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[1993] ZASCA 195
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South African Eagle Insurance Company Ltd. v Norman Welthagen Investments (Pty) Ltd. (335/92) [1993] ZASCA 195; 1994 (2) SA 122 (AD); (30 November 1993)
CASE NO 335/92
/ccc
IN THE SUPREME COURT OF SOUTH AFRICA
(APPELLATE DIVISION)
In the matter between:
SOUTH AFRICAN EAGLE
INSURANCE
COMPANY
LIMITED
APPELLANT
and
NORMAN WELTHAGEN
INVESTMENTS
(PROPRIETARY) LIMITED
RESPONDENT
CORAM
: JOUBERT, HOEXTER, SMALBERGER, NESTADT et VIVIER
JJA
DATE HEARD
: 12 NOVEMBER 1993
DATE DELIVERED
: 30 NOVEMBER 1993
JUDGMENT NESTADT, JA:
Pursuant to a so-called multi-peril policy, the appellant insured the
respondent against
inter alia
2
loss arising from the theft of any of the
respondent's
vehicles "left in the open" on its premises. During
the
currency of the policy one of such vehicles was
stolen.
The respondent claimed its value. The
appellant
repudiated liability on the ground that there had been
a
breach of what is termed memo 2 (the memo) in
the
"Theft" section of the contract. In terms of
this
provision the respondent "warranted that all
vehicles
left in the open must be locked at all times out
of
business hours and all keys must be removed and kept
in
a locked safe". Though the vehicle in question
(which
was stolen out of business hours) was locked, its
keys
were not kept in a safe. Instead they were retained
in
a cupboard in the respondent's (locked) premises. It
is
clear therefore that the clause was not complied
with.
This notwithstanding, HARTZENBERG J, in an
action
3
brought by the respondent in the Witwatersrand Local
Division, granted judgment (in the sum of R42 588)
against the appellant for the value of the stolen
vehicle. In
doing so the learned judge applied sec
63(3) of the Insurance Act, 27 of 1943 (the Act) . The
issue in this appeal is whether he was correct in doing
so.
The material part of sec 63(3) reads:
"Notwithstanding anything to the contrary contained in any domestic
policy... such policy...shall not be invalidated and the obligation
of an
insurer thereunder shall not be excluded or limited...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."
The sub-section was added to sec 63 by sec 19 of the
Insurance Amendment Act, 39 of 1969. The amendment
4
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
, 4th ed, 218). This principle, however, often
resulted in hardship to insured persons (as in, for example,
Jordan v New
Zealand Insurance Co Ltd
1968(2) SA 238 (ECD)). The aim of sec 63(3) was to
remedy this by protecting claimants under insurance contracts against
repudiations
based (in the words of KRIEGLER AJA in Qilinge
le v South African
Mutual Life
Assurance
Society
1993(1) SA 69(A) at 74 B) "on
inconsequential inaccuracies or trivial misstatements
5
in insurance proposals". This is achieved by limiting the insured's right
to avoid liability to the case where the breach of warranty
probably would (to
repeat the words of the enactment) have "materially affected the assessment of
the risk under the...policy at
the time of issue...thereof". But the warranty
must relate to an underlying representation (made to the insurer). This
requirement
is central to the operation of the section. Hence the enjoinder in
it that the policy is not to be invalidated "on account of any
representation
made to the insurer which is not true" (whether or not such representation has
been warranted to be true). In other
words, and as
LAWSA
, Vol 12, para
168 states, "the section focuses on representations and deals with
warranties...rather obliquely". Where, therefore,
the warranty is not founded on
a
6
representation, it will retain its full common law effect (Kahn:
Contract and Mercantile Law Through The Cases
743).
I have
said that the matter for decision is whether sec 63(3) applies. That this is so
appears from an agreed statement of facts forming
part of a special case which,
in terms of Supreme Court Rule 33, was placed before the trial court for its
adjudication. Such statement
raises neither the issue whether the memo, although
warranted, was nevertheless not material, nor whether if it was breached, the
appellant was entitled to repudiate the claim (rather than cancel the policy).
Furthermore, these points were not broached in the
court below. Accordingly, the
argument of Mr van
der Linde
, who appeared for the respondent, that it
was open to him to raise them, must be rejected. The
7
consequence of this is to be considered in
conjunction
with the appellant's concession that the fact that
the
keys of the vehicle were kept in a cupboard (where
they
were found after the theft) rather than in a
locked
safe, did not at any time materially affect
the
assessment of the risk. So this element of the
section
does not feature either. In these circumstances,
and
since it was common cause that the policy
under
consideration is a domestic one (as defined in sec 1
of
the Act), the narrow question that arises, and on which
the appeal (in the main) turns, is whether the
memo,
though warranted, is a representation within
the
meaning of sec 63(3). If it is, the section
would
operate to save the respondent from the consequences
of
the warranty having been breached. In this event
its
claim was rightly allowed and the appeal must fail.
On
8
the other hand, if, as the appellant contends, the memo was simply a term
of the policy, sec 63(3) would not apply, the respondent
should therefore have
been nonsuited and the appeal must succeed. This is because seeing, as I have
said, there is no dispute that
the memo was made material, its breach would in
the ordinary course have entitled the appellant to repudiate liability under the
policy.
It is necessary in the first place to ascertain the meaning of
"representation" ("voor-stelling" in the Afrikaans text) as used in
sec 63(3).
Representation in the present context is a well-established, indeed, basic
juristic concept. It is a statement made to
induce another to enter into a
contract. In relation to insurance,
American Jurisprudence
, vol 43, 2nd
ed, para 734 gives the
9
following useful definition:
"A 'representation,' in the law of insurance, is an oral or written
statement by the insured or his authorized agent to the insurer
or its
authorized agent, made prior to the completion of the contract, giving
information as to some fact or state of facts with
respect to the subject of the
insurance, which is intended or necessary for the purpose of enabling the
insurer to determine whether
it will accept the risk, and at what premium.
Stated differently, a representation is not, strictly speaking, part of the
insurance
contract, but is collateral thereto. It is a statement made to the
insurer before or at the time of making the contract, presenting
the elements
upon which the risk is either accepted or
rejected."
Whether the statement may relate to the
representor's
future intentions, ie whether what has been called a
promissory representation is included, is subject to
controversy (see Gordon and Getz op
cit
, 230-1 and in
particular the writers referred to in note 138 as also
MacGillivray and Parkington on
Insurance Law
, 8th ed,
10
para 612). It may be that the requirement of "not true" and
"incorrectness" in the section militates against such a statement qualifying
as
a representation. In the view I take of the matter, however, it is unnecessary
to decide the point. What is clear (and important
for our purposes) is that a
representation is a pre-contractual statement and, unlike a term, does not
become part of the contract.
This is the ordinary meaning of a representation
and this is the sense in which it is unambiguously used in the section.
Accordingly,
there is no room for the application of the rule that in the case
of remedial legislation (which sec 63(3) undoubtedly is) a construction
which
extends the remedy will if possible be adopted (
Slims (Pty) Ltd and Another v
Morris NO
1988(1) SA 715(A) at 734 D-F). In any event, such an approach
would be contrary to the
11
principle that statutory invasion of the common law is restrictively
interpreted (
Stadsraad van Pretoria v Van Wyk
1973(2) SA 779(A) at 784
F-H) and that the legislature is presumed to have used a word in its ordinary,
popular sense (Steyn:
Die Uitleg van Wette
, 5th ed, 6-7). Perhaps
parliament should have gone further in protecting insured persons (as has been
done in some jurisdictions
in the United States of America; see
American
Jurisprudence
,
op cit
, para 758 and Gordon and Getz, op
cit
,
227). But it has not done so.
Normally a representation is contained in a proposal form signed by the
person seeking insurance and addressed to the insurer for
its acceptance. There
are, however, other forms that a representation could take; it may be oral and
it may be implied (
inter alia
from conduct) . It may even be inserted in
the policy, but
12
this does not prevent it from being construed as a representation (Ivamy:
General Principles of Insurance Law
, 5th ed, p 307; see also
Prima Toy
Holdings (Pty) Ltd v Rosenberg
1974(2) SA 477(C) at 484). Has there,
in
casu
, in any manner been a representation to the appellant relating to where
the keys of the vehicles would be kept? In my opinion there
has not. To begin
with, the memo (on which, as I have said, the respondent's case rests) does not,
so it seems to me, contain either
a statement of fact or even a representation
as to future conduct. Its language ("all keys must be...kept in a locked safe")
is unequivocally
that of a contractual undertaking. The use of "It is warranted"
and "must" fortifies this conclusion. "Warranty" speaks for itself.
The word
"must" is primarily of mandatory effect (
Black's Law Dictionary
,
13
5th ed, 919); it connotes that which is imperative
(
Berman v Cape Society of Accountants
1928(2) PH
M
47(C)). So no question of the memo being true or untrue
(compare the wording of sec 63(3)) arises. Also of
significance is that the appellant "at all times
intended that memo 2...should constitute a term of
the
policy." (I quote from the stated case.) This too
tends to show that it is not a representation.
Regarding a fire policy which provided that the insured
"warranted that (it) keeps a complete set of books...and
that same are locked in a fireproof safe", INNES CJ in
Lewis Ltd v Norwich Union Fire Insurance Co Ltd
1916 AD
509 at 515 said:
"That the clause above is a warranty and not am ordinary representation
is clear. Nor only is it expressly so styled, but the nature
of its provisions
and the absence of any indication to the contrary in the context leave no doubt
that it was meant to be exactly
what it was called. And the language is plain; a
complete set of books in
14
connection with the business must be kept, and they must be locked in a
fireproof safe or otherwise guarded as directed."
I can
see no difference in principle between that case
and this
one.
There is, however, a more basic reason for
concluding that the respondent made no representation
and
that sec 63(3) cannot therefore avail it. One
must consider how the
memo was introduced into the
policy. This appears from the agreed
statement of
facts. There was no proposal form. What happened was
that details of the insurance required by the respondent
were set out in a written application for insurance
which was submitted on its behalf by a broker to the
appellant. The appellant was prepared to insure the
respondent. But it required certain terms, including
the memo, to be part of the contract. In the result,
15
the policy which was then issued (and accepted by
the
respondent) included the clause in question.
Clearly,
therefore, it emanated from the appellant. It was
the
appellant who, in advance, stipulated on what terms
it
was prepared to insure the respondent. All
the
respondent did was to accept what amounted to an
offer
by the appellant. The respondent itself made no
prior
statement which induced the appellant to
contract.
Indeed the stated case records that "no
relevant
representations were made" by or on behalf of
the
respondent "prior to the issue of" the policy.
Counsel,
however, whilst not disputing this, submitted (on
the
strength of what is stated in
LAWSA
,
op cit
, at p
165)
that by agreeing to the policy in the terms laid down
by
the appellant, the respondent impliedly represented
that
it would comply with the memo. I am unable to
accede
16
to the argument. It is not one which is raised in the stated case. In any
event, it is flawed. I have difficulty in seeing how the
acceptance of an offer
can be construed as a representation (in the sense under consideration) that the
offeree will perform his
contractual obligations. By the time the policy was
issued to the respondent, the appellant had assessed the risk and fixed the
premium.
The respondent's acceptance can in no way be said to have induced the
appellant to contract. Certainly there was no evidence before
us to this
effect.
The result is that, contrary to what the court a
quo
held, sec
63(3) was not applicable and the memo having been breached, the respondent's
claim was bound to fail.
The following order is made:
17
(1)
The appeal
succeeds with costs.
(2) The order of the court a
quo
is set aside. The following order is
substituted: "The plaintiff's claim is dismissed with
costs".
NESTADT, JA
JOUBERT, JA )
HOEXTER, JA ) CONCUR
SMALBERGER,
JA )
VIVIER, JA )