The great debate Does our law require a causal link: Yes or no?

A written debate via exchange of letters in Cover Magazine (June 2012 edition), between Professor Robert W. Vivian (Wits) and Professor Johan van Niekerk (Unisa) in 2012, led to The Great Debate on November 8, 2012, which was hosted by Norton Rose in Johannesburg, where the two academics both stated and debated their case.

Prof. Vivian debated that the requirement for a causal link between the insured’s breach of the insurance contract and the claimed loss, is not part of South African law, and that the Short-term Ombudsman by requiring such a link, has become a "law” unto himself.

 

In turn, Prof. Van Niekerk stated there is a need for a causal link to temper the harsh effect that sometimes comes from non-material breach of the insurance contract. Both Professors’ arguments are persuasive in its own right.

There is no law or legal precedent set by South African Courts or legislature requiring a causal link in an insured's breach of the insurance contract and the claimed loss.

No requirement for a causal link means the insurer can literally add any warranty into the policy that for instance, damage to or loss of the insured’s vehicle would only be covered if the insured brushed his teeth the morning prior to the loss or damage.

 

This view suggests that the situation is unfair towards the insured as there is clearly no causal link between brushing your teeth and driving a vehicle.

 

The counter argument would be that insurance contracts are voluntarily entered into by choice and that the insured has the choice not to accept the unacceptable warranties’ policies, and move to another insurer whose policies are in line with the insured’s risk appetite.

The broker, who is the middle man, is in a difficult position as the insured’s knowledge regarding the policy largely depends on what information and advice is received from the broker.

 

The broker should therefore have adequate knowledge of the specific policies and should be able to advise the insured correctly regarding warranties. The broker should draw attention to any problematic warranties to avoid possible claims against its professional indemnity insurance.

The "fairness and equity” principle being applied by the Short-term Ombudsman, clearly try to temper the harsh warranties that sometimes let insurers get away with repudiation of valid claims.

The causal link, however, places a sometimes impossible onus of proof on the insurer.

The effect of this will no doubt be that insurers settle claims that should not be settled. The insurers can largely overcome the situation by ensuring that their policy wording is correct, and is clearly formulated to exclude what they do not want to cover.

 

The insured on the other hand, should make sure they are informed and familiar with the content and warranties of their policies, and at all times provide the correct information to their insurers.

 

Standing back, it seems that the policy warranties on the one side and equity principle on the other, bear a resemblance to the scale, where the rule of law is weighed up with fairness and equity.

 

The rule of law in South Africa preserves and protects the rights and property of individuals and organizations. The rule of law is clear that there is no legal precedent or legislation requiring a causal link in an insured's breach of the insurance contract, and the claimed loss.