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[1984] ZASCA 129
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Mutual and Federal Insurance Company Ltd v Municipality of Oudtshoorn (240/82) [1984] ZASCA 129; [1985] 1 All SA 324 (A) (16 November 1984)
IN THE SUPREME COURT OF SOUTH AFRIC
A (APPELLATE DIVISION)
In the matter between:
MUTUAL AND FEDERAL INSURANCE COMPANY LTD
Appellant
and
THE MUNICIPALITY OF OUDTSHOORN
Respondent
Coram
: MILLER, JOUBERT, CILLIE, VILJOEN, JJA,
et
GALGUT,
AJA.
Date of Hearing
: 30 August 1984
Date of Delivery
: 16 November
1984
JUDGMENT
JOUBERT, JA :-
/The
2
The contract of insurance was unknown to Roman
law. That is probably the
reason why Voet in his
Commentarius ad Pandectas
22.2.3 contented
himself,
inter alia
, with the following few observations
concerning
the contract of marine insurance :
quo id agitur, ut merces & alia assecurata
navigent periculo non domini, sed assecuratoris,
pro periculo suscepto pretium recipientis.
De hoc vero assecurationis contractu universa
hue transcribers, quae circa modum assecurationis,
personas assecurare valentes aut prohibitas, res
assecurandas vel assecurationem respuentes,
rerum assecurandarum aestimationem, conservationem,
impensas, cessionem seu abdicationem, periculum,
praemium assecurationis seu periculi pretium ac
solutionem ejus, observanda veniant, consultum
non censui.
/Videri
3
Videri ista possunt enarrata prolixe satis & accurate variarum regionum
legibus superiori & hoc seculo conditis; ac in plerisque
consensum, in
paucis, iisque levioribus tantum, dissensum continenbibus, praecipue,
edicto
nautico Philippi Hisp. Regis anni 1563 cap.ult. & edicto peculiar! de
assecurationibus anni 1570
,
lege municipali
M
edioburgensium anni
1600, Roterodamensium anni 1604
,
Amstelodamensium anni 1612
quae
omnia simul juncta
in vol. 1 placitor. Holl. à pag.820 ad pag. 876
ac tandem novissime, pariterque plenissime,
edicto Ludovici XIV Galliarum
Regis
,
anni 1681
in libello cui titulus,
ordonnance de Louis XIV
touchant la marine, livr. 3 tit.6
. Quibus addendus Petri de Santerna
Lusitani & Benevenuti Stracchae
de assecurationibus liber
.
(Horwood's translation : The effect of this contract is that the merchandise
and other articles insured (
assecurata
) travel by sea at the risk not of
their owner but of the insurer (
assecurator
) who receives a price for the
risk which he undertakes.
/I
4
I have decided not to deal with the incidents of this contract of insurance
under which would fall to be discussed the formation of
the contract, the
persons who can or cannot insure, the property which is or is not insurable, its
valuation and preservation, the
expenses incurred upon it, the cession or
abandonment of such property, the risk, the premium for the insurance (that is
the price
of the risk) and the payment of such premium.
All these matters can be seen and are dealt with in sufficient detail and
accuracy in the statutes of several countries passed in
this and the last
century : these laws for the most part coincide and differ only in few points
and those unimportant ones. See the
Maritime Edict of Philip, King of Spain,
1563, last chapter; the special Edict on Insurance of the year 1570; the
Municipal Laws
of Middelburg, 1600;of Rotterdam, 1604; and of Amsterdam, 1612
(Placita Hollandiae Vol 1 pp. 820-876); and latest and most detailed
of all the
Edict of Louis XIV, King of France, of 1681, in the book called Ordonnance of
Louis XIV touchant la marine, Book 3, title
6. See also the book
De
Assecurationibus
of Petrus de Santerna Lusitanus and Benevenutus
Straccha.")
5
Voet's reference to the sources of the law of insurance in the Netherlands is
by no means exhaustive. It is of great significance
that he referred not only to
the legislation of the Netherlands and France on marine insurance but also to
the treatises of Petrus
de Santerna and Benevenutus Straccha on the law of
insurance as I shall presently demonstrate.
Marine insurance, the oldest form of insurance in its modern sense, traces
its origin back to the medieval Law Merchant (
Lex Mercatoria
) as
developed in the great trading centres and seaports of Italy and South Western
Europe. Recent researches reveal that
/policies
6
policies of marine insurance were in use in Italy
towards the end of the
14th century, as appears from
the instructive article "Die ontstaan van
versekering
gerig op winsbejag" by Schalk van der Merwe in 1977
TSAR at
pp. 227-234. Two outstanding treatises on
the law of insurance were published
during the 16th
century. The one is Petrus de Santerna's
pioneering
treatise
De Assecurationibus et Sponsionibus
(1554)
which is also to be found in
Tractatus Universi Juris
(also known as
Tractatus Tractatuum
), 1584, tomus 6
pars 1 folio 348 to 357. The other one is Benevenutus
Straccha's famous treatise
De Assecurationibus
which
has been included in
Tractat
us Uni
versi Juris
, tomus 6
pars 1 folio 357 to 377. These two treatises soon
/acquired
7
acquired international fame and authority throughout Western Europe. It is
therefore not surprising that Voet 22.2.3 referred to these
two treatises as
sources of the Roman-Dutch law of insurance. Fortunately the library of this
Court has a complete set of
Tractatus Universi Juris
, 1584, 24 volumes.
Mention should also be made of the work of the 17th century Italian jurist
Roccus, T
ractatus de navibus et naulo item de Assecurationibus notabilia
,
which was translated into Dutch with notes and annotations by Feitema in 1737 as
Merkwaardige Aanmerkingen vervat in twee Tractaten over Scheepen en
Vrachtgoederen alsmede over Assurantie ofte Verzekeringen
. The library of
this Court has a copy of this translation. During the 17th century the
8
Italian and Spanish jurists adapted the principles of marine insurance to
insurance of transport by land (Holdsworth,
A History of English Law
, vol
8, 2nd ed., p. 276 footnote 7) and even to life insurance (
assecuratio vitae
hominis
). See Benevenutus Straccha,
op. cit
., folio 360, nr. 46,
Ludovicus Molina,
Disputationes de Contractibus
(1601) disputatio 507 nr.
7 and Sigmundus Scaccia,
Tractatus de Commerciis et Cambio
, (1669),
§ 1 quaestio 7 pars 2 nr. 19 et § 3 Glossa 3 nr. 52. According to the
French jurist Antonius Faber (1557-1624),
Codex Fabrianus
, lib.5 tit.7
def. 3, a dowry (
dos
)
could be insured. The jurists,, however, experienced difficulty in finding
for the contract of insurance an
/appropriate
9
appropriate niche within the framework of the civil
law's traditional
classification of contracts as a
numerus clausus
. Attempts were made
to regard it as
emptio et venditio
,
locatio et conductio
,
contractus
innominatus
or
contractus fideiussionis
. See Sigmundus
Scaccia,
op.cit
., § 1 quaestio 1 nr 129. The generally
accepted view was that it was a species of the contract of
sale in terms of which the insurer was the seller, the
insured the purchaser, the risk or event insured against
the
merx
and the premium the
pretium
. According to
Roman-Dutch law,however, the contract of insurance is a
contract nominate. (Van der Keessel,
Theses Selectae
711
and
Praelectiones ad.
Gr. 3.24.1, 2.).
/The
10
The reception of the Italian Law Merchant,
including the law of insurance, occurred throughout
Western Europe and
England during the 16th century.
(Holdsworth,
op.cit
., vol 8, 2nd ed. p. 273-285).
In the Netherlands this reception more or less co=
incided with the reception of Roman law. The effect
of this reception was
according to Wessels,
History
of the Roman-Dutch Law
, 1908, at
p. 228-229 as follows:
"There was no uniform law of insurance, and each
maritime nation or town
made its own regulations. Spain,
Portugal and Holland and the Hanseatic towns
were the
first to elaborate a system of marine insurance, and it
seems to be universally acknowledged that Holland
contributed the most important share in the development
/of
11
of that branch of law throughout Europe." How was the Roman-Dutch law of
insurance developed ? In the last chapter of his
Ordonnantie, Statuyt ende
Eeuwich Edict op 't faict van der Zeevaert
, dated 30 October 1563, King
Phillip II enacted for general application in the Netherlands his
Ordonnantie
op de Verseeckeringe oft Assurantie
(I G. P.B. 821-829). This was followed
by his enactment on 20 January 1570 of his
Ordonnantie
,
Statuyt
ende Policie op 't feyt van de Contracted van de Assurantien ende
Verseeckeringen
(1 G.P.B. 828-838) for general application in the
Netherlands. Both ordinances dealt with marine insurance. Art. 32 of
/the
12
the Ordinance of 20 January 1570 contained the important
prohibition
against life insurance. A similar
prohibition against life insurance was
contained in
article 10 of Louis XlV's Ordinance of 1681. In
addition
local laws (
keuren
) concerning marine insurance
were made for
Amsterdam, Rotterdam, Dordrecht and
Middelburg. They are enumerated in Van
der Keessel's
Praelectiones ad Gr
. 3.24. Wessels,
op. cit
., p
229
comments on them as follows : "These laws were constantly
amended and
amplified during the seventeenth and eighteenth
centuries, and if we examine them we find that they
contain all the
fundamental principles of maritime
insurance that are in vogue to-day in all the great
commercial countries of Europe." An important
/innovation
13
innovation during the 17th century was the establishment
of insurance
tribunals (
Kamer van Assurantie
) in
Amsterdam, Rotterdam, Dordrecht
and Middelburg as courts
of first instance with jurisdiction over matters
con=
cerning insurance. The members of these tribunals were
experts in
insurance matters. There was an appeal
from their decisions to the Hof van
Schout en Schepenen
or directly to the Hof van Holland ( or the Hof van
Zeeland in the case of Middelburg). An appeal lay
from the Hof van
Holland, or the Hof van Zeeland, to
the Hooge Raad. Decisions of the Hooge
Raad on matters
of insurance are to be found in
Observationes
Tumultuariae
( 4 volumes) and
Observationes
Tumultuariae Novae
(3 volumes).
/The
14
The opinions of the Dutch jurists on insurance matters are included in the
Hollandsche Consultatien
and in Van den Berg's
Nederlands
Advysboek
. I quote the following comprehensive survey of the Roman-Dutch
authorities in
The South African Maritime Law and Marine Insurance: Selected
Topics
, (1983) by Dillon and Van Niekerk (at p. 108-109);
"The Roman-Dutch authorities of the sixteenth, seventeenth and eighteenth
centuries dealt extensively with insurance law. Indeed,
at the end of the
eighteenth century the insurance contract was, after contracts of sale and
lease, the most prevalent type of contract.
Because of the needs of their time,
the Roman-Dutch jurists concerned themselves almost exclusively with marine
insurance.
The more well-known Dutch writers of this period, most of whom our Courts
have in the
/past
15
past consulted on matters relating to marine insurance, were Grotius, Van
Leeuwen, Voet, Van Bynkershoek, Van der Keessel and Van
der Linden. Others which
may be mentioned are Verwer, Lybrechts, Schorer and Barels. The legislative
measures as well as the Dutch
theses dating from this period may still prove to
be of valuable assistance in the study of the Roman-Dutch law of marine
insurance.
It has been pointed out, furthermore, that our common law is not what is
usually regarded, in the strict sense, as Roman-Dutch law
(that is the law of
the province of Holland or even of the Netherlands) as it had developed at the
end of the eighteenth century,
but rather a European
ius commune
of this
period. This view, no doubt particularly true of the mercantile law in general,
is confirmed by the fact that the Dutch jurists,
when dealing with insurance
law, made copious reference to the works of authors from other European"
countries. There would in principle,
therefore, not appear to be any obstacle in
the way of consulting, as our courts have done in the past, the works of jurists
such
as Pothier,
/Emerigon
16
Emerigon, Straccha, Roccus, Santerna and others on the law of marine
insurance."
Mention should also be made of the three works by Kersteman (1728-1793) viz.
Academie der Jonge Practizyns
,
of Beredeneerde Consideratien over de
Theorie ende Practycq in Zaaken van Rechtspleeging
(1765), 18e hooftdeel,
Hollandsch Rechtsgeleert Woordenboek s.v
. Assurantie, and
Aanhangsel
tot het Hollandsch Rechtsgeleerd Woordenboek
, vol.1,
s.v
. Assurantie.
According to U. Huber (1636 -1694),
Praelectiones ad
D. 1.3.14 and H.R.
3.21.76 the province of Friesland, owing to the small volume of its maritime
trade, did not develop its own law
of marine insurance but whenever it became
necessary recourse was
/had
17
had to the law as applied in the province of Holland and West-Friesland
although the law of the latter province was not
per
se binding on
Friesland.
The Hooge Raad through its decisions and the
Dutch jurists by means of
their works collectively
succeeded in moulding the principles of marine insurance
as an integral
part of Roman-Dutch law. By analogy with
marine insurance, other forms of
indemnity insurance
were recognised by the Dutch jurists. Van der
Keessel,
Theses Selectae
716 (translated by Lorenz) describes
the extension of the law of marine insurance to other
forms of insurance thus:
"Although
18
"Although originally insurances related chiefly to things exposed to the
dangers of navigation and transport; yet they have since
been ex= tended to
buildings also and other goods, which are liable to destruction by fire; and
indeed to everything wherein anyone
has an interest, provided it can be
accurately defined in the contract."
See also his
Praelectiones ad
Gr. 3.24.4. The
principles of the
Roman-Dutch law of marine insurance
are indeed capable of application, with
adaptation if
necessary, to other forms of insurance to meet
the
requirements of our modern society. It is a
characteristic of
Roman-Dutch law as "a virile living
system of law, ever seeking, as every such system must,
to adapt itself
consistently with its inherent basic
principles to deal effectively with the increasing
/complexities
19
complexities of modern organised society". (
dictum
from the Privy
Council judgment in
pearl Assurance Co. v
.
Union Government
,
reported in
1934 AD 560
at p 563).
The General Law Amendment Act 8 of 1879 (C)
introduced the English law,
(as it then existed) con=
carning fire, life and marine insurance into the
Cape of
Good Hope Colony. The General Law Amendment Ordinance
5 of 1902 (0) incorporated "the law administered by
the Supreme Court of
the Cape of Good Hope". This in
effect introduced the English law (as it
existed in 1879)
concerning fire, life and marine insurance into the
Orange Free State
Colony. Both Act 8 of 1879 (C)
and Ordinance 5 of 1902 (0) were repealed by section
1 of the Pre-Union Statute Revision Act 43 of 1977 with
/the
20
the result that the English law (as it existed in 1879) concerning fire, life
and marine insurance is no longer binding authority
in the Cape Province or in
the Orange Free State Province. The Insurance Act 27 of 1943 is largely a
regulatory measure containing
a few substantive provisions which directly or
indirectly affect the law
of insurance. Hence, the South African law of
insurance
mainly is governed mainly by Roman-Dutch law as our common law.
I have already stated that the reception of the Italian Law Merchant,
including the law of marine insurance, also occurred in England
during the 16th
century. At the end of the 16th century England was beginning to take her place
among the great commercial countries
of Europe.
/The .
21
The importance of marine insurance was increased by the
growth of England's foreign trade in the latter part of the 16th century. A
Statute of 1601 (43 Elizabeth I c.12) established in London
a special Court for
the hearing of actions upon marine policies. This special Court, however,
suffered from two grave defects. In
the first place its jurisdiction was
confined to insurance policies registered in the London Office of Insurances and
did not extend
to insurances made in other seaport towns. Secondly, it did not
have exclusive jurisdiction in insurance cases. It waged a losing
jurisdictional
battle against the common law courts. Moreover, the London Office of
Insurances
/disappeared
22
disappeared in the 17th century. During the 17th century the law of marine
insurance was in a very back= ward state. Consult Holdsworth,
op.cit
.,
vol. 8 (2nd ed.) p.289-293. Nicolas Magens, a German merchant resident in
London, wrote in German a work on marine insurance which
was published in
Hamburg in 1753. His own English translation thereof was published in London in
1755 under the title,
An Essay on Insurance
,
explaining the Nature of
the various kinds of Insurances practised by the different Commercial States of
Europe and showing their
Consistency or Inconsistency with Equity and the Public
Good
. In 1756 Lord Mansfield (1705-1793) was appointed Chief Justice of the
Court of King's Bench and he continued
23
in office until his resignation in 1788. His dis=
tinguished tenure of
office was very important for the
development of the common law. His
permanent stamp
upon Anglo-American law lies in commercial law. He
adopted
the principles of the Italian Law Merchant,
including the law of marine
insurance, into the common
law and thus rendered the latter suitable for the
great
commercial expansion that was taking place. He succeeded
in making
the international law of marine insurance
an integral part of the common law.
He was well
equipped for this task since he was learned in the civil
law and in foreign systems of law. (Holdsworth,
Sources and Literature
of English Law
, 1928, p 218).
That explains why he could often in his
judgments refer
/to
24
to European works on marine insurance (Dillon and Van Niekerk,
op.cit
., p 109 footnote 45). It is obvious that both Roman-Dutch and
English law of marine insurance stem from the same original sources.
The
reported decisions of the courts of law and equity became the main source of the
English law of marine insurance. In 1774 the
Life Assurance Act
(14 Geo. 3
c.48)
was passed. For purposes of this judgment it is not necessary to consider its
provisions. Suffice it to say that towards the
end of the 18th century marine
insurance was still by far the most important form of insurance while life and
fire insurance were
also in vogue. In 1787 James Allan Park published his work
on insurance, entitled
A System of the Law of Marine
/
Insurance
....
25
Insurance with three chapters on Bo
ttomry, on
Insurances on Lives
and on Insurances against Fire
. It was the first book written by an English
lawyer on the law of insurance. The next important step was when the Marine
Insurance
Act 1906 (6 Edw. 7 c.41) was passed. It codified the existing
principles of marine insurance as developed by the courts of law. Despite
the
fact that the courts of law apply principles of marine insurance to non-marine
insurance there still remain important differences
between them as can be
ascertained from Raoul Colinvaux,
The Law of Insuranc
e, 4th ed at p
13-14.
Section 17 of the English Marine Insurance Act
1906 provides :
/"A
26
"A contract of marine insurance is a contract based upon the
utmost
goo
d faith, and, if the
utmost good faith
be not observed by either
party, the contract may be avoided
by the other party."
(My underlining).
The phrase "utmost good faith" is also known by
its
Latin equivalent as
uberrima fides
. According to
section 17 a
contract of marine insurance is a contract
of utmost good faith or a contract
uberrimae fidei
.
The origin of the phrase
uberrima fides
is
doubtful
but it would seem that it made its appearance in English
case law
in 1850. See A.N. Oelofse's unpublished
doctoral thesis
Die Uberrima
Fi
d
es - L
e
erstuk in di
e
Versekeringsr
eg, University
of Stellenbosh (1983)
at p 2 and the authorities cited in footnote 5.
/Without
27
Without investigating our own law on this aspect our courts have under
influence of English law attached to a contract of insurance
the label
uberrimae fidei
e.g.
Fine v. General Accident Fire & Life
Assurance Corporation Ltd
.,
1915 AD 213
at p 218,
Colonial Industries
Ltd. v. Provincial Insurance Co. Ltd.,
1922 AD 33
at p 40,
Bodemer N.O. v.
American Insurance Co
.,
1961 (2) SA 662
(A) at p 668,
Pereira v. Marine
and Trade Insurance Co. Ltd
., 1975(4) SA 745 (A) at p 755 F. The Romans were
familiar with
bona fides
and
mala fides
but they never knew
uberrima fides
as another category of good faith. I have been unable bo
find any Roman-Dutch authority in support of the proposition that a
/contract
28
contract of marine insurance is a contract
uberrimae
fidei
. On the contrary, it is indisputably a contract
bonae fidei
. Art 22 of the Ordinance of 20 January
1570 explicitly enacts :
"Ende alsoo dese Contracten van verseeckeringen oft asseurantien, gehouden
ende geestimeert worden, voor
Contracten van goeder trouwen
, daar inne
egeen frauds oft bedrock en behoorde te intervenieren
oft geschieden "
(My underlining).
See also Ludovicus Molina,
op.cit
.,disputatio 507 nr. 3,
Perezius
(1583-1672) ad Cod. 11.5.22, Van der Schelling's
(1691-1751) note 2 on Van Zurck's
Codex Batavus
s.v.
assurantie
§ 23, Van der Keessel (1738-1816) Theses
Selectae
712 and
Praelectiones
ad Gr. 3.24.1 and 20,
Van der
Linden (1756-1835) 4.6.10. There
/is
29
is a duty on both insured and insurer to disclose to each other prior to
conclusion of the contract of insurance every fact relative
and material to the
risk (
periculum
or
risicum
) or the assessment of the premium. This
duty of disclosure relates to material facts of which the parties had actual
knowledge or
constructive knowledge prior to conclusion of the contract of
insurance. Breach of this duty of disclosure amounts to
mala fides
or
fraud, entitling the aggrieved party to avoid the contract of insurance. This
duty of disclosure received very extensive treatment
in the Roman-Dutch
authorities. Consult Benevenutus Straccha,
op.cit
., folio 377, Glossa 26
nrs 2,4,5,6; Sigmundus Scaccia,
op.cit
.,
/§ 1
30
§1 quaestio 1 nrs. 132, 156 to 169, §1 quaestio 7 pars 2 ampl. 10
nrs. 17, 19 to 22; Roccus,
op. cit
., arts. 51, 78, 84; Ludovicus Molina,
op. cit
., disputable 507 nrs. 3 to 6; Perezius ad Cod. 11.5.23; Art. 11
of the Ordinance of 20 January 1570; Van Zurck,
op.cit
., nr 9; Schorer ad
Gr. 3.24.6 nr. 15; Van der Keessel,
Theses Selectae
722 to 724 and
praelectiones
ad Gr. 3.24.5 and 20; Van der Linden 4.6.4 nr. 3; 1
Hollandsche Consultatien c. 234; 2 Hollandsche Consultatien c. 322; 3
Hollandsche
Consultatien c. 175; and numerous decisions of the Hooge Raad e.g. 2
Observationes Tumultuariae
1357, 1873; 3
Observationes
Tumultuaria
e 2647, 4
Observationes Tumultuariae
3168, 3287 and
3
Observationes Tumultuariae Novae
1248. The
/duty
31
duty of disclosure is the correlative of a right of
disclosure which is a
legal principle of the law
of insurance. Wessels,
Law of Contract in
S.A
.,
2nd ed., vol. 1 para. 1039 makes the following
significant
observation concerning the law of insurance:
"At the same time it must be understood that this part
of our law is based
upon principles well known to the
Civil Law. It was by extending the
principles of the
Aedilitian Edict and of the law of
dolus malus
that
the
European jurists and judges have elaborated the law of
marine and
other insurances. At the root of the
aedilitian
actio redhibitoria
lies the principle that a
contract of sale can be avoided if the subject matter
/contains . ...
32
contains a latent defect unknown to the purchaser, which
would have
affected his judgment in buying it had he
known of its existence." The duty
of disclosure
is imposed
ex lege
. It is not based upon an implied
term of the
contract of insurance. Nor does it
flow from the requirement of
bona fides
. Oelofse,
op. cit
.,
at p 286 : "Blykbaar moet die goeie trou-
gedagte bloot as 'n verskyningsvorm
van die gewone
beginsels met betrekking tot bedrog gesien word."
By our
law all contracts are
bonae fidei
(Ludovicus
Molina,
op. cit
.
disputatio 259 nr 4 : namque bona
fides in omnibus contractibus esse debet; Wessels,
op.cit
., paras.
1976, 1996;
Tuckers Land and
Developmen
t Cor
por
ation (Pty
) L
td. v. Hov
is,
/1980
33
1980 (1) SA 645
(A) at p 652 A). Yet the duty of disclosure is not common to
all types of contract. It is restricted to those contracts, such as
contracts of
insurance, where it is required
ex lege
. Moreover, there is no magic in
the expression
uberrima fides
. There are no degrees of good faith. It is
entirely inconceivable that there could be a little, more or most (utmost) good
faith.
The distinction is between good faith or bad faith. There is no room for
uberrima fides
as a third category of faith in our law. Oelofse,
op.cit
., at p 2: "Streng gesproke kan daar nie grade van goeie of kwaaie
trou wees nie. Iemand tree of te goeie trou òf te kwaaie
trou op."
Compare
/Spiro
34
Spiro,
Uberrima Fides
, in 1961 T.V.H.R.-H.R. p 196-202.
Uberrima fides
is not a juristic term with a precise
connotation.
It cannot be used as a yardstick with
a precise legal meaning. ROBERTS A.J.
correctly
held in
Iscor Pension Fund v. Marine and Trade
Insurance
C o. Ltd_
.
1961 (1) SA 178
(T) at p 184 that "the
claim
that
uberrima fides
is a necessary and inseparable
concomitant of insurance is misleading". In my
opinion
uberrima
fides
is an alien, vague, useless
expression without any particular
meaning in law. As
I have indicated, it cannot be used in our law for
the
purpose of explaining the juristic basis of the duty to
disclose a
material fact before the conclusion of a
contract of insurance. Our law of
insurance has no
/need
35
need for
uberrima fides
and the time has come to jettison it.
Section 18 of the English Marine Insurance Act
1906 provides :
"(1) Subject to the provisions of this section, the assured must disclose to
the insurer, before the contract is concluded, every
material circumstance which
is known to the assured, and the assured is deemed to know every circumstance
which, in the ordinary
course of business, ought to be known by him. If the
assured fails to make such disclosure the insurer may avoid the contract.
(2)
Every circumstance is
material which would influence the judgment of a prudent insurer in fixing the
premium or determining whether
he will take the risk.
(3)
In the absence of inquiry the following circumstances need not be
disclosed, namely
/(a)
36
(a)
Any circumstance which
diminishes the risk;
(b)
Any circumstance
which is known or presumed to be known to the insurer. The insurer is presumed
to know matters of common notoriety
or knowledge, and matters which an insurer
in the ordinary course of his business, as such, ought to
know;
(c)
Any circumstance as to which
information is waived by the insurer;
(4)
Whether any particular
circumstance, which is not disclosed, be material or not is, in each case a
question of fact.
(5)
The term 'circumstance'
includes any communication made to, or information received by, the
assured."
In order to determine the materiality of
facts for
purposes of disclosure section 18(2) of the English
Marine
Insurance Act 1906 adopted the prudent or reasonable
insurer test which- had been established in relation to
/marine
37
marine insurance as long ago as 1832 (
Elton v. Larkins
, 5 Car. &
P. 385). This test had become the dominant test of materiality in English case
law by the end of the 19th century.
See R.A. Hasson,
The Doctrine of
Uberrima
F
ides in Insurance Law
-
A Critical Evaluation
, in
vol. 32 (1969) Modern Law Review p. 615-637. According to this test the
criterion is the objective judgment of an hypothetical
prudent or reasonable
insurer and not the subjective judgment of the insurer in a particular case.
This test has been criticised
as too harsh on an insured since it takes account
only of facts material to the insurer. See the Journal of Business Law, March
1984,p
109.
/It
38
It is not surprising therefore that the prudent or
reasonable insured test made its appearance sporadically
in the field of non-marine insurance. This test is
more favourable to an
insured since the standard of judg=
ment is the objective judgment of a
prudent or reasonable
insured and not the subjective judgment of the insured in
a particular case. In its report of 1957 the Law
Reform Committee in
England recommended that "for the
purpose of any contract of insurance no
fact should be
deemed material unless it would be considered material
by a reasonable insured". The Law Commission in its
report of 1980, according to Birds,
Modern Insuranc
e
Law
, (1982) at p 102-103, urged "that while the test
/of
39
of materiality remain broadly the same, questions expressly
asked being
presumed to be material, the proposer should
be bound to disclose only those
material facts which he
knows or ought to know which a reasonable man in
his
position would disclose, having regard to the nature and
extent of the
insurance cover which is sought and the
circumstances in which it is sought".
See also Oelofse,
op. cit
., p. 78-79. In
Lambert v. Co-operative
Insurance
Society Ltd
., (1975) 2 LLR 485 (CA), a case concerning
all
risks insurance i.e. non-marine insurance, the Court of
Appeal held
that the prudent or reasonable insurer test of
materiality was applicable as
a general rule of insurance
law to all forms of insurance. In the light of the
recommendations referred to above it is at this stage
/uncertain .
40
uncertain what the future holds for the prudent or
reasonable insurer test
of materiality in England.
Let us now turn to consider the test of materiality
in our law. In
Fine v. The General Accident, Fire &
Life
Assurance Corporation Ltd
.,
1915 AD 213
an appeal from
the
W.L.D. on a fire insurance policy came before this
Court. Neither Act 8 of
1879 (C) nor Ordinance 5 of
1902 (0) was applicable. As regards the test of materiality
and its
application the approach by SOLOMON J.A. (at p 220-
221) was as follows : "And in
Joel's
case FLETCHER
MOULTON L.J., says: 'If a reasonable man would have
recognised that it was material to disclose the knowledge
in question, it is no excuse that you did not recognise
it to be so'. And that after all appears to be the true
/test
41
test, would
a reasonable man
consider that the fact
was one
material to be known by the insurer, or a fact
that in the words of LORD BLACKBURN 'might influence the
underwriter's
opinion as to the risk he is incurring'.
And if that be the test, can there
be any doubt that
a reasonable man
would consider the fact, that there had
been a
cancellation of a previous contract, material,
unless at the same time a
satisfactory explanation had
been given of that, fact." (My underlining).
Joel v.
Law Union & Crown Insurance Co
.,
(1908) 2 K.B. 863
(CA)
concerned a life insurance policy. It is significant
that SOLOMON J.A.
applied the
reasonable man test
without
reference to the prudent or
reasonable insurer. He
did not purport to apply the prudent or reasonable
insurer
/test
42
test of the English marine insurance law. In
Colonial Ind
u
stries
Ltd. v. Provincial Insurance Co.Ltd
.,
1922 AD 33
this Court heard an
appeal front the C .P.D. on two
policies of fire insurance. According to the
provisions
of Act 8 of 1879 (C) the English law (as it existed in
1879) concerning fire insurance was applicable. The
approach to the
question of materiality by DE VILLIERS J.A.
(at p 42) was as follows: "The only question that remains
is: were the facts material ? To this there can be but
one answer, if we bear in mind that every fact is material
which would affect the minds of prudent and experienced
insurers in deciding whether they will accept the contract,
or when they accept it, in fixing the amount of premium to
be charged.
Tate v. Hyslop
, (1885, 15 Q.B.D. at p 368)."
/The
43
The latter case dealt with marine insurance. DE VILLIERS
J.A. applied the
prudent or reasonable insurer test
of the English marine insurance law. In
view of the
repeal of Act 8 of 1879 by sec. 1 of Act 43 of 1977 the
judgment of DE VILLIERS J.A. on the materiality test is
no longer binding
on this Court. In
Roome N.O. v
.
Southern Life Association of
Africa
, 1959(3) SA 638 (D &
CLD) JANSEN J. (at p 641 F) had occasion
to apply the
reasonable man test to determine materiality. In
Fransba Vervoer (Edms) Bpk. v. Incorporated General
Insurances Ltd
., 1976(4) SA 970 (W) McEWAN J. (at
p 978) in effect
applied a double test which is a
combination of the prudent or reasonable insurer test
as well as the prudent or reasonable insured test.
/What
44
What is the position in Roman-Dutch law ? I am unable to find any support in
the Roman-Dutch law for either the prudent-or reasonable
insurer test or the
prudent or reasonable insured test. It is implicit in the Roman-Dutch
authorities and also in accordance with
the general principles of our law that
the court applies the
reasonable
man test
by deciding 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. If the answer is
in the affirmative the undisclosed information or facts
are material. The court personifies the hypothetical
diligens paterfamilias
i.e. the reasonable man or the
average prudent person. (
Weber v. Santam Versekerings
=
/maatskappy...
45
maatskappy Bpk
.,
1983 (1) SA 381
(A) at p 410H to 411D). The court
does not in applying this test judge the issue of materiality from the point of
view of a reasonable
insurer. Nor is it judged from the point of view of a
reasonable insured. The court judges it objectively from the point of view
of
the average prudent person or reasonable man. This reasonable man test is fair
and just to both insurer and insured inasmuch as
it does not give preference to
one of them over the other. Both of them are treated on a par.
The facts of the present case are set out
fully in the judgment of my Brother MILLER. By a strange
quirk of fate the height of the pole with which the
light aircraft of Mr Noakes collided on the night of
/23 October
46
23 October 1971 was never measured prior to the conclusion
of the contract
of insurance. Nor was it measured
prior to the collision. The several
complaints in
writing by Gillis on behalf of the Oudtshoorn Aero Club to
Schultz, the Town Clerk of the respondent municipality,
that the proximity of the high-tension overhead line to
runway 21 of the Oudtshoorn Aerodrome constituted a hazard
to flying
aircraft evidently achieved no more than the
placing of white markers on the pole for daytime flying.
In 1969 the respondent municipality appointed Schultz
manager of the Oudtshoorn Aerodrome. Until the end of
1969 the latter was normally used for daytime flying by
aircraft. A new development took place when night
flying was authorised during or about April 1970. ' In
/his
47
his letter, dated 14 April 1970, to the airport manager Gillis advised him to
inform the Divisional Controller of Civil Aviation that
a single electric flare
path had been installed on runway 21 only and that "caution should be exercised
on the approach for high
tension wires". On 8 June 1970 Schultz in his capacity
as airport manager duly conveyed by letter the recommendations of Gillis to
the
Divisional Controller of Civil Aviation.
I am satisfied that when the
respondent municipality negotiated the insurance policy with the appellant
insurer during June 1970 the
undisclosed information that the close proximity of
the high tension overhead line to the Oudtshoorn Aerodrome constituted a hazard
to night flying
/which
48
which necessitated the exercise of caution on approaching the flare path of
runway 21 at night was reasonably relative to the risk
or the assessment of the
premiums. Such undisclosed information was therefore material. Our law requires
an insured to have actual
or constructive knowledge of the material information
prior to the con= clusion of the contract of insurance, ( de Groot 3.24.5,
Van
der Linden 4.6.4 nr 3). Schultz in his capacity as chief executive and
administrative officer (Town Clerk) of the respondent
municipality at all
relevant times prior to the conclusion of the contract of insurance had actual
knowledge of the undisclosed information.
It follows that the court
a quo
should have upheld the appellant's
/defence .....
49
defence of non-disclosure of material facts. The appeal succeeds. I agree
with the orders proposed by my Brother MILLER.
C.P. JOUBERT. J.A.
CILLIé. JA )
VILJOEN JA )
Concur
GALGUT AJA )