The High Court in Durban has upheld Discovery Life’s decision to void a life insurance contract on the grounds of misrepresentation and non-disclosure – dismissing a woman’s claim to be paid R6 million as the beneficiary of her mother’s policy.
The judgment highlights that insurers are entitled to void policies when applicants provide false information or withhold material facts, such as income or concurrent applications, that influence underwriting decisions.
Sandra Naidoo applied for a life insurance policy with Discovery on 14 August 2015, declaring a monthly income of R35 000 from her employment as a supervisor at Shoprite Checkers. Based on this declaration, Discovery issued a policy with a R6m death benefit, naming her daughter, Viantha Naidoo, as the beneficiary. Sandra Naidoo died in January 2016, following a brief illness.
When Viantha Naidoo submitted a claim for the policy proceeds, Discovery rejected it in May 2016, citing two grounds:
- Sandra Naidoo misrepresented her monthly income, which was R5 89 gross from Shoprite Checkers.
- Sandra Naidoo failed to disclose a simultaneous life insurance application with Old Mutual.
Discovery declared the contract void and retained the premiums paid.
Viantha Naidoo initiated legal proceedings against Discovery, seeking enforcement of the R6m payout.
Plaintiff’s submissions
Naidoo argued that her mother had accurately disclosed her income and complied with the requirements of the insurance application. According to the plaintiff, her mother had sources of income in addition to the salary from Shoprite Checkers. These were:
- Commissions earned as a sales agent for Avon cosmetics.
- Income from a family business, Distinctive Workwear, in which she allegedly held an investment.
Viantha Naidoo asserted that the Discovery application form requested “total gross monthly income”, which did not limit the disclosure to income from Sandra Naidoo’s “nominated occupation” at Checkers. It was submitted that Naidoo had disclosed her combined income from all sources, totalling R35 000, and this was reviewed by the broker and intermediary, Kerushen Subbiah, who had access to her bank statements.
Regarding the Old Mutual application, Naidoo contended it was not a “simultaneous application” requiring disclosure to Discovery. It was submitted that the timing of the applications did not overlap in a way that necessitated reporting and highlighted that Old Mutual had accepted a similar policy based on Sandra Naidoo’s disclosures, paying out R3.3m upon her death. This, it was suggested, validated the accuracy of her income declarations.
The plaintiff further submitted that any errors or misunderstandings in the application process were attributable to Subbiah. It was argued that he interpreted the form to allow the inclusion of “any income” and acted on Sandra Naidoo’s behalf, implying that Discovery should bear responsibility for any oversight by the broker.
Defendant’s submissions
Discovery argued that Sandra Naidoo declared R35 000 a month as income from her job at Shoprite Checkers, identified as her “nominated occupation” on the application form. However, her actual gross salary from Checkers was only R5 455.89, with a net income of about R3 663.25 after deductions. Discovery maintained the form required income from the nominated occupation, not an aggregate from various sources, and Naidoo’s declaration was false.
Additionally, Discovery asserted that Naidoo failed to disclose a simultaneous application for life insurance with Old Mutual, submitted on the same day – 17 August 2015 – as the Discovery application. Discovery presented evidence that both applications were processed concurrently, and this non-disclosure was a material fact that would have influenced its underwriting decision. The application form explicitly required applicants to indicate whether a simultaneous application with another insurer had been made.
Discovery argued that if it had known Naidoo’s true income and the concurrent Old Mutual application, it would not have issued the R6m policy or would have offered significantly lower coverage. Discovery relied on their underwriting guidelines, which state “the life assured must not be worth more dead than alive to the owner of the insurance policy”, emphasising that the sum assured must align with the insured’s verifiable financial status.
Judge Mahendra Chetty analysed the evidence, including witness testimonies, salary slips, bank statements, and the insurance application forms. The judgment focused on five issues:
- Whether Sandra Naidoo earned R35 000 a month.
- Whether she misrepresented or failed to disclose the amount and source(s) of her income.
- Whether the Old Mutual application was a simultaneous application.
- Whether these issues were material to the risk.
- Whether Discovery was induced by these misrepresentations or non-disclosures to enter into the agreement on the terms it did.
1.Did Sandra Naidoo earn R35 000 a month?
The court found that Naidoo’s only substantiated income was her salary from Shoprite Checkers, confirmed by a human resources manager, was R5 455.89 gross a month. He testified that Naidoo was a front-end controller, not a supervisor, and provided salary slips to verify her earnings.
The plaintiff’s claims of additional income from Avon and Distinctive Workwear were unsupported.
A credit control manager at Avon testified that Naidoo was not a registered sales agent. The plaintiff later claimed she earned a “spotter’s fee” via an agent named “Shamla”, but no records or testimony from Shamla were provided.
The plaintiff alleged Naidoo earned R20 000 a month from Distinctive Workwear, but no partnership agreement or financial records were submitted. The court noted that Distinctive Workwear was deregistered in 2011, and bank deposits from “Distinctive Clothing” appeared only in August 2015, coinciding with the insurance applications.
The court concluded that “the only income, which was verifiable and corroborated, was that from her employment as a supervisor at Checkers. Other sources of income as alleged, were not.”
2. Did Sandra Naidoo misrepresent or fail to disclose her income?
The application form’s focus on the “nominated occupation” supported Discovery’s position that only the income from Naidoo’s job at Shoprite Checkers should have been declared. Even if other sources were permissible, the court found that “the ‘other’ sources of income are incapable of verification”, because bank statements showed only irregular payments in August 2015, suggesting possible fabrication.
The court referenced Discovery’s Underwriting Guide: “the life assured must not be worth more dead than alive to the owner of the insurance policy”, noting that the R6m policy was disproportionate to Naidoo’s verifiable income.
3. Was the Old Mutual application a simultaneous application?
Evidence showed that Naidoo applied to both Discovery and Old Mutual on 17 August 2015, with both applications processed concurrently.
Subbiah admitted submitting both applications but claimed he attempted to withdraw the Discovery application later – but this assertion was unsupported by evidence.
Judge Chetty stated: “I am satisfied that the deceased and/or her broker flouted an express stipulation in the application form to reflect whether a simultaneous application to another life assurer had been made.”
4. Were these issues material to the risk?
Discovery’s underwriters testified that Naidoo’s true income and the Old Mutual application were material facts.
A specialist underwriter stated that based on the actual salary, coverage would have been limited to R1.2m or rejected entirely. The simultaneous application also affected risk assessment, because it indicated potential over-insurance. The court accepted these as material misrepresentations and non-disclosures.
5. Was Discovery induced by these issues to enter into the agreement?
The court found that Discovery relied on the misrepresented income and lack of disclosure about the Old Mutual application when issuing the policy.
Judge Chetty cited Mutual and Federal Insurance Company Ltd v Municipality of Oudtshoorn, where the Supreme Court of Appeal stated that both the insured and the insurer have a duty to disclose to each other prior to the conclusion of the contract of insurance every fact relative and material to the risk or the assessment. Breach of this duty amounts to mala fides or fraud, entitling the aggrieved party to avoid the contract of insurance.
Judge Chetty said: “I am satisfied that the deceased misrepresented her true earnings to the first defendant, and in doing so, failed to make proper disclosure as she was obliged to.”
He dismissed Naidoo’s claim, finding that Discovery was entitled to avoid the contract due to material misrepresentation and non-disclosure. Costs, including the costs of senior counsel, were awarded against the plaintiff.
