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[2004] ZASCA 103
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SA Eagle Insurance Company Ltd. v KRS Investment CC (574/03) [2004] ZASCA 103; [2007] 1 All SA 566 (SCA); 2005 (2) SA 502 (SCA) (24 November 2004)
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Last Updated: 8 June 2005
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
CASE NO: 574/03
In the matter between :
SOUTH AFRICAN EAGLE INSURANCE
COMPANY LIMITED Appellant
and
KRS INVESTMENTS
CC Respondent
________________________________________________________________________
Before: NUGENT, VAN HEERDEN JJA & ERASMUS AJA
Heard: 16 NOVEMBER 2004
Delivered: 24 NOVEMBER 2004
Summary: Insurance policy – fraudulent claim – whether insurer excused from liability for subsequent claims
________________________________________________________________________
J U D G M E N T
________________________________________________________________________
NUGENT JA
NUGENT JA:
[1] Fraudulent insurance claims –
regrettably – are not altogether rare. While an insurer is naturally not
bound to meet
a claim that in truth is not covered by the policy the question
that arises in this appeal is whether it may also avoid liability
for a valid
claim that arises subsequent to the attempted fraud.
[2] The question arises
in relation to a policy of insurance pursuant to which the appellant indemnified
the respondent against a
variety of risks for the period 1 September 1999 to 31
August 2000. One of the risks against which the respondent was indemnified
was
the risk of loss or damage to a specified Land Rover motor vehicle. Another was
the risk of damage by fire to the respondent’s
restaurant and its
contents.
[3] On 30 December 1999 the insured Land Rover overturned and was
damaged while it was being driven, with the respondent’s knowledge
and
consent, by a person who was not licensed to drive the vehicle. In terms of an
exception in the policy the appellant was not
liable in those circumstances to
indemnify the respondent. The respondent sought to overcome that inconvenient
hurdle by misrepresenting
the identity of the driver of the vehicle when it
submitted its claim to the appellant.
[4] On 6 February 2000 – after
the motor vehicle claim had been submitted but before it was paid – the
respondent’s
restaurant and its contents were destroyed by fire and the
respondent submitted a further claim for recovery of that loss.
[5] In the
course of investigating the claims the appellant discovered that at the time the
Land Rover was damaged it was being driven
by an unlicensed driver –
contrary to the respondent’s representation – and on those grounds
it declined to meet
the claim. It also declined to meet the fire claim, on the
grounds that the misrepresentation made by the respondent – which
must
have been fraudulent – entitled the appellant to avoid the policy from the
date that the misrepresentation was made and
it purported to do so.
[6] The
respondent sued the appellant in the Johannesburg High Court for recovery of
both claims. The matter came before Ponnan J
who, by agreement between the
parties, was called upon to determine only the question of liability in relation
to each claim. The
learned judge found that the Land Rover was being driven by
an unlicensed driver when the damage occurred – contrary to what
the
respondent persisted in asserting – and on those grounds dismissed that
claim. Leave to appeal against that order was refused
by the court a quo
and by this court and I need say no more about it. The learned judge also
found that the appellant was obliged to meet the fire claim
and he issued a
declaratory order to that effect. The present appeal, which comes before us with
the leave of the court a quo, is against that order.
[7] The
appellant’s contention, both in this court and in the court below, was
that one of the naturalia of an insurance contract – a term of the
contract that is implied ex lege – is that an insurer against whom
a fraudulent claim is made has an election to terminate the contract, and
moreover, to do
so with effect from the date that the fraudulent claim was
made.
[8] Perhaps an insured does have a duty – whether tacit or
implied – to act in good faith towards the insurer for the
duration of the
contract. And perhaps the deliberate submission of a false claim is a breach of
that duty entitling the insurer to
terminate the policy. But if that is so then
on ordinary principles of our law the insurer would be relieved of liability
only from
the time of termination, and the rights and obligations that had
accrued before then would remain extant (see, for example, Nash v Golden
Dumps (Pty) Ltd 1985 (3) SA 1 (A) 22D-I; Thomas Construction (Pty) Ltd
(in liquidation) v Grafton Furniture Manufacturers (Pty) Ltd 1986 (4) SA 510
(N) 515E-516A; 1988 (2) SA 546 (A) 563J-564D). What the appellant seeks,
however, is the recognition of something more: it seeks the recognition of a
right to terminate
the policy with retrospective effect from the date of the
attempted fraud, with the result that the insured would forfeit rights
that had
accrued before the termination.
[9] Counsel for the appellant could refer us
to no authority from our traditional sources in support of such a right –
and I
am not aware of any – but he invited us to import the principle from
the English law of insurance, which was said to be to
that
effect.[1]
[10] A similar
invitation to import principles of English law relating to the consequences of
submitting a false claim was recently
declined by this Court in Schoeman v
Constantia Insurance Co Ltd 2003 (6) SA 313 (SCA). In that case an event
occurred that was insured against under the policy but the insured deliberately
inflated the amount
of the loss when submitting her claim. The insurer submitted
that in those circumstances it was relieved of liability for the whole
of the
claim. Rejecting the invitation to import penal principles of English law that
would have that effect Marais JA pointed out
that our common law is
‘basically anti-penal’ and went on (at para 21) to say that
‘[t]here would therefore have to be either a clearly recognised
doctrine of forfeiture in our law or a compelling present need
for its adoption
before this court would be justified in lending its imprimatur to such a
fundamentally penal doctrine.’
[11] In my view the rule that is sought
to be introduced in the present case would operate as punitively as the rule
that was rejected
in Schoeman's case, for it purports to dispossess the
insured of a perfectly valid claim, untainted by the fraud, that accrued
contractually before
the policy was terminated, and for the reasons outlined in
that case we should similarly decline to import such a rule. As pointed
out in Schoeman's case our law has no recognised doctrine of forfeiture,
and in this case too there is no compelling reason to import such a rule,
bearing
in mind the following observation by Marais JA at para
24:
‘When there is added to that the fact that insurance companies are
masters of their own policies in the sense that they are
free to unilaterally
devise them, the insured has no say in the process, and that it is a simple
matter to include an appropriate
clause to protect the insurer against
fraudulent claims by providing for forfeiture, there does not appear to be any
pressing need
for the law to provide such protection.’
[12] The appeal
is dismissed with costs.
___________________
R W NUGENT
JUDGE OF APPEAL
VAN HEERDEN JA)
ERASMUS AJA) CONCUR
[1] The English law recognises forfeiture remedies in the event of fraud. The precise scope of those remedies, and their foundation, seems to be not altogether settled, and it is also doubtful that they correspond with the remedy that is now sought - see ER Hardy Ivamy General Principles of Insurance Law 6th ed 434 ff; Colinvaux’s Law of Insurance 6th ed by Robert Merkin para 9-34; MacGillivray on Insurance Law 10th ed by Nicholas Legh-Jones paras 19-54 - 19-61; The Law of Insurance Contracts 4th ed by Malcolm A Clarke para 27-2C; Peter MacDonald Eggers and Patrick Foss Good Faith and Insurance Contracts para 11.128-11.134; Malcolm A Clarke 'Good Faith and Bad Blood in Insurance Claims' (2002) 14 SA Merc LJ 64.