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Sense from nonsense: Seeking the illusive truth in motor claims

18 May 2021 Gareth Stokes

Any of South Africa’s non-life insurance brokers can vouch that there is more than one side to every motor insurance claim. The claims assessors and loss adjusters appointed to assess claims and apportion damages following an accident must often sift through three or four versions of the ‘truth’. They must consider recollections of an accident given by the insured, nominated driver, third parties to the accident, independent witnesses and law enforcement officials to name a few. Inconsistencies are inevitable given the complex interaction between broker, insurer and policyholder and the desire on the part of the insured not to compromise the claim.

When motor accident claims go wrong

The non-life insurance industry settles the majority of claims to the overall satisfaction of its policyholders; but there are times when claims disputes end up at the Ombudsman for Short-term Insurance or, even worse, in a court of law. One example, a matter that has worked its way through the court system over a period of seven years, is that of King Price Insurance Company Ltd v Concise Consulting Services (Pty) Ltd [2021] ZASCA 42, a ruling handed down on 13 April 2021. The SCA upheld the decision of the Gauteng Division of the High Court, Pretoria in an appeal brought to it by King Price. 

It is going to be difficult to summarise seven years of court activity in a single newsletter; but we will start with the hard facts, summarised from the SCA judgement. The story begins on 1 January 2014, when an insured, Concise Consulting Services (CCS) made a claim for indemnification against King Price under a contract of insurance. The commercial insurance policy was taken out in June 2013 and included comprehensive motor vehicle insurance for a 2008 Toyota Yaris, among other vehicles. In the early hours of 1 January 2014 the Yaris was involved in an accident while being driven by an employee of the insured, who was registered per the insurance policy as the regular driver for that vehicle. 

The incident was reported by the employee to the managing director of CCS who instructed the employee to report the accident to the SAPS; the MD also lodged a claim with King Price to repair the accident-damaged vehicle. On 17 January 2014, King Price communicated to CCS that the claim was being repudiated on the basis that “an employee of the insured had submitted false, untrue and misleading information during the claims process”. This decision followed a series of interviews between the insurer’s claims assessor and the driver, held on the 14th and 16th of January. According to the SCA judgement: “During the validation of the claim it had come to the insurer’s attention that [the driver] had supplied the appellant [insurer] with dishonest information”. The insurer cancelled the contract for insurance and post-dated the cancellation to 1 January 2014. 

The basis for repudiation

CCS was unhappy with the insurer’s decision and, on 21 July 2014, issued summons in the Pretoria Magistrates Court in the amount of R75 000. At this stage of proceedings, King Price was relying on sections of its policy wordings that required policyholders to “be honest” and “keep your promises”. Per the policy wording: “We act on the information you provide, therefore any information which is misleading, incorrect or false will prejudice the validity of your claim”. King Price’s argument to the Magistrates Court centred on dishonest information provided by the insured’s driver in support of the claim. The insurer said that the driver had misrepresented his location prior to the accident, that it was impossible to corroborate certain events, that the driver was not alone in the vehicle as claimed and that alcohol may have been involved, among other issues. Their argument satisfied the Magistrate, who dismissed the insured’s claim with costs. 

Proceedings took an interesting turn when the insured challenged the Magistrates Court’s findings in the High Court, by which time King Price had expanded on its reason for repudiation. The insurer drew attention to the policy section under the heading ‘Fraud or dishonesty: Honesty is always the best policy’ which reads: “If you, or anyone acting on your behalf submits a claim, or any information or documentation relating to a claim, that is in any way fraudulent, dishonest or inflated, we will reject the entire claim and cancel your policy retrospectively, from the date on which the incident has been reported, or from the actual incident date, whichever date is earliest”. 

The High Court overturned the Magistrates Court decision and ruled that King Price was liable to indemnify the insured in terms of a contract of insurance between the parties, for damages sustained to the insured’s motor vehicle in the accident. The reasons given for the High Court decision included: 

  • That the insurer had failed to discharge the burden to establish dishonesty or fraud on the part of the insured with the intention to deceive and defraud the insurer;
  • That the insured’s driver “was clearly not acting on behalf of the respondent [insured]” when he provided dishonest information to the insurer; and
  • That the false statements or misrepresentations made by the insured’s driver were insignificant and could not materially affect the assessment of indemnity. 

Donning gloves for a third round…

The issues that emerged during the assessor’s interrogation of events slowly disappeared into the legal ether. And by the time this boxing match escalated to the SCA, the combatants were no longer entirely focused on dishonesty or fraud. Instead, the arguments centred on whether the insured’s driver was acting on behalf of the insured when imparting the false information… But King Price still maintained that CCS was obligated in terms of the insurance contract “not to supply false and misleading information” and that the misrepresentations and untruths perpetrated by the driver were of a material nature that entitled them to repudiate the claim and avoid the contract of insurance retrospectively. 

The defence countered that King Price had failed to discharge the onus it had to prove the facts pleaded in its plea, all based on false information submitted by the driver; that whatever the driver told King Price’s investigator about how the accident occurred could not be attributable to CCS; and that failing these observations “the contract of insurance was  ambiguous about what precisely what is meant with ‘acting on behalf of the insured’”. CCS felt that the case did not hinge on the truthfulness of the driver; but rather on the reasonable interpretation of ‘acting on behalf of the insured’. And because King Price authored the policy wording, it only fell on CCS to show a reasonable interpretation of that clause. 

Knock-out punch by the SCA

The SCA Judge noted that the claim against the contract for insurance was lodged telephonically, days before the insurer’s separate and subsequent validation process. “The validation exercise conducted by [the insurer], through its investigator, was not a requirement for the institution or lodgement of a claim in terms of the contract; it was thus something that was done entirely at the election of the insurer,” reads the SCA transcript. A knock-out punch followed: “There is no cogent reason why [the insured’s driver], who was clearly a witness as to how the incident occurred, should be elevated to an agent for, and thus acting on behalf of, the insured in this case”. 

The SCA upheld the High Court decision, saying that “it would not be in keeping with the drastic consequence of forfeiture of claims for an insured to be penalised for fraudulent or dishonest information emanating not from the insured, but a third party … as I have found that [the driver] was not acting on behalf of the respondent when he gave his statement to [King Price], no fault or culpability of any sort whatsoever can be attributed to [CCS] … it follows that the appeal falls to be dismissed, with costs”. 

Writer’s thoughts:
King Price Insurance Company Ltd v Concise Consulting Services (Pty) Ltd [2021] ZASCA 42 is one of many insurance rulings that seems to fly in the face of the fair treatment of the insurer… On the basis of the facts presented it seemed clear that the insurer was within its rights to repudiate the claim; but the courts disagreed. Do you wonder how many insurer decisions or repudiations could have been overturned if your client [the insured] had the financial means to press for settlement through the courts? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

Comments

Added by SHANE THOMAS, 20 May 2021
Based on the few facts supplied above , the SCA is quite correct . I cannot see why the insurer even argued to begin with .
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Added by Gareth Stokes, 18 May 2021
Thanks for your comment @cynical simon. I am also in broad agreement that the SCA has ruled correctly.

My concerns were twofold… Firstly, that an insurer can be contractually obliged to settle a claim when there is dishonesty on the part of a driver, who although not an agent of the insured, was certainly driving the vehicle on the insured’s authority.

Secondly, the lengths that a policyholder has to take in order to challenge an incorrect insurer repudiation. I doubt many individual insureds could / would launch this level of court action.
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Added by Gareth Stokes, 18 May 2021
Thank you for sharing @Valeria. Appreciate the nuance of whether or not the driver was behaving illegally with the insured’s knowledge. Based on your comment it seems crazy that this matter was taken to the courts. Could be a case of an over-zealous accident investigator?
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Added by Gareth Stokes, 18 May 2021
Are you referring to the Magistrates Court decision, John? Because consensus seems to be that the High Court and SCA have ruled correctly.
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Added by cynical simon, 18 May 2021
Far will it be from me to argue with a judge of the SCA, more so if I whole heartedly agree with his decision. There is no way one could or should attempt to divorce a contract of insurance from the common law.
If a contract is between to parties one of the parties can not be held accountable for actions of a third party at the leisure of the other party..
I hasten to add that the actions and arguments of King Price in this case seem utterly unprofessional and amateurish
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Added by Valeria , 18 May 2021
I believe what King Price is completing missing is the fact that a COMPANY has Insured their vehicle. They cannot vouch for every single incident and how exactly occurred or did not occur. The FACT remains that the INSURED ( Company ) was paying Insurance for a vehicle and it was covered for accident related matters. One cannot surely hold the COMPANY liable if their driver has acted negligently unknown to them. If the COMPANY is aware that their driver was doing something wrong and did not act to prevent it, then its different. A Motor Accident happened and the COMPANY Insured - had cover for accidentally damage. Insurers should trying to find reasons all the time for repudiating claims and remember that they are in the business of paying claims not repudiating claims. Especially if a driver unknown to them has acted against the policy. You cannot hold the COMPANY liable, but the Insurer can try to hold the "driver" liable if they can prove something wrong as a means of a Recovery Action.
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Added by John Bezuidenhout, 18 May 2021
SAIA ( South African Insurance Associasion ) should disect this and give legal clarity as clearly the judge had no experience of how short term insurance flow of information works .
Side note would be - contract is a contract which clearly depicts the circumstances in this case - the judge erred by not having basic knowledge , or information , on our industry .

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