Category Legal Affairs

When does material non-disclosure void an insurance contract?

13 August 2013 Jonathan Faurie
Max Ebrahim, partner, Webber Wentzel

Max Ebrahim, partner, Webber Wentzel

While it may be human nature to be reluctant to give out too much information regarding details of personal lives, there are often times when the public is called upon to give such information freely as failure to do so may lead to significant complicatio

In April this year, National Treasury, the Financial Services Board (FSB) and the South African Insurance Association (SAIA), issued a joint statement in response to a recent High Court judgment which they feared would impact on how insurers will assess claims in future.

The concern stemmed from the Court's adherence to "hard law" instead of new policy on how to treat non-disclosure of material information by an insured.

“Because it is essential for the insurer's assessment of risk that an insured keeps the insurer up to date with all relevant information, our law has always placed a duty of disclosure on an insured; and allowed an insurer to deny liability for a claim when it discovers that the insured has materially misrepresented the facts relevant to his or her insurance cover,” says Max Ebrahim, partner, Webber Wentzel.

The determination of whether a misrepresentation is deemed to be material is therefore essential for the protection of both the insurer and the insured.

Case law & the Didcott principle

The position in our law was set out in Mutual and Federal v Oudtshoorn Municipality in 1985, where an involved party held that courts determine if a non-disclosure is material by asking whether a reasonable person would think the information is material to the assessment of risk.

“To make this determination, a court will consider all the relevant facts of the particular case and whether or not the undisclosed information is reasonable relative to the risk or the assessment of the premiums to be charged. In essence, an insurer can cancel the policy even where the withheld information would not have dissuaded the insurer from accepting the policy, but where it would merely have charged the insured a higher premium.”

Six years later, in Pillay v South African National Life Assurance, John Didcott applied the law as stated above but noted that the harshness of outcome will not always be fair. Instead, Didcott suggested that in certain instances of non-disclosure, it would be more equitable to ‘reconstruct’ the policy than to cancel it.

According to what has become known as the ‘Didcott principle’, if the insurer would still have issued the policy, albeit at a higher premium - even if the information withheld materially affects the risk to the insurer - then it would not be fair for the insurer to repudiate the claim.

The Treating Customers Fairly policy

South Africa is experiencing an overhaul of the local consumer protection framework, including the FSB's publication of the Treating Customers Fairly (TCF) policy aimed at the financial services industry.

The TCF, proposed to be introduced in January 2014, requires companies to demonstrate that they meet six principles (or so-called "fairness outcomes"), including that:

  1. consumers can be confident that they are dealing with firms when the fair treatment of customers is central to the corporate culture;
  2. products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups, and are targeted accordingly;
  3. consumers are provided with clear information and are kept appropriately informed before, during, and after the point of sale;
  4. when consumers receive advice, the advice is suitable and takes account of their circumstances;
  5. consumers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect; and
  6. consumers do not face unreasonable post-sale barriers to changing product, switching provider, submitting a claim or making a complaint.

“The TCF is set against the backdrop of the 2011 policy document issued by National Treasury, titled A Safer Financial Sector to Serve South Africa Better. In accordance with this document, National Treasury recognises that the financial services industry should be held to a higher standard of market conduct than other industries, and accordingly envisages a significant change to the regulation of the financial services industry,” Ebrahim said.

With a focus on separate prudential and market conduct regulation, National Treasury identifies four objectives to be achieved by the financial sector: financial stability, consumer protection and market conduct, expanding access through financial inclusion and combating financial crime.

Highlighting the impact of the rejection of claims for non-disclosure is regarded as one of the components of consumer protection and market conduct.

Sherwin Jerrier v Outsurance

A 2013 KwaZulu-Natal High Court case, Sherwin Jerrier v Outsurance, also considered the issue of insurance non-disclosure.

In this case, the insurer and defendant successfully rejected a claim based on the plaintiff/ insured's failure to inform it of two prior motor vehicle accidents during the insured period. The Court held that in deciding whether or not to repudiate the contract, one must determine whether a reasonable person would take the unreported accidents as a change to the insured's circumstances that may influence: whether cover is granted (or continued), the conditions of such cover or the premium charged.

“In discussing the facts of the case, the judge held that both incidents would cause a reasonable man to conclude that knowledge of their occurrence would indicate a change to the Plaintiff’s circumstances, at the very least from a claims history perspective, but also as a moral risk, that may (not necessarily would) influence whether the Defendant would give the Plaintiff cover, the conditions of cover or the premium they would charge."

The Court dismissed the plaintiff's case with costs and ruled that the non-disclosure amounted to a material breach of the terms of the insurance policy; thus absolving the defendant from liability. In essence, the Court failed to take account of the Didcott principle and applied the current common law.

Industry reaction to the Jerrier case

National Treasury, FSB and SAIA reacted with concern to the Jerrier ruling, clearly considering it as a step in the wrong direction. The parties met in April to agree on measures to enhance disclosures to protect car owners.

In a media statement jointly issued, the participants noted that "motor car owners need not be concerned" with the Jerrier case as "the judgment will not have any implications on how the insurance industry will assess claims".

The parties also stated that insurance company had "undertook not to reject motor car claims on the grounds that customers do not report minor incidences (in other words incidents that are not material to the assessment of the insurance risk)". The statement also makes it clear that the SAIA members have "reaffirmed their commitment" to embracing the TCF initiative, and that the Treasury, FSB and SAIA would take positive steps to protecting insurance consumers.

With the Didcott principle being an obiter statement of our law on disclosure, and the TCF programme merely being a guideline for improving market conduct practices, it is submitted that the Jerrier decision is uncontroversial.

It is not the place of the courts to change the common law based on policy. If National Treasury wants the law to be changed to provide for a stricter interpretation of materiality, then it must seek to amend existing legislation accordingly i.e. the definition of materiality will have to be amended in the Short and Long Term Insurance Acts.

Editor’s Thoughts:
As we have seen, full disclosure should be encouraged as not only are there legal implications, there also be significant complications when it comes time to lodge and process a claim. Disclosure may play an important role in life insurance whereby clients may be reluctant to disclose pre-existing conditions which may result in their exclusion from the policy such as smoking or heavy drinking.

The determination of whether a misrepresentation is deemed to be material is therefore essential for the protection of both the insurer and the insured. But surely there is a way to determine this before seeking legal measures to solve a case. Does a degree of this responsibility lie at the door of the broker/adviser?

How do you ensure that all information is given when selling a client a product? Is it necessary to point out these legal implications to the client? Or the relationship of trust between the client and the broker strong enough to know that full disclosure is in their best interest?

Please comment below, interact with us on Twitter at @fanews_online or email me your


Added by Slindokuhle, 30 Jan 2018
I was insured with Absa idirect. Last December I was involved in a car accident, resulting in my car being written off. My claim was rejected on the bases that my two back tyres were worn out. The insurer sent me a rejection letter stating that I should refer to page 19 of my policy document. Problem is, I had not received my policy document and had called them three times alerting them.
I took the matter to their review committee. Was told according to my sales conversation I had given then a wrong e-mail address. They wrote down an 'f' instead of 's'. The committee rejected my appeal on the bases that when the e-mail address was read for me, I confirmed it was correct. My argument is, if their sales person mistook and 's' for an 'f' why was it wrong for me to make the same mistake? Also upon sending me the e-mail and realising it had bounced, why was I not contacted? Can the insurer reject my claim when they failed to provide me 'even after alerting them' with a policy document?
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Added by Annon, 10 Dec 2016
When adding a cell phone to my policy I sent an email saying it is an iPhone 6 and that I thought the value was r14000, I lost that phone was paid out R10000, current replacement value, and bought a 2nd hand phone also an iPhone 6. I insured that phone by sending another email to my insurer saying its the same kind of phone and the value should be the same as the previous one. At claims stage I found out I'm under insured as the phone was a 128gb and my previous one a 16gb, my insurer did not ask me what the model was and as it turns out the 128gb cost a few thousands more, should my insurer not have asked me to confirm the model, and told me what the conditions of having the incorrect value on policy would mean?
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Added by Sumari, 10 Sep 2016
Full disclosure of all medical history is the most important information on any application form.
Most clients can't remember what doctors they saw last year. This is a huge problem in 99% of new applications.
How will the insurance company ever find out about a Doctor the client saw for 10 min about a medical condition that has been forgotten about?
Very easy, your medical aid claims history is a full discription of your past doctors.
We have been insurance brokers for 12 years and couldn't get my own Father's life claim paid out due to non-disclosure.
Since then we have made it our business to ensure all of our clients will not sit with the same problem.
We don't start with an application, we start at claim stage and make sure the client's full medical aid history (sometimes as far back as 2001) is scanned through, we contact all the doctors on the history to get full details of consultations.
We submit not just an application, we submit your true history - 80% of the doctors in the records, the clients can't even remember visiting.
Anyone can sell you a life policy, but can you trust in that when you make a claim?
Read more:
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Added by Mnqandi, 21 Oct 2015
I recently have a similar cas where i insured my vehicle with Momentum insurance , in 2013 i insured my two wheels mountain bike with Miway so in 2014 March they stole it so i lodge a claim with miway so the rejected my claim and stop me on a reason said by momentum i fail to comply with them on required document while they were asking lots of thing including some people id my girlfriend's lots

So on 2014 i bought a car September 27 my fisrt car' so i insured 1st with You I insurance so on 15 October 2014 i moved to momentum which was better affordable than previous so i was with them all along to a date i lodge a claim in 2 may 2015 because my vehicle was in accident the asked whatever document i gave so they started stunt asking lot so i gave them full info until assessor came and asking me did i disclosed to them that i had an claim before i said to him i dont know because i was insuring a car not a bicycle so i thinks the relevant its car if it was but we will hear whatever you come so the assessor phoned me said i didnt diclose to them cause i thought we insuring the vehicle not house content or other i thought everything is regarding the vehicle i dont understand the bicycles link in this matter

so they rejected and cancelled my insurance with them so i lodged a complain to short-term insurance ombudsman regarding the metter on ombudsman finding the suggest matters to court i am still waiting for move to court from my attorney

Is insurance practice fair?
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Added by Lourens Horn, 14 Oct 2015
I had a bad experience with Outsurance whereby their advisor did not disclose the material perils to Me after I explained I never had insurance before.they rejected my claim after my stepson wrote of my car.they falsified a concent letter to the SAPS.invaded his privacy and treated me the policy holder like a criminal.after the Jerry court case I am now willing to tell my full bad experience with Outsurance to the public via the media houses .i was allso threatened by their attorneys to take me to court if I defame their brand.defamation is only applicable if it is not the truth.they manipulate the average man and bully their clients.
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Added by Alesa, 08 Jul 2015
As per the recent judgement 2015, Jerry had WON the case. i personally believe the learned judges had made the correct decision, the insurance companies needed to have their standards and objectives placed correctly. Outsurance has to also pay Jerry his legal cost aswell . (MECURY 8 JULY 2015) , This sure must have been a tough battle for Sherwin however dignity and righteousness always wins at the end, The insurance companies had lead me to believe that because they are so huge and armed with much financial security and legal services as opposed to an insured, they can then do as they please. Many insured clients opt to not take their declined claims to another level due to financial implications, their claim value do not permit a common man to persue things further (legal cost etc) and that is where the insurance company wins.
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Added by D.N, 16 Sep 2013
I am a machine moving company and i was insured for a double cab, ford bantam, trailer, generator. I recently had to claim from my insurance regarding a hijacking. The insurance company then found out that the double cab belonged to my brother. Mybrother would lend me the cab for a fee. Interms of my generator it was struck by lighting and damage resulted in a large insurance claim that i did not disclose to my current insurance company. I received cash for that generator. My insurance company also found out that i repaired the generator and i put it back on trailer ( this is what was insured). also at the time i had poor credit and didnt diclose to my insurance company,. I would like to know whether the insuracne company can avoid my claim submitted to it?
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Added by Repudiated Claim Services, 14 Aug 2013
The biggest problem with the Life insurance industry is the following: The main question remains? Why doesnt the specific insure request the doctor or specialist personal clinical notes on his or her patients from the underwriting stage and why do they suddenly ask the doctor or specialist to supply his or her personal clinical notes at claim stage. This is not always knowledge that the client knows and the insurers use these personal clinical notes then to prove that there was material non-disclosure or misrepresentation on the side of the client. In some cases the clients is not allowed to sign the CMR done by the doctor or specialist which in my opinion creates "involuntary reliance" on the side of the client on which information was disclosed to the insurer or which information was non-disclosed by the doctor or specialist. The client has no insight into his doctor or specialist personal clinical notes and most of the time this is "exclusive knowledge" towards the doctor or specialist. All risk cases must be fully underwritten at underwriting stage and if the client have done a CMR + PMA and supplied his Medical Aid to the insurer, the insurer should not be able to claim any non-disclosure or misrepresentation, as the Medical Aid will reflect all consultations with any doctor or specialist. The law protect the insurer and there is no recipical obligation on the insurer to properly investigate the clients medical history at underwriting stage. The insurer creates the impression that he is going to investigate your medical history by asking for your Medical Aid, however this doesnt happen in practice. All brokers and agents must insist that their clients obtain their doctors or specialist personal clinical notes via a PMA at underwriting stage, as this is the first thing the insurer will request at claim stage, even if you were heavilly underwritten at underwriting stage. In 90% of the cases you would have missed something and your policy will be voided or your claim repudiated
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Added by Andre Kruger, 13 Aug 2013
How about legislation for TIF ? Treating intermediaries Fairly? Should be on the cards, shouldn't it be?
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Added by IanB, 13 Aug 2013
In the Jerrier matter I believe that the insured was in breach for not advising his insurer of an incident that may result in a claim under the policy. Whilst not at the heart of the matter (non disclosure) it cannot be left to the insured to decide whether to report a matter that is the subject of indemnity. They must report the matter and then declare that they will not be submitting a claim.
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