Non-life insurance in the form of construction guarantees are subject to the South African Insurance Act
This is a significant judgment for the South African insurance industry on construction guarantees.
EDITORIAL UPDATE (May 28, 2026): Fusion Guarantees (Pty) Ltd has formally filed a Notice of Appeal against this Gauteng High Court judgment. The operational enforcement of the interdict is subject to the pending outcome of the appellate court proceedings, and the matter is currently sub judice.
The judgment confirms that both the Short-term Insurance Act (STIA), Section 7(1)(a), and the Insurance Act, Section 5(1), require that entities offering non-life insurance in the form guarantee policies be registered and that that requirement has not been repealed by the Insurance Act.
Deneys successfully acted for The Financial Sector Conduct Authority which has taken effective action against unlawful guarantees.
The Insurance Act has not repealed the requirement that entities offering guarantees be registered. No material difference can be found between guarantee policies under the STIA and non-life policies under the Insurance Act.
The Insurance Act did not introduce a new legal concept in the form of non-life insurance business. The jurisprudence developed and applied in relation to guarantee policies under the STIA continues to apply to non-life insurance policies under the Insurance Act.
Fusion Guarantees intervened in the application, asserting that none of the essentials of insurance, identified in the Insurance Act, relating to a policy, premium and indemnification of loss, was to be found in the Fusion construction guarantee or guarantee facility.
Fusion argued that the references in the Insurance Act to guarantees are references to indemnity insurance and not to construction guarantees.
The applicant Elasah Risk Consultants and Fusion alleged that their construction guarantees are credit agreements under the National Credit Act.
The question before the court was whether ‘construction guarantees’ are regulated by the National Credit Act to the exclusion of the Insurance Act. The court said the apposite question is whether the construction guarantee falls within the ambit of the Insurance Act.
The 2017 High Court judgment in Becker and Another v Registrar of Financial Service Providers and Others (6127412015) [2017] ZAGPPHC 926 (30 November 2017), involved a decision by the Appeal Board of the Financial Services Board, the predecessor of the FSCA, taken on review.
The court there was called to determine whether guarantees were issued in contravention of Section 7 of the STIA. The court held that the “guarantees”, issued by Fusion, could only fall within the ambit of the term “policies” as contemplated under the definition of a guarantee policy under the STIA, and that the Fusion guarantees were in fact “guarantee policies" contemplated by the STIA.
In the Elasah judgment, the court said the Becker judgment remains applicable that it was bound by that decision Becker made it clear that the National Credit Act does not exclude the Insurance Act and that Fusion by bringing the latest application, ignored the precedent set by the court.
The question is not whether a contractual undertaking is a credit facility or guarantee policy, but whether the relevant construction guarantee in question qualifies as a non-life insurance policy, or more particularly, a guarantee policy under Schedule 2, Table 2 of the Insurance Act.
The court accepted that although Becker was delivered in respect of the STIA, the principles endorsed by that court apply equally to the Insurance Act and are unaffected by any differences between the Insurance Act and the STIA regarding guarantees.
The STIA defines a guarantee policy as “a contract in terms of which a person, other than a bank, in return for a premium, undertakes to provide policy benefits if an event, contemplated in the policy as a risk relating to the failure of a person to discharge an obligation, occurs”. The Insurance Act defines a guarantee as “covers loss resulting from insolvency; the direct and indirect failure of a person to discharge an obligation; suretyship offered as part of normal business activities, other than a guarantee issued by a Bank registered under the Banks Act, 1990;”.
The court said that there is, in any event, no substantial difference between guarantees between the Insurance Act and the STIA that would render the jurisprudence established under the STIA inapplicable to the Insurance Act.
The Fusion counter guarantees are separate, collateral agreements between the guarantor and the contractor. These allow the guarantor to claim reimbursement from the contractor if the guarantor is required to fulfil its guarantee obligations, typically through payments owed to the employer. Fusion asserted that the contractor’s role as “counter guarantor” places construction guarantees beyond the ambit of the Insurance Act. The argument was that the construction guarantees do not involve indemnification for loss because, on payment, the guarantor can recoup the payment from the contractor. The concept of a counter guarantee was allegedly not an element inherent to an insurance contract.
It was contended that the construction guarantees do not fall within any of the requirements under the definition of guarantees under Schedule 2, Table 2 of the Insurance Act.
The court held:
“[87] It is important to note that the potential loss indemnified under the guarantee is not the contractor's, but the employer's. The construction contract between the contractor and the employer anticipates that the employer may suffer a loss as a result of the contractor's conduct giving rise to the risk insured against (default). An important feature of the definitions under the Insurance Act mentioned above is that the Act does not stipulate who must pay the premium or consideration, nor does it require that the person paying the premium be the one who faces the risk of loss and suffers the indemnified loss.
[88] A counter-guarantee is a collateral, independent arrangement between the guarantor and the contractor that permits the guarantor to seek reimbursement from the contractor in the event that it (the guarantor) has to honour its insurance obligations (typically obligations to pay the employer) vis-à-vis the employer. Even if the counter-guarantee is required by the guarantor (insurer), the employer's loss and the obligations to indemnify the loss are unrelated to and unaffected by this extraneous collateral arrangement.”
The court, referring to previous judgments, including that of Becker and Fern Finance and Another v Financial Services Tribunal and Others 2022 (JDR) 3092 (GP) said that the counter-guarantee argument raised was by no means novel and that whether a contract to provide a construction guarantee falls under the insurance legislation depends on the contract’s features.
It is irrelevant whether the arrangement is or may be something else, such as a suretyship, or a credit agreement under the NCA. The question is whether it is insurance.
The court said:
“[93] It is incorrect to say that the liability of a guarantor to an employer under a construction guarantee is wholly independent from the liability of the contractor under the construction contract. The guarantee is, after all, a guarantee for performance by the contractor under the construction contract. Payment under the guarantee will be made only if the employer produces the prescribed documents, which may include a payment certificate or a certificate of practical completion, evidencing the amount due by the contractor to the employer. The loss is this amount, resulting from the contractor's failure.”
The court held:
“[97] Providers of non-life insurance in the form of construction guarantees are required by law to be licensed under the Insurance Act because those contracts constitute the provision of non-life insurance policies as defined in the Insurance Act. This is not merely the "official view" as referred to by Fusion, it is, in fact, the law.”
There can be no accurate generic description of construction contracts which must be considered on their own terms and the presence of a counter-guarantee by the contractor does not convert a guarantee policy into something else. It does not remove the indemnification-of-loss element. The loss indemnified remains the loss of the employer paid before any third party counter-guarantee obligation comes into being.
The court found that the construction guarantees in the context of the application are insurance policies if they indemnify a loss which the employer might suffer because the contractor fails to perform in terms of the relevant construction contract. That is the “unplanned or uncertain event” in the definition of a non-life insurance policy.
It is not required that the terms "policies" and "premiums" be used. Where the guarantee conforms to the definition of a non-life insurance policy, it will constitute such a policy irrespective of the terminology used in the documentation or what it may be called colloquially. Likewise, where the consideration paid conforms to the definition of "premium", then it is a premium, despite being called a fee or by another name.
The Financial Service Conduct Authority’s counter-application to obtain a declaration by the court that the Fusion guarantees constitute non-life insurance policies as defined in section 1 of the Insurance Act, and that the issuing of the Fusion guarantees constitute the conduct of insurance business as defined, and for an order interdicting Fusion from issuing those guarantees, was successful. The guarantees under consideration satisfied the definition of a guarantee under the Insurance Act.
The counter-application judgment provides a succinct overview and analysis of the definition elements of a non-life insurance policy, applied in the context to the guarantees before the court.
Unsurprisingly, the court found:
“128] I am satisfied that Fusion's current guarantee business reveals that the guarantees issued by Fusion meet the criteria for non-life insurance business as defined by the Insurance Act. As such, Fusion must be registered as a licensed insurer under the Insurance Act, and it therefore operates in breach of section 5(1) of the Insurance Act.”
The court provides useful clarity and confirmation of the situation of construction guarantees within the insurance legislation. All role players in the insurance industry should conduct themselves accordingly.
[Elasah Risk Consultants (Pty) Ltd v National Credit Regulator and Others]
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Fusion Guarantees (Pty) Ltd has formally filed a Notice of Appeal against this Gauteng High Court judgment. The operational enforcement of the interdict is subject to the pending outcome of the appellate court proceedings, and the matter is currently sub judice." Report Abuse