Insurance - myths, misconceptions and pitfalls

Assume that you are suing me for R10 000 in respect of damages (financial loss) that I caused you when I negligently reversed into your car and dented the bodywork.

Assume that I happen to learn that you are fully insured against such damage.

Can I now say – I don’t owe you anything because you haven’t suffered any damages, as you are covered by insurance?

In law, this does not amount to a defence to your claim.

The law holds that, from my point of view, the fact that you had taken out insurance is res inter alios acta, meaning an arrangement entered into between other people. Or to express it more loosely, the fact that you are insured is your private affair, and confers no benefit on me.

A CURIOUS HIGH COURT JUDGMENT

A rather curious case in this regard recently came before the Eastern Cape High Court in the matter of CDK Sekuriteit CC v Cookhouse Service Station CC (case 213/2007).

Cookhouse Service Station CC carried on the business of a service and filling station at Cookhouse. In 1999, it entered into an agreement with CDK Sekuriteit CC, in terms of which the latter would transport the service station’s cash takings to a bank in nearby Somerset East.

The security company duly collected some R43 000 in cash and cheques from the service station. En route to Somerset East, the security van was robbed of all the money.

Not unnaturally, the service station wanted the security company to reimburse it. To which the security company replied, "Our insurers have only paid us out R20 000 in respect of this robbery. We’ll pay that money over to you, but no more."

Being substantially out of pocket, Cookhouse Service Station CC wanted to recover the shortfall from CDK Sekuriteit CC, and instituted action against the latter.

THE ARGUMENT AND THE JUDGMENT

The service station based its claim on the argument there was an implied term in the contract for the transporting of the money to the bank in Somerset East that the security company "would take out insurance to indemnify (the service station) in respect of any loss suffered" if the money were stolen.

An implied term means a term of the agreement that was not put into words, but which was tacitly understood by the parties to form part of the agreement.

In an appeal to the High Court, it was held that no such implied term could be read into the contract, and the court dismissed with costs the service station’s claim against the security company.

In our view, the service station received wrong legal advice as to the basis of its claim, and the court erred, both in its reasoning and in its judgment.

Firstly, it was completely irrelevant to the service station as to whether the security company was or was not insured.

As was noted above, from the service station’s point of view, the question whether the security company was insured was res inter alios acta. Even if the security company had been fully covered by insurance, this would not mean that the service station could claim the benefits of that insurance. However, should a plaintiff receive an amount from the liability insurer of the defendant, such amount is a benefit which must be taken into account in reducing his damages.

WHAT WAS THE CORRECT ANALYSIS?

In our view, this case should simply have turned on whether, in terms of the principles of contract law, the fact that the money in question was stolen in transit and that delivery to the bank became impossible, was a valid excuse for non-performance by the security company of what it had promised to do.

In our view, the nature of this particular contract was that the particular risk – that is to say, the risk that the security company might be the victim of a robbery and that the transported money might be stolen in transit – was a risk that was clearly within the contemplation of the parties.

Indeed, awareness of the risk of such a robbery was precisely why the service station contracted for the services of a security company.

In our view, it was implicit in the agreement between the parties that this risk would be borne by the security company, not by the customer, and that the financial loss, in the event of a robbery, would be borne by the security company.

In our view, the facts of this case did not fall into the category of the kind of "supervening impossibility of performance" that our law recognises as an excuse for failing to do what has been agreed upon – in this case to transport the money to the bank.

There is, however, an important lesson to be learned from this judgment. Insurance is relatively cheap. Make sure that the risks that you are trying to protect yourself against are covered by insurance, and that you are the beneficiary under the policy.

This quick and easy solution is far more sensible than relying on the drawn-out, expensive and unpredictable results of embarking on litigation to recover your loss, which could be left in the hands of the insurer.

In the judgment discussed above, the party who suffered the loss eventually had to bear the whole of that loss, and had to pay the other party’s legal costs as well.