INTRODUCTION Insurance is the result of mans efforts to create
financial security in the face of dangers to his life, limbs and
estate. The tension between his desire to form and develop his
estate, on the one hand, and the dangers threatening to destroy
that desire on the other. One of the most satisfactory general
methods of creating financial security against risks is that of
spreading the risk among a number of persons all exposed to the
same risk and all prepared to make a relatively negligible
contribution towards neutralizing the detrimental effects of this
risk which may materialize for any one or more of their number.
Insurance as precautionary measure against risk has several
advantages, namely , it shifts the greater part of the risk from
the exposed person to others; it is relatively easy to persuade
individual to bind themselves to make a comparatively small
contribution in exchange for security; and insurance is applicable
to a wide variety of situations. INSURANCE AS A CONTRACT Voluntary
provision against risks by means of insurance takes the form of a
contract between an insurer and an insured person. The contract
relates to the transfer of a specific risk or risks in exchange for
the payment of a consideration commonly known as a premium. The
nature and extent of the risk helps to determine the common of the
premium. Contracts of insurance are based on considerations of
individual interest and accordingly the rules which govern them are
not applicable to social insurance schemes which rest on
socio-economic considerations and are implemented by the state on a
compulsory basis e.g NSSA HISTORICAL BACKGROUND The modern
insurance contract has its roots in two distinct lines of
development i.e. i) The practice of mutual financial assistance
which eventually gave rise to Mutual insurance, and ii) Contract of
risk spreading for consideration which developed into the contract
of insurance for profit or premium insurance in the narrow sense of
the word. MUTUAL INSURANCE Among the Romans, and even ancient
Greece and Egypt, societies existed which afforded members certain
benefit such as proper burial risks or a financial contribution
towards buried costs. These societies can hardly be regard as
insurer, but nevertheless they represented the idea of mutual
assistance in case of materialization of risks. This idea gained
prominence in the guilds or similar associations which existed in
Europe and England during the middle ages. The associations
afforded members or their dependant assistance in case of loss
caused by perils such as fire, shipwreck, theft, sickness or
death.
The guilds developed into communities which were formed
expressly to spread specific risks amongst persons exposed to those
risks by granting each member of the group a legal right to
assistance if the risk materialized. In exchange for this right
members undertook to pay regular contributions or premiums. In this
way the concept of community of similarly exposed persons become
firmly entrenched as an element of the concept of insurance.
INSURANCE FOR PROFIT The idea underlying modern profit insurance
was manifested in Babylonia almost 200 years before Christ in a
contract of trading capital to traveling merchants. The contract
contained a clause that the risk of loss due to robbery in transit
was borne by the party providing the loan. In consideration for
bearing this risk, the lender calculated interest on the loan at an
exceptionally high rate. Insurance for profit as an independent
type of contact developed from risk contained in maritime loans and
certain contract of purchase and sale. The central theme was
transfer of risks in exchange for a consideration in money. The
profit motive provided an incentive for a careful calculation of
both the risk and premium. The first clear records of contracts
which provided for the undertaking of a risk in exchange for money
by an independent party not involved in the trade transaction from
which the risk and emanated would seem to be documents containing
contracts for the transfer of maritime risk gained currency towards
the end of 14th century. Independent risk bearing for consideration
had by them developed in the form of marine insurance. FURTHER
DEVELOPMENT For a considerable period up to the 19th century marine
insurance was the dominant form of insurance. In the course of time
however, the various type of insurance as they exist today
developed from both mutual and profit insurance. For instance, life
insurance became an independent and acceptable contract of
insurance towards the 16th or 17th century while fire insurance
contract gained currency especially from the 17th century onwards.
SOURCES OF INSURANCE LAW The common law of Zimbabwe is Roman-Dutch
law and as such one would except to find the Zimbabwean law of
insurance in modern Legislation and in the writings of Roman Dutch
Jurists. However, Roman Dutch Law is not applied to many aspects of
insurance contracts. Sections 3 & 4 of the General Law
Amendment Act [Chapter 8:07] placed Zimbabwean insurance law into
the mainstream legal principles which are , by and large ,
homogeneous throughout the world. The sections provided that the
English Law of fire, life and marine insurance shall apply in
Zimbabwe except statutes passed after 1879. The significance of the
date 1879 lies in the fact that the General Law Amendment Act has
its origin in the Cape Act 1879 and in terms of the said Cape Act,
only pre 1879 Statutes are binding.
It is however, important to note that the GLAA was itself
amended by section 13 of the Insurance (Amendment) Act, No.3 of
2004 with the effect that English law does not apply to contracts
concluded after the commencement of Act No.3 of 2004. The GLAA
makes English law applicable only on questions of insurance, not on
questions of other branches of law that may arise in the course of
an insurance dispute Thus in Northern Assurance Co. Ltd v Methuen
1937 SR 103 English Law was held not binding on a question relating
to cesscession of right under a policy. In the same case, Mcllwaine
ACJ @ 108 applied the principle that if a clause in a policy was
taken from English policies, the meaning given to the clause by
English law must govern. It is not altogether clear whatever GLAA
imports the English Law of insurance generally, or the import is
confined to fire, life and marine insurance. In Horne v Newport
Gwilt & South British Insurance Co. Limited 1961 R&N 751 @
772 (also reported in 1961(3) SA 342 @ 353) Maisels J assumed that
the plain wording of the Act should not be extended; in other words
English law must apply only to fire, life and marine insurance.
Thus, for example, the inclusion in a motor policy of cover against
fire does not bring the whole policy under English law; but
conversely, a claim on the fire portion of a mixed policy will fall
to be decided under English law. The principle thus formulated
seems clear enough but its application invariably involves some
difficulty in that while there are matters clearly peculiar to
insurance e.g insurable interest, risk, over/under-insurance etc,
other matters are evidently not peculiar to insurance e.g
stipulations in favour of 3rd parties, trusts, interpretation of
policies, offer and acceptance and the like. Borderline cases often
pause an agonizing challenge, for instance, it has been held that
warranties in insurance policies are governed by English Law (see
Morris v Northern Assurance Co. Ltd 1911 CPD 293 @ 304), yet one
may well ask whether a warranty in an insurance policy differs
substantially from the concept of a warranty in the law of
contract. The applicability of English Law is thus open to debate.
The South African Appellate Division has traced the origins of the
South African Law of insurance to the Lex mercatoria of the Middle
Ages. In the ultimate analysis, therefore, it is clear that the
Roman-Dutch and English law of marine insurance stem from the same
original sources. Since South Africa has taken a distinctively
Roman-Dutch bias to insurance contracts concluded after 1879, it is
proper to conclude that Zimbabwes insurance law derives from the
pre-1879 English statutes as read together with the post 1879
Roman-Dutch common law. Indeed this is the view that is crystalised
by Amendment No.3 of 2004 in specifically ousting English law in
contracts concluded after the commencement of the amendment.
CLASSIFICATION OF INSURANCE The most important criteria for
classifying insurance contracts are the nature of the interest
insured; whether the object of the risk has been valued or not ;
the nature of the event insured against; the possible duration of
the contract; and the purpose of the insurance.
INDEMNITY & NON-INDEMNITY INSURANCE This is the most
fundamental distinction between various insurance contracts. - In
indemnity insurance the contract between the parties provides that
the insurer will indemnify the insured for loss or damage actually
suffered as the result of the happening of the event insured
against. - The whole purpose of the contract is to restore the
insured to his status quo ante and the insured may not make any
profit out of his loss - In non-indemnity insurance, on the other
hand, the insurer undertakes to pay a specified amount or
periodical amounts to the insured merely on the happening of the
event insured against e.g. upon the death or injury of insured. -
It is apparent that the distinction between indemnity and
non-indemnity has been taken to lie in the nature of the interest
insured - In indemnity insurance the interest must be, of necessity
of a proprietary nature, otherwise no financial loss or damage can
be caused through its impairment. - On the other hand, the interest
which can be the object of a non-indemnity contract of insurance
must be regarded as non-proprietary in substance. Put differently,
non-indemnity insurance depends on an event which invariably
relates to the person of the insured or a third party. - An
important consequence attached to the distinction between indemnity
and non-indemnity insurance is that in non-indemnity insurance the
insurers are not entitled to the benefits of proportionate
contribution or subrogation. PROPERTY & LIABILITY INSURANCE
Property insurance is concerned with the positive elements (assets)
of the insureds patrimony or estate, for instance ownership of his
house or expectation of future benefit. Liability insurance is
concerned with negative elements (liabilities) which come into
being as part of the insureds patrimony e.g third party motor
vehicle insurance.
CLASSIFICATION ACCORDING TO THE NATURE OF EVENT INSURED AGAINST
- Examples include marine insurance, fire insurance and personal
insurance. This classification cuts across the fields of indemnity
and non-indemnity insurance. In personal insurance, we includes
life insurance, personal accident insurance and medical insurance.
The event insured against operates on the person of the insured or
a third party. - depending on the intention of the parties,
personal insurance may either be indemnity or non-indemnity
insurance while non-personal insurance can only be indemnity
insurance and nothing else. LONG TERM & SHORT TERM
INSURANCE
-Long term insurance business is defined in the Insurance Act
as: -Short term insurance business is also defined in the Act as:
The difference between long term insurance and short term insurance
appears to lie in the fact that long term insurance is concerned
only with life insurance whereas short term insurance deals with
forms of insurance which are usually of short duration. FEATURES OF
INSURANCE INSURANCE AS A CONTRACT (i) Definition - In Lake v
Reinsurance Corporation Ltd 1967(3) SA 124 (W) the court adopted
the following definition of a contract of insurance: - A contract
between an insurer and an insured whereby the insurer undertakes in
return for the payment of a premium to render to the insured a sum
of money, or its equivalent, on the happening of a specified
uncertain event in which the insured has some interest this
definition is important in that it elucidates the difference
between wagers and insurance contracts, namely, the existence of an
insurable interest in the case of an insurance contract proper.
From the definition cited above it is apparent that an insurance
contract must provide for: (a) payment of a premium (b) performance
or an undertaking to perform in exchange for the premium (c) the
possibility of an uncertain event on the outcome of which the
performance of the insurer depends on the risk. (d) An insurable
interest in the uncertain event on the part of the insured. (ii)
ESSENTIAL INGREDIENTS OF A CONTRACT OF INSURANCE (a) Premium - In
English Law the requirement of a premium for insurance is said to
be an application of the general requirement of valuable
consideration in the sense of a quid pro quo. - Under South African
Law the requirement of valuable consideration is not recognized. It
is against the background of the South African Law that a premium
would not seem to be a requirement for the validity of a contract
of insurance.
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It is important to note that essential for the existence of an
insurance contract is an undertaking by the insured to pay a
premium for his insurance, and not payment of the premium as such.
However, it has become customary to include in a policy a term
which makes performance by the insurer subject to prior payment of
the premium. The undertaking to make a monetary payment as a
premium need not be for a specific amount but it must at least be
ascertainable in order to meet the requirements relating to the
validity of contracts in general.
(b) Performance by insurer - In indemnity insurance, performance
by the insurer is meant to compensate the insured for loss suffered
by him. The usual means of performance by the insurer is by payment
of money i.e indirect compensation. - The insurers performance may
also be by way of direct or physical compensation if the contract
so stipulates, for example, reinstatement clauses frequently
encountered in insurance contracts, in terms of which the insurer
is given the option to restore the property affected by the peril
to the condition in which it was before the loss. - In Department
of Trade and Industry vs St. Christopher Motorists Association Ltd
1974 (1) Lloyds Rep 17, the court came to the conclusion that a
contract in terms of which a person is entitled to claim a chauffer
service if he becomes incapable of driving his own car amounts to
insurance. - A contract which merely confers on a person a benefit
not amounting to either monetary or direct compensation cannot
qualify as a contract of insurance e.g a benefit that a claim to
compensation will be considered at the sole discretion of the
insurer. An undertaking to compensate the insured in money usually
involves not a certain but merely an ascertainable performance. -
The performance of the insurer in non-indemnity insurance is
usually in the form of money. However, it does occur that in
certain instances the insurer undertakes to perform something other
than pay money. The amount insured may be specified or may be in
periodic payments. (c) Risk/uncertain event -every true contract of
insurance depends on an element of uncertainty or contingency in
the contract that the contract provides that the insurer will be
liable to perform if a specified but uncertain event occurs. This
event is dependant upon a peril or hazard and the possibility that
the peril will cause harm is known as the risk. - A contract can
only be classified as an insurance contract if the bearing of the
risk by the one party is a substantial part of the contract. (d)
Insurable interest as a characteristic of insurance
Doctrine of interest -the idea that the actual existence of an
insurable interest is an essential feature of an insurance contract
forms part of one of the oldest and most fundamental doctrines of
the law of insurance, namely, the doctrine of interest. This
doctrine dates back to the Lex mercatoria of the Middle Ages. - The
Doctrine lies at the root of the distinction between wagers and
insurance. The first prominent commentator on the doctrine was De
Casaregis, who argued that if the parties concluded a genuine
contract of insurance the insured would only be entitled to hold
his insurer liable in terms of the contract if the insured had an
interest in the lost goods. This liability of the insurer was
limited to the value of the insureds interest.. Conversely, if the
parties concluded a wager on the outcome of an event liability
would follow in spite of the fact that the value of any interest
that might exist was less than the amount claimed or even that no
interest whatsoever existed. The foregoing view held by De
Casaregis is fully in harmony with the rules of English common law
as it stood when wagers were legally enforceable. The English
common law provided that an insurance contract was only enforceable
if supported by an interest when the event insured against
occurred, while a wager was enforceable irrespective of whether or
not there was any insurable interest. Whereas the requirement of
interest started merely as explanatory of the principle of
indemnity, with time the idea developed that the actual existence
of an insurable interest was required for true insurance. Thus in
Prudential Insurance. Co. V Inland Revenue Commissioners 1904 KB
658 @ 663 it was stated that A contract which would otherwise be a
wager may become an insurance contract by reason of the assured
having an interest in the subject-matter- that is to say the
uncertain event which is necessary to make the contract amount to
insurance must be event which is prima facie adverse to the
interest of the assured The position of Roman Dutch Law regarding
the doctrine of interest is more or less in harmony with the view
of De Casareges and English common law. INSURANCE INTEREST
INDEMINITY INSURANCE. AS A CHARACTERISTIC OF
Although the doctrine of insurable interest was originally
conceived to distinguish insurance from wagers, the rules of
insurable interest are in fact more suitable to determine who is
entitled to claim on a contact of insurance and what the extent of
the claim is.
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In the case of the Saddlers Co v Bad Cock (1743) 2 Atk 554 it
was decide that for insurance purposes an insurable interest
insurance purpose an insurable interest must exist both upon the
conclusion of the contact an at the moment upon which the event
insured against occurs. The more prevalent approach in English law
appears to be that the interest required for indemnity insurance
contract need to exist only when the event insured against takes
place. In South Africa the doctrine of insurable interest has been
applied by some Courts in order to decide whether an insured has a
claim for compensation. However, it has not yet been clearly
decided whether the existence of a contract of insurance depends on
proof that an insurable interest in fact exists. When called upon
to consider this aspect of the doctrine , the Transvaal court in
the case of Philips v General Accident Insurable Co. (SA) Ltd 1983
(4) SA 652, took the view that insurable interest is a foreign
doctrine and that there is no justification for applying it in
preference to the principles of Roman Dutch law. In dealing with
the distinction between insurance and wager, the court came to the
conclusion that the real inquiry should not be whether the contract
in question is, according to the intention of the parties, a wager
or not. The English law view that for true insurance an insurable
interest must exist, or that a person wishing to conclude a contact
of insurance must at least expect an interest has faced stiff
resistance in South Africa, primarily on the ground that a suitable
alternative can be found in the principle of indemnity for which
there is ample support South African and even European case
authorities.
INSURABLE INTEREST AS AN ELEMENT OF NON-INDEMINTY INSURANCE IN
ENGLISH LAW. In English Law life assurance was originally equated
with indemnity insurance, However, in the celebrated case of Dalby
v India and London Life Assurance Co. (1854) is Cb 365 this view
was departed from. The Court decided that a distinction must se
drawn between indemnity insurance and life assurance. In the case
of life assurance an insurable interest must exist at the time of
conclusion of the contract although it needs not exist at the time
when the event insured against occurs. Since the interest required
for non-indemnity insurance needs only to exist at the time when
the policy as taken out, it does not matter if the interest no
longer exists at the time the contract is enforced e.g as a result
of divorce. A second possible function of the concept of insurable
interest is to constitute a requirement for the validity of the
contract of insurance. Insurable interest serves a further function
not only at the conclusion of the contract i.e when the insured is
called upon to perform its part of the bargain it must be
established whether the insured had an insurable interest, and if
so to what extent his insurable interest has been infringed.
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Also, the insurable interest of the insured is regarded as the
object of the insurance i.e it is interest as such that is
insured.
INSURANCE AS A PRINCIPAL & INDEPENDENT CONTRACT SIMILARITIES
BETWEEN INSURANCE & SURETYSHIP Both are depended upon an
uncertain event Both accomplish a mere indemnity to the exclusion
of profit. Certain legal rules applicable to insurance have
counterparts in the law of suretyship e.g. the right to claim a
contribution, the right to demand a cession of action, and the
right to be subrogated. The later right, which enables an insurer
who has made good a loss (compensated an insured) to proceed
against the party who caused the loss, has given rise to the courts
equating an insurer to a surety.
PURPOSE OF DISTINGUISHING(1) A contract of suretyship must be in
writing whereas a contract of insurance need not be in writing. (2)
A surety is entitled to sue the debtor in his own name while an
insurer is only entitled to make use of the name of the insured in
actions against 3rd parties. The distinction is also of
significance with regard to provisions of the Insurance Act. (3)
The distinction is rather a fine one. Usually a contract of
suretyship requires no performance in favour of the person who
stands surety whereas insurance is reciprocal. (4) The real
distinction seems to be that a contract of insurance is a principal
contract An insured answers for its own obligations while a surety
undertakes to fulfill the obligation of another. Thus, if
performance in terms of the contract is in effect subject to the
condition that a specific person does not perform his contract, it
can only be insurance if it is the intention of the parties that
the insurer will indemnify the insured for any loss caused by the
event concerned, that is, non fulfillment of a contract. If it is
the intention the obligation as such must be fulfilled by the other
party, the contract amounts to suretyship.
FORMATION OF A CONTRACT OF INSURANCE
GENERAL PRINCIPLESThe basis of contractual liability where the
parties do not misunderstand each other is consensus ad idem amino
contrahendi. In those cases where the parties misunderstand each
other and apparent consent exists, liability rests on the
reasonable reliance by a contracting party on the existence of
consensus. This may be termed constructive consent. Alternatively a
party can rely on the doctrine of estoppel if they can satisfy the
stringent requirements of estoppel and wishes to avail himself of
this remedy in order to hold a party bound by the appearance of
consensus he created. However, for a contract to exist as such
actual or constructive consent must exist. A contract of insurance
comes into existence as soon as the parties have agreed upon every
material term of the contract they wish to make such as the person
or property to be insured, the event insured against, the period of
insurance and the amount of premium. The parties need not
necessarily agree on non essential terms, just that they must agree
on the essentials for insurance. As a rule, the parties to a
contract of insurance do not apply their minds to each specific
term but rather contract on the basis of the insurers usual terms
for the particular type of risk to be insured against. The contract
of insurance only comes into existence when consensus is
reached.
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THE PARTIESThe ordinary indemnity policies there are usually two
parties i.e. the insurer and the insured. The insured is the person
who enjoys protection in terms of the policy and he is first holder
of the policy. Subsequent holders of the policy are in the position
of cessionaries. In terms of Part III Section 7 of the Insurance
Act, an insurer must be a body corporate registered in terms of the
Act. There may also be a third party interested in a particular
policy, viz, the beneficiary in terms of a contract in favour of a
3rd party. The parties to a contract of insurance may be
represented by agents.
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OFFERIn general insurers do not make binding offers to insure
but rather invite the parties to apply for insurance i.e. an
invitation to treat.
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The actual offer is therefore made by the proposed insured by
completing the proposed form which, as formulated by insurers do
not leave much room for bargaining between the parties. Most of the
terms of the proposed contact are not expressly stated, the
intention being to contract on the usual terms of the insurer. Once
a reference to the usual terms is included in the contract, the
insured actually agrees to them and cannot afterwards be heard to
say that he did not have the opportunity to ascertain the exact
content of such terms. In a case where the proposal by the insured
to be is not acceptable to the insurer as it stands but where the
insurer is willing to contract on other terms, a counter offer may
be made by the insurer.
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ACCEPTANCEThis means an express or tacit statement of intention
in which an offeree signifies his unconditional assent to the
offer. The insurer as offeree usually accepts the offer by sending
the proposer a policy accompanied by a covering letter
communicating the acceptance. Usually the very act of sending the
policy is sufficient to communicate acceptance. A demand for the
premium by the insurer may also operate as an acceptance. A firm
acceptance may also be contained in a an interim cover note, albeit
such note is generally an acceptance of a proposal for temporary
cover. If a policy which is dispatched to the proposer differs from
the terms of the offer but the insurer did not intend it to differ,
the dispatch of the policy, subject to rectification of the policy,
is sufficient to signify the insurers acceptance. Conversely, if
the policy issued is intended to differ from the proposal received
by the insurer, the issuance of the policy can at most be a counter
offer requiring acceptance by the insured to be.
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THE POLICYis the document expressing the terms of a contract of
insurance . a contract of insurance does not need to be in writing
to be valid but it has become standard practice to reduce the
contracts to writing. The effect of reducing the contract to
writing is that the document, by virtue of the parol evidence rule,
becomes the only record of the transaction between the parties,
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provided the parties accept the written document as the sole
memorial of their transaction. While the traditional method of
indicating acceptance of a document as the embodiment of a contract
is by affixing a signature thereto, the practice in insurance is
that the policy is never signed by the insured but only by or on
behalf of the insurer. Where a particular policy is accepted as the
sole memorial of the contract, the terms of the contract cannot be
sought outside the policy and its constituting parts such as
schedules, slips or endorsements. Other separate documents such as
proposal forms or prospectuses are not admissible as evidence of
particular terms (Parol evidence rule). However, if any such other
document has been incorporated, expressly or tacitly, by
references, it is part and parcel of the policy. This usually
happens with proposal forms.
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REQUIREMENTS FOR A VALID CONTRACT OF INSURANCE A B CONTRACTUAL
CAPACITY The general rule that the parties to a contract must have
contractual capacity for the contract to be valid is subject to
exceptions in the context of insurance. LAWFULNESS like any other
contract a contract of insurance must be lawful. The common law
renders illegal all contracts which are contrary to public policy
or good morals. The prohibition of a contract by the law may relate
to the conclusion or the contract performance in terms of the
contract, or the purpose of the contract. In line with the
principle of sanctity of contracts and the rules of interpretations
a court, when called upon to decide whether an insurance contract
is unlawful, attempts to uphold the contract by establishing
whether the objectionable elements can be severed from the contract
with the remainder being enforceable. Unless the illegality appears
ex facie the transaction sued upon, a litigant who wishes to rely
on a defence of illegality must plead and prove such illegality and
the circumstances upon which it is founded. The requirements of
lawfulness of contracts are governed by the general principles of
the law of contract and there are no principles peculiar to
insurance contracts. The litmus test for legality in respect of
certain contracts of insurance is to be found in the provisions of
the Insurance Act, for instance Part IX of the Act, Section 41
forbids insurers to insure lives of young children in excess of
certain amounts: Section 7 of the Act also prohibits persons from
carrying on any class of insurance business in Zimbabwe unless he
is registered in terms of the Act as an insurer in the
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class of insurance business carried on by him. Other
prohibitions relate to licensing and other related aspects. The Act
does not expressly provide that a contract concluded in
contravention of its provisions is invalid. What the Act simply
does is to provide for general penalties for non compliance. The
mere fact that conclusion of a contract is by implication contrary
to the provisions of a legislative intention to prohibit the
contract and thus render it unlawful. Such intention may be
inferred according to the general rule of interpretation, but each
case must be dealt with in the light of its own language, scope and
object and considerations of justice and convenience. (Metro
Western Cape (Pvt) Ltd v Ross 1986 (3) SA 181)
PERFORMANCE MUST BE LAWFULA contract of insurance is not often
unlawful on account of performance since the performance of both
parties is normally of a monetary nature. However, if the contract
of insurance is to be performed in contravention of the exchange
control laws, it becomes illegal because of the illegality involved
in the execution of the contract.
PURPOSE OF CONTRACT MUST BE LAWFULIf the parties conclude an
insurance contact to cover the insured where the crime or civil
wrong of is closely associated with it, the purpose of the
agreement and therefore the agreement itself is unlawful. In
Richards v Guardian Assurance Co. 1907 TH 24 it was decided that an
agreement to insure a house which was being used as a brothel was
unlawful. The court explained that where the legislature has laid
down that certain acts are illegal, all acts which tend to
facilitate or encourage such illegal acts must themselves be
regarded as illegal.
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UNREASONBALE CONTRACTSIf there is no ambiguity in the language
of the contract and the ordinary sense of the words does not lead
to absurdity, repugnancy or inconsistency with the rest of the
contract, the contract as concluded by the parties is enforceable
no matter how unreasonable its effects may be.
CONSEQUENCES OF UNLAWFUL AGREEMENTS
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Normal effect is that they are null and void. The law allows no
exceptions to this rule, not even if the parties were totally
unaware of the illegality. If performance has been rendered, such
performance may be recovered with the rei vindicatio where
applicable or the enrichment action known as the condictio ob
turpen vel iniustam causam. Of course the recovering is subject to
the par delictum rule which bars recovery unless public policy will
be better served by allowing recovery of what has been
performed.
PERFORMANCE MUST BE POSSIBLE & ASCERTAINABLESince
performance by the parties to an insurance contract invariably
consists in payment of money, an obligation to pay money is a
generic obligation which cannot be impossible. However, where an
insurer agrees to have the object of the risk reinstated, the
requirement that performance must be possible becomes relevant. In
this case if reinstatement is initially impossible, the contract
must provide for an alternative performance, viz compensation in
money.
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PERFORMANCE MUST BE ASCERTAINABLEThis requirement may operate in
respect of the validity of an offer or as a separate requirement
for the validity of the contract. In line with the general
principles of the law of contract the premium payable need not be a
specified amount, it suffices if the amount is merely
ascertainable. Regarding performance by the insurer, the
undertaking to compensate the insured is sufficiently
ascertained.
FORMALITIESNo formalities required. Writing not required by the
common law for the validity of insurance contracts, nor has the
Insurance Act introduced any such requirement. Although no formal
requirement is laid down by the law, the parties may agree that no
contract will materialize unless reduced to writing in the form of
a policy and unless such policy has been delivered to the insured.
Further, albeit there is no rule requiring prior payment of the
premium, the parties frequently contract subject to a clause that
no contract will come into being or that the liability of the
insurer will not commence until a premium is paid.
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MISREPRESENTATIONGOOD FAITH All contracts are subject to good
faith i.e. they are bona fide. In modern case law and literature
insurance contracts have been classified as contracts uberimmae
fidei. This is the prevailing classification in English Law. In
South Africa, the Appellate Division in Mutual Insurance Co. Ltd v
Oudtshoorn Municipality 1985 (1) SA 419 (A) rejected the term
uberimmae fides as an alien expression adopted from English Law,
vague and useless, without any particular meaning other than bona
fides. The Appellate Division, however, did not set out the content
of the requirement of bona fides as it pertains to insurance; thus
authority which dealt with the content of uberimma fides is still
persuasive although one must keep in mind that the duty concerned
is not one of exceptionally good faith but simply good faith.
Generally contracts uberimmae fides impose a duty on the
contracting parties to display utmost good faith towards each other
during negotiations leading to the conclusion of the contract, and
only exceptionally during the subsistence of the contract itself.
The duty of good faith applies to both the insurance proposer and
the insurer. It has been said that in respect of principles of good
faith is of limited duration and applies during pre- contractual
negotiations only. Once the contract has been concluded, it is
generally said, no special duty of good faith attaches. (See
Pereira v Marine and Trade Insurance Co. Ltd 1975 (4) SA 745 (a)
One consideration which has been raised and which may constitute a
duty of good faith attaching to an insured during the subsistence
of the contract is the question whether an insurer is entitled to
avoid a policy if the insured brings a fraudulent claim. The duty
of good faith existing during the subsistence of the contract must
not be confused with the position of the parties upon renewal of a
contract of insurance. The duty of good faith attaches to renewal
of a contract of insurance as it did in the conclusion of the
original contract.
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Requiring uberimma fides instead of mere bona fides has been a
way of expressing the fact that in insurance contracts, a
contracting partys conduct may more readily be found to have
infringed the right protecting the other party from mala fide
conduct during pre-contractual negotiations. It does not refer to a
principle of law distinct from liability for misrepresentation.
Therefore reference outmost good faith does not indicate a distinct
principle of law; there are no degrees of good faith, such as
little, more or utmost good faith (See Mutual & Federal
Insurance Co Ltd v Oudtshoorn Municipality @ 433) IN fact uberimmae
fides has been called one of the indicia, rather than a consequence
of insurance See Iscor Pension Fund v Marine and Trade Insurance Co
Ltd 1961 (1) SA 178 (T) Therefore a party to an insurance contract
who wishes to proceed on the basis of a breach of the duty of good
faith must place his claim within the four corners of the
requirements for misrepresentation. The principle underlying the
requirement of good faith signifies that either party may avoid a
contract of insurance if the other party has positively
misrepresented a material fact. Although insurers rarely commit a
breach of the duty of good faith, there are certain instances where
such breach may be committed; for instance, an inaccurate statement
of the nature of insurance offered or the extent of cover made in
the invitation to take out insurance , or the amount of premium
payable by the insured. Generally, however, the duty of good faith
relates to the right of the insurer to receive correct and complete
information about material facts relating to the risk. Accordingly
the duty principally rests on the proposer and requires the
proposer to refrain from furnishing false information he possess
concerning material facts. Put differently is it the proposers duty
to be honest, straightforward, candid and accurate in making
positive statements about material facts and to make full
disclosure of such facts.
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JUSTIFICATION OF THE DUTY OF GOOD FAITHAn insurer who wishes to
calculate the insurability of a specific risk must be able to
quantify the possibility of loss into a degree of probability. To
this end the insurer requires extensive information about and
knowledge of the facts affecting the risk. It is only after the
insurer has been furnished with adequate information that it can
calculate the risk and come to a decision whether it is prepared to
accept the risk,
the extent of the risk to be accepted and the terms of the
contract such as the amount of premium to be charged. Since
decisions concerning the risk and premiums are included in the
contract they must be taken before the contract is concluded. In
view of the fact that the requirements of good faith and the duty
to disclose material facts can obviously be classified as part of
the law on misrepresentation and not as some distinct and strict or
principle, the position of the proposer is not unduly aggravated by
the existence of these duties. The principles of misrepresentation
and good faith apply to all types of insurance.
REQUIREMENTS FOR LIABILITY FOR MISREPRESENTATION
Misrepresentation is a delict and as such a party to a contract of
insurance who seeks relief on the ground of misrep must prove that
the misrep meets all the requirements for liability in delict,
namely, an act (conduct) committed by the wrongdoer, an element of
wrongfulness attached to the act, a detrimental result which was
caused by the wrongful conduct, and (usually) a blameworthiness on
the part of the wrongdoer.
MISREPRESENTATION BY COMMISSION Is a positive act consisting in
a pre-contractual statement of fact made by one of the parties to a
contract of insurance. The statement must be false or inaccurate
and wrongful, and may be accompanied by fault or may be innocent,
and must induce the other party to enter into the contract or to
agree to specific terms in the contract, contrary to what he would
have done if he had not been misled.
ELEMENT OF MISREP BY COMMISSION POSITIVE ACT OF COMMISSION The
representation takes place by means of a positive act or commission
in the form of an actual statement and not through omission. The
statement may be written or oral, it may comprise of an incorrect
or inaccurate answer given to a question by an insurance agent or
in a proposal form.
STATEMENT OF FACT A misrepresentation give rise to liability
only if it consists in a statement of fact. A mere opinion does not
suffice to incur liability on the party expressing it.
FALSE OR INACCURATE STATEMENT
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the statement must be wholly false or at least inaccurate. The
accuracy of a settlement must be gauged by considering it within
the context in which it was made. It is sometimes said that a
statement need not be correct in every detail, however or
substantially correct.
WONGFULLNESS A positive representation is only wrongful if it
relates to material facts, if it is false and if the party to whom
it is addressed was actually misled in the sense that he put his
faith in the false representation.
MISREPRESENTATION BY OMMISSION A misrepresentation by omission
is a wrongful omission by on of the parties to a contract of
insurance to disclose, during the course of pre-contractual
negotiations certain facts within his knowledge, thereby inducing
the other party to enter into the contract or to agree to specific
terms in the contract, contrary to what he would have done if the
facts had been disclosed. The omission may be accompanied by fault
or may even be completely innocent.
OMMISSION although is can be typical as a settlement of fact,
the act which creates a wrong impression is not a positive one, but
an omission, namely the failure to remove an existing fact which
would have done so. The omission may be a deliberate concealment or
an inadvertent non-disclosure. Duty to disclose An omission is
wrongful if it is committed in breach of a duty, resting on a party
to act positively. A duty to act positively arises if the
circumstances are such that the imposition of a duty is reasonable
according to the legal convictions of the community. A duty to
disclose exists with reference to facts, which are material to the
contract in question and if the representative has actually been
mislead by the failure to disclose. The duty to disclose has been
said to be the correlative of a right of disclosure which is a
legal principle of the law of insurance: (see Mutual Federal
Insurance Company Limited v Oudtshoorn Municipality case)
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The reference to the duty of disclosure as being particularly
related to the contract of insurance must be understood as an
expression of the fact that the circumstances surrounding insurance
contracts are typically circumstances giving rise to a duty to
disclose. Facts within knowledge of Representor In Joel v Law Union
and Crown Insurance Co 1908 (20 KB 863 (LA) 884 Fletcher Moultin LJ
said that the duty in point : is a duty to disclose, and you cannot
disclose what you do not know. The obligation to disclose,
therefore, necessarily depends on the knowledge you possess Section
18 of the Marine Insurance Act of 1906 provides that an insured is
deemed to know every circumstances which, in the ordinary course of
business, ought to be known by him. Whereas some English
authorities suggest that this principle of constructive knowledge
has general application, South African case law follows the view
that a duty only exists to disclose material facts within ones
actual knowledge.
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Extent of duty of disclosure Although in principle the duty of
disclosure attaches to all material facts, the extent of the duty
may be limited in certain instances. An insurer may either
expressly or tacitly limit or waiver the duty. Whether or not a
waiver has taken place depends on the facts of each case.
Ramsbottom J, in Whytes Estate v Dominion Insurance Company of SA
Limited 1945 TPD 382 @ 404 said The fact that a question is put to
elicit certain information does not necessarily relieve the
proposer from disclosing further facts of a kindred nature.
Further, an insurer may expressly limit the duty by stating that no
further information on a particular subject is required. The duty
may also be extended by question in a proposal form. Certain
categories of facts which are, in principle, material nevertheless
fall outside the ambit of the duty to disclose e. g. those facts
which are actually known to the other party such as those which are
matters of common knowledge existing in the public domain or those
matters that live within the sphere of knowledge of the ordinary
professional insurer.
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A proposer need not disclose facts tending to diminish the risk
although they are material to the insurers decision on whether to
undertake the risk and at what premium Duration of duty of duty of
disclosure. The duty seems to relate only yo negotiations preceding
the contract. As Corbett JA remarked in Pereira V Marine and Trade
Insurance Company Limited 1975(4) SA 745 (A) 756A the purpose and
rationale of the pre-contract duty of disclosure could hardly apply
after the conclusion of the contract. Therefore the duty attaches
to material facts that come to a partys attention during
negotiations. Once the contract comes into existence, a party needs
no disclose material facts coming into his knowledge. If a contract
of insurance is renewed the duty of disclosure attaches just as
concluded. This means that a party is obliged to disclose all
material facts including those which have come to his knowledge
since the conclusion of the original contract.
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Materiality of non disclosure The courts limited the
actionability of false representations to those relating to
insurance matter are concerned. See Stumbles V New Zealand
Insurance Co. Ltd 1963 (2) SA 44 (SR), Kelly v Pickering 1980 ZLR
also reported in 1980(Z) JA 758 (R), Pickering V Standard General
Insurance Co Limited 1980 (4) SA 326 (ZA) @ 331 Mutual and Federeal
Insurance Co Limited V Oudtshoom Mnicipality 1985 (4) (SA) 419 (A).
The courts expressly refer not to a comprehensive duty to disclose
facts in general, but a duty to disclose material facts only. For
instance in Colonial Industries Ltd v Provincial Insurance Co Ltd
1922 AD 33 the court was concerned with a duty to make a full
disclosure of all material facts In Pereira v Marine and Trade
Insurance Co. Ltd where, with reference to an alleged duty to
disclose facts stante contractu, it was said that any such supposed
duty of disclosure would, of necessity, be limited to material
facts or circumstances The concept of materiality is primarily used
as a requirement for liability distinct from the element of
inducement (e) The test for materiality
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The test for materiality is objective facts are material if they
are of such a nature that knowledge of the facts would probably
influence the representative in deciding whether influence the
representee in deciding whether to conclude the contract and on to
conclude the contract and on what terms (see Karroo and Eastern
Board of Executors & Trust Co v Farr 1921 Ad 413) The
difficulty that arises is what criteria is used to determine the
probable influence on the mind of the representative. The
difficulty arises in relation to misrep made by a proposer towards
an insurer where the facts are regarded as material if they will
probably influence the decision of the insurer whether to accept
the risk, and if so, at what premium. The criterion for determining
the influence on the insurers decision is the reasonable man test
(See Fine v The General Accident, Fire and Life Assurance Corp
Limited, Colonial Industries v Provincial Insurance Co, Pereira V
Marine and Trade Insurance, Mutual & Federal Insurance v
Oudtshoorn Municipality. According to the Appellate Division this
test is applied to determine, whether or not, from the point of
view of the average prudent person, the undisclosed information or
facts are reasonably relative to the risk or the assessment of the
premium. A number of decisions suggest that the criterion is the
judgment of a prudent and experienced insurer, which means the
facts are material if they will influence the mind of a prudent and
experienced insurer in relation to the risk and its premium (See
such cases as Colonial Industries v Provincial Insurance Co, Whytes
Estate v Dominion Insurance Co of Mutual & Federeal Insurance
Co v Oudsthoorn Municipality). Other decisions hold that the
criterion is whether a reasonable man in the position of the
insured would have regarded the particular facts as relevant to the
decision of an insurer concerning the risk and the premium.
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It has been said that the two schools of thought represent two
separate test for materiality. However, prevailing authority has
suggested that it is not necessary to separate completely the
criteria of the reasonable proposer and the prudent insurer.
Reference to the test of the reasonable proposer is simply an
attempt to limit the scope and strictness of the test of the
prudent and experienced insurer without discharging it. A hybrid
test for materiality would be whether, according to the opinion of
a reasonable man in the position of the particular proposer, the
facts in point are likely to influence the decision a prudent and
experienced insurer regarding the risk and its premium. (See Anglo
African Merchants Ltd v Bailey 1970 (1) QB 311 @ 319.
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The reasonable man test as formulated in the Mutual and Federal
Insurance Co Ltd case reflects an attempt to do justice to the
interests of both the insured and the insurer. The test is said to
be objective and the court personifies the hypothetical diligens
paterfamilias to which the test applies.
- For the sake of clarity, the test of materiality formulated in
the Mutual and Federal case is best expressed as referring to those
facts which are reasonably related to the insurers decision when
all the circumstances of the case are taken into account. EXAMPLE
OF CATEGORIES OF FACTS THAT HAVE BEEN HELD TO BE MATERIAL Facts
indicative of exceptional exposure to risk such as a dangerous
occupational or hobby, characteristics or attributes making the
person or object exposed to the risk particularly vulnerable. The
insurance record, for instance the fact that was cancelled
(Colonial Industries). Subjective circumstances affecting the risk
such as the proposers financial or business integrity,
circumstances indicating that motive for insurance may be illegal
or dishonest, or the fact that the proposer is prone to cause the
risk to materialize. An example is where an insured fails to
disclose that he is an unrehabilitated insolvent (See Steyn v A
Ounderlinge 1985(4) SA 7 (T) or failure to disclose that the
premises covered by a fire insurance contract are used as a brothel
(See Richards v Guardian Assurance Co 1907 TH 24) or the fact that
the proposer previously suffered loss in a manner indicating
carelessness on his part (Israel Bros v Northern Assurance Co and
the Union Assurance Society (1892) 4 SAR 175). The rule is that
facts which reflect on the character of the insured or of those
persons of objects exposed to the risk must be disclosed (Malcher
& Malcomes and Trust Co (1883) 3 EDC 271 279 289) The proposers
interest in the subject matter does not normally affect the risk
and is therefore not material. However where it does affect the
risk it becomes material.
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THE DOCTRINE OF SUBROGATION
In the context insurance subrogation embraces a set of rules
providing a right of recourse for an insurer which has indemnified
its insured It means that a contract of insurance creates a
personal right for an insurer against its insured it terms of which
it is entitled to recoup itself out of the proceeds of any rights
the insured may have against 3rd parties in respect of the loss.
The right for reimbursement cannot be for more than the amount paid
out the insurer as indemnity to the insured. The right is also
subject to the insured receiving (whether from the insurer or from
another source) a full indemnity in respect of the insured
interest. In effect subrogation requires a settlement between the
insurer and the insured if the insureds claims against 3rd parties
successful. Subrogation is concerned exclusively with the mutual
rights and liabilities of the parties to the contract of insurance,
it confers no rights and imposes no liabilities on third parties.
Because the insurer is, as against its insured entitled to be
reimbursed out of the proceed of the insureds remedies against 3rd
parties, the insured may not actively deal with his rights against
3rd parties to the detriments of the insurer, for instance by
releasing the 3rd party from liability. In support of its right to
reimbursement, an insurer is also entitled to its insureds consent
to bringing an action against a third party in the name of the
insured. This latter right is known as the insurers secondary right
only arises where the insured has lost all interest in the outcome
of the proceedings in that he has received full compensation for
all losses caused by the event insured against. The insurer then
becomes the dominus litis although the action proceeds in the name
of the insured. The advantage for the insurer is that it can ensure
that an action is brought against the 3rd party and that the
proceedings are properly conducted. THE PURPOSE OF SUBROGATION It
purpose is to prevent the insured from retaining an indemnity from
both the insurer and a third party. Further, through subrogation
the insurer is recompensed for the amount it has paid to the basis
of the insured. This right of redress is the basis of the insureds
duty not to prejudice the insurers position.
By affording the insurer a right of redress, the cost of
insurance to the public is kept low, since the insurer is enabled
to recoup its loss from a source other than premium income. On a
social level the doctrine serves to safeguard the principles that a
person who has caused loss to another by his unlawful conduct must
bear that loss since a wrongful cannot hide behind insurance. The
doctrine of subrogation also strengthens the position of an insurer
by creating a trust in favour of the insurer. In Ackerman v Boubser
1908 OPD 31 the court referred to an insured who had recovered
compensation from a third party as a trustee for the insurer. THE
BASIS FOR THE DOCTRINE The insurers right of subrogation rests on
contract. It is by virtue of the terms of the contract that the
insurer is entitled to benefit from the proceeds of the insureds
remedies against third parties in respect of the loss. Likewise, it
is in terms of the contract that the insurer is entitled to consent
of the insured to bring an action against a third party in the name
of the insured. The terms giving rise to the personal rights and
duties in the context of subrogation may be express, but more often
then not they are implied by operation of law. SCOPE OF THE
DOCTRINE Since one of the justifications of the doctrine of
subrogation is to prevent the insured from receiving double
indemnity, subrogation applies to all forms of indemnity insurance.
However, it has no application in non indemnity insurance unless
the parties have expressly agreed to grant the insurer rights of
subrogation. The locus classics on subrogation is Castellain v
Preston (1883) 11 QBD 380 (CA) wherein the court considered the
scope of the doctrine and expressed itself as follows As between
the underwriter and the assured the underwriter is entitled to the
advantage of every right of the assured the underwriter is entitled
to the advantage of every right is entitled to the advantage of
every right of the assured, whether such right consists in
contract, fulfilled or unfulfilled, in remedy for tort capable of
being insisted on or already insisted on, or in any other right,
whether by way of condition or otherwise, legal or equitable, which
can be, or has been exercised or has accrued, and whether such
right could or could not be enforced by the insurer in the name of
the assured by the exercise or acquiring of which right or
condition the loss against which the loss is insured can be or has
been diminished The insurer is therefore not only entitled to the
advantages of the insured remedies against 3rd parties who are
contractually, delictually or otherwise liable for
compensation for the loss, but also to the advantage of every
other right, provided it serves as a total or a partial substitute
for the insured interest, such as the proceeds of a sale of an
insured asset or compensation upon expropriation. Subrogation
applies also to rights received by the insured even though no right
to receive such gifts existed when the loss occurred.
REQUIREMENTS FOR THE OPERATION OF THE DOCTRINE(a) Valid contract
of indemnity Insurance. (b) Since the insurers right to subrogation
is derived from the contract of insurance, no subrogation can take
place where it has paid for a loss in terms of an invalid contract
of insurance. (c) However where an insurer pays a claim in terms of
a contract which is voidable (eg a contract induced by fraud)
payment is effected in terms of a valid and existing contact and
therefore the insurers right to subrogation is beyond doubt. (d)
Insurer must have been indemnified. (e) Although the right vests
upon the insurer at the conclusion of the contract, it becomes
enforceable only when the insured has been fully indemnified. This
means that the insurer must both admit and pay everything due by it
in respect of the particular claim of the insured. (f) The insured
remains the dominus litis until the insurer has effected payment
unless the parties have agreed otherwise in the policy. (g)
Insureds loss must have been fully compensated (h) Where the
insurance contract does not provide full cover in respect of the
loss, (for example the insured is under insured or insured is bound
to bear a portion of the loss by virtue of an excess clause} the
insured remains dominus litis unless the parties have agreed
otherwise. (i) In the case of a consequential loss, i.e loss which
is not insured but which is caused by the event insured against,
the insured also remains dominus litis. (j) Right of action against
third party must exist subrogation can only operate if the insured
in fact has a remedy against a third party (See Ackerman vs Louber
1918 OPD 31 @ 37) RIGHTS OF THIRD PARTIES
Although it is usually the contracting parties who enjoy the
benefit of a policy, a third party may become entitled to claim
under the policy by virtue of a transfer of right to him or by
virtue of a novation in his favour. Yet another way in which a
person may become entitled to claim in terms of a policy concluded
by another in his own name, is accepting a benefit conferred upon
him in the policy. The notation of a third partys interest in a
policy has certain consequences. 1. CESSION (a) Ordinary cession of
insureds rights. (b) The insured can effect a transfer of his
right(s) by way of cession. (c) Cession by definition is an
agreement which provides that the cedent transfers a right to the
cessionary. (d) Cession depends on consensus in the sense that
cedent must have the intention to transfer the right to cessionary
and that the cessionary must have a corresponding intention to
receive the right. (e) An insured can cede his claim in either
indemnity or no indemnity insurance whether before of after the
materialization of the risk insured against. (f) Although in
principle rights under insurance policies may be freely ceded
without the consent of the insurer, policies frequently contains
clauses prohibiting or regulating transfer. Thus a policy may
contain an out and out prohibition on alienation requiring the
consent of the insurer to be obtained for a valid cession. However,
such a clause must be shown to serve a useful purpose otherwise it
cannot be enforced. (See Northern Assurance Co. Ltd v Methuen 1937
SR 103, Fouche v The Corp of London Assurance 1931 WLD 145 @ 157,
Gowie v Provident Insurance Co (1885) 4 SC 118 @ 122) (See also
Section 75 of the Act) (g) Another type pf clause requires the
insured to give notice of an intended cession and states that the
cession will take effect only upon registration by the insurer. (h)
The effect of a cession is that the claim vests in the cessionary
and nothing remains with the cedent. The cessionary is the creditor
and a such is the only person who can sue for or receive payment.
Thus of the insured cedes his conditional right to indemnification
if the cessionary who can claim and receive payment should a loss
occur to the insured thereafter.
(i) The right which is transferred to the cessionary is the
right which the cedent had, thus if the right which has been ceded
is the insured conditional right to indemnification, the cessionary
can upon occurrence of a loss, sue only for the loss suffered by
the insured and not for any loss the cessionary himself may have
suffered. (j) Further, the right is transferred subject to all
defects and limitations attached to it in the hands of the cedent
including the payment of premiums, observance of warranties and the
following of proper claims procedure. It is important to note that
cession of the insureds rights does not transfer the insureds
duties as such, but non fulfillment never the less provides the
insurer with a defence. (k) Having ceded his right, the insured
remains liable to the insurer. (l) A valid cession of a claim under
a policy can be defeated by a subsequent agreement canceling the
cession and amounting to a re-transfer of the right. (m)Cession in
security for debt. (n) Right under both indemnity and non-indemnity
policies are frequently employed to secure a debt. (o) In some
older insurance cases, the court adopted the view that a cession in
security in security for debt is tantamount to the granting of a
pledge. This line of thought culminated in the case of National
band of South Africa Ltd v Cohans Trustee 1911 AD 235, wherein the
Appellate Division held that a trustee of an insolvent estate was
entitled to claim and administer the amount payable under a fire
policy which had been ceded by the insolvent as security for debt.
(p) Another school of thought a cession in security for debt is a
complete cession of the right subject only to a fiduciary pact. The
cedent is completely divested of his right but in terms of the
pactum adiectum the cessionary may retain the right so ceded for
security purposes. Moreover, this right must be re-ceded to the
cedent as soon as the secured debt has been redeemed. (q) The
reasonable conclusion seems to be that the so-called cession in
securitatem debiti can take one of two forms. It can be an out and
out cession subject to a fiduciary pact or it can be tantamount to
the granting of a pledge. (r) The question whether an ordinary
cession with no strings attached, a cession in securitatem debiti
sensu stricto or a transaction in the nature of a pledge has
occurred depends on the intention of the parties and not on the
parties and not on the outward form of the transaction.
(s) It has been decided that where a policy has been employed as
security, the holder of the policy can cede his right to the
balance of the proceeds of the policy as security for yet another
debt. (t) A person who has taken a policy as security may not deal
with the policy in disregard of the insureds rights, for example by
compromising a claim. 2. SUBSTITUTION (a) Voluntary substitution of
insured (b) A contract of insurance is a personal contract and in
principle does not follow a transfer of the interest which is the
object of the insurance. The consent of the insurer must be
obtained is a voluntary substitution of the insured is desired, for
instance upon a sale and transfer of the insured property. (c) A
distinction and a cession of the insureds rights under the policy.
A valid substitution means that another person takes the place of
the original insured; i.e. assumes the obligations and rights of
the initial insured. (d) Substitution of the insured requires a
novation of the policy. (e) Substitution of the insured by
operation of the the law (f) Takes place upon death, marriage in
community of property and sequestration. 3. INSURANCE FOR THE
BENEFIT OF THIRD PARTIES Is founded on the basis of the
conventional contracts for the benefit of third parties commonly
known as stipulatio alteri. A contract in favour of a third party
is contract in terms of which one party, the promittens, agrees
with another, the stipulates, that he will perform something for
the benefit of a third party. The stipulates does not act in the
name of third party but in his own name although for the benefit of
the third party. In the case of Wallachs Trustee v Wallach 1914 AD
202, the Appellate Division stated that a contract for the benefit
of a third party is not simply a contract to benefit a third
person, but a contract between two persons which is designed to
enable a third person to step in as a party to a contract with one
of those two. A typical making the proceeds of the policy making
the proceeds of the policy payable to a third person or a
stipulation in an indemnity policy extending indemnification to
persons other than the policy holder.
The courts have held that a third party does not acquire any
right from an agreement in his favour unless he accepts. Upon
acceptance by the third party a legal tie is created between the
promittens and the third party. The third party who is to benefit
from a policy must be described in such a way that he can be
identified. It is not necessary to name a specific beneficiary, a
class of beneficiaries may be designated provided that it is done
in clear terms. Whether the third party must possess an insurable
interest depends on the terms of the policy. If the third party is
merely to receive the proceeds of the policy, the policy is
supported by the insurable interest of the policy holder.
Consequently, the third party need not have an insurable interest.
If, on the other hand, according to the terms of the policy the
third party can claim indemnification for damage sustained by him,
he will have to prove damage and therefore cannot claim if he has
no interest. (a) Life Assurance In life assurance policies
contracts for the benefit of third persons take the form of a
stipulation requiring the insurer to pay the proceeds to the third
person. The nominee may be an identified or identifiable person;
the nomination may be unconditional or conditional; and it may be
revocable or irrevocable. A contract for the benefit of a third
person by way of nomination in a policy in favour of a beneficiary
can exist in isolation. Often, however, it is intertwined with
another transaction when it is employed as a mechanism to carry out
an obligationary agreement in favour of the beneficiary. In Curtis
Estate v Gronmingster 1942 CPD 511 the insured took out a heritage
policy. DOUBLE INSURANCE Occurs when the same interest is insured
by or on behalf of the same insured against the same risk with two
or more independent insurers. Insurance in favour of a third party
may also result in double insurance. The concept is important for
two reasons if and double insurance amounts to over-insurance (i.e
the total of all insurances is more than the total value of the
insureds interest) an insurer who pays more than its proportionate
share of the loss has a right to contribution against each of the
other insurers. policies often contain provisions that the insured
must disclose other insurances which subsist at the time the policy
is issued or which are contracted subsequently and that in the
event of double insurance the insurer will only be bound to pay the
insured its proportionate share of the loss.
REQUIREMENTS (a) The policies must overlap as to the event
insured. It is necessary that the policies cover exactly the same
risks but they must have a particular event in common before they
amount to double insurance in respect of that risk. (b) The policy
must relate to the same interest They policies may each cover a
variety of interest but all must cover the interest, which
eventually suffers (c) The policies must relate to the same object
of risk, otherwise the insurance cannot be in respect of the same
interest. (d) The policies must be in force at the same time and
they must be valid and effective. (g) The existence of other
insurance policies is usually not a material fact which requires
disclose by the insured but then policies frequently require the
insured to notify the insure of such existence. Such clauses
usually provide the unless timorous notice is given, the policy
will be forfeited .The Courts have decide that whole the decide
that whole specify the time within which the notice must be given,
the notice must be given within a reasonable time. What constitutes
reasonable time determined on the special facts circumstances of
each case. Clause limiting or excluding liability on the basis of
double insurance. Policies often contain clause either limiting
liability or excluding liability altogether. Such clause are valid
at law but if liability is excluded on account of double insurance
and it appears that the other policy also contains a similar
clause, the two clauses are deemed to cancel each other. (h) A
clause limiting liability saves the insurer the inconvenience of
having to claim a contribution from a co-insurer. The nature and
basis of the right to contribution. The insured in a case of double
insurance is free to decide how much of his loss he wishes to claim
from a particular insurer but in full amount of his loss. If the
insurer has paid more than its ratable proportion of the loss, it
is entitled to claim to proportion of the loss, it is entitled to
claim, in its own name, from the other insurers that they each
contribute proportionately. The right is one of recourse by one
insurer against another insurer which has also insured the same
loss. This right is one of recourse by one insurer against another
insurer which has also insured the same loss.
This right substitutes any right to subrogation which the paying
insurer could possibly have had to the proceeds of the insureds
rights against other insurers. A right to contribution is s natural
consequence of a contract of insurance. It is one of the legal
consequences of the contract of insurance that an insurer which has
paid more than its pro rata proportion of the loss succeeds to the
rights of the insured against the other insurers subject to the
qualification that only the pro rata proportion may be recovered
from each insurer. Contribution is restricted to indemnity
insurance. Requirements for the right of contribution (a) The
insurer claiming contribution must have discharged its liability to
the insured. (b) It must have paid more than its prorata proportion
of the loss (c) The payment must have been in respect of an
interest which is the subject of double insurance.. The calculation
of the proportionate share of each insurer is often simple. Where
the various policies are identical in all material respects, such
as the amount of cover, the loss is apportioned equally between or
among the various insurers. If the policies only differ as to the
amounts insured, all amounts insured must be added up and compared
with the amount of the loss. Each insurer then becomes liable for
such a proportion of the loss as the amount underwritten by it
bears to the aggregate amount insured by all the policies. In
practice the issue of apportioned is a matter of negotiation
between the parties. OVER INSURANCE Over insurance occurs when the
sum insured is more than the total value of the insureds interest.
In indemnity insurance the sum insured is usually described as the
limit of liability. There is no objection to a policy containing a
limit of liability which is more than the value of the insureds
interest but the insured cannot recover more than his actual
loss.
UNDER INSURANCE Occurs where the sum insured is less than the
value of the insureds interest.
A person under insured his interest is in the event of a loss
entitled to recover up to the sum of the amount insured or the
amount of the loss whichever is the lesser. In marine insurance,
however, if a person insured for less than the insurable value, he
is deemed to be his own insurer for the insured balance. In order
to discourage under insurance certain clauses have been developed
such as the condition of average.
COMPULSORY THIRD PARTY MOTOR INSURANCE(i) This is governed by
Part IV and Part 5A of the Road Traffic Act [Chapter 13:11} (j)
Section 22 of the Act makes it compulsory for one to have a policy
of insurance or a security in respect of 3rd party risks. Failure
to comply with the provisions of this section attracts a criminal
penalty. (k) The requirements for a statutory policy of insurance
are provided in Section 23 of the Act and these include (i) a
statutory policy shall be issued by a person who is approved by the
Minister as an insurer. In other words the statutory policy ought
to be a valid policy issued by a registered insurer. A statutory
policy shall insure such persons or classes of persons as may be
specified in the policy in respect of any liability which may be
incurred by them in respect of (a) death of or bodily injury to,
any person ; and (b) the destruction of, or damage to, any
property. caused by or arising out of the use of the motor vehicle
or trailer concerned on a road. Section 24A (introduced by the Road
Traffic Amendment Act No 3/2000) provided for a certificate of
insurance or security issued by the insurer or by the Minister as
the case may be. Section 38A Part VA provides for Compulsory No
Fault Passenger public service vehicles. Insurance for
(ii)
The part defines a passenger in very broad terms but excludes
persons employed or engaged by the owner of the vehicle.
(l) Section 38B makes it compulsory for Passenger service
vehicle to carry no fault insurance cover.
CRITICISM OF THE AMENDMENT ACT(m)Whereas the amendment Act can
be applauded for recognizing the need to protect 3rd parties who
suffer loss of life or injury or loss of property the question that
begs attention id the amount of cover afforded by the Act. (n)
Section 23 (3) provides that a statutory policy shall not be
required to cover (i) (ii) any contractual liability; or liability
in respect of death, or bodily injury, persons who were being
carried in or entering or getting on to or alighting from the
vehicle or trailer concerned when the event out of which