A material pre-contractual misrepresentation

In Norton Rose Fulbright’s Financial Institutions Legal Snapshot, Donald Dinnie wrote an article on the breach of warranty and material misrepresentation, which we thought would be interesting to share with our readers.

The case revolves around the transporation of goods and a once-off, all-risk transit insurance policy which the Judge ordered the Insurer to pay the plaintiff the sum of R16 311 032.92.

We delved deeper into the case, which can also be read here. 

The facts underlying the dispute

The plaintiff, Samchem Corporation (Pty) Ltd, was claiming money against the defendant, Compass Insurance Company Limited, in the sum of R16 349 849.21 for an indemnity arising out of a marine cargo insurance contract issued by the defendant in favour of the plaintiff. The facts underlying the dispute are largely common cause. 

On or about 31 July 2020 the plaintiff (Samchem) and the defendant (Compass) entered into a written insurance contract (the insurance agreement). In terms of the agreement, the defendant insured the transportation of the plaintiff's face masks from Johannesburg until the offloading and delivery of the face masks in Durban. 

The truck carrying the face masks was hijacked on 5 August 2020 and the face masks were stolen. The plaintiff filed its claim for the loss of the goods with the defendant. 

On 9 October 2020, the defendant repudiated the plaintiff's claim, whereafter the plaintiff launched this application. 

Witnesses statements

The plaintiff called two witnesses, Mr Laserow, a director of the plaintiff, and Mr David Mokgayi, the driver of the hijacked truck. The defendant called four witnesses, Mrs Handy, a representative of the defendant at the time, Mrs Moodly, an employee of Imperial Truck Rental, Mr Rugbeer and Mr Reddy, both employees of MiXTelematics Africa.

 Mr Laserow, for the plaintiff, testified that during the COVID-19 pandemic, his company Sanchem purchased face masks from a company in Hong Kong. The masks were delivered at OR Tambo International Airport for the plaintiff to transport and deliver the masks to a client in Durban. Mr Laserow avers that he then contacted Mr Bernie Beaumont, his insurance broker, to obtain quotes for the insurance of the transportation of the masks to Durban. He says that on 30 July 2020, Mr Beaumont advised him that he had obtained insurance cover from Compass to transport the goods. 

On 31 July 2020, Samchem and the defendant concluded a written insurance agreement. Mr Laserow avers that he then hired a truck and a driver Mr Mokgayi to drive and transport the goods to Durban. On 5 August 2020, he learned that the truck and its goods were hijacked near Vosloorus. The truck was later recovered, however, the goods were not. Hence, this claim. 

Mr David Mokgayi confirmed that on the way near Vosloorus, he was hijacked at gunpoint, and the face masks were stolen. The plaintiff then closed its case. 

The defendant called Mrs Handy. She testified that she was at the time employed by Paragrim Risk Consultants as a marketer. She confirmed that she was contacted by Mr Beaumont who required, on behalf of the plaintiff, terms of insurance for a once-off, all-risk transit for personal protective equipment (PPE) face masks from Johannesburg to Durban by professional third-party carriers (TP). She insisted that had Mr Beaumont not written that the conveyance would be by professional third-party carriers, she would have referred the proposal to one of her superiors at Paradigm or Compass to check whether the risk would be acceptable. She avers that if her superiors had decided to accept the risk, it is likely that the premium rate and excess payable by the insured in the event of a loss would have been adjusted upwards because of the high risk imposed by the insured. Mrs Handy admitted that the word “life” tracking in the warranty was a typographical error and that it should have read "live". She says she could not comment on the legal consequences of the warranty as she was not a legal expert. 

Under cross-examination, Mrs Handy conceded that although Mr Beaumont sought a quotation for TP, the policy wording permitted conveyance by a owned, hired, or operated carrier by the insured. Mrs Handy also conceded that after the plaintiff's claim, Compass changed its policy wording to insert the requirement that the satellite tracking device must be monitored. 

The issue in dispute is whether the plaintiff breached a warranty regarding the tracking of the carrying conveyance (the warranty) and the requirements that the tracking devices “Provide Life Tracking At All Times”. Whether the plaintiff materially increased the risk without consent of the defendant by hiring a vehicle and employing a driver to convey the goods instead of using professional third-party carriers. And in light of this, whether the plaintiff made a material misrepresentation that entitled Compass to decline the indemnity. 

Three sides to the story

Samchem submitted that Mr Beaumont's request for a quotation does not qualify as a statement of past or present fact. Even if the request for quotation is considered a representation, there is no evidence that it was material and induced the contract. That is so, insists the plaintiff, because having been asked to quote a price for a conveyance by a professional third-party carrier, Mrs Handy decided to quote for transportation that expressly included a road conveyance owned, hired, or operated by the insured. 

Furthermore, the plaintiff avers that it cannot be argued that the defendant was subjectively induced to conclude the insurance agreement based on Mr Beaumont’s quotation when it chose to quote and contract on a different basis. 

The case made by Compass is that if Mr Beaumont had advised Mrs Handy that the insured hired a truck and employed a driver instead of using a professional third-party carrier, she would probably not have accepted the proposal, at the very least without first consulting her superiors. Even if Compass decided to accept the risk, the premium rate and the excess would likely have been adjusted upwards to take into account the increased risk. Compass submitted that when the plaintiff signed the insurance contract on 31 July 2020, based on what Mr Beaumont had assured Compass that the conveyance would be by professional third parties, the plaintiff instead resorted to hiring a vehicle and a driver, which constituted a material pre-contractual misrepresentation which induced the contract and which entitled Compass to decline insurance. 

In the judge’s view, Compass's submission that there was misrepresentation made by the plaintiff is meritless and stands to be dismissed. This is so because, on a sensible and business-like interpretation of the Schedule and policy wording, Compass expressly permitted the plaintiff to convey the goods in a carrier owned, hired, or operated by the plaintiff. Even if it can be assumed that Mr Beaumont requested a different quotation, it is Compass itself that chose to contract with the plaintiff in the manner that gave the plaintiff the choice to hire the truck and appoint its own driver instead of conveying the goods with a TP. Sight should not be lost that the insurance contract was drawn up by Compass itself. According to the judge, the defendant was at liberty and had all the opportunity to include all the relevant terms and conditions that it deemed essential to protect itself. This Compass failed to do. 

The Judge in this case, therefore, was satisfied that there was no misrepresentation by the plaintiff. It is the Judge’s view it is Compass itself that permitted the plaintiff to transport the masks in the manner that the plaintiff did. 

Breach of warranty

During the hearing of the matter, it was much agreed between the parties that the term "life" tracking is misplaced, and that a sensible interpretation is that the contract should have read “live” tracking. Mr Rugbeer testified that in essence there is no difference between the Track and React service and the tracking service in so far as the communication of what Mr Rugbeer referred to as automatic vehicle locations ( AVL) signals is concerned. It is a common cause that the tracking device that was installed in the truck used a global positioning system (GPS) to send information about the truck's position at set intervals to an internet-based user interface. The only difference between the tracking service and the Track and React service is that in the latter the AVL signals are monitored. 

On this score, Samchem submits that the defendant's case is that this Court should read "live" as meaning monitored. This is so because according to the plaintiff, Mrs Handy’s evidence was that after the plaintiff's claim, Compass changed its policy wording to insert the requirement that the satellite tracking device must be monitored and that it did so because it realised that there was a gap or ambiguity in the policy wording. Accordingly, there is no basis for this Court to "read in" the requirement of monitoring. Compass submitted that the purpose of the warranty was the constant (Live… At All Times) observation of the carrying conveyancing to prevent or reduce the risk of the theft of the cargo. The defendant insists that the warranty would otherwise not serve its purpose if it were to be interpreted so that the sending of electronic signals without observing them would be sufficient. Accordingly, Compass was adamant that the plaintiff had breached the warranty and that this claim must be dismissed. 

In the Judge’s view, Compass’s submission in this regard has no merit and stands to be dismissed. It is the defendant itself that only required, in terms of the warranty, that there should only be “life” tracking. Once the parties have agreed that “life” tracking should have meant live tracking, this must thus be the end of this inquiry. Furthermore, the Judge mentions that nowhere in the warranty is it stipulated that the tracking must be monitored. This requirement was an afterthought on the part of Compass and was only raised after the plaintiff had issued this claim. Mrs Handy further confirmed that Compass changed its policy wording to include that the satellite tracking device must be monitored after the plaintiff’s claim. It is evident that this amendment was a result of the realisation on the part of Compass that the policy wording was ambiguous and Compass failed to remove this ambiguity in the warranty when it contracted with the plaintiff. 

In light of the above, the Judge was satisfied that there was no breach of the warranty on the side of the plaintiff. For all the reasons stated above, the defendant was ordered to pay the plaintiff the sum of R16 311 032.92. 

Writer thoughts

This case reminds us of the importance of the fine print of a contract. In your view, do you believe the plaintiff made a material misrepresentation that entitled Compass to decline the indemnity? Please comment below, interact with us on Twitter at @fanews_online or email me - [email protected]

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