On 13 April 2021, the Supreme Court of Appeal delivered a full bench judgement on the matter between King Price Insurance Company Ltd ("the insurer") and Concise Consulting Services (PTY) LTD ("the insured"). In a legal battle that has been lingering on for over 5 years, the insured has eventually come out as victor. A brief summary of facts of the case are as follows: the insurance contract between the parties came into effect on June 2013 and the relevant incident occurred on 1 January 2014. On the said date of the incident, the insured motor vehicle sustained damage during a collision with a wall and, at the time, the insured's employee was the driver. When the incident occurred, the driver informed the managing director of the insured who subsequently lodged a claim with the insurer and advised the insurer to contact the driver for further details relating to the occurrence of the incident. The insurer's assessor made enquiries from the driver – probing the driver's version in greater detail. The insurer thereafter repudiated the claim stating that during the claim's validation process, the driver had furnished the insurer with dishonest and false information. The claim was, according to the summons issued in the Magistrate's Court, worth R75 000.00. Further details of the legal arguments that were raised are explicated hereunder, however, the afore-going suffices as a background of this legal battle. The gravity of this judgement, particularly for insurers and legal representatives, when assessing and strategizing for legal suits of this nature is also highlighted below.
Facts and Background of the Case
In repudiating the claim, the insurer relied on these specific clauses of the policy: "always provide us with true and complete information. This also applies when anyone also acts on your behalf"; "if you, or anyone acting on your behalf submits a claim, or any information or documentation relating to a claim, that is in any way fraudulent, dishonest or inflated, we will reject the entire claim and cancel your policy retrospectively...". The case turned mainly on the evidence, submissions and interpretation of "acting on your behalf" i.e. whether the driver was, at the material time, acting on behalf of the insured. The insurer was successful in the Magistrate's Court and, the magistrate found the driver to have been dishonest with the information supplied to the insurer; the information and details were material and the driver was acting on behalf of the insured at the time. The insured successfully appealed to the full bench of the High Court and the reasons of the court were: the insurer bears the burden of proof to establish on a balance of probabilities whether the insured made the false statement with the wilful intention to defraud; the clauses in the contract relied upon by the insurer had to be strictly interpreted with proper regard to the primary purpose, general nature and object of the insurance contract; the driver was not acting on behalf of the insurer and was merely providing information at the request of the insured who was not privy to the finest details of the incident; and, lastly, the false statements or misrepresentations by the driver were insignificant and immaterial. Disgruntled by the outcome, the insurer appealed to the SCA and based their appeal on the following: the driver was acting on behalf of the insured when submitting false information; the insured was obliged, in terms of the contract, not to furnish false and misleading information; and, lastly, that the misrepresentations and untruths by the driver were material. To its defence, the insured raised the following arguments: the insurer had failed to discharge the onus it had to prove the facts pleaded, relating to the false information by the driver; alternatively, such false statements were not material; whatever version of the incident relayed by the driver to the assessor is not attributable to the insured; if it is found that the information provided was untrue and misleading, the contract of insurance was ambiguous about what is meant by "acting on behalf of the insured" and, accordingly, any reasonable interpretation of that phrase by the insured should override the insurer's interpretation as the insurer is the author of the contract. The court found that the driver was not acting on behalf of the insured at the time – based on the evidence and facts. The court took cognisance of the fact that the managing director of the insured refuted an allegation that the driver was acting on behalf of the insured; there was no examination or cross-examination of the driver directed to the question whether he was supplying information 'on behalf of' the insured; the insurer's legal representatives did not put it to the driver during cross-examination that he was acting 'on behalf of' the insured. The court took the view that the driver was a mere witness in this matter and there was no basis why he could be held at the standard of an "agent" – although the court noted that the ordinary interpretation of 'acting on behalf' will introduce the concept of agency – something that the driver was not, in this case. Consequently, the court adopted a narrow interpretation of the words 'on behalf of' as the insurer is the author of the policy and also bearing in mind the drastic consequences of forfeiture of claims for an insured to be penalised for fraudulent or dishonest information emanating not from the insured but a third party.
Analysis of the Legal Approach
Similar to most contractual disputes, the outcome naturally lies on the pertinent provisions of the contract, in addition to the overall purposes of the contract. In this case, interpretation of 'acting on behalf of' was central. The purposes of the contract i.e. King Price to indemnify the insured also played a critical role in the outcome. One may argue that the wording of the policy by King Price could have been better and, instead of only stating 'acting on behalf of', it should have been worded in a way that includes drivers who are in lawful and rightful possession of the insured vehicle. The legal drafters of the policy could have possibly adopted a wording that would cover a wide-range of possibilities – to extensively protect the interests of their client i.e. King Price. Also, failure to put it to the driver during cross-examination that he was 'acting on behalf of' the insured was a grave omission particularly because of the significance of this aspect. Further, one may argue that there must have been a focused mission to persuade the court to adopt a slightly wider interpretation of the words 'acting on behalf of' – for various reasons.
Strategic Legal Approach
In such legal battles, insurers are faced with a difficult challenge of balancing business interests against legal interests. For the legal aspect of the decision, the insurers rely heavily on legal advice they receive from their legal representatives. Upon assessment and thorough evaluation of facts and the evidence, legal experts are in a position to advise on the prospects of success in a matter and, it is at that stage that the business (insurer) is able to decide whether to litigate/push for settlement/concede liability. In this case, whilst there are some valid grounds to argue for repudiation, there are equally valid grounds to argue against the repudiation – specifically considering how the courts have over the years decided on insurance legal matters of this nature. This makes it necessary for legal representatives to be cautious with matters where the prospects of success are not apparent (in insurance matters) like in this case. As indicated above, the dispute emanated from the repudiation of R75 000.00 claim. Now, the insurer has to pay that amount R75 000.00 and, in addition, legal costs of both parties – inclusive of 3 Senior Counsel – at the SCA. The total amount can easily escalate to hundreds of thousands – much to the detriment of insurers. Beyond the actual money spent, there is an aspect of reputational damage which insurers strive to avoid by all means considering the cut-throat competition amongst insurers. No insurer wants to be known for repudiating claims on unlawful grounds. Therefore, whilst strict legal considerations are critical so as to safeguard the interests of your clients (as a lawyer), it is equally crucial to utilise a "business lens" approach – which will, in a broader scheme of things, protect the interests of your clients even better. Possibly, in this case, when the insured showed interest in litigating over the matter, the insurer should have been advised to make a 'without prejudice' offer of settlement (less than the claimed amount). This could have, possibly, been the end of the matter if the insured accepted the offer made – people are aware of the risks involved in litigating and, where they receive reasonable offers (not exactly close to what they in fact need), they tend to seriously consider these. Furthermore, once the court case failed at the High Court, there could have been another re-assessment and re-evaluation of the need to proceed further with the action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.