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[1992] ZASCA 189
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Qilingele v South African Mutual Life Assurance Society (117/91) [1992] ZASCA 189; 1993 (1) SA 69 (AD); (28 September 1992)
Case Number 117/91
/al
IN THE SUPREME COURT OF
SOUTH-AFRICA
(APPELLATE DIVISION)
In the matter
between:
ANGELINE LULAMA QILINGELE
Appellant
and
SOUTH AFRICAN MUTUAL
LIFE
Respondent
ASSURANCE SOCIETY
CORAM:
VAN HEERDEN, E.M. GROSSKOPF JJA, VAN
COLLER, KRIEGLER ET HARMS AJJA
DATE OF HEARING:
11 September 1992
DATE OF JUDGMENT:
28 September 1992
JUDGMENT
KRIEGLER AJA/
2 KRIEGLER AJA:
The appellant was the nominated
beneficiary under a life insurance policy issued by the respondent on the life
of one Tomazile Elijah
Qilingele ("the insured"). The policy provided for basic
life cover of R105 476,00 and a supplementary benefit of R5 000,00. The
insured
died (of multiple stab-wounds) in August 1986, some five weeks after inception
of the policy. The appellant's claim for payment
of the supplementary benefit
was met but the respondent, subsequently, refused her claim for payment of the
basic life cover. The
appellant thereupon instituted action in the Witwatersrand
Local Division for payment of the latter benefit. She was met with a plea
repudiating liability on a variety of grounds. Subsequently the issues were by
agreement narrowed to the single question whether
a particular
misrepresentation, contained in the proposal form
3 on the strength of which
the policy was issued, grounded repudiation of liability thereunder. The learned
trial judge determined
that issue in favour of the respondent and dismissed the
action with costs. His judgment is reported sub
nom Qilingile v South African
Mutual Life Assurance Society Ltd
1991 (2) SA 399
(W), ("the reported
judgment"). The appellant now pursues her claim for payment of the basic life
benefit. It is common cause that
the appeal turns on the same narrow point.
The evidence relating to the events preceding the issue of the policy is
fully set out in the reported judgment (at 400I - 408F).
The facts germane to
the present discussion fall within a narrow ambit and the following summary will
accordingly suffice. The insured
was a 41 year old divorcee living in Orlando
East, Soweto, and earning an average of Rl 000,00 per month as a
4
self-employed clothing salesman. The insurance
policy
concerned was issued pursuant to and on the
basis of a completed application
form signed by the
insured on 13 May 1986. The form bears a note at
its commencement which reads:
"As the statements in this application constitute warranties, complete and
accurate information must be given."
The body of the form is
divided into ten numbered
sections. Each of the first nine deals with a
particular topic and calls for data to be furnished
in designated spaces. Section 5 poses ten
questions covering a variety of topics. Opposite
each question there is a block for the insertion of
a positive or negative response. The second
question reads as follows:
5.2 Is any other application for insurance on your life now pending or
contemplated? (If 'yes', please state below names of insurers,
amounts and
whether such application is to be proceeded with if OLD MUTUAL accepts this
application).
5 The tenth section, headed "DECLARATION", does
not call for
information but requires the applicant to affix his signature immediately below
seven numbered paragraphs. The first
two thereof read as follows:
"1. I warrant that all the information given in this application, and in all
documents which have been or will be signed by me in
connection with the
proposed assurance,
whether in my handwriting or not
, is true and
complete.
2. I agree that the statements in this
application and the documents mentioned above shall be the basis of the proposed
contract,
that any misstatement or omission therein may lead to any contract
made being declared void by OLD MUTUAL, and that in such event
all monies paid
in respect thereof shall be forfeited."
The answer entered in the appropriate block
opposite question 5.2 was "No". That was not true.
The insured not only contemplated other
applications for assurance on his life but, on the
very occasion, signed completed applications for
such insurance addressed to two other insurers. He
6 wanted to obtain life
insurance of the order of R300 000,00 but insurers generally require a medical
examination where life cover
above a certain limit is proposed. In order to
avoid having to comply with such requirement the insured, acting through a
so-called
sub-broker, decided to "spread the risk" over three insurers. That
entailed applying for life insurance to three insurers, in each
case for an
amount of cover below that which would trigger a demand for a medical
examination. It was, of course, inherent in the
scheme that the insurers were
not to know that three contemporaneous applications were being made. The three
applications were submitted
to the respective insurers at the same time and
resulted in total cover in excess of R250 000,00 being obtained against monthly
premiums
adding up to approximately a third of the insured's income. The
appellant acknowledges the falsehood of the answer
7 to question 5.2 but
maintains that the respondent failed to establish that its repudiation of
liability was lawful. The nub of the
contention is that the respondent, in order
to justify the repudiation, had to show that the misstatement was material in
the eyes
of the reasonable man. That it had failed to do, so the argument ran,
because expert evidence adduced on its behalf had been misdirected
and
irrelevant. Three experienced actuaries had opined that the truth of the answer
to question 5.2 was material to a life insurance
underwriter assessing the risk.
(A detailed resume of their evidence and an evaluation of its cogency are to be
found at 408G -415J
of the reported judgment. ) But what has to be established,
so the argument continues, is not whether, in the eyes of an insurer,
the
untruth was material but. whether the reasonable man would regard it as such.
Hence the respondent had failed to discharge the
onus,
8
which it admittedly bore, to justify its repudiation of
liability under the policy.
The argument, both in this court and in the court below, was founded on the
conclusion of Joubert JA in the majority judgment in
Mutual and Federal
Insurance Co Ltd v Oudtshoorn Municipality
1985 (1) SA 419
(A) 435F-I, viz
that the court judges the materiality of a non-disclosure objectively "from the
point of view of the average prudent
person or reasonable man". For the sake of
convenience that conclusion will henceforth be referred to as the "
Oudtshoorn
Municipality
test." The learned judge
a quo
(at 416B - 417F) adopted
the argument but, in the event, held that on that test, as explained by Van
Heerden JA in
President Versekeringsmaatskappy Bpk v Trust Bank van Afrika
Bpk en 'n Ander
1989 (1) SA 208
(A) 216D-G, the false answer to question 5.2
had been material.
In the court
a quo
and initially in this court
9 the respondent
accepted the applicability of the
Qudtshoorn Municipality
test to a
defence based on misrepresentation. In doing so it enjoyed the support of the
recent judgment in
Pillay v South African National Life Assurance Co Ltd
1991 (1) SA 363
(D & CLD). There the insured had answered questions in a
life assurance proposal form relating to his medical history in the
negative
whereas, in truth, positive answers had been called for. In determining the
materiality of the misstatements the learned
judge expressly applied the
Qudtshoorn Municipality
test, as elucidated by Van Heerden JA, and,
wearing the spectacles of the reasonable man, non-suited the plaintiff.
However, as I hope to make plain, the
Qudtshoorn Municipality
test
applies only to cases where the ground for repudiation is a failure of the
common law duty to disclose material facts. In that
case, as also in the
10
President Versekerinqsmaatskappy
case, the point at
issue was such a
non-disclosure. Here we are not concerned with that situation but with a
straight-forward case of misrepresentation
where the insured expressly vouched
for the truth of his representations founding the contract of insurance and
moreover did so by
way of warranty. The legal effect of such warranted
representations in insurance transactions is well known. See e.g.
Lewis Ltd v
Norwich Union Fire Insurance Co. Ltd.
1916 AD 509
at 514 in fin to 515.
Strict observance thereof is a pre-condition to liability under a contract of
insurance founded chereon. In
paragraphs 1 and 2 of the DECLARATION the insured,
over his signature, warranted the correctness of the statements in the
application
form and agreed that they would be the basis of the insurance
contract. He further agreed that
any
misstatement therein could found a
repudiation. Contractually,
11
therefore, the materiality of the false answer to
question
5.2 is irrelevant.
If the matter had rested there the
respondent's repudiation of
liability for payment
of the basic life benefit would clearly have
been
unassailable. But the lawgiver deemed it necessary
to intervene in the relationship between insurers
and those whom they
contract to insure. This it
did in 1969 by adding an important provision
to
the Insurance Act, No 27 of 1943 ("the Act"). By
s.19 of Act 39 of 1969, ss.(3) was inserted in s.63
of the Act to cut down any contractual right which
an insurer may have to repudiate liability on the
basis of
misrepresentation. That sub-section, in
so far as here relevant, provides as follows:
"Notwithstanding anything to the contrary contained in any ... document relating
to [a domestic] policy, any such policy .. . shall
not be invalidated and the
obligation of an insurer thereunder shall not be excluded ... on account of any
representation made to
the insurer which is not true, whether or not such
representation has been warranted to be true,
12
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 ... thereof."
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. This was done by, first, providing
generally that liability could not be avoided on
account of any misrepresentation, warranted or not,
and then adding a qualification. By structuring
the provision in that way the draftsman ensured
that the onus to prove the requisite elements of
the qualification - and hence of the right to avoid
liability - would rest on the insurer.
The formulation of the qualification is no
13
model of clarity, but purposive interpretation
and
reference to the Afrikaans text of the sub-section
render its meaning
clear. In Afrikaans the
qualification is expressed in the following
terms:
"...tensy die onjuistheid van bedoelde voorstelling sodanig is dat dit
waarskynlik die berekening van die risiko onder bedoelde polls
wesentlik
beïnvloed het ten tyde van die uitreiking of enige herstelling of hernuwing
daarvan."
The requirements of the qualification can
conveniently ba broken up into its components.
What an insurer has to
establish first in order to
bring itself under the protective shield of the
qualification is a probability: That is apparent
from the use of the word "likely" and manifest from
its Afrikaans equivalent, namely, "waarskynlik".
Whether or not something is probable is a factual
question, pure and simple; and it has to be
answered by applying common sense and experience to
all the available data. Concepts of the reasonable
14
insurer, the reasonable insured or the reasonable man, which
connote a value judgment, do not enter the picture. From this it follows
that
the
Oudtshoorn Municipality
test has no bearing on a case under
s.63(3).
What has to be established as a probability in terms of that
sub-section is whether a misrepresentation is "of such nature " ("sodanig
is")
as to have had a particular result. It seems passing clear from the Afrikaans
text that no particular significance need be attached
to the circumlocutional
phrase the draftsman saw fit to use when he ran into difficulties with the
hypothetical past tense. The phrase
would have been as sound grammatically, and
its meaning clearer, if the reference to "nature" had been omitted, i.e. if it
had simply
read "unless the incorrectness of the representation is such as to be
likely ..."
15
Be that as it may, what has to be ascertained
is whether the
result likely to have been caused by
the misrepresentation is
material
. Materiality is
not a relative
concept; something is either
material or it is not. Etymologically the
word
"material" ("wese" in Afrikaans) denotes substance,
as opposed to form. In
legal parlance it bears a
corresponding meaning:
"Of such significance as to be likely to influence the determination of a
cause ..."
(Shorter Oxford English Dictionary vol.2, p.1289).
Conformably its meaning in insurance law is significance in relation to the
determination of the risk. In the sub-section now being
examined the adverb
"materially", used in conjunction with the verb it qualifies ("affect"), simply
means that only risks undertaken
on the strength of significant
misrepresentations may be repudiated under the saving qualification.
16 That
such significance relates to a risk, is clear. What is also clear, but not so
obvious from the wording of the sub-section,
is that the materiality relates to
the assessment of the particular risk against which the insurance obligation
sought to be repudiated
was afforded. The sub-section says quite plainly that it
is "
the
assessment of the risk under the
said
policy" ("
die
risiko onder
bedoelde
polls") which had to be materially affected.
The enquiry as to the materiality of the misrepresentation is consequently not
conducted
in abstracto
but is focused on the particular assessment. From
that it follows that the evidence of the underwriter who attended to that
assessment
is not only relevant but may prove crucial. So, too, evidence that
the insurer had a particular approach to risks of the kind in
question would be
relevant and could be cogent.
17 Obviously general considerations affecting
the assessment of the kind of risk in issue will bear on the probabilities and
will
be taken into account. But, and this serves to be emphasized, the enquiry
is aimed at determining whether the specific assessment
was probably materially
affected by the specific misrepresentation in contention. It goes without saying
that, although the evidence
of the particular underwriter, and of other such
experts, will carry considerable weight, the court will not be bound by their
ipse dixit
. That is so, not only because of its function as trier of fact
weighing the probable effect of the particular misrepresentation,
but also
because of the retrospectivity inherent in the exercise. In terms of the
sub-section that effect is expressly to be ascertained
as "at the time of issue,
or any reinstatement or renewal" of the policy, i.e. when the risk was assumed.
What the court has to
18
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.
19 Application of the test as formulated above to the facts
of the instant case puts the conclusion beyond doubt.
Prima facie
the
respondent drafted its application form in order to elicit information which it
considered important to its decision whether
or not to accept the proposed
insurance and, if so, on what terms. The evidence of the respondent's chief
actuary, amply supported
by the other two experts, established that the items of
information called for in the application form are weighed in conjunction
with
one another in assessing the risk. In particular, so their evidence established,
the amount of life insurance cover applied
for is viewed against the proposer's
income. A disparity between the two when measured against a standard criterion
(appropriate
cover equals approximately 10 years' income) was regarded by the
respondent as an indication that the risk proposed was abnormal;
and it would
have resulted
20
in either a declinature or, at least, further enquiries. That
adds up to materiality. Whether such criterion is objectively reasonable
is
beside the point, the enquiry being directed at
respondent's
assessment
of the risk.
Once it is accepted that the disparity was probably material
from respondent's point of view at the time, the conclusion is clear.
And there
can be little, if any, doubt on the evidence that it must be accepted. The
learned judge
a quo
summarised, analysed and evaluated the evidence
in
extenso
at 408G - 415J of the reported judgment. There is no reason to
differ from his conclusion that the evidence of the three actuaries
called on
behalf of the respondent was entirely acceptable. Two of them were not
cross-examined at all and the line pursued by counsel
for the appellant in
cross-examining the third, respondent's chief actuary, proved barren. Indeed in
this court appellant's
21
counsel argued but perfunctorily that the respondent's
evidence was not acceptable. The thrust of his argument was rather that such
evidence, even if acceptable, had been misdirected as it did not postulate the
reasonable man, as it ought to have done to comply
with the
Oudtshoorn
Municipality
test. He could hardly have done otherwise. Not only does the
record make manifest that the evidence was acceptable, but there was
nothing to
gainsay it. As both parties at the trial believed that the
Oudtshoorn
Municipality
test was applicable, the evidence ranged wider than would have
been the case had the confines of the real enquiry been appreciated.
In the
result it was established that not only the respondent would have viewed the
risk proposed by the insured with a jaundiced
eye if the truth had been told in
response to question 5.2 in the application form, but that life insurers
generally
22
would have held such view. In short, the respondent discharged
the onus resting upon it to prove the elements which bring its repudiation
of
the appellant's claim for payment under the basic life provision of the policy
within the qualification to s.63(3) of the Act.
The appeal therefore falls to be
dismissed with costs.
One issue remains. That is whether the respondent is entitled to the costs of
two counsel. The point at issue is an important one
and the law was uncertain.
The only authority dealing with the approach to a case falling under the
provisions of s.63(3) of the
Act was
Pillay's
case, supra, which decided
that the
Oudtshoorn Municipality
test was applicable. In the
circumstances it was prudent for the respondent to have retained the services of
two advocates.
23
The appeal is dismissed with costs, including the costs
consequent upon the employment of two counsel.
KRIEGLER AJA
VAN HEERDEN JA ]
E.M. GROSSKOPF JA ] CONCUR
VAN COLLER
AJA ]
HARMS AJA ]