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[1984] ZASCA 47
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Lehmbecker's Earthmoving and Excavators (Pty) Ltd. v Incorporate General Insurances Ltd. (397/82) [1984] ZASCA 47; [1984] 2 All SA 352 (A) ; 1984 (3) SA 513 (A) (10 May 1984)
LEHMBECKER'S EARTHMOVING AND EXCAVATORS (PTY)LIMITED
and
INCORPORATED GENERAL INSURANCES LIMITED
379/82 N.v.H.
IN THE SUPREME COURT OF SOUTH AFRICA
In the matter between :-
LEHMBECKER'S EARTHMOVING AND
EXCAVATORS (PTY)LIMITED Appellant
and
INCORPORATED GENERAL
INSURANCES LIMITED Respondent
CORAM: RABIE, CJ, KOTZé, MILLER, JJA,
et HOWARD, GROSSKOPF, AJJA.
HEARD: 22 MARCH 1984
DELIVERED: 10 MAY 1984
JUDGMENT
MILLER, JA :-
The respondent issued a policy of
insurance to the appellant in terms of which the goods
described /
2
described in the schedule thereto were insured against all
risks of physical loss or damage while being conveyed within stated geographical
limits, which included the Republic of South Africa. The policy was described as
"Transit Policy Goods". It was to endure for a year,
commencing on 1 August 1979
and terminating on 31 July 1980. During October 1981 the appellant instituted
proceedings against the
respondent in the Transvaal Provincial Division for
payment of an amount representing the loss it suffered when goods covered by
the
policy were accidentally damaged on 21 October 1979 while in transit in the
Republic of South Africa. The claim was opposed by
the respondent.
After /
3
After a plea had been filed, the parties agreed to submit the
dispute to the Court in the form of a stated case, for which purpose
an agreed
"Statement of Facts" (the statement) was prepared. Included in the statement was
a brief description of the issue between
the parties. After hearing argument the
Court decided the issue in favour of the respondent and accordingly dismissed
the appellant's
claim with costs. The appeal is against the whole of that
order.
Paragraphs 1 and 2 of the statement describe the policy and its duration. The
rest of the statement reads as follows :
"3. On /
4 "3.
On the 21st of October, 1979 a mechanical horse having registration No BWL
125T, towing a semi trailer having registration No TSN35805
and a four wheel
trailer having registration TSN35789, was involved in a collision at De Wet,
district of Worcester, Cape Province.
4. The Plaintiff was at all material times the owner of the said
vehicles.
5. At the time of the collision the vehicles were being used by the Plaintiff
for the conveyance of certain goods for and on behalf
of Defy Industries (Pty)
Limited for reward and incidental to the Plaintiff's business.
6. The goods so conveyed were damaged and/or destroyed in the collision in
consequence whereof the Plaintiff became liable to Defy
Industries (Pty) Limited
in an amount of R24 224,86 or such amount as is actually paid to Defy whichever
is the lower.
7. On /
7 . On the 1st of November 1979 the Plaintiff represented by P C
Pretorius, he being duly authorised thereto, duly submitted a written
claim to
the Defendant in terms of the conditions of the said policy. A copy of the claim
is hereto annexed marked 'B'.
8. On the 23rd of November, 1979 the Plaintiff, again represented by
Pretorius, he being duly authorised thereto, submitted a further
claim for an
indemnity under the said policy of insurance arising out of damage to a certain
machine owned by Messrs Helios (Pty)
Limited, to the Defendant. A copy of the
claim is hereto attached marked 'C'.
9.
The claim submitted by the Plaintiff in terms of annexure 'C' hereto
was made fraudulently, more particularly in that:
(a) The date and place of the happening giving rise to the said claim was
alleged to have taken place on the 5th of November, 1979
at 10 a.m. at 2 Main
Road, Malborough, Sandton,
whereas /
6
whereas in truth and in fact the said machine was damaged prior to the 26th
of January, 1979.
(b) The damage to the said machine
was occasioned prior to the date
upon
which the said policy of
insurance annexure 'A' hereto,
commenced and the
Plaintiff was
accordingly not entitled to indemnity
under the said policy
of insurance
although Plaintiff was before the
1st of August 1979 in fact insured with the Defendant in terms of a previous
policy but did not claim thereunder.
(c) In
submitting the claim reflected
in annexure 'C' the Plaintiff sought to achieve an advantage which to its
knowledge it was not entitled to.
10.
After investigating the Plaintiff's claim in terms of annexure 'C' and
ascertaining the true position the Defendant repudiated the
said claim on the
ground that same had been submitted fraudulently, which repudiation was accepted
by the Plaintiff.
In or /
7
In or about April 1980 the Defendant repudiated liability in respect of the
Plaintiff's claim in terms of annexure 'B' hereto relying
on Clause 3 of the
conditions of the policy of insurance, annexure 'A' hereto.
11. The Plaintiff contends that although the Defendant is not obliged to
indemnify it in respect of the claim made under annexure
'C' hereto, the
Defendant is obliged to indemnify the Plaintiff in respect of the claim made
under annexure 'B' hereto."
It is not necessary to
reproduce claims "B" and "C"
referred to in paras 7 and 8, respectively, of
the
statement. Nor is it necessary to reproduce the
policy. The relevant
part of clause 3 of the conditions
of the policy of insurance, referred to in
para 10 of
the statement, reads thus :-
"If the /
8
"If the Insured in the aforementioned proposal or in any
statement for the continuance of this Insurance shall make any misstatement
or
if any Claim be in any respect fraudulent or intentionally exaggerated or if any
fraudulent means or devices be used by the Insured
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 benefit under this Policy shall be forfeited."
I should add that respondent also relied in its Heads of Argument on
Condition 10 of the policy, which it was said, supported its
argument on the
effect of condition 3. The point was not persisted in, however, and since
condition 10, in my view, has no bearing
on the issue before us I shall not
again refer to it.
It is /
9 It is common cause that the claim referred to in paragraph 7
of the statement (which I shall call claim "B") was in all respects
a valid
claim, in no way tainted with dishonesty; a claim which would have been paid out
by respondent but for the later submission
of the claim referred to in
paragraphs 8 and 9 of the statement, which I shall call claim "C". It is also
common cause that claim
"C" neither forms any part of nor is in any way related
to claim "B", save only in the sense that both claims were submitted, at
different times, under the same policy. The respondent's case is that
notwithstanding the validity of claim "B" and its independence
of claim "C", the
fraudulent character of the later claim relieves the respondent of its
obligation to make payment in terms of the
earlier and valid claim "B", by
virtue of the provision in condition 3 of the policy that if any claim be in any
respect fraudulent,
"all benefit under
this /
10 this Policy shall be forfeited" by the insured.
Similarly, but not
necessarily identically, worded conditions of forfeiture in respect of
fraudulent claims have for very many years
been a feature of certain kinds of
insurance policies. MacGilllvray and Parkington, in their Insurance Law (7th
Ed., para. 1925 at
p. 804) give a brief, historical sketch of the development of
the Introduction into policies of such conditions. In many instances
the price
of making a fraudulent claim was said in the "false claim clause" to be that the
claimant thereby "forfeited all claim
(or benefit) under the policy." (E.g.
Lek v Mathews
(1927) 29 Ll.L.R. 141, H.L., and cf.
Central Bank of
India, Ltd. v Guardian Assurance Co, and Rustomji
(1936) 54 Ll.L.R. 247,
P.C. in which the condition in the policy approximates very closely to condition
3 in this case). In other
policies (e.g. Lloyd's) the clause provided that if a
false claim were made "this Policy shall become void and all claim hereunder
shall be forfeited."
(See /
11
(See e.g.
Dome Mining Corporation Ltd. v Drysdale
(1931)
41 Ll.L.R.
109 at p. 121; Ivamy, General Principles of
Insurance Law, 4th Ed., p. 434).
It appears to me
that the insertion of express words to the effect
that
the result of a fraudulent claim would be avoidance of
the policy,
adds nothing of substance to a clause which
already provides for forfeiture
of all benefit under the
policy. The latter provision of itself connotes
avoidance
or termination of the policy and has, in general, been
so
understood. (See, in addition to the learned authors
referred to above, 44 Am. Jur. 2d, para. 1501 at p. 369).
I accept, therefore, (and there was no argument
to
the contrary before us) that condition 3 provides for
avoidance or termination of the policy; or to put it more
accurately, that in the event of a fraudulent claim being
made, condition 3 renders the policy voidable at the option
of the insurer. (See Ivamy,
supra
, p. 437; Colinvaux,
The Law of Insurance, 4th Ed., 9 - 32 at p.162). There
Is no doubt about the respondent's election to terminate
the /
12
the policy. The cardinal question is whether such
termination had
the effect of rendering unenforceable
a valid and as yet unpaid claim under
the policy, submitted
by the appellant to the respondent prior to the
making
of the fraudulent claim and prior to termination of the
policy.
There can, I think, be no doubt that claim
"B"
accrued to the appellant prior to the submission of
claim "C" to the
respondent. In
Daff v Midland Colliery
Owners Mutual Indemnity
Co
., (1913) 82 L.J.K.B. (H.L.)
1340 at p. 1352, and with reference to an
indemnity given
by the company to its members against all claims
arising
out of an accident, LORD MOULTON said that
"if the accident occurs within the protected period such an indemnity at once
vests in the member."
In the same case, LORD SHAW
(at p. 1345) affirmed that it
was "too late in the day to question the
doctrine that on
the occurrence of an accident, a right in the nature of a
vested /
13 vested right to compensation is
conferred upon the injured workman", and held further that the Indemnity
Company, which was held
to be an insurer in respect of loss accidentally
suffered by a workman, incurred liability as insurer upon occurrence of the
accident.
In
Walker's Fruit Farms Ltd. v Sumner
,
1930 T.P.D. 394
at p.
401, GREENBERG, J., held that where a party repudiates a contract and the other
party elects to accept such repudiation so
that the contract then comes to an
end, the latter party is not precluded by reason of termination of the contract,
from suing for
money which had already
accrued in terms of the contract prior to its termination.
(Pty) (See also
Crest Enterprises/Ltd. v Rycklof Beleggings (Edms
)
Bpk
,
1972 (2) S.A. 863
(A.D.) at p. 870, where it was
pointed out that when GREENBERG, J. used the word "accrued"
in the context of the principle enunciated by him, he
meant "accrued, due and enforceable"; see also
B.K. Tooling
(Edms) Bpk v Scope Precision Engineering (Edms) Bpk
, 1979
(1) S.A. 391 A.D, at p. 424). Upon application of the
principle /
14 principle that termination of the contract in
such a case applies only "to the executory portion thereof" and has no effect
upon
accrued rights under the contract, the respondent would not be entitled to
repudiate claim "B". The respondent's answer thereto is
that because the aim was
to combat fraud, very wide terms were used in condition 3 of the policy, and
that if proper effect were
given to such wide terms, the termination of the
policy on the ground of the making of a fraudulent claim would affect any and
all
claims even if they had accrued to the appel= lant in terms of the policy,
prior to its termination.
I have given to this argument careful and anxious consideration. I accept
that the language of condition 3 is very wide and that the
circumstance that the
condition is aimed only at fraudulent conduct is a factor to be kept in the
foreground of the mind when considering
the meaning and effect of the condition.
Indeed, I shall for purposes of this judgment assume in favour of the
respondent /
15
respondent that because the main objects of condition 3 are to lend
protection to the insurer against fraudulent claims and to discourage
attempts
to gain undue advantage by lodging falsely inflated claims, there is a less
strong need for the Court to "lean towards upholding
the policy and against
producing a forfeiture." (The words quoted are taken from the judgment of
SCHREINER, J.A., in
Kliptown Clothing Industries (Pty.) Ltd. v Marine and
Trade Insurance Company of S.A. Ltd
.,
1961 (1) S.A. 103
at p. 106 H). But in
the final result I am not persuaded that the answer to the problem is to be
found simply in the wide literal
meaning of the words used in condition 3. In
Russell N.O. and Loveday N.O. v Collins Submarine Pipelines Africa (Pty.)
Ltd
.
1975 (1) S.A. 110
at p. 129, this Court accepted that ultimately the
problem of interpretation of an insurance policy was
"one of arriving at the intention of the parties from the terms of the
contract
considered /
16 considered as a whole",
and that the
intention
"was to be looked for on the face of
the policy in the words which the parties
themselves have chosen to express their
meaning."
But it not infrequently happens that the
parties use simple words, in themselves unambiguous, but which cannot readily or
reasonably
be applied in their literal sense to all the situations to which
their agreement was directed. In such cases an element of ambiguity
arises from
the fact that "an absolutely literal inter= pretation" may be wholly or
substantially impracticable, or productive of
startling results which could
hardly have been intended. (See MacGillivray and Partington, ibid,
para /
16 A
para 1040 at pp 437 - 8). "Therefore", say
the
learned authors,
"some gloss on the words becomes essential and their surface plainness is seen
to be illusory."
Examples readily come to mind of
acceptance by the Courts of the need sometimes restrictively to construe words
or phrases which in
their literal sense bear a wide, all-embracing meaning. In
R v Hugo
,
1926 A D 268
at p 271, INNES, CJ, recognized that the word
"any", although a word of "wide and unqualified generality", might needs be
"restricted
by the subject matter or the context" of the legislation. In
Rabinowitz and Another v De Beer's Consolidated Mines Ltd and Another
1958 (3) SA 619
(A) at p 631, SCHREINER, JA, recognized that phrases or
expressions /
16 B
expressions such as "in connection with" or "in
respect
of", wide as their scope and range of association might
be, needed
in certain cases to be read as having a more
limited connotation. (See also
Lipschitz N.O. v U D C
Bank
Ltd
1979(1) SA 789 (AD) at p 804.)
One of the difficulties regarding the
inter=
pretation of condition 3 is that it deals at
the same
level /
17
level with two contingencies which do not belong on the same
level; that is, (i) the contingency of a fraudulent misrepresentation
in the
proposal which induces the agreement of Insurance, and (ii) the contingency of a
fraudulent claim made under an existing policy.
Condition 3 provides generally
that "all benefit under this Policy shall be forfeited" but without expressly,
or by clear implication,
recognizing that the two contingencies give rise to
essentially different situations; in the instance of fraud inducing the
contract,
the policy may be treated by the insurers as void ab
initio
;
the same does not apply when a fraudulent claim under an existing policy is
made. It is noteworthy and of considerable significance
that when dealing with
"false claim clauses" substantially similar to condition 3, the Courts and
writers on the subject of insurance
pointedly bring out the differences between
the two sets of circumstances and allow for such differences when applying the
clause.
Thus, in Vol. 25, para. 425 of Halsbury's Laws of England (4th Ed.) we
find these
passages /
18
passages :-
"A condition subsequent affecting the policy is a condition relative in its
essence to duties after the inception of the policy which
by necessary
intendment or express agreement affects the continued existence of the policy in
the sense that if there is a breach,
the other party may treat
the policy as at an end
The avoidance of such a policy can only date from the breach
; up to that
date the policy is fully effective so as to entitle the assured to recover in
respect of any loss which occurred before
the breach." (My
underlining.)
Ivamy, at p. 292, is to similar
effect; conditions which
relate to matters arising after conclusion of the
contract,
do not, he says, render the policy void ab
initio
,
but
the policy may be avoided by the insurer "as from the
date of the
breach"; and at p. 309 the learned author
says that if the insured's loss
takes place before the
breach, "he is not precluded from recovering in
respect
of it, since the policy, at the time of loss, was
still
operative." (See also the cases referred to in note 17
on p. 309)/
19 on p 309.)
The significance of these and other similar
comments is that they are made in respect of clauses similar to condition 3 and
certainly
in respect of clauses which provide that "all benefit" or "all claim"
shall be forfeited. What emerges from all this is that the
words "all benefit"
or "all claim" have obviously been given, by the Courts and by the learned
authors mentioned above, the sort
of "gloss" to which MacGillivray and
Parkington refer, in the sense that despite the comprehensiveness of the word
"all" in its literal
connotation, valid claims previously made by and accrued to
the insured in terms of the policy, have been
taken /
19 A taken to be unaffected by the forfeiture provision; and, in
my view, rightly so. Indeed, the words "all benefit under this policy
shall be
forfeited" upon the making of a fraudulent claim, are at least clearly capable
of bearing the meaning that as from the time
that the fraudulent claim is made,
the insured shall have no further benefit or claim under the policy; and,
therefore, that valid
claims already accrued (and,
a fortiori
, valid
claims already paid out to the insured) remain inviolate; and untouched by the
subsequent, unrelated fraudulent claim. It
therefore cannot be said that
condition 3 unambiguously provides for forfeiture of valid claims which had
accrued prior to the fraudulent
claim.
The /
19 B
The reasons why a Court would
not, in the
absence of clear and entirely unambiguous provision
therefor in the contract, give effect to the interpretation
contended /
20 contended for by the respondent, are not hard to find. A
provision requiring forfeiture of honest claims made under and in terms
of a
valid policy of insurance and which had accrued and become due and payable prior
to the subsequent breach causing the premature
termination of the policy, would
surely be nothing less than a penalty. And it could be a penalty grossly and
intolerably disproportionate
to the breach, which would be the case if the
accrued, valid claims ran into hundreds of thousands of rands and the subsequent
fraudulent
claim was of relatively insignificant value. This point was strongly
made by LORD MOULTON in
Daff
's case,
supra
,(1913) 82 L.J.K.B.
(H.L.) at p. 1353 :-
"The whole of the argument on behalf of the respondents so far as it merited
serious consideration rested on the words 'shall not
be entitled to any
indemnity in respect of any accident.' They would have us read these words as
meaning that they shall 'forfeit
every indemnity which they have acquired in
times past.' But
a Court /
21
a Court will not give to a clause a meaning which makes it a forfeiture clause
of a highly penal type unless the words clearly require
that
meaning."
And later in the judgment :
"Counsel for the respondents felt the difficulty of interpreting the
above-mentioned words of this article as divesting the members
of rights already
vested and even disclaimed the intention of giving it such a
meaning."
Daff
's case was not, it is true, a
case in which the claimants were said to have forfeited rights because of
fraudulent conduct; a less
serious breach was alleged against them. But as I
have earlier pointed out, the Indemnity Company in that case was held to stand
in the position of an insurer towards its members. In the extract from the
judgment which I have just quoted, therefore, LORD MOULTON
was concerned with a
problem of the
very /
22
very same kind as that now before us, namely, whether a clause which
provided that a member would in the event of the specified breach
"not be
entitled to any indemnity in respect of any accident", was sufficient to justify
a finding that previously vested rights
in terms of the article were forfeited
and unenforceable because of a subsequent, unrelated breach.
In my judgment condition 3 does not achieve subversion of the principle
enunciated in the
Walker's Fruit Farms
case referred to earlier herein.
We were not referred to any decision holding that that has been the effect of
such a clause or of
any clause substantially similar to it, at any time
thoughout the very many years (more than a century) that such clauses have
appeared
in Insurance policies. Nor am 1 aware of any such decision. But, as I
have indicated, there is a considerable body of authority supporting
the
continued enforceability of a valid claim made by and accrued to an insured
prior to
the termination / ....
23 the termination of the policy.
I have not overlooked the argument on
behalf of respondent that if condition 3 does not provide for forfeiture of
previously accrued
claims, it adds little to the insurer's common law rights.
This appears to be recognized by Colinvaux,
supra
, in para. 9 -32, where
the learned author says of conditions of this kind that they are "declaratory of
the legal position without
them." This observation, however, is hardly of
assistance to the respondent for it serves to emphasize that in the view of the
author
such conditions, going no further than the common law, do not render
previously accrued claims unenforceable. It is not necessary
to decide whether
the rights given to the insurer in terms of condition 3 are precisely
co-extensive with rights which the insurers
could have exercised under the
common law. Certainly, it is of advantage to an insurer to have written
expression of his rights;
the condition has been relied on in many instances to
support the right to repudiate the whole
of a /
24
of a claim which is false only in one relatively minor
respect. But in any event, I do not think that the argument that little
additional
advantage would result to insurers from a condition of the nature of
condition 3 unless it means what respondent says it means, takes
the matter any
further. Such a consideration cannot serve to transform the condition into one
which clearly provides that the insurer
may divest the insured of rights which
had
properly become vested in him at a time when the policy
was in operation.
In the result:-
(1)
The appeal is allowed with
costs.
(2)
The order made by the Court a quo
is set aside
and /
25
and there is substituted therefor an order in these
terms:-
Judgment for the plaintiff in the amount claimed, together with interest
thereon at the rate of 11% per annum as from & January
1980, with costs.
S. MILLER JUDGE OF APPEAL
RABIE, CJ ) GROSSKOPF, AJA )