As outbreaks of fires become more frequent and severe, farmers and landowners must focus on effective risk management and fire insurance. This includes carefully reviewing long-standing fire insurance policies at renewal.
According to Daniel Stevens, the head of agriculture at Santam, environmental factors such as changing weather patterns and expanding human settlements mean landowners are dealing with more fires than in the past.
Statistics released by Cape Town’s Fire and Rescue Service show their teams responded to 13 087 incidents between October 2023 and January 2024. More than half (55%) of these incidents were vegetation fires, a 19% increase in veldfires compared to the same period last year.
“Additionally, these fires are often more extensive and devastating than similar events a decade ago. This trend was highlighted in the latest Santam Insurance Barometer report, where 45% of the agriculture-focused business respondents singled out climate change as a top concern,” says Stevens.
A R14 million fire insurance claim that was finally paid out just more than seven years after the incident occurred is an example of how devastating such a fire can be.
Last year, the High Court in Pietermaritzburg ruled on a claim dispute involving Normandien Farms (the plaintive) and SAFire Crop Protection Co-operative Limited.
Donald Dinnie, director at Norton Rose Fullbright, analysed the court’s judgment in an article posted on the law firm’s website.
Normandien Farms initiated legal action against SAFire Crop Protection following a fire in May 2015 at Albany Farm in Newcastle. Normandien Farms claimed the fire caused damage totalling R14 385 720.85. SAFire Crop Protection contested the allegations.
Both parties agreed that Normandien Farms had insurance coverage with SAFire Crop Protection at the time of the fire, as well as in previous years. It was also acknowledged that Normandien Farms had paid the required premiums for the insurance policy.
Material misrepresentation and non-disclosure
Normandien Farm’s claim was rejected by the insurer in June 2016 on the grounds that the plaintiff had misrepresented from which portion of the farm the fire originated.
SAFire alleged that the fire originated in a sawdust and timber waste area, and this waste area was not mentioned by Normandien Farms in the insurance renewal form.
The waste area required a fire break of at least 30 metres wide around the immediate exterior perimeter, and Normandien Farms failed to maintain that fire break area. During the High Court case, both parties presented voluminous amounts of evidence, and various witnesses were called.
“The court noted that the insurer had to prove the materiality of a misrepresentation or non-disclosure, and that the test is objective (would a reasonable person think that the risk should have been disclosed to the insurer). The test for inducement to enter into the contract remains subjective (that is, whether the particular insurer was induced by the material non-disclosure to issue the policy),” Dinnie explained.
Based on the evidence, the court concluded that the sawdust heap must have been the origin of the fire.
“It is common cause that the plaintiff had not ever informed the insurer of the sawdust heap. The evidence of the plaintiff was that it had been dumping at the site since 2003, in order to fill up the area to enable it to plant more trees there. The insurer alleged that allowing sawdust and timber waste to be dumped in that area increased the risk of fire,” said Dinnie.
The policy was taken out in 2001. In the 2015 renewal proposal form, Normandien answered “no” to the question of whether there were any factors that had increased the fire risk of the farm since the last proposal form was completed.
“The court accepted that this was a reasonable response because the plaintiff had been dumping at the sawdust site since 2003 and there had been no fire in that area since then. The court did not, therefore, find the answer to that question on the proposal form to have been a misrepresentation or fraudulent,” said Dinnie.
Normandien never disputed that the dumping had taken place at the sawdust dump area. The main issue for the court to decide was whether there was an obligation to inform SAFire about the dump site.
Dinnie said the court noted that there was no specific mention in the insurance certificate or in any other documents that stated that the dumping of sawdust waste is not allowed.
“The plaintiff was of the view that it was not a fire hazard, while the insurer alleged that it was a fire risk that had to be disclosed,” he said.
Delay in claim payment
The court noted that SAFire alleged that it was convinced in November 2015, or at the latest by December 2015, that the fire had originated from the sawdust site – yet it did not mention this to Normandien until March 2016.
“There was an inquiry in this regard in February 2016, but still no indication that the insurer was of the view that there was a possible breach of the conditions of the policy that would entitle the insurer to cancel the agreement. To the contrary, the insurer inquired from the plaintiff what the salvage value would be of the timber that remained,” said Dinnie.
The claim was not paid by the end of April 2016. Consequently, Normandien did not renew its policy with SAFire and took out cover with another insurer.
SAFire only rejected Normandien’s claim in June 2016.
“The court stated that the question arises why, if during November 2015 the defendant was of the view that the breach had occurred which allowed the termination of the policy and rejection of the claim, it did not do so until June 2016.
“The court found that there could not have been a necessity for such a lengthy investigation to come to that decision. The court, therefore, concluded that the defendant insurer was itself not convinced about the origin of the fire and its decision to reject the claim,” said Dinnie.
What would a ‘reasonable person’ have done?
Looking at whether a reasonable person in the position of Normandien would have considered it necessary to inform the insurer of the waste site, the court stated that the farm had been dumping at that site for about 12 years.
The court found it would be reasonable that a person in that position, in circumstances where fire had not occurred, would not regard it necessary to inform the insurer of the site.
“Even if the site did increase the fire risk, it was accepted by the insurer’s witnesses that pruning and trimming trees was done, and waste was left on the ground, which increased fire risk, and it was not considered necessary that that be reported. The insurer also did not think the risk was material enough to raise it with the plaintiff immediately. Further, if it was considered to be such a serious fire risk, the court noted that one would expect it to be specifically mentioned in the policy document,” said Dinnie.
The court stated that SAFire failed to prove that the disclosure or non-disclosure of the dump site would have affected its decision to insure the property.
On the evidence, the court found that Normandien Farms was not guilty of material misrepresentation or non-disclosure and the insurer was ordered to pay the claim.
