Misrepresentation at claim stage in South Africa: Supreme Court of Appeal unpersuaded by insurer’s arguments

This article looks at a recent South African Supreme Court of Appeal judgment which highlights that insurers should not automatically conclude that an employee of an insured acts on the insured’s behalf when submitting false information in connection with a claim.

Introduction

Insurers should not automatically conclude that an employee of an insured acts on the insured’s behalf when submitting false information in connection with a claim. Both the wording of the policy in question and the facts must be closely scrutinised before a misrepresentation at claim stage defence is raised, as borne out by the Supreme Court of Appeal’s judgment in King Price Insurance Company Ltd v Concise Consulting Services (Pty) Ltd (1067/2019) [2021] ZASCA 42 (13 April 2021).

Facts

Concise Consulting Services’ managing director submitted a claim to its insurer, King Price, for damage to a vehicle on 1 January 2014 after it was involved in a single vehicle accident in the early morning hours, whilst the vehicle was being driven by the insured’s employee, who was listed as the regular driver on the policy schedule. The managing director referred King Price to the employee to explain how the accident occurred, given he himself did not know.

During the claim validation process, the employee was contacted by King Price and its assessor on several occasions. Following these discussions, King Price rejected the insured’s claim and cancelled the policy retrospectively from the date of the accident, on the basis that the employee had submitted false and misleading information. King Price relied on, amongst other things, this clause in the policy wording:

“Be honest

Always provide us with true and complete information. This also applies when anyone also acts on your behalf.”

Once the insured instituted action, King Price also relied on the following clause in the policy:

“Fraud or dishonesty… Honesty is always the best policy...

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.”

Main issue

The insured did not seriously contest King Price’s allegation that the employee gave a false account of the accident. Due to this, the main issue which the SCA had to decide was whether the employee was acting on behalf of the insured when giving information to King Price and its assessor during the claim validation process. King Price argued that he was. The insured disputed this.

Outcome

The SCA correctly observed that King Price bore the onus of proving that the employee was acting on the insured’s behalf. It found that it failed to do so, because:

• The insured had not asked the employee to fabricate any information relating to the accident but had simply put King Price in touch with him as he had first-hand knowledge of the accident;
• The evidence of the managing director did not bear out that the employee had been acting on the insured’s behalf; and
• The employee was not examined or cross-examined on the question of him acting on behalf of the insured. In other words, the employee made no allegation that he was acting on the insured’s behalf.

The court observed that the words “on behalf of” usually denote a concept of agency. Although the employee was a witness to the accident, this did not elevate him to the status of an agent. Even though the words could be interpreted more broadly to include acting for the benefit or interests of another person, the SCA found that any ambiguity regarding this should be resolved in the insured’s favour. In any event, even if the broader interpretation was applied, the SCA found that the employee provided incorrect information to protect himself rather than to benefit the insured.

Comment

It is surprising that this matter, which involved a claim for only R75 000, came before the Magistrates’ Court (where King Price was successful), a full bench of the High Court (which sided with the insured) as well as the SCA. This is especially so considering that there was no evidence that the employee was acting on behalf of the insured when he relayed his version of events to King Price and its assessor.

We often encounter matters in which insurers query whether the acts of an insured’s employee can affect the insured’s claim, be it in relation to fraud, breach of a prevention of loss clause, and so on. While the wording of the policy and the facts will always be decisive, there should always be upfront caution about non-suiting an insured due to the conduct of someone who is not a party to the policy. Courts will not uphold such defences unless the facts convincingly indicate a breach of a policy condition. Where a condition can be understood in two ways, the interpretation more favourable to the insured will likely be upheld. Raising these types of defences on questionable facts, or wording which is susceptible to different interpretations, is risky business.

Click here for a copy of the judgment.