It is common to find a condition in South African insurance policies providing that where there is a dispute between the insured and the insurer in respect of the quantum of a claim, the matter must be resolved by way of arbitration.1
That formulation is a hangover from the previous statutory regime in respect of insurance under the now repealed Insurance Act of 1943, which imposed certain limitations in terms of arbitration in respect of domestic policies of insurance. Under that restriction, the Insurance Act provided that notwithstanding any contrary provision in the policy or in any agreement relating thereto, the owner of a domestic policy was entitled to enforce its rights under the policy against the insurer concerned in any competent South African court according to South African laws.
There was, however, no bar to the policy providing that the amount of any liability under the policy could be determined by arbitration if the insurer demanded that the amount be so determined.
The provisions of arbitration were not repeated in the 1998 Insurance Acts2 and in the short-term context, were replaced by the measures contained in The Policyholder Protection Rules.
In terms of those rules, the provisions in a personal lines short-term policy which determine that any dispute arising under the policy can only be resolved by means of arbitration is void.3
There is, however, nothing preventing the policy recording that the parties may, after a dispute has arisen, voluntarily agree to submit the dispute to arbitration.
The position is, however, different to that under the 1943 insurance act regime. Now, there is no bar to an arbitration clause including disputes regarding liability provided according to the Bill of Rights it is a fair and independent arbitration tribunal.
There can be no objection to any agreement between the insurer and insured after a dispute has arisen to refer the matter to arbitration.
Similarly, there are no such limitations or restrictions in respect of long-term insurance policies.
A policy cannot, however, oust the jurisdiction of the courts altogether. That would be contrary to public policy.
What South African insurance policies do not do is set out the arbitration regime.
While it is common to record with some particularity the arbitration regime in commercial contracts that is not commonly done in policies of insurance. At best, the policy may record that any arbitration would be governed by the Arbitration Act of 1965.
The Arbitration Act empowers the arbitrator, unless the arbitration agreement otherwise provides, delivery of pleadings and the inspection of documents, goods and property. Very often, arbitration can simply result in privatised litigation with all the delays of litigation and the additional costs of private litigation.
There is, however, a growing realisation by South African insurers to look to arbitration to resolve insurance disputes; but subject to an arbitration regime which is expeditious and which avoids the pitfalls of privatised litigation. In that regard, insurers are increasingly looking to adapting and making use of the best of the Uncitral Rules, the London Court of International Arbitration Rules and the ICC rules. That is, however, all subject to the insured and insurer after a dispute has arisen, agreeing to arbitration on these terms.
There is yet to come into existence an industry preferred arbitration regime or any detailed policy formulation dealing with arbitration.
1. An example of such a clause, as appearing in the industry's standard Multi-Mark III policy reads:
"If any difference shall arise as to the amount to be paid under this Policy (liability being otherwise admitted) such difference shall be referred to arbitration in accordance with the statutory provisions in force at the time. Where any difference is by this Condition to be referred to arbitration, the making of an award shall be a condition precedent to any rights of action against the Insurers".
2. The Short-term Insurance Act, 53 of 1998 and the Long-term Insurance Act, 52 of 1998.
3. Policyholder Protection Rule 8.1 (d)
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