Discovery Health will appeal against a High Court’s decision that dismissed, with costs, an application by the medical scheme administrator to declare the Road Accident Fund (RAF) in breach of an order relating to the Fund’s liability for medical expenses incurred by medical scheme members.
The decision by the full bench of the High Court in Pretoria is another turn in the litigation between the largest medical scheme administrator in South Africa and the RAF.
The dispute centres on whether the Fund is liable for the payment of past medical expenses of road accident victims who belong to medical schemes where such expenses have been settled by a medical scheme.
Discovery Health (Pty) Ltd brought an application for a declarator that the RAF was in breach of an order handed down in October 2022. In that order, Judge Mandla Mbongwe declared unlawful a directive issued in August 2022 in which the RAF instructed its employees not to make any payments to claimants if their medical scheme has already paid for their medical expenses arising from a road accident.
Discovery Health also sought a pronouncement that the RAF’s reliance on two directives it issued subsequent to the Judge Mbongwe’s order perpetuated its breach of that order.
Read: How the dispute between the RAF and Discovery unfolded
The High Court handed down its decision on Tuesday.
The majority decision, by Judge Dunstan Mlambo, the Judge President of the Gauteng Division of the High Court, and Judge Noluntu Bam, found no evidence that the RAF’s directives constituted a breach of Judge Mbongwe’s order.
In a dissenting judgment, Judge Ingrid Opperman said the RAF violated its constitutional obligations by failing to comply with Judge Mbongwe’s order.
In a statement, the RAF’s chief executive, Collins Letsoalo, said: “We are delighted to be finally vindicated by this judgment. The RAF management received a lot of criticism from many interested parties on this matter. We were correct to stay the course and refuse to be intimidated. This outcome is now case law which will be studied by law students and quoted in court cases well into the future.”
According to Moneyweb, as a result of the judgment, the RAF intends to claim hundreds of millions of rand from Discovery Health.
The publication quoted Letsoalo as saying that “we are coming for our money they [Discovery] have claimed illegally from the RAF”.
“I have no idea how much it is. But Discovery said to us that they are losing R500 million a year by not claiming from us.
“We will get our accountants to work on it, and then we will give them the bill. We want that money back so that it can go to our claimants that are deserving of that money,” he said.
Dr Ron Whelan, Discovery Health’s chief executive said: “Discovery Health respectfully disagrees with the judgment delivered by Mlambo JP and Bam J and aligns with the dissenting judgment by Opperman J. Given the far-reaching implications of the judgment, Discovery Health intends to apply for leave to appeal and believes the matter warrants the attention of the Supreme Court of Appeal.”
Discovery misconstrued the extent of the order
Judge Mlambo and Judge Bam said the determination of the present matter turned on the proper interpretation of Judge Mbongwe’s decision. They said Discovery Health misinterpreted and extended the judgment.
Judge Mlambo and Judge Bam said Discovery asserts that Judge Mbongwe ruled it is unlawful for the RAF to reject a claim for past medical expenses on the ground that a medical scheme has already paid for those expenses, irrespective of whether the payment was in discharge of its contractual or statutory obligation.
The judges said the addition by Discovery Health of the catch-all phrase “regardless of whether they constitute Prescribed Minimum Benefits under the MSA” (Medical Schemes Act) to the ratio (“the reason for the decision”) of Judge Mbongwe’s judgment “is impermissible”.
“The judgment in its ratio does not even anticipate the catch-all phrase added by Discovery Health. A simple exercise of attributing meaning to the words of the judgment, the tenor and context of the judgment as a whole, including its order, reveals that there was no such consideration by the court at all.
“There is nowhere in the judgment that the court deals with the obligations imposed on medical schemes, through the MSA and its regulations 7 and 8, to pay PMBs [Prescribed Minimum Benefits] and EMCs [Emergency Medical Conditions] in full, irrespective of the option to which a claimant member belongs. Nowhere does the judgment refer to risk pooling of financial resources drawn from young and healthy members to subsidise the elderly and less healthier members to fund, inter alia, the PMBs or EMCs.”
Does subrogation apply?
Judge Mlambo and Judge Bam critically examined the application of the principle of subrogation in the context of the RAF and medical schemes.
Subrogation refers to the right of an insurer, after paying a claim to an insured party, to step into the shoes of the insured and seek recovery from a third party who is responsible for the loss or damage. Essentially, subrogation allows the insurer to recover the amount paid to the policyholder from the liable third party.
Discovery Health asserted that subrogation applies to claims against the RAF, drawing on the judgment in Rand Mutual Assurance Company Ltd v Road Accident Fund to support its stance. It argued that the principle has been consistently applied in litigation against the RAF, as evidenced by its previous conduct and the affirmation of this principle in the case of Bane and Others v D’Ambrosi.
However, Judge Mlambo and Judge Bam disagreed with Discovery Health, rejecting the application of subrogation to claims against the RAF. They said the findings in Rand Mutual are not applicable to the RAF’s situation.
The judges said medical schemes are fundamentally different from insurers. Although both medical schemes and insurance companies may provide financial assistance for healthcare or damages, their operational models and legal frameworks differ significantly. They emphasised the distinction by stating:
Medical schemes pool members’ contributions to fund claims and cannot distribute profits or pay dividends, unlike insurers, which may generate income from premiums, profits, and investment returns.
Judge Mlambo and Judge Bam further stated that, following the Constitutional Court’s guidance in Turnbull-Jackson v Hibiscus Coast Municipality, the principle of subrogation, which is central to indemnity insurance, should not be automatically applied to medical schemes. This is reinforced by the RAF’s distinct nature – it is funded through a fuel levy, not premiums.
They asserted that the fuel levy, as the RAF’s sole source of income, is not comparable to an insurance premium, which is determined based on a wide array of factors that help assess the risk involved.
Judge Mlambo and Judge Bam said the subrogation principle perpetuates the misconception that road accident victims have a claim against the RAF, whereas their medical expenses have already been satisfied by the medical scheme.
The judgment observed:
“Given the myriad of social challenges facing this developing country, is there justification based on policy considerations, fairness and reasonableness, for the government to concern itself with protecting the interests of medical schemes? The contestation before us is simply about whether the RAF’s funds should continue being used to replenish the coffers of medical schemes. The subrogation principle perpetuates the lie that a road accident victim actually has a claim against the RAF when in truth and in fact, that claim was satisfied by the medical scheme.”
Limitations of Discovery Health’s rules
Judge Mlambo and Judge Bam Court noted that the rules of Discovery Health Medical Scheme (DHMS) are designed specifically for its members and the scheme itself, not for third parties such as the RAF. As such, Discovery Health’s rule that governs the recovery of past medical expenses from the RAF is a creation of the scheme itself and cannot bind third parties.
They also compared Discovery Health’s approach with that of the Government Employees Medical Scheme (GEMS), the third-largest medical scheme in the country. GEMS does not require its members to recover past medical expenses from the RAF.
Financial viability of medical schemes
Judge Mlambo and Judge Bam discussed the broader context of medical schemes’ financial viability, particularly in relation to the solvency and liquidity requirements under the MSA. The Act contains a variety of provisions that ensure the independent financial viability of medical schemes. These provisions guarantee that medical schemes remain financially sound, regardless of whether they are able to recover amounts from the RAF.
The judges observed:
“Given the undisputed independent financial viability of the medical scheme outside of any possible recovery from the RAF, should the financially ailing RAF be concerned with funding the medical contributions paid by the small fraction of privileged citizens who have access to private healthcare as opposed to funding the competing needs of claimants who are victims of motor accidents, the majority of whom are indigent?”
Directives remain in place
The majority judgment concluded there was no basis for an order to interdict the RAF from implementing the second and third directives.
Neither of the directives subverted Judge Mbongwe’s order and remain legally binding unless challenged and invalidated through a proper judicial review process.
Dissenting opinion
Judge Opperman, dissenting, provided a detailed analysis of the first judgment’s findings on the res judicata principle and its application to the directives issued by the RAF.
Res judicata (“a matter that has been adjudicated” or “a thing decided”) refers to the principle that prevents the re-litigation of a case or issue that has already been finally decided by a competent court.
The majority judgment found that the issues addressed in the second and third directives issued by the RAF were not covered by Judge Mbongwe’s order, and therefore, they did not fall under the principle of res judicata. As a result, the RAF was not bound by the judgment in the same way, and the second and third directives were not precluded by the res judicata principle.
But Judge Opperman concluded that the RAF’s actions are precluded by res judicata, and the RAF cannot continue to raise new justifications for rejecting claims it has already been instructed to accept. She stated that Discovery Health, having litigated the issue and obtained a final ruling, was entitled to the benefit of that decision.
The RAF contended that sections 4 and 12 of the RAF Act grant it the authority to issue directives to assist in fulfilling its statutory obligations. However, Judge Opperman said the authority to issue directives does not extend to actions such as rewriting the RAF Act or issuing directives that contradict its fundamental purpose. In her view, the second and third directives were merely subsets of the first directive.
Judge Opperman said the second and third directives, which were issued without public scrutiny, have no legal consequence other than evidence of breaches of Judge Mbongwe’s order. She condemned the RAF for using such directives to avoid compliance with a valid court judgment:
“Allowing the RAF to ‘bypass’ compliance with a judgment in these circumstances by these means would open the floodgates to directives and similar internal documents being used as a means of circumventing compliance with court orders.”
