A recent judgment delivered by the Supreme Court of Appeal in the matter of King Price Insurance and Concise Consulting Services (Pty) Ltd, required the Court to determine the interpretation of a phrase which forms part of the insurance policy contract. This article will aim to identify what impact this judgment may have for consumers who are currently insured and those who may enter into insurance contracts in the future.
Many consumers believe that insurance companies are notorious for finding reasons to reject the claims of policyholders. In a recent Supreme Court of Appeal judgment on the King Price matter, the court had to determine the interpretation of an ambiguous clause in an insurance contract. Here the insurance company (King Price Insurance) had rejected a claim due to the false information provided by a third party to the contract. On the face of it this would seem like it is a reasonable reason for the rejection of a claim. However, the Court delved deeper into the wording of the contract and looked to the intent of the third party when providing the false information.
In this matter, the Court was faced with a scenario where the Insured Party was not the regular driver of the insured vehicle. The regular driver of the vehicle was an employee of the Insured party. The driver had driven the vehicle outside of working hours while intoxicated and had subsequently driven into a wall as a result. For fear of the consequences, he would face with his employer, the employee provided false information to his employer and not with the intent to defraud the insurance provider. The employer then innocently provided such information to the insurance provider (King Price Insurance).
In this judgment, such ambiguous phrases were interpreted by the King Price Insurance to favour the insured and not the insurer. Here the Court had to interpret the meaning of an ‘agent’ and the phrase ‘on behalf of’ in relation to a third party to the insurance policy/ contract. When the Court inspected the intent of the third party in providing the false information, it was determined that such intent was to avoid the consequences of his actions at the hands of his employer and not to defraud the insurance provider. The Court then further determined that the third party was not within the role of an agent or acting on behalf of the employer when providing such false statements and as such ruled in favour of the insured and not the insurer.
Insurance companies may draft contracts to be intentionally ambiguous or alternatively to cover a broad scope of scenarios. They may believe that contracts drafted in such a nature are more likely to favour their interests. This judgment will force insurance companies to review their policies and, in all likelihood, cover the gaps in the policies exposed by this judgment. The Supreme Court of Appeal regarded the clause as ambiguous and that the benefit of the ambiguity should be in favour of the insured. The danger of this is that insurance companies will now try to eliminate these ambiguities/ loopholes in their contracts. This may lead to insurance contracts which are severely restricted and heavily favouring the rights of the insurance companies. This is extremely concerning as contracts of such a nature would be contrary to the basis of contract law as it requires contracts to be balanced. This means that all parties to a contract should be on even footing and one party should not suffer prejudice as a result of the terms and conditions of the contract. However, it should be noted that contracts entered into prior to this judgment may have ambiguous clauses and as such all parties to such contracts may make use of such ambiguity to their benefit.
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