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[2007] ZAGPJHC 1
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Hollely v Auto General Insurance Company Limited (04/31731) [2007] ZAGPJHC 1 (1 October 2007)
IN
THE HIGH COURT OF SOUTH AFRICA
(WITWATERSRAND
LOCAL DIVISION)
Case
No.: 04/31731
In
the matter between:
ANDREW JOHN
MILES HOLLELY
Plaintiff
and
AUTO &
GENERAL INSURANCE COMPANY LMITED
Defendant
MEYER,
AJ:
[1]
This litigation stems from a collision that occurred on 22 October
2004, wherein the plaintiff’s Opel Astra
motor vehicle was
damaged beyond economical repair and the subsequent avoidance by the
defendant of the plaintiff’s claim
under a policy of
comprehensive motor vehicle insurance to be compensated for such
damages.
[2]
The parties agreed on the issues in dispute that require adjudication
before me. Application was made that
such issues be decided
before and separately from the issue of
quantum
. I
ordered such separation.
[3]
The parties also agreed on a written set of common cause facts, which
were made part of the record of the proceedings.
The defendant
commenced and proceeded to call one witness, Mr Riaan Pretorius
(“Pretorius”), who is employed by the
defendant as its
business manager for the Johannesburg region. The plaintiff
testified and called no other witnesses.
The facts of this
matter are largely common cause.
[4]
The main issue is whether the defendant was entitled to avoid or to
repudiate the plaintiff’s claim for compensation
under the
policy by virtue of the fact that the plaintiff failed to disclose
that he had been involved in a motor vehicle collision
on 22 August
2003.
[5]
The fact that such information was not disclosed in itself does not
justify the repudiation of the plaintiff’s
claim. The
defendant bears the onus of proving that the test for materiality as
enacted in the amended section 53(1) of the
Short-Term Insurance Act
53 of 1998 (“the
Short-Term Insurance Act&rdquo
;), was
satisfied. This section and the corresponding amended
section
59(1)
of the Long-Term Insurance Act 52 of 1998 (“the Long-Term
Insurance Act”), must be seen within their historic context,
which commenced when section 63(3) was added to the repealed
Insurance Act 27 of 1943 (“the Insurance Act”).
The
Long-Term Insurance Act commenced on 1 January 1999, when it repealed
the Insurance Act. The
Short-Term Insurance Act also
commenced
on 1 January 1999. Their corresponding
sections 59(1)
and
53
(1)
were identical except than for their respective references to
long-term and short-term policies and insurers.
Sections 19
and
35
of the
Insurance Amendment Act 17 of 2003
, which Act commenced on
1 August 2003, amended section 59 of the Long-Term Insurance Act and
section 53
of the
Short-Term Insurance Act. These
amended
sections are presently in force and they remain identical except also
for their respective references to long-term and
short-term policies
and insurers.
[6]
Section 63(3)
of the repealed Insurance Act reads:
“
(3) Notwithstanding
anything to the contrary contained in any domestic policy or any
document relating to such policy, any
such policy issued before or
after the commencement of this Act, shall not be invalidated and the
obligation of an insurer thereunder
shall not be excluded or limited
and the obligations of the owner thereof shall not be increased, on
account of any representation
made to the insurer which is not true,
whether or not such representation has been warranted to be true,
unless the incorrectness
of such representation is of such a nature
as to be likely to have materially affected the assessment of the
risk under the said
policy at the time of issue or any reinstatement
or renewal thereof.”
[7]
The Supreme Court of Appeal has, in a number of cases, explained the
purpose and object of section 63(3):
In
SA Eagle Insurance Co Ltd v Norman Welthagen Investments (Pty) Ltd
[1993] ZASCA 195
;
1994 (2) SA 122
(A)
, Nestadt JA, at p124, said:
“
The amendment must be seen
against the background of the common-law rule that a warranty, being
an essential or material term, must
be strictly complied with; that
if it is breached, the insurer is entitled to repudiate the claim
whether or not the undertaking
is material to the risk and even if
non-compliance has no bearing on the actual loss that takes place
(Gordon and Getz
The South African Law of Insurance
4
th
ed at 218).”
In
Qilingele v South African Mutual Life Assurance Society
1993 (1)
SA 69
(A)
, Kriegler AJA, at p74B, said:
“
The object of the enactment is
manifest, namely to protect claimants under insurance contracts
against repudiations based on inconsequential
inaccuracies or trivial
misstatements in insurance proposals. An insurer’s right
to repudiate liability on the basis
of the untruth of a
representation made to it, whether elevated to a warranty or not, was
curtailed.”
In
Clifford v Commercial Union Insurance Co of SA Ltd
[1998] ZASCA 37
;
1998 (4) SA 150
(SCA)
, Schutz JA, at p 157D – E, said:
“
To my mind its purpose was
simply to detoxify the warranty by removing its potential for abuse,
without outlawing its legitimate
use. In other words,
materiality would regain its true meaning and that meaning would be
protected from being stifled by
contract.”
[8]
In
Qilingele
a distinction was made between the test for
materiality in cases where the ground for repudiation is a breach of
the common law
duty to disclose material facts, and the test in cases
where the ground for repudiation is a misrepresentation.
Section 63(3)
was held to apply only to cases of misrepresentation,
and the test as laid down in
Mutual and Federal Insurance Co Ltd v
Oudtshoorn Municipality
1985 (1) SA 419
(A)
and explained in
President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk
en ‘n Ander
1989 (1) SA 208
(A)
was held to apply to cases
of non-disclosure [see also
Theron v AA Life Assurance Association
Ltd
[1995] ZASCA 61
;
1995 (4) SA 361
(A)
at p 376 C – I]. The
requirement of a representation was considered central to the
operation of section 63(3) [see
the
Norman Welthagen
Investments
case, at pp 125H – 126G, where Nestadt JA also
explained the meaning of this requirement].
[9]
The test for materiality where section 63(3) applied was formulated
as follows:
“
What the Court has to determine
is whether the falsehood of the misrepresentation in suit is such as
probably to have affected the
assessment of the risk undertaken by
the particular insurer when he extended the insurance cover under
which the contested claim
is being brought.
That exercise is essentially a simple
comparison between two assessments of the risk undertaken. The first
is done on the basis
of the facts as distorted by the
misrepresentation. Then one ascertains what the assessment would have
been on the facts truly
stated. A significant disparity between the
two meets the requirement of materiality contained in s 63(3) of the
Act. And a disparity
will be found to be significant if the insurer,
had he known the truth, would probably have declined outright to
undertake the
particular risk, or would probably only have undertaken
it on different terms.” [per Kriegler AJA, at
p
75C – H, in the
Qilingile
case. Also see the
Theron
case at p 376 C – I].
[10]
The common law principles applicable to non-disclosures remained
unaffected by section 63(3) and were thus formulated by Joubert
JA in
the
Oudtshoorn Municipality
case at p432E – F:
“
There is a duty on both insured
and insurer to disclose to each other prior to the 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.”
And
at p435F – I the learned Judge of Appeal said:
“
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
ie the reasonable man or
the average prudent person. (
Weber v Santam
Versekeringsmaatskappy Bpk
1983 (1) SA 381
(A) at 410H –
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.”
[11]
The common law principles applicable to non-disclosures were
explained by Van Heerden JA in
President Versekeringsmaatskappy
,
at 216D – G, as follows:
“
(D)ie vraag (is) dus nie of na
die oordeel van 'n redelike man die betrokke inligting wel die risiko
beïnvloed nie, maar of
dit redelikerwyse 'n effek mag hê
op 'n voornemende versekeraar se besluit om al of nie die risiko te
aanvaar of 'n
hoër premie as die normale te verg. Anders
gestel, is die toets of die redelike man sou geoordeel 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
beïnvloed het. “ [See also
Certain Underwriters
of Lloyds of London v Harrison
2004 (2) SA 446
(SCA)
, at p 449B –
C and at pp 451J – 452C].
[12]
In the
Clifford
case, Schutz JA criticized the distinction
between non-disclosures and misstatements and the application of a
subjective test for
materiality when applying section 63(3), as
opposed to the application of the objective common-law test for
materiality in cases
of non-disclosures, and, at pp 158J –
159B, he suggested that
“…
if Qilingele is to
stand, the Legislature should consider putting right not merely a
discordancy, but even a serious inequity, which
was initiated by
imprecise legislation. The extreme results to which a subjective
assessment of materiality may lead may be demonstrated
by means of an
example. Postulate an underwriter who, on finding that a car which
was warranted as green is actually blue, claims,
honestly and
sincerely, hard though that may be to believe, that he would not have
insured it had he known the truth, because blue
cars are unlucky.
Unless some way can be found, which I cannot immediately perceive, to
avoid the remedial s 63(3) leading to such
a result, it seems to me
that his repudiation would have to stand.”
[13]
Before its amendment, section 53(1) of the Short Term Insurance Act
read as follows:
“
(1) (a) Notwithstanding
anything to the contrary contained in a short-term policy contained,
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, whether or not the representation
has been warranted to
be true, unless that representation 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 variation thereof.”
[14]
In
Joubert v ABSA Life Ltd
2001 (2) SA 322
(W)
, Kuny AJ, at p
326 F, correctly in my view, held that “[a]part from minor
differences, there are no material amendments or
variations in the
new section and the authorities relating to the old s 63(3) would
therefore apply equally to the new provision.”
The
conclusion he reached, at p 327G-H, was “…that
Qilingele remains the applicable and binding
authority on the
question of the proper interpretation and application of s 63(3) of
the Insurance Act 27 of 1943 and, a fortiori,
of s 59(1) of the
Long-Term Insurance Act which came into force on 1 January 1999.”
[15]
Since 1 August 2003, the amended
section 53(1)
of the
Short-term
Insurance Act reads
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
.
[I
have underlined the amendments introduced into this section].
[16]
The amended sections 53(1) and 59(1) eliminate the continuance of the
different materiality tests in cases of non-disclosures
and untrue
representations. These sections now apply to both situations
through their express references also to non-disclosure
of
information. The common law test, as laid down in the
Oudtshoorn Municipality
case and explained in the
President
Versekeringsmaatskappy
case, is expressly enacted for determining
the materiality of untrue representations and of non-disclosures of
information.
[17]
The defendant
in casu
issued a policy of comprehensive motor
vehicle insurance to the plaintiff on 1
September 2004.
In terms of the policy the defendant undertook to indemnify the
plaintiff in the event that his Opel motor
vehicle was lost or stolen
or damaged. The monthly premium payable by the plaintiff was
R494.23. The plaintiff’s
fiancée, Ms Shelly Anne
Smith (“Smith”), represented the plaintiff in concluding
the agreement of insurance
with the defendant in two telephone
conversations between her and the defendant’s representative,
Mr Neil Subban (“Subban”),
on 5 August 2004 and on 10
August 2004, prior to the issuing of the policy.
[18]
During the telephone conversation on 5 August 2004, Smith informed
Subban that the plaintiff was twenty seven years old and
that he had
had uninterrupted comprehensive motor vehicle insurance since he was
eighteen years old. In answer to a question
whether he had
claimed for any accidents or stolen vehicles during that period,
Smith answered
“
[n]o, not at all.”
During the telephone conversation on 10 August 2004, Subban asked
Smith whether the plaintiff has had any vehicle claims
in the last
two years and whether he had had any accidents or losses not claimed
for such period, and her reply to each question
was in the negative.
The policy expressly provides that the answers provided by the
plaintiff, or on his behalf, to
questions posed by the defendant
allowed the defendant to work out the payment and to decide if it
could accept the risk of the
policy or not, and that if the
declarations made were not entirely true or correct, the defendant
may invalidate the cover.
The declarations recorded in the
policy included the following: “
Claims
submitted/losses suffered in the past 2 years for the regular driver
and spouse: None declared.”
[19]
On 22 October 2004, the plaintiff’s Opel motor vehicle was
damaged beyond economical repair when it was involved in a
collision. The plaintiff’s claim to be indemnified under
the policy was declined by the defendant and it further avoided
the
policy. The defendant also refunded to the plaintiff the
premiums paid.
[20]
The duty of disclosure relates to material facts of which the parties
had actual or constructive knowledge prior to the conclusion
of the
contract of insurance [see the
Oudtshoorn Municipality
case at
p 432 E – F; and the
Certain Underwriters of Lloyds of
London
case at p 449, par 4]. It is common cause between
the parties that the plaintiff’s fiancée, who acted on
his
behalf, misstated the true facts and failed to disclose to the
defendant that the plaintiff had been involved in a previous motor
vehicle collision on 22 August 2003. The plaintiff conceded
under cross-examination that the answers in the negative given
by his
fiancée in reply to the defendant’s questions whether he
had claimed for any accidents or stolen vehicles during
the time that
he had had insurance and whether he had had any vehicle claims in the
last two years were incorrect. The plaintiff
also testified
about the previous collision in which he was involved on 22 August
2003. While he had stopped at a yield sign
to allow for traffic
to pass so that he could enter Hans Strijdom Drive in Randburg,
another motor vehicle had collided into the
rear of his motor
vehicle. A claim in respect of that collision had been
submitted to Santam Insurance. It is also
probable, in my view,
that the plaintiff’s fiancée was also well aware of the
plaintiff’s prior collision and
insurance claim, particularly
in the absence of any contrary explanation by her.
Under cross-examination, the
plaintiff volunteered the following
answer: “
I presume she forgot about it.”
The stance adopted by the plaintiff’s counsel when
cross-examining the defendant’s witness and that of the
plaintiff
himself when he was cross-examined, was rather that the
information relating to his previous collision and insurance claim
was
not material since that collision was not caused as a result of
any fault on the part of the plaintiff.
[21]
I am of the view that a reasonable prudent person would consider that
the information relating to the plaintiff’s previous
collision
and insurance claim should have been disclosed or truly represented
to an insurer so that the insurer could form its
own view as to the
effect of such information on the assessment of the premium. He
or she would have considered that such
information is material to the
decision whether or not to grant a premium discount in the form of a
no claim bonus and the extent
of such discount on the standard
premiums to be charged in the event of a contract of insurance being
concluded. He or she
would not have considered such information
only to have been a relevant factor and of importance to an insurer
if the previous
collision was caused as result of fault on his or her
part. The pre-contractual questions posed and the recorded
declaration
also did not refer to fault in any way, but merely
pertain to the period of uninterrupted insurance cover, the
involvement in accidents,
losses suffered, and previous claims
submitted.
[22]
Leaving aside the express provisions of the policy concerning the
potential consequences of untrue and incorrect answers and
whether
such provisions
in casu
relieve the defendant of having to
prove inducement [see the
Clifford
case at p 156G –
157G], the evidence, in my view, establishes that the non-disclosure
of the plaintiff’s previous collision
and insurance claim, or
the misstatement thereof, had the effect of inducing the defendant to
take on the risk at a much lower
premium.
Pretorius, who was called by the defendant as an expert witness, was
not the underwriter who attended
to the assessment in issue, but his
evidence essentially related to the general conditions affecting the
assessment of the kind
of risk in issue and the determination by the
defendant of the applicable premium. He testified that the
insurance premiums
offered by the defendant are prescribed in
accordance with the defendant’s standard tariffs or tables.
If a client
qualifies for what is called a “
no claim bonus”
,
a prescribed discount on the defendant’s premiums is offered.
Comprehensive motor vehicle insurance was offered to
the plaintiff at
a monthly premium of R494.23, which premium included a premium
discount in accordance with the allocation of a
seven year no claim
bonus based on the representation that the plaintiff had
uninterrupted insurance cover for seven years without
any claim.
Had the plaintiff revealed his previous claim, the defendant would
nevertheless have offered the comprehensive
motor vehicle insurance
to the plaintiff at its standard applicable premium, but the
plaintiff would only have qualified for a
premium discount in
accordance with the allocation of a one year no claim bonus.
Such would have resulted in a monthly premium
of R726.38.
According to Pretorius, the defendant only takes previous claims into
account in the award of no claim
bonuses and not the culpability of
those involved in the collisions or incidents giving rise to previous
claims. In this
regard he testified that “…
it
is not a no blame bonus, but a no claim bonus.”
It
has accordingly, in my view, not been established that the material
non-disclosure or misrepresentation relating to the
plaintiff’s
previous collision and insurance claim had no effect. The
defendant was thereby induced to take on the
risk at a substantially
reduced premium.
[23]
The defendant’s repudiation of liability is accordingly upheld
and the agreed issue should accordingly be decided in
its favour.
[24]
In the result I make the following order:
The
plaintiff’s action is dismissed with costs.
P.A.
MEYER AJ
ACTING
JUDGE OF THE HIGH COURT
Date
of Trial:
4 May 2007
Judgment
delivered:
1 October 2007
Plaintiff’s
Attorneys of Record
:
Levin Van Zyl
Inc
Randburg
Tel: 011 886
0915
Plaintiff’s
Counsel
:
Adv. S. Mulligan
Defendant’s
Attorneys of Record
:
Fluxmans Inc
Johannesburg
Tel: 011 328
1700
Ref: Mr Eric
Migdal
Defendant’s
Counsel
:
Adv. P.R.V.
Strathern