South Africa: Is Failure To Adhere To Insurance Policy Conditions Always Problematic

Introduction

It is almost impossible to think of an insurance policy that does not have any conditions and/or warranties. Most insurance policies, if not all, have various conditions and warranties which, if they are not adhered to, may lead to a lawful rejection of one's claim. The conditions and warranties perform extremely important functions in an insurance policy. For example, they guard against misuse of an insured item, they are intended to encourage an insured to ensure safety and good maintenance of an insured item, they serve to mitigate losses, etc. In turn, this ensures sustainability of the insurance industry, otherwise there would be chaos in the sense that policyholders would abuse insurance policies with ulterior motives, for their ultimate benefit. Insurers are well within their rights to reject claims in instances where there has been a failure, irrespective of how innocent that failure is, to comply with the contractual conditions and/or warranties. Thus, it is incumbent upon the insureds and intermediaries (where applicable) to be cognisant of the conditions or warranties in insurance policies and ensure compliance with same. In real life, however, it is not uncommon for the insureds to breach these conditions and warranties – sometimes deliberately (with the hope that it will not have any dire ramifications); sometimes due to delays in complying – where, for example, the condition requires that a certain device be installed in an insured item; and, sometimes it is due to an innocent mistake or oversight on the part of an insured. The law, regrettably, does not make a distinction between a deliberate or an innocent mistake in such matters. Against this backdrop, the significance of conditions and warranties cannot be gainsaid. It is therefore worthwhile to have a closer look at some of the instances where it may be detrimental not to adhere to such conditions and warranties, and instances where your claim may still be valid despite the non-adherence.

Common types of insurance conditions and warranties

In car insurance, the policy may require an insured to install a tracking device within a certain number of days, failing which the policy will not respond in a case of theft. With house insurance, it is common that the policy will dictate that a fire insulator be installed to mitigate against the risk of power surges. With fire insurance, and ordinarily in compliance with the provisions of certificate of compliance, a policy may require that fire extinguishers be installed in a building. In an aviation insurance contract, there may be a warranty absolving an insurer from liability in a case where the aircraft gets damaged due to failure to adhere to the Aviation Regulations. In a marine insurance policy, there may be a warranty stipulating that the policy will not respond if there has been any breach of the Merchant Shipping Act.

The legal principles

Our courts have been faced with such legal cases in the past. There are 2(TWO) cases that are of interest which dealt with warranties specifically. Firstly, it is the Supreme Court of Appeal case between Viking Inshore Fishing (Pty) Ltd and Mutual and Federal Insurance Co. Ltd. The insured vessel, owned by Viking Inshore, collided with another vessel and, as a result, both vessels sank. Several people died and there was serious damage to the vessels. When Viking Inshore lodged its claim, the insurer, Mutual & Federal, repudiated. In addition to other reasons, the insurer relied on the warranty upon which the validity of the contract depended. Whilst the insurer succeeded in the High Court, Wallis JA, in the appeal court, found that the insurance policy had to respond as compliance with the warranty would not have avoided the occurrence of the incident in any event. The second case is that of Leading Prospects Trading 38 (Pty) Ltd and Centriq Insurance Company and Tromp. In this case, a helicopter whose pilot at the time was Mr. Tromp, collided with Eskom powerlines. The helicopter was flying below 500ft above the ground. This was in breach of a promissory warranty which required that the insured helicopter be flown over 500ft above the ground (with some exceptions which were not applicable in this case). The court found that the insurer was not liable in this case because, had there been compliance with the warranty, the incident would not have ensued. Whilst these cases dealt with warranties, similar arguments and principles will find application in cases pertaining to conditions. From the above-discussed two cases, it is evident that for an insurer to lawfully reject your claim on the basis that there has been a non-adherence with a condition or a warranty, an insurer will have to demonstrate the relevance of such a condition or warranty to the event that has occurred. An insurer, for example, cannot reject a car accident claim on the basis that an insured failed to install a tracking device as required by the policy. In this example, an installation of a tracking device would not mitigate against the occurrence of the accident. It would, however, be relevant in a car theft/hijacking case.

Conclusion

It is critical that policyholders are aware of the policy conditions and warranties, and endeavour to comply. Complying with insurance conditions and warranties is for the benefit of all parties involved. Where, however, the insurer rejects a claim based on failure to adhere with a condition or a warranty, it is recommended that legal advice be sought to explore whether such a rejection is lawful.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.