Introduction - A discussion of Bruwer v Nova Risk Partners limited
Section 53 of the Short-term Insurance Act, 1998 limits an insurer’s right to reject claims based on non-disclosure to instances where the non-disclosure “is likely to have materially affected the assessment of risk”. The aim behind this provision is to protect policyholders against claims rejection by insurers based on negligible or trivial non-disclosures. The test for materiality is one of “a reasonable, prudent person” i.e. would such a person consider that the information constituting the non-disclosure should have been disclosed so as to enable the insurer to form its own view concerning the effect of the information on the assessment of the risk or the premium charged. The test is an objective one.
In the recent judgment of Bruwer v Nova Risk Partners Limited (A5030/2010) [2010] ZAGPJHC 96, the court found a policyholder’s failure to disclose the fact of a previous criminal conviction for negligent driving, resulting in an R8000 suspended fine and endorsement of his licence, to be an inconsequential non-disclosure which did not affect the assessment of risk.
Bruwer concluded a contract of insurance with Nova Risk in terms of which Nova Risk indemnified Bruwer for damage to his vehicle.
On 29 September 2006, Bruwer was involved in a motor collision (“the first accident”). Following the first accident, Bruwer was charged with and convicted of negligent driving. He was sentenced to a suspended fine or imprisonment and his driver’s licence was endorsed. On 17 January 2008 Bruwer was involved in yet another motor collision (“the second accident”).
Nova Risk rejected the claim on the basis that Bruwer had driven the insured vehicle whilst under the influence of liquor and gave notice of its intention to terminate the policy. Bruwer sued.
Some two months after Bruwer had commenced legal proceedings against Nova Risk for the rejection, Nova Risk communicated further grounds of rejection; namely that Bruwer had (a) failed to submit any documentation nor had he complied with their reasonable requests for information and documentation relevant to the claim; and (b) he had “failed to disclose material information relating to your conviction and suspension of your driver’s licence…”
Nova Risk relied for the rejection on General Condition 5 of the policy wording which provided that:
• 1. The Company will be relieved of all liability if any person or entity claiming any benefit under the policy fails to comply with its conditions…
• 3.1.3 ... As soon as possible, give the Company written details of the event and if applicable, a detailed statement of the claim.
• 3.1.5 Give the company any proofs or statements or information which it may require and any communication received from other parties.
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6. Disclosure
You must inform the Company of all facts that are material to the acceptance of the insurance or the premium that is charged. If you fail to do this, the Company may, at its option, declare this policy void. As this also applies during the currency, any changes must be reported immediately. (It is therefore important for you to disclose all material facts that may be of relevance to the Company)”.
In its plea, Nova Risk denied that Bruwer had complied with all his contractual obligations in terms of the policy. Specifically, it was pleaded that he failed to disclose material facts relating to the risk; namely that (a) his driver’s licence had been endorsed as a result of a negligent driving conviction; (b) he had been convicted of negligent driving; (c) he failed to immediately advise Nova Risk of any possible prosecution or inquest; (d) he failed to provide Nova Risk with any proofs or statements or information required for purposes of investigating the accident; and (e) he failed to inform Nova Risk of all facts material to the acceptance of the insurance or premium that was charged.
Two questions arose before the court namely; whether there was non-disclosure and if there was, whether such non-disclosure was sufficiently material to entitle Nova Risk to reject the claim.
The court held that Bruwer’s failure to disclose the fact of the conviction, sentence and endorsement of his licence was inconsequential. It did not in any way affect the insurance risk or calculation of the premium as the insurance policy expressly indemnified Bruwer against such negligence. The court found that Bruwer had complied with the general duty resting on him to disclose the consequences of the first accident as stated in clause 3.1.7 of the policy which required the policyholder to “immediately advise the Company as soon as you become aware of any possible prosecution or inquest”. If the insurer wanted more regarding the criminal charge they should have asked for more.
Nothing prevented Nova Risk from including a requirement in clause 3.1.7 that information was required regarding any possible prosecution, “and/or conviction and/or sentence and/or suspension or endorsement of a licence”, if it deemed it of material value to assess the risk or premium payable. In any event, it was found on the evidence that Nova Risk was aware of Bruwer’s conviction and the endorsement of his licence in relation to the first accident as early as 18 March 2008.
It was also found on the evidence that Bruwer had submitted the relevant information and documents to Nova Risk prior to the legal proceedings being instituted.
Having found that there was no non-disclosure, the court did not need to consider the materiality of the non-disclosure. Even if the test for materiality was applied, the court said that the non-disclosure of the actual conviction, sentence and endorsement would not have been regarded by “a reasonable prudent person” as affecting the calculation of the risk and/or premium charged. But for the limited disclosure requirement in the policy, this would be a surprising conclusion.
Insurers should, in rejecting claims based on non-disclosure, establish sufficient facts to prove that the exact terms of policy have been breached and that their assessment of risk has been compromised as a result of the non-disclosure. So as not fall foul of the provisions of section 53(1)(a) of the Short-term Insurance Act, the wording of the policy should match the wording of the section (and should not be watered down elsewhere in the policy); and the statutory test of materiality should be the only standard applied.
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