Andrew Seymour B. Sc Civ Eng, LLB, Pr. Eng, AAArb Practicing Attorney of the High Court of SA
In a world equally exposed to risk and driven by profit, there is invariably a tension that exists between Insurer and Insured, which arises from the inherent conflict of interest between the two: in the event of a claim, it is typically in the best interest of the Insurer to minimise payouts, while the Insured will claim as much she believes that she is (lawfully) entitled to.
This tension provides fertile grounds for litigation when an Insurer repudiates on a claim, particularly when the repudiation is based on a technicality such as non-compliance with a legislative requirement.
This issue is very common within the construction and property spheres, particularly when a claim relates to damages that arise from a building or construction defect, and the Insurer repudiates the claim on the grounds that the building does not comply with the relevant part of the “South African National Standards 10400 (Application of the National Building Regulations)” (SANS-10400).
So, is an Insurer entitled to repudiate a claim in the circumstances where a building does not comply with SANS-10400?
Legislative background
Almost without exception, a structure is only covered by an insurance policy if it, or its construction, properly complies with all relevant legislation, regulations or by-laws.
SANS-10400 is a series of document comprising building-related standards that are published every now and again by the South African Berea of Standards (SABS) and constitute an application of the Regulations promulgated in terms of the National Building Regulations and Standards Act (the Regulations).
The intention behind the Regulations is to give effect to the National Building Regulations and Standards Act (the Act) by providing a framework for standards to which the construction of buildings, must comply. SANS-10400, in turn, provides these specific standards relating to the various components of a building that are in line with the Regulations and the Act.
An observant reader may note at this point is that SANS-10400 is not, in fact, legislation. Therefore, an Insured should not be compelled to ensure her building is compliant (unless specifically stated in the policy). However, the law is never that simple; enter the infamous “deemed-to-satisfy” clauses contained in the Regulations and SANS-10400.
The “Deemed to Satisfy” Clauses
The Regulations and SANS-10400 both define a “deemed to satisfy” provision as “a non-mandatory requirement, the compliance with which ensures compliance with a functional regulation”1.
These provisions provide that, should a building comply with the relevant portion of SANS-10400, then that building is “deemed to satisfy” the legislative requirement of the Act. In other words, compliance with SANS-10400 automatically confers legislative compliance in terms of the Act.
The purpose of these clauses should be obvious: SANS-10400 was drafted specifically to ultimately give effect to the Act, and the purpose of SANS-10400 would be rendered meaningless if a building could be compliant with SANS-10400 but not with the Act.
Is Compliance with SANS-10400 Essential?
The short answer is no; at least, not insofar as compliance with the Act is concerned. The “deemed to satisfy” clauses are defined explicitly as “non-mandatory”. SANS-10400 is simply one way of effecting building compliance, but not necessarily the only means.
Clause AZ4(1) of the Regulations states that:
“the requirements of the National Building Regulations shall be complied with by:
(b) satisfying all functional regulations by-
(i) adopting building solutions that comply with the requirements of the relevant part of
SANS 10400; or
(ii) reliably demonstrating, or predicting with certainty, to the satisfaction of the relevant local authority, that an adopted building solution has an equivalent or superior performance to a solution that complies with the relevant part of SANS 10400”
It is the second part of sub-clause (b) that is crucial in answering this question. The Regulations provide that a building may still be compliant with the requirements of the Act even in the event that it does not comply with SANS-10400. However, the onus to prove that the building fulfills the requirements of the Act falls squarely on the person claiming this compliance.
Conclusion
The most important caveat to bear in mind through all of this is that an insurance policy is, at its very essence, a contractual agreement between two or more parties. Accordingly, any terms and conditions that are not illegal, impossible or against public policy may be incorporated into the policy and the laws of contract would apply.
It follows that, if a policy provides that a building must comply with SANS-10400 in order to be properly covered, then the Insurer would likely be entitled to repudiate on a claim in the circumstances where the building is not materially compliant with the relevant part of SANS-104002.
However, where an Insured’s policy does not specifically require compliance with SANS-10400, an Insurer would likely be entitled to repudiate on a claim for damages to a building if it could show that:
1. the non-compliance was materially related to the damage caused; and
2. compliance with SANS-10400 would have prevented, or at least mitigated, the damage caused.
On the other hand, in order to object to the repudiation, the Insured would likely be required to prove that:
1. The non-compliance with SANS-10400 was not materially related to the damage caused; or
2. The specifications or design according to which the building was constructed would have the same or superior effect in preventing or mitigating the damage than would have been case were it compliant with SANS-10400.
1 Clause AZ2 of the Regulations and Clause 3 of the relevant Part of SANS-10400
2 It is likely that the non-compliance would have to be material and related to the damage caused in order for an Insured
to lawfully repudiate on a claim, but this is a topic in and of itself.
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