You, as an adviser, are legally required to explain all material clauses in a policy to enable your client to make an informed decision. What happens if some clauses are so clouded in mystery that it takes 13 judges to finally lay rest to the question of causation, and an appeal to the highest court to provide clarity on the extent of the indemnification?
The judgment by the Supreme Court of Appeal (SCA) on Thursday, 8 October 2021, finally put to bed the controversial issues around business interruption claims resulting from the Covid-19 pandemic. What it also highlighted is that much more needs to be done regarding ambiguous policy wordings, which led to this highly contentious drama.
In its interpretation of the policy and the Schedules, the SCA referred to the Centriq Insurance Company Ltd v Oosthuizen and Another (Centriq) case, where the court held: “[I]nsurance contracts are contracts like any other and must be construed by having regard to their language, context and purpose in what is a unitary exercise. A commercially sensible meaning is to be adopted instead of one that is insensible or at odds with the purpose of the contract. The analysis is objective and is aimed at establishing what the parties must be taken to have intended, having regard to the words they used in the light of the document as a whole and of the factual matrix within which they concluded the contract.”
SCA ruling on indemnity term
Under paragraph 56, the SCA states: “That the policy itself has not evolved and has not been refined to make for easy reading is due to no fault on the part of the insured. It is significant that ‘a notifiable disease’ does not appear on the list in the premium schedule. It is a peril and not a category of loss. Once again, it is as simple as that.”
Paragraph 62 reads: “Given that the policies are admittedly difficult to navigate, and assuming, at best for Santam, that there is a meaningful degree of uncertainty concerning the indemnity periods, a conclusion might be reached that on that aspect the policies are ambiguous. Of course, that for obvious reasons is a conclusion that Santam is loath to concede because the long-standing contra proferentem rule will apply against it and the interpretation advanced on behalf of Ma-Afrika and the Kitchen must triumph. Against the conclusions set out above, we do not need to engage in the further debate of whether the indemnity period is a limitation and therefore should be restrictively applied. Finally, there is force in the argument on behalf of Ma-Afrika and the Kitchen, which essentially is that Santam has twisted and turned and changed tack in order, studiously, to avoid liability. Hopefully, that is now at an end. The high court’s conclusion that the indemnity period is 18 months cannot be faulted and the appeal must thus fail.”
In a brief discussion of the judgment, George Herbst of Barnard Inc notes: “The judgment is detailed and gives a very good and sensical approach to the purpose of insurance cover; what the reasonable insured would expect; and the difficulties that arise when insurers craft overly complicated policies and insurance schedules.
“The more complex the construction of the contracts, the greater the chance of internal ambiguity and contradictions. Consequently, the courts are bound to favour the insured and give the benefit of the doubt and confusion to them. A plain language approach in constructing policies is far favourable and care should be taken to properly vet the contracts and schedules. Product designers and actuaries who craft these documents may understand them, but in the end, the lawyers and members of the public should be able to comprehend them too.
“Important lessons can be taken from this judgment and, together with the referenced recent judgments, constitute a massive and valuable evolution of the jurisprudence on the complexity of insurance contracts.”
Material conditions
On Tuesday, my local paper carried a story of two guests at a resort who were bitten by a hippo. Now, assuming that this establishment does have stipulated cover for such an event, what would be the chances of the adviser pointing this out as a material condition to the owner at the point of sale?
The same probably applied to local insurers regarding contingent business interruption resulting from a reportable contagious disease. Nobody saw it coming, yet the industry suffered serious reputational damage because of how it handled it. The big question is: how many more such vague or unlikely events lie in store for us? Your guess is as good as mine.
Simplifying contracts should be a major priority for the whole industry. Consumerism has become a major force which we will ignore at our peril.
This issue could become ugly under the Conduct of Financial Institutions Act, driven by TCF principles. There is a subtle shift in focus in that the onus is now on the industry to convince the regulator that it acted with the best interests of the client at heart, rather than just ticking the right blocks, like we did under FAIS.
And advisers will be able to fulfil their obligations in a much easier manner.
