Misdescription of insured property - rejection of
insurance claim
Insurers are sometimes said to readily accept your application for insurance, issue a policy and receive your premiums year after year and then, when you make a claim, they scrutinise the policy and the surrounding circumstances to see whether there is a basis on which they can reject the claim.
Of course, anyone who takes out insurance ought to be meticulously accurate in completing the application. But there are circumstances where, in all good faith, inaccurate information is given.
Does any misstatement of fact in an application for insurance, whether intentional or otherwise, entitle an insurer to reject a claim?
In Mutual and Federal Insurance Co Ltd v da Costa [2007] SCA 89 (RSA) 89 a Pretoria businessman had insured his car, describing it (in good faith, and with no intention to deceive) as a 1991 model Mercedes Benz 230E.
When the car was written off in a collision, he put in a claim for some R48 000 under the insurance policy. It then transpired that the car was in fact a built-up vehicle, being a combination of a 1988 and a 1990 Mercedes.
When the insurer discovered that the car had been misdescribed in the policy, it rejected the claim on the grounds of misrepresentation, and argued that it was only liable in respect of a vehicle which fitted the description in the policy.
THE TEST OF MATERIALITY
The Supreme Court of Appeal said that the defence of misrepresentation, raised by the insurer in respect of the claim, depended on whether the misdescription of the car was “material”, and that the test in this regard was whether the fact in issue was one which would influence an underwriter’s opinion in regard to the risk under the policy.
The court noted that a leading textbook on insurance said that if the fact that had been incorrectly represented was not material to the
risk, the insurer would remain liable under the policy.
The court pointed out that in the early years of motor insurance law, the premium fluctuated according to the age of the car. In the present day, the rate is constant, irrespective of the age of the car.
In the event of a claim, a person would not be paid out more than
the true value of the car, so a person taking out insurance could never profit by a misrepresentation as to the age of the car.
The court said that no evidence had been laid before it that a reasonable insurer, if it had known the true facts, would have refused to insure the car in question or would have required a higher premium.
The court held that the magistrate in the court below had correctly given judgment in favour of the insured, and dismissed the insurer’s appeal.
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