It’s time that the insured stood up for their insurance, reports Karen Harverson
Insurance law in South Africa, unlike some European countries, is far more favourable to the insurer than the insured. The onus rests on the insured at the time of taking out a policy to disclose all material facts to the insurer of which he is aware or should be aware or run the risk of having the contract cancelled — even after 20 years of paying premiums.
A fact is deemed material if, in the judgment of a reasonable man, it would have been thought to be necessary for the insurer to know.
Rand Afrikaans University law professor Giel Reinecke believes areas of South Africa’s insurance law must be changed to protect the insured better. “Insurance has a social function to protect the public. It sells safety.”
A typical example of the insurer having more rights than the insured in South African law concerns the case of the insured who answered no to the question of whether he had cancer and unbeknown to him, he did — the insurer in this case is legally entitled to cancel the policy.
“We should follow German and Dutch law where once an insurer has asked questions, the policy can only be cancelled if the insured fraudulently misled the insurer,” comments Reinecke.
“If it’s possible for an insurer to cancel on the grounds of an immaterial breach of contract then I’m against it and legislation should be changed,” he adds.
In South African law, even if the insured answered all the questions on a policy form honestly — there is still a duty on him to disclose any information not asked for which would, in the opinion of a reasonable man, affect the risk.
In the case of a promissory warranty which relates to a future fact such as if the insured guarantees that he will perform certain duties – even if it is immaterial to the claim, the insurer is entitled to cancel if these duties are not fulfilled.
For example, in one promissory warranty case, the insured agreed to keep the car keys locked in a safe overnight. When the car was stolen, it was discovered that the keys had been kept locked in a cupboard. On this basis — as it was in breach of the agreement — the insurer was entitled to cancel the policy even though the location of the keys in no way contributed to the car being stolen.
However, in the case of an affirmative warranty which relates to a present or past fact which was undisclosed but is not relevant to the policy, the insurer is prevented from cancelling. “This protection should be extended to promissory warranties,” says Reinecke.
In one particular case in South Africa, the insured mistakenly gave his age as 22 rather than 23 years old at the time of taking out motor insurance. The insurer attempted to cancel the policy when a claim was made but the court found that disclosure of the correct age at the time would have had no effect on the insurer’s decision to issue a policy or the terms of that policy.
South African law is based on the English law which Reinecke says is stricter. “In English law, an insurer can cancel on grounds of affirmative warranty even if immaterial.”
In Holland, the rights of the insured are far stronger. The insurer cannot cancel either an affirmative or promissory warranty if the insured committed a non- fraudulent misrepresentation which has no bearing on the case.
Most Dutch cases are controlled by the principle of proportionality so that if an undisclosed fact would have resulted in a higher premium, the insured’s claim will be reduced in proportion.
Even if the insured deliberately made a misrepresentation in the case of life assurance — the policy holder is not deprived from his right to the surrender value, built up from the inception of the policy.
South Africa, in contrast, allows the insurer to cancel a life policy even if the undisclosed fact would have merely resulted in a higher premium had the insurer known about it. The insured will, of course, be entitled to get his premiums back if the claim is cancelled.
However, if the undisclosed fact was fraudulently made — then the insured also loses out on his premiums — even if they’ve been paid for a number of years.