The Sherwin Jerrier vs Outsurance judgment was handed down by the Kwa-Zulu Natal High Court on 7 July 2015 and highlights the consequences for an insured who does not report an incident for which he did not at the time or in the future intend to claim for, to his insurer (material non-disclosure when an insurance contract is already in place).
What is important for insurance companies to note from this case is that they need to be clear andunambiguous in setting out the obligations of an insured in regard to the submission of claims andwhat is required in terms of disclosure during the initial assessment prior to assuming the risk. Also, where there is ambiguity in the interpretation of the provisions of the policy, the insurance contractwill be interpreted in favour of the insured and insurers cannot rely on the duty of utmost good faithin repudiating claims.
The insurance contract between Jerrier and Outsurance imposed the duty on Jerrier to:
- Immediately report any changes to his circumstances that may influence whether Outsurance give him cover, the conditions of cover or the premium they charge; and
- Within 30 days, report any incident that may lead to a claim to them as well. This included incidents for which he did not intend claiming, but which could result in a claim in the future.
Jerrier was involved in a motorcar accident on the 8th of January 2010 and a minor collision in April 2009. When Jerrier lodged his claim with Outsurance, he informed the assessor of the two incidents for which he had not claimed. Outsurance repudiated Jerrier's claim on the basis of material non-disclosure.
The court of first instance held that the Jerrier was obliged to report the previous two incidents within 30 days, regardless of the fact that he did not lodge the claims, but the appeal court, asking whether the failure to report the previous two incidents amounted to a material non-disclosure that entitled Outsurance to repudiate, found in favour of Jerrier, citing that the court of first instance had blurred the duty to disclose true and correct information at the commencement of an insurance contract with the duty to disclose during the duration of a contract. The Outsurance policy was not subject to anannual renewal assessment of risk, and as such, the appellate court held that there could be no contention that the failure to disclose the incidents had any bearing on the conditions of cover and the premiums charged. Jerrier’s insurance policy did not provide the on-going duty to report after the commencement of the policy. Even if it did, the appellate court found that the obligation toreport 'incidents' was not set out with any particularity by Outsurance and was thus bound to lead to uncertainty as to what should and should not be reported, especially where the insured has no intention of lodging a claim.
The court went on to say that the obligation on an insured (Jerrier) to immediately report any accident or damage imposes an uncertain and vague burden on the insured and the contract of insurance should be interpreted strictly against the insurer (Outsurance). In regard to the '30 day' reporting requirement, the court stated that the obligation on an insured to report a claim or incident only arises if the insured wishes to enforce the indemnification for loss, which the insurer is obliged to honour. An accident for which an insured does not wish to submit a claim cannot be construed to mean a "change in circumstances" as contemplated by the policy.
Jerrier's failure to disclose the previous incidents did not constitute a 'material' non-disclosure as the test for whether a non-disclosure is material to the assessment of the risk is 'objective' and whether the 'reasonable person' would have considered that the risk should have been disclosed (see Clifford v Commercial Union Insurance Co of SA Ltd 1998 and Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality 1985).
Also, on the subject of ‘utmost good faith’, which assumes that the insured will act in good faith due to the fact that insured will probably know more about their risk than the insurer does, the appellate court quoted Mutual & Federal v Oudtshoorn Municipality: "(Utmost good faith) cannot be used in our law for the purpose of explaining the juristic basis of the duty to disclose. Our law of insurance has no need for it and the time has come to jettison it."