THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO
: 574/03
In the matter between :
SOUTH AFRICAN EAGLE INSURANCE COMPANY LIMITED Appellant
and
KRS INVESTMENTS CC Respondent
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Before: NUGENT, VAN HEERDEN JJA & ERASMUS AJA
Heard: 16 NOVEMBER 2004
Delivered: 24 NOVEMBER 2004
Summary: Insurance policy – fraudulen t claim – whether insurer excused
from liability for subsequent claims
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J U D G M E N T
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NUGENT JA
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NUGENT JA:
[1] Fraudulent insurance claims – regr ettably – are not altogether rare.
While an insurer is natura lly not bound to meet a clai m that in truth is not
covered by the policy the question that ar ises in this appe al is whether it
may also avoid liability for a valid claim that ar ises subsequent to the
attempted fraud.
[2] The question arises in relation to a policy of insurance pursuant to
which the appellant indemnified the r espondent against a variety of risks
for the period 1 September 1999 to 31 August 2000. One of the risks
against which the respondent was indemnified was the risk of loss or
damage to a specified La nd Rover motor vehicle. A nother was th e risk of
damage by fire to the respondent’s restaurant and its contents.
[3] On 30 December 1999 the insure d Land Rover overturned and was
damaged while it was being driven, wi th the respondent’s knowledge and
consent, by a person who was not licensed to drive the vehicle. In terms of
an exception in the policy the appellant was not liable in those
circumstances to indemnify the re spondent. The respondent sought to
overcome that inconvenient hurdle by misrepresent ing the identity of the
driver of the vehicle when it submitted its claim to the appellant.
[4] On 6 February 2000 – after the motor vehicle claim had been
submitted but before it was paid – the respondent’s restaurant and its
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contents were destroyed by fire an d the respondent su bmitted a further
claim for recovery of that loss.
[5] In the course of investigating th e claims the appellant discovered that
at the time the Land Rover was da maged it was being driven by an
unlicensed driver – contrary to th e respondent’s representation – and on
those grounds it declined to meet the claim. It also declined to meet the fire
claim, on the grounds that the misrep resentation made by the respondent –
which must have been fraudulent – entitled the appellant to avoid the
policy from the date that the misrep resentation was made and it purported
to do so.
[6] The respondent sued the appella nt in the Johannesburg High Court
for recovery of both claims. The matt er came before Ponnan J who, by
agreement between the parties, wa s called upon to determine only the
question of liability in relation to each claim. The learne d judge found that
the Land Rover was being driven by an unlicensed driver when the damage
occurred – contrary to what the re spondent persisted in asserting – and on
those grounds dismissed that claim. Leave to appeal against that order was
refused by the court a quo and by this court and I need say no more about
it. The learned judge also found that th e appellant was obliged to meet the
fire claim and he issued a declarator y order to that effect. The present
appeal, which comes before us with the leave of the court a quo, is against
that order.
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[7] The appellant’s contention, both in this court and in the court below,
was that one of the naturalia of an insurance contract – a term of the
contract that is implied ex lege – is that an insurer against whom a
fraudulent claim is made has an elect ion to terminate the contract, and
moreover, to do so with effect from the date that the fraudulent claim was
made.
[8] Perhaps an insured do es have a duty – whether tacit or implied – to
act in good faith towards the insurer for the duration of the contract. And
perhaps the deliberate submission of a fa lse claim is a breach of that duty
entitling the insurer to terminate the po licy. But if that is so then on
ordinary principles of our law the insurer would be relieved of liability only
from the time of termination, and th e rights and obligations that had
accrued before then would rema in extant (see, for example, Nash v Golden
Dumps (Pty) Ltd 1985 (3) SA 1 (A) 22D-I; Thomas Construction (Pty) Ltd
(in liquidation) v Grafton Furn iture Manufacturers (Pty) Ltd 1986 (4) SA
510 (N) 515E-516A; 1988 (2) SA 546 (A) 563J-564D). What the appellant
seeks, however, is the recognition of something more: it seeks the
recognition of a right to terminate the policy with retrospective effect from
the date of the attempted fraud, with the result that the insured would
forfeit rights that had accrued before the termination.
[9] Counsel for the appellant could refer us to no authority from our
traditional sources in support of such a right – and I am not aware of any –
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but he invited us to import the principl e from the English law of insurance,
which was said to be to that effect.1
[10] A similar invitation to import pr inciples of English law relating to
the consequences of submitting a false claim was recently declined by this
Court in Schoeman v Constantia Insurance Co Ltd 2003 (6) SA 313 (SCA).
In that case an event occurred that was insured against under the policy but
the insured deliberately inflated the amount of the loss when submitting her
claim. The insurer submitted that in those circumstances it was relieved of
liability for the whole of the claim. Rejecting the invitation to import penal
principles of English law that would have that effect Marais JA pointed out
that our common law is ‘basically anti- penal’ and went on (at para 21) to
say that
‘[t]here would therefore have to be either a clearly recognised doctrine of forfeiture in
our law or a compelling present need for its adoption before this court would be
justified in lending its imprimatur to such a fundamentally penal doctrine.’
[11] In my view the rule that is sought to be introduced in the present case
would operate as punitively as the rule that was rejected in Schoeman's
case, for it purports to dispossess th e insured of a perfectly valid claim,
untainted by the fraud, that accrued contractually before the policy was
1 The English law recognises forfeiture remedies in the event of fraud. The precise scope of those
remedies, and their foundation, seems to be not altogether settled, and it is also doubtful that they
correspond with the remedy that is now sought - see ER Hardy Ivamy General Principles of Insurance
Law 6
th ed 434 ff; Colinvaux’s Law of Insurance 6th ed by Robert Merkin para 9-34; MacGillivray on
Insurance Law 10th ed by Nicholas Legh-Jones paras 19-54 - 19-61; The Law of Insurance Contracts 4th
ed by Malcolm A Clarke para 27-2C; Peter MacDonald Eggers and Patrick Foss Good Faith and
Insurance Contracts para 11.128-11.134; Malcolm A Clarke 'Good Faith and Bad Blood in Insurance
Claims' (2002) 14 SA Merc LJ 64.
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terminated, and for the reasons outlined in that case we should similarly
decline to import such a rule. As pointed out in Schoeman's case our law
has no recognised doctrine of forfeiture , and in this case too there is no
compelling reason to import such a rule, bearing in mind the following
observation by Marais JA at para 24:
‘When there is added to that the fact that insurance companies are masters of
their own policies in the sense that they are free to unilaterally devise them, the insured
has no say in the process, and that it is a si mple matter to include an appropriate clause
to protect the insurer against fraudulent claims by providing for forfeiture, there does
not appear to be any pressing need for the law to provide such protection.’
[12] The appeal is di smissed with costs.
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R W NUGENT
JUDGE OF APPEAL
VAN HEERDEN JA)
ERASMUS AJA) CONCUR