Thembu Royals Magazine - - - Motor Insurance, Contd. - -

Due to its na­ture, the in­sur­ance de­part­ment is one of the most lu­cra­tive di­vi­sions for most of the in­sur­ance com­pa­nies who of­fer short-term in­sur­ance poli­cies. On the other hand if not han­dled prop­erly by the in­sur­ance com­pany con­cerned it is one of the riski­est and po­ten­tially could cost a com­pany con­cerned huge fi­nan­cial losses. To this ex­tent, the com­pany con­cerned needs to struc­ture this port­fo­lio ac­cu­rately to avoid un­due losses.

On the other hand, there is a con­sumer who pays a pre­mium on a monthly / or an­nual ba­sis ( de­pend­ing on how the pol­icy is struc­tured). It is nec­es­sary that the con­sumer must do the right thing when deal­ing with the in­sur­ance com­pany in order to ben­e­fit well in the re­la­tion­ship that one has with a spe­cific short­term in­sur­ance com­pany. The ar­ti­cle has dis­cussed the ‘ tricks of the trade’ that would ben­e­fit the in­sur­ance com­pa­nies and also the con­sumers at the same time. This is so be­cause if the con­sumer pre­vents loss and or dam­age to their ve­hi­cles, the in­sur­ance in­dus­try be­comes sta­ble fi­nan­cially which leads to the in­sur­ance sec­tor not in­creas­ing the in­sur­ance pre­mi­ums, or in­creas­ing the pre­mi­ums with mar­ginal lev­els. The re­sult is that both par­ties ben­e­fit.

Dur­ing the course of the re­la­tion­ship be­tween the in­surer and the con­sumer, both par­ties have a ten­dency to com­mit reck­less er­rors which er­rors cause and re­sult in prej­u­dice to the rel­e­vant party. Some­times an er­ror that has been com­mit­ted by one of the par­ties to an in­sur­ance con­tract may cause prej­u­dice to both par­ties. Most of the times these er­rors can be pre­vented and should be pre­vented.

The in­sur­ance con­tract that is en­tered into be­tween one per­son and his in­surer dif­fers from one com­pany to an­other as such what the ar­ti­cle has dis­cussed are broad is­sues that oc­cur gen­er­ally in the course of this re­la­tion­ship be­tween a con­sumer and an in­sur­ance com­pany.

An in­sur­ance con­tract is de­fined as a con­tract whereby, for a spec­i­fied pay­ment, the in­surer un­der­takes to com­pen­sate the in­sured for loss re­lat­ing to a par­tic­u­lar sub­ject mat­ter as a re­sult of the oc­cur­rence of des­ig­nated haz­ards.

The essence of this con­tract is that there must be ut­most good faith be­tween the par­ties to this con­tract. This duty of good faith is owed both by the in­surer to the in­sured and by the in­sured to the in­surer.

This po­si­tion was clar­i­fied in a lo­cus clas­si­cus case in Carter v Boehm ( 1766) 3 Burr 1905; ( 1766) 97 ER 1162. Lord Mans­field held that Carter had owed a duty of ut­most good faith ( uber­ri­mae fidei) to the in­surer as he was re­quired to dis­close all the ma­te­rial facts to the risk thus;

“… In­sur­ance is a con­tract based on spec­u­la­tion. The spe­cial facts, upon which the con­tin­gent chance is to be com­puted, lie most com­monly in the knowl­edge of the in­sured only; the un­der­writer trusts to his rep­re­sen­ta­tion and pro­ceeds upon con­fi­dence that he does not keep back any cir­cum­stance in his knowl­edge, to mis­lead the un­der­writer into be­lief that the cir­cum­stance does not ex­ist, and to in­duce him to es­ti­mate the risk as if it did not ex­ist. Good faith for­bids ei­ther party by con­ceal­ing what he pri­vately knows, to draw the other into a bar­gain from his ig­no­rance of that fact, and his be­liev­ing the con­trary…”

Lord Mans­field went fur­ther to state that the duty is re­cip­ro­cal. The duty of dis­clo­sure was de­fined by the court as fol­lows… “ei­ther party may be in­no­cently silent, as to the grounds open to both, to exercise their judg­ment upon… An un­der­writer can not in­sist that the pol­icy is void be­cause the in­sured did not tell him what he ac­tu­ally knew…The in­sured need not men­tion what the un­der­writer ought to know; what he takes upon him­self the knowl­edge of; or what he waives be­ing in­formed of…”

Lord Mans­field in that par­tic­u­lar case found in fa­vor of the pol­i­cy­holder on the ba­sis that the in­surer knew or ought to have known that the risk ex­isted as the po­lit­i­cal sit­u­a­tion was pub­lic knowl­edge.

The po­si­tion that was set out in the afore­said case had been used over the cen­tury with nec­es­sary changes but the ba­sics re­main valid even to­day.

Now, as promised, let's dis­cuss the tricks of the trade.

TRICK # 1: A VALID CON­TRACT A con­sumer who is look­ing for an in­sur­ance cover is ad­vised to ap­proach sev­eral in­sur­ers to find out which com­pany would of­fer the best cover hav­ing due con­sid­er­a­tion to the po­si­tion and the cir­cum­stances of the in­sured.

The in­sured must also pe­ruse the sched­ules of the in­sur­ance con­tract to clearly un­der­stand what the com­pany cov­ers, un­der what cir­cum­stances. It is dan­ger­ous to only fo­cus on a cheap pre­mium that is be­ing quoted to the ap­pli­cant for cover be­cause other terms and con­di­tions may be un­favourable hence an ap­pli­cant must look at the whole pic­ture of the con­tract.

Once the ap­pli­cant has de­cided which com­pa­nies one may choose it is ad­vis­able that the ap­pli­cant get a le­gal ad­vice from a lawyer who ( a lawyer) will read and in­ter­pret the con­tract prop­erly. Most of the cases that go to court for lit­i­ga­tion arise from dif­fer­ent in­ter­pre­ta­tions that the par­ties to a con­tract at­tach once a claim has arisen. It is there­fore ad­vis­able to pre­vent this po­ten­tially costly lit­i­ga­tion by con­clud­ing a con­tract that one is fully aware of its le­gal im­pli­ca­tions. In South Africa, it costs about R1,000 ( one thou­sand rands) or so to have a lawyer pe­ruse and in­ter­pret a ba­sic Mo­tor In­sur­ance Con­tract.

On the other hand, the in­surer must en­sure that the in­sur­ance con­tract that is given to the ap­pli­cants does not con­tain clauses that could be suc­cess­fully chal­lenged at court and even­tu­ally have the con­tract de­clared null and void, or void­able. Since 1994 South Africa in­tro­duced a demo­cratic dis­pen­sa­tion with a jus­ti­cia­ble bill of rights. This new dis­pen­sa­tion then rad­i­cally shifted the le­gal order as it then was to such an ex­tent that all con­tracts that were drafted dur­ing the era of apartheid need to be re­vised to en­sure that each clause com­plies with the pro­vi­sions of the Na­tional Con­sti­tu­tion.

The in­surer must keep up to date with the de­vel­op­ments in in­sur­ance cases that are re­ported at High Court at least ev­ery three months. This is the duty of the Le­gal De­part­ment. The in­surer must en­sure that the party with whom the con­tract of in­sur­ance has been en­tered into com­plies with all the le­gal re­quire­ments to en­ter into a valid con­tract. Of most crit­i­cal is that the in­sured does have a ca­pac­ity to en­ter into a valid con­tract. This is one of the most im­por­tant le­gal re­quire­ment be­fore one en­ters into a con­tract. There is a long list of fac­tors that pro­hibit some­one from en­ter­ing into a valid con­tract. Some of them in­clude, but are not limited to in­ter alia; a mi­nor, men­tally ill per­sons, trustees must rep­re­sent in­sol­vent es­tates, trustees must rep­re­sent the trusts like trust in­ter vivos and many more.

In our next is­sue, we will pro­ceed to dis­cuss other ‘ tricks of the trade..

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.