In insurance matters it is often assumed that the insured's duty to disclose all material facts to his insurer trumps any consideration or interpretation of the insurance contract. However, there can only be a non-disclosure of a material fact if the disclosure of that fact was actually required by the contract. The recent decision of the South Gauteng High Court in Bruwer v Nova Risk Partners Ltd 2011 (1) SA 234 (GSJ) shows how important it is for an insurer to draft its contracts in a clear and precise manner.
Bruwer was insured by Nova Risk Partners Ltd ("Nova") against any damage and liability caused in the driving of his motor vehicle. At issue was the interpretation of clauses 3.1.7 and 6 of section 5 of the insurance policy, which provided:
"Section 5 – GENERAL CONDITIONS 3. Claims If anything happens that could result in a claim you must- ... 3.1.7. immediately advise the Company [Nova] as soon as you become aware of any prosecution or inquest. 6. Disclosures You must inform the Company [Nova] 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 of this policy, 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 [Nova].)"
During the running of the policy, Bruwer was involved in two motor vehicle accidents. On 29 September 2006, Bruwer reported to his insurer that he had been involved in a motor vehicle accident by completing a "motor claim form" which he submitted to Nova. He expressly stated on the form that he was not driving under the influence of alcohol at the time of the collision and had been tested for alcohol consumption. He was, however, charged with reckless / negligent driving and driving under the influence of alcohol.
Fourteen days prior to the commencement of criminal proceedings, Bruwer informed his insurer of the fact that he is being prosecuted for reckless/negligent driving and driving under the influence of alcohol, as is required from him under clause 3.1.7 of section 5 of the policy. Bruwer was convicted of the charge and as part of his sentence his driver's license was endorsed to reflect the conviction.
On 17 January 2008, Bruwer was involved in a second collision. He completed another claim form and submitted it to Nova for indemnification. Four days after this collision, Nova informed Bruwer that it would repudiate the claim as the accident was a result of Bruwer driving whilst intoxicated. Nova also expressed its intention to cancel the policy for failure to disclose material facts.
Bruwer brought legal proceedings in the High Court to claim indemnification from Nova. Nova argued that it was entitled to cancel the policy due to Bruwer's failure to make material disclosures - those that affect the insurer's assessment of the risk and entitle it to cancel the policy - and his failure to disclose the material fact of his conviction. The trial court dismissed Bruwer's action and the matter was appealed.
On appeal, the court held that before it could evaluate whether an insured's non-disclosure was material, it had to evaluate whether there had in fact been a duty to disclose. This is done by interpreting the provisions of the contract.
In interpreting the policy the court had to find a balance between the generality of clause 6, which requires the disclosure of all material facts, and the specificity of clause 3.1.7, which requires the disclosure of any prosecution of inquest against the insured. It applied a rule of interpretation which provides that if a contract makes specific reference to a particular thing, it is on the face of it assumed that the parties intended to exclude all other things form their agreement. When this rule is applied to the terms of the contract, the court concluded that the contract only required Bruwer to inform his insurer of any possible prosecution or inquest against him. The contract did not require the disclosure of Bruwer's conviction, the fact that a sentence was imposed or that his license had been endorsed. Bruwer consequently "meticulously complied" with the policy contents by giving Nova sufficient notice of the prosecution against him. There could not be a nondisclosure in circumstances where the contract did not require a disclosure to begin with.
It is, therefore, important for insurers to ensure that their contracts are carefully and precisely worded in order to place a duty to disclose material facts on the insured. Without such a duty appearing clearly from the contract, the insurer may not be able to repudiate a claim by the insured or cancel the insured's policy on the basis that the insured failed to disclose material facts.