e-mails, were
forwarded to Santam by Mr. Steynberg shortly before
the trial on 22
July 2015. The e-mails were handed in as exhibit "B". What
appears to be the same e-mail sent by Mr.
Steynberg to Mr. de Beer on
24 June 2011, and which Mr. de Beer forwarded to Brilliant,
contained, for a reason which was unexplained,
additional
information. The e-mail reads as follows:
"Ons
telefoniese
gesprek
van 21-06-2011
verwys.
Angeheg
die skrywe
dat
die
versekering nou gekansel/eer
is agv premies
wat nie deur gegaan het nie.
Die
premies was veronderstel om op die 16de van die maand deur te gaan
maar daar was nie fondse op die rekening nie.
Laat
weet
asseblief
dringend
vir
my
wat
ons
nou
moet
doen
en
of
daar
dalk
'n
ander rekening
is waar die premies
van kan afgaan."
[19]
Mr. de Beer admitted that when he received the e-mail, he saw that
the Santam policy had been cancelled due to non-payment
of premiums.
He said that at that stage he had already instructed Steynberg to
cancel the policy. He agreed, however, that if the
policy had been
cancelled by Steynberg as per his instructions, the last sentence of
the e-mail did not make sense. He added that
Mr. Henk Bredenoord, the
CEO of Status Hotels, told him that the new insurance was in place
and that they should forget about Santam
and that he, Bredenoord,
would handle the matter.
[20]
It is clear from the aforegoing that Mr. de Beer knew by latest 24
June 2011 that the Santam policy had been cancelled due
to non-
payment of premiums. The Santam policy was therefore not
cancelled as a result of an instruction given by Mr. de
Beer to Mr.
Steynberg. Mr. Nel, who was called as a witness for the defendant,
confirmed that he was unaware of the non-payment
of the Santam
premiums when he arranged the insurance for the defendant with Risk
Guard.
[21]In
my view, the reasonable, prudent person would consider that the
cancellation of the Santam policy due to the non-payment
of premiums
should have been disclosed by the defendant to enable Risk Guard to
decide whether to accept the risk and if so, on
what terms. The
effective date of the policy issued by Risk Guard was 1 July 2011,
but the policy schedule was signed by Risk Guard
on 24 June 2011,
which is the date on which Mr. de Beer became aware that the Santam
policy had been cancelled due to non-payment
of premiums. In my view,
it does not make any difference if Mr. de Beer knew that the policy
had been issued when he received the
e-mail of 24 June 2011. The
policy had not yet become effective. Once Mr. de Beer became aware
that the previous policy had been
cancelled due to the non-payment of
premiums, that fact should have been disclosed to Risk Guard. The
evidence of Ms. Caroline
Swanevelder, the head of underwriting at
Risk Guard, was that she would not necessarily have declined to take
on the risk, but
that she would have asked questions about the
non-payment of the premiums and would have required that the debit
orders first go
through.
7
The
Nedbank facts
[22]
Mr. de Beer's evidence relating to Nedbank was that he was approached
during 2007 or 2008 by two brothers with a business proposal.
They
persuaded him to enter into a joint venture with them, to register a
covering mortgage bond for R30 million over the farm
and to make the
money so obtained available to their business W Capital (Pty) Ltd. to
be utilized for providing bridging finance
to clients. At that stage
the farm was unencumbered. The R30 million was then borrowed by the
defendant from Nedbank against security
of a mortgage bond which was
registered over the farm. Mr. de Beer stood surety for the debt.
Alter two months, the R30 million
which had been paid over to W
Capital had disappeared. Mr. de Beer established that the two
brothers had fraudulently bought immovable
properties with the money
for themselves.
He
was advised to lay criminal charges against them, but in lieu thereof
he persuaded them to transfer those properties to himself.
The
properties, which were situated to the West of Pretoria, were
destined for township development, but a large number of squatters
had in the meantime settled on the properties. Mr. de Beer resorted
to litigation which culminated in the Constitutional Court
which
ordered the City Council to purchase the properties from Mr. de Beer.
[23]
During this time, Mr. de Beer found it difficult to keep head
above water. The lodge had not been completely
restored
and business was poor. In terms of the settlement
agreement with Nedbank, the full outstanding
balance of the
loan (capital and interest) was payable on 31 July 2010. Nedbank
attached the farm on 2 October 2010 due to non-
payment of the
outstanding balance of the loan. At that stage, the
property was, according to Mr. de Beer's evidence,
valued at R69
million. Before the property could be sold, Mr. de Beer caused the
defendant to be placed under business rescue during
July 2012.
Towards the end of 2012, he received an offer from the owner of a
neighbouring farm to purchase the defendant's farm.
The offer, which
he accepted, was R35 million for the immovable property and R
lO million for the movable assets. The defendant
was then able to
settle the Nedbank debt and the business rescue of the
defendant was thereafter terminated. A
surplus of
RlO million remained. Although the defendant was not at
any stage declared insolvent, it clearly
was in serious financial
difficulty at the time when the insurance contract was entered into.
[24]
Adv. Chohan SC, who appeared for the plaintiff, submitted that the
non-disclosure of the defendant's financial position and
of the
cancellation of its previous insurance policy touched on the
integrity of the defendant and of Mr. de Beer, its only director
and
shareholder. This is commonly referred to as a moral risk or hazard,
a term which generally describes
circumstances
personal to the insured that raise questions as to his integrity.
8
Mr. Chohan referred in this regard
inter
alia
to
Van
Zyl
and
Maritz
NNO
and Others v
South
African Special
Risks
Insurance
Association
and Others
9
where
the following was said by Kroon J
10
:
"In
my judgment
the present
is
a
case
where
evidence
as
to
the
materiality of
the
information
is unnecessary
in
that
it is clearly
material.
I
repeat
that
whether
a man is bankrupt
or
not affects his
whole personality.
The
description
'bankrupt'
is
applicable
not
only
to a
man
who
has
been
declared
insolvent
but
also
to
a man
who is
in
fact
unable
to meet
his
liabilities.
There are, of course, additional
factors applicable
to an unrehabilitated
insolvent, such as his inability
to contract
freely,
but
where
the
insured
is
in
the
desperate
financial
condition
as
that
in
which
the
Watson
family
was,
dangers
such
as
that
the
insured
might
institute
an
inflated
claim
under the policy
or
might
not
take proper
and
reasonable
steps
to
protect the
property
insured
from
any
loss
insured
against,
or
might
even
himself
deliberately
cause
damage
to
the
property are,
as
in
the
case
of
the
declared
insolvent, just
as real."
[25]
In my view, a reasonable and prudent person would consider
that the defendant's financial position should have
been
disclosed by the defendant to enable Risk Guard to decide whether to
accept the risk and, if so, on what terms. Even if the
possibility of
fraud being committed by deliberate damage being caused to the
property is disregarded, the defendant's ability
to properly
maintain the property, which is not necessarily a moral risk
relating to the defendant's integrity, is something
which a
reasonable person would consider to be important for an insurer to
know when deciding whether or not to accept the risk.
Conclusion
[26]
For the above reasons, Iconclude that the Santam facts and the
Nedbank facts were material facts which should have been disclosed
by
the defendant, and that the plaintiff was accordingly entitled to
avoid the policy.
[27]In
the result, Igrant the following orders:
(a)
In case no. 72663/ 2012, the defendant is ordered -
(i)
to pay to the plaintiff the sum
of R2
729 623.90 together with interest at the rate of
15,5%
per annum
from date of service of the summons to
date of payment.
(ii)
to pay the plaintiff's costs of suit.
(b)
In case no. 29142/2014, the plaintiff's claim is dismissed with
costs.
Counsel
for RMB StructuredInsurance Ltd: Adv. M A Chohan SC
Instructed
by: Norton Rose Fulbright South AfricaInc
Counsel
for Danresa Boerdery (Pty) Ltd: Adv B P Geach SC
Instructed
by: HartzenbergInc, Pretoria
1
2004 ( I ) SA 326 (SCA)
2
At para [65]
3
1985 (l ) SA 419 (A)
4
2008 (4) SA 80 (WLD)
5
At p. 86 para [17]
5
Para [18] of the judgment.
7
See
Clifford v Commercial
Union Insurance
Co
of SA Ltd
1998 (4) SA 150 (SCA) at 155F - G
8
See
Commercial
Union Insurance
Co of
SA Ltd v
Wallace NO
2004 (I) SA 326 (SCA) para
(64)
9
1995 (2) SA 331 (SE)
10
At 361E/F - G/H