Insurance claims present complex questions of fact, circumstance, and law. The question arises then; if a customer of an insurance business is dishonest about certain facts, does that automatically lead to a valid rejection of the claim? The duty of the courts to apply a materiality test, confirmed.
This article discusses the lawfulness of the rejection of a claim for the theft of a motor vehicle in circumstances where the insurer alleged that the insured had been dishonest about facts relating to the loss claimed for, during the claims validation process. Molefe v Miway Insurance Company Ltd (A189/2022) [2023] ZAGPPHC 489 (20 June 2023) discussed.
Mr Molefe and his friend Victor went out to a social event on a Sunday, using his insured vehicle, a Mercedes Benz. During their socialising, they met two ladies and shared food and drinks with them, whereafter they agreed to give the ladies a lift and from there they went to the cousin of Mr Molefe. Once there Mr Molefe felt unwell, but took their female companions to buy food at a nearby garage. At this point Mr Molefe lost all recollection of events. He woke up the next morning, dizzy, sleepy confused, and without his vehicle, cellphone, keys and wallet. It turned out that his friend Victor suffered the same symptoms and they believe that they had been drugged by the female companions of that evening and early morning. Mr Molefe reported his vehicle as stolen with the SAPS and also had it deregistered.
A day later Mr Molefe submitted a claim for the theft of his vehicle and claimed to be indemnified for the loss. When reporting the claim he disclosed that he had been at a social event, he disclosed the presence of the ladies who accompanied him, the use of alcohol on the evening and the fact that they had visited his cousin's home late that night. He also complied with the request to give consent to the insurer to do various checks to validate the claim, he handed over the video footage obtained at the garage where they had gone to. The insurer spoke to his friends, including Victor, who had been with him on the evening and morning of the loss and to his cousin, who all corroborated Mr Molefe's version of events.
The insurer, however, found that certain information that Mr Molofe had supplied during the claims process was false and dishonest. This information related to whether or not he dropped off the two women before or after he lost consciousness; where the alcoholic beverage was in his vehicle and the time he left the social event. The claim was therefore rejected on the basis that Mr Molefe had been dishonest. The relevant clause relied on was as follows:
"If I or anyone acting on my behalf submits a claim or any information or documentation relating to any claim, which is in any way fraudulent, dishonest or inflated, all benefits under this policy in respect of such a claim will not be paid. MiWay will reject the whole claim and all premiums paid that have been received by MiWay will not be refunded. MiWay will cancel my entire policy retrospectively to the reported incident date, or the actual incident date, whichever date is the earliest scenario: If MiWay receives new information at any stage and it is found that I was dishonest on a previous claim, the previous claim will be rejected and my policy will be cancelled from the previous reported incident date."
Mr Molefe proceeded with an action in the Magistrate's Court. He testified alone and after he closed his case, the insurer elected not to call any witnesses of their own. The Magistrate's Court made no finding about the credibility of Mr Molefe. It however dismissed his claim and found he could not prove on a balance of probabilities that his vehicle had been stolen – agreeing with the clinical application of the abovementioned clause in the agreement – that Mr Molefe had been dishonest about certain facts of that evening. The Magistrate's Court stated "as soon as the dishonesty was discovered the determined condition of the agreement was fulfilled which had the result that the Defendant's obligation to indemnify the plaintiff was discharged whether the dishonesty was material or not."
The judges in the appeal in the High Court in Pretoria, disagreed and found that there was a material misdirection by the learned magistrate in the court a quo. In the appeal it was found that Mr Molefe had proven that his vehicle was stolen (on a balance of probabilities) and further mentioned that Mr Molefe had actually been quite forthcoming with the facts and had been cooperative in the validation process. This being so, the insurer bears a full onus to establish its right to reject the claim. The essential question was whether the discrepancies in Mr Molefe's version were material to the loss he claimed for. Clauses like the one relied on by the insurer must be interpreted strictly and with regard to the main objectives of the insurance agreement.
The absence of any evidence having been led by the insurer to show the materiality of the incorrect facts and any prejudice to the insurer, was fatal to its case – the court on appeal found that there was "no basis upon which the court a quo could have found that the discrepancies in Mr Molefe's version were so momentous that they were prejudiced."
There is nothing novel about this judgment as a matter of law, but a good reminder about the principles to be applied to restrictive or exclusionary clauses in insurance agreements. It is often very tempting to those who discover their counterpart having lied, to overreact and summarily paint everything that follows in broad strokes. Proper consideration must always be given to the question "now that we know the truth, how does that affect the outcome". Of course, complete honesty remains the best policy (pun intended).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
