INSURANCE NOTES

INTRODUCTION
Insurance is the result of mans efforts to create financial security in
the face of dangers to his life, limbs and estate. The tension between
his desire to form and develop his estate, on the one hand, and the
dangers threatening to destroy that desire on the other.
One of the most satisfactory general methods of creating financial
security against risks is that of spreading the risk among a number of
persons all exposed to the same risk and all prepared to make a
relatively negligible contribution towards neutralizing the detrimental
effects of this risk which may materialize for any one or more of their
number.
Insurance

as

precautionary

measure

against

risk

has

several

advantages, namely , it shifts the greater part of the risk from the
exposed person to others; it is relatively easy to persuade individual to
bind themselves to make a comparatively small contribution in
exchange for security; and insurance is applicable to a wide variety of
situations.
INSURANCE AS A CONTRACT
Voluntary provision against risks by means of insurance takes the form
of a contract between an insurer and an insured person. The contract
relates to the transfer of a specific risk or risks in exchange for the
payment of

a consideration commonly known as a premium. The

nature and extent of the risk helps to determine the common of the
premium.

Contracts of insurance are based on considerations of

interest and accordingly

individual

the rules which govern them are

not

applicable to social insurance schemes which rest on socio-economic

considerations and are implemented by the state on a compulsory
basis e.g NSSA
HISTORICAL BACKGROUND
The modern insurance contract has its roots in two distinct lines of
development i.e.
i)

The

practice

of

mutual

financial

assistance

which

consideration,

which

eventually gave rise to

Mutual insurance, and
ii)

Contract

of

risk

spreading

for

developed into the contract of insurance for profit or

premium insurance in the narrow sense of the word.

MUTUAL INSURANCE
Among the Romans, and even ancient Greece and Egypt, societies
existed which afforded members certain benefit such as proper burial
risks or a financial contribution towards buried costs. These societies
can hardly be regard as insurer, but nevertheless they represented the
idea of mutual assistance in case of materialization of risks.
This idea gained prominence in the guilds or similar associations which
existed

in

Europe

and

England

during

the

middle

ages.

The

associations afforded members or their dependant assistance in case

of loss caused by perils such as fire, shipwreck, theft, sickness or
death.

The guilds developed into communities which were formed expressly to

spread specific risks amongst persons exposed to those risks by
granting each member of the group a legal right to assistance if the
risk materialized. In exchange for this right members undertook to pay
regular contributions or premiums. In this way the concept of
community of similarly exposed persons become firmly entrenched as
an element of the concept of insurance.
INSURANCE FOR PROFIT
The idea underlying modern profit insurance was manifested in
Babylonia almost 200 years before Christ in a contract of trading
capital to traveling merchants. The contract contained a clause that
the risk of loss due to robbery in transit was borne

by the party

providing the loan. In consideration for bearing this risk, the lender
calculated interest on the loan at an exceptionally high rate. Insurance
for profit as an independent type of contact developed from risk
contained in maritime loans and certain contract of purchase and sale.
The central theme was transfer of risks in exchange for a consideration
in money. The profit

motive provided an incentive for a careful

calculation of both the risk and premium.

The first clear records of contracts which provided for the undertaking
of a risk in exchange for money by an independent party not involved
in the trade transaction from which
seem to be

the risk and

emanated would

documents containing contracts for the transfer of

maritime risk gained currency towards the end of 14 th century.

Independent risk bearing for consideration had by them developed in
the form of marine insurance.
FURTHER DEVELOPMENT

For a considerable period up to the 19 th century marine insurance was

the dominant form of insurance. In the course of time however, the
various type of insurance as they exist today developed from both
mutual and profit insurance. For instance, life insurance became an
independent and acceptable contract of insurance towards the 16 th or
17th century while fire insurance contract gained currency especially
from the 17th century onwards.
SOURCES OF INSURANCE LAW
The common law of Zimbabwe is Roman-Dutch law and as such one
would except to find the Zimbabwean law of

insurance in modern

Legislation and in the writings of Roman Dutch Jurists. However, Roman

Dutch Law is not applied to many aspects of insurance contracts.
Sections 3 & 4 of the General Law Amendment Act [Chapter 8:07]
placed Zimbabwean insurance law into the mainstream legal principles
which are , by and large , homogeneous throughout the world. The
sections provided that the English Law

of fire, life and marine

insurance shall apply in Zimbabwe except statutes passed after 1879.

The significance of the date 1879 lies in the fact that the General Law
Amendment Act has its origin in the Cape Act 1879 and in terms of the
said Cape Act, only pre 1879 Statutes are binding.
It is however, important to note that the GLAA was itself amended by
section 13 of the Insurance (Amendment) Act, No.3 of 2004 with the
effect that English law does not apply to contracts concluded after the
commencement of Act No.3 of 2004.
The GLAA makes English law applicable only on questions of insurance,
not on questions of other branches of law that may arise in the course
of an insurance dispute Thus in Northern Assurance Co. Ltd v

Methuen 1937 SR 103 English Law was held not binding on a

question relating to cesscession of right under a policy. In the same
case, Mcllwaine ACJ @ 108 applied the principle that if a clause in a
policy was taken from English policies, the meaning given to the clause
by English law must govern.
It is not altogether clear whatever GLAA imports the English Law of
insurance generally, or the import is confined to fire, life and marine
insurance.
In Horne v Newport Gwilt & South British Insurance Co. Limited
1961 R&N 751 @ 772 (also reported in 1961(3) SA 342 @ 353)
Maisels J assumed that the plain wording of the Act should not be
extended; in other words English law must apply only to fire, life and
marine insurance. Thus, for example, the inclusion in a motor policy of
cover against fire does not bring the whole policy under English law;
but conversely, a claim on the fire portion of a mixed policy will fall to
be decided under English law.
The principle thus formulated seems clear enough but its application
invariably involves some difficulty in that while there are matters
clearly peculiar to insurance e.g insurable interest, risk, over/underinsurance etc, other matters are evidently not peculiar to insurance e.g
stipulations in favour of 3rd parties, trusts, interpretation of policies,
offer and acceptance and the like. Borderline cases often pause an
agonizing challenge, for instance, it has been held that warranties in
insurance policies are governed

by English Law (see Morris v

Northern Assurance Co. Ltd 1911 CPD 293 @ 304), yet one may
well ask whether a warranty in an insurance policy differs substantially
from the concept of a warranty in the law of contract. The applicability
of English Law is thus open to debate.

The South African Appellate Division has traced the origins of the South
African Law of insurance to the Lex mercatoria of the Middle Ages. In
the ultimate analysis, therefore, it is clear that the Roman-Dutch and
English law of marine insurance stem from the same original sources.
Since South Africa has taken a distinctively Roman-Dutch bias to
insurance contracts concluded after 1879, it is proper to conclude that
Zimbabwes insurance law derives from the pre-1879 English statutes
as read together with the post 1879 Roman-Dutch common law. Indeed
this is the view that is crystalised by Amendment No.3 of 2004 in
specifically ousting English law in contracts concluded

after the

commencement of the amendment.

CLASSIFICATION OF INSURANCE
The most important criteria for classifying insurance contracts are the
nature of the interest insured; whether the object of the risk has been
valued or not ; the nature of the event insured against; the possible
duration of the contract; and the purpose of the insurance.

INDEMNITY & NON-INDEMNITY INSURANCE

This is the most fundamental distinction between various insurance
contracts.
- In indemnity insurance the contract between the parties
provides that the insurer
will indemnify the insured for loss or damage actually suffered
as the result of
the happening of the event insured against.

The whole purpose of the contract is to restore the insured to

his status quo ante and the insured may not make any profit
out of his loss

In non-indemnity insurance, on the other hand, the insurer

undertakes to pay a specified amount or periodical amounts
to the insured merely on the happening of the event insured
against e.g. upon the death or injury of insured.

It is apparent that the distinction between indemnity and nonindemnity has been taken to lie in the nature of the interest
insured

In indemnity insurance the interest must be, of necessity of a

proprietary nature, otherwise no financial loss or damage can
be caused through its impairment.

On the other hand, the interest which can be the object of a

non-indemnity contract of insurance must be regarded as nonproprietary

in

substance.

Put

differently,

non-indemnity

insurance depends on an event which invariably relates to the

person of the insured or a third party.
-

An

important

consequence

attached

to

the

distinction

between indemnity and non-indemnity insurance is that in

non-indemnity insurance the insurers are not entitled to the
benefits of proportionate contribution or subrogation.

PROPERTY & LIABILITY INSURANCE

-

Property insurance is concerned with the positive elements

(assets) of the insureds patrimony or estate, for instance
ownership of his house or expectation of future benefit.

Liability insurance is concerned with negative elements

(liabilities) which come into being as part of the insureds

patrimony e.g third party motor vehicle insurance.
CLASSIFICATION

ACCORDING

TO

THE

NATURE

OF

EVENT

INSURED AGAINST
- Examples include marine insurance, fire insurance and personal
insurance. This classification cuts across the fields of indemnity
and non-indemnity insurance. In personal insurance, we includes
life

insurance,

personal

accident

insurance

and

medical

insurance. The event insured against operates on the person of

the insured or a third party.
- depending on the intention of the parties, personal insurance
may either be indemnity or non-indemnity insurance while nonpersonal insurance can only be indemnity insurance and nothing
else.
LONG TERM & SHORT TERM INSURANCE
-Long term insurance business is defined in the Insurance Act as:
-Short term insurance business is also defined in the Act as:
The difference between long term insurance and short term
insurance appears to lie in the fact that long term insurance is
concerned only with life insurance whereas short term insurance
deals with forms of insurance which are usually of short duration.

FEATURES OF INSURANCE

INSURANCE AS A CONTRACT
(i) Definition
-

In Lake v Reinsurance Corporation Ltd 1967(3) SA 124

(W) the court adopted the following definition of a contract of
insurance:

A contract between an insurer and an insured

whereby the insurer undertakes in return for the
payment of a premium to render to the insured a sum
of money, or its equivalent, on the happening of a
specified uncertain event in which the insured has
some interest

this definition is important in that it elucidates the difference

between

wagers

and

insurance

contracts,

namely,

the

existence of an insurable interest in the case of an insurance

contract proper.
From the definition cited above it is apparent that an insurance
contract must provide for:
(a) payment of a premium
(b)performance or an undertaking to perform in exchange for the
premium
(c) the possibility of an uncertain event on the outcome of which
the performance of the insurer depends on the risk.
(d)An insurable interest in the uncertain event on the part of the
insured.
(ii)

ESSENTIAL

INSURANCE

INGREDIENTS

OF

CONTRACT

OF

(a)
-

Premium

In English Law the requirement of a premium for insurance is

said to be an application of the general requirement of
valuable consideration in the sense of a quid pro quo.

Under

South

African

Law

the requirement

of

valuable

consideration is not recognized. It is against the background

of the South African Law that a premium would not seem to
be a requirement for the validity of a contract of insurance.
-

It is important to note that essential for the existence of an

insurance contract is an undertaking by the insured to pay a
premium for his insurance, and not payment of the premium
as such.

However, it has become customary to include in a policy a

term which makes performance by the insurer subject to prior
payment of the premium.

The undertaking to make a monetary payment as a premium

need not be for a specific amount but it must at least be
ascertainable in order to meet the requirements relating to
the validity of contracts in general.

(b)
-

Performance by insurer

In indemnity insurance, performance by the insurer is meant

to compensate the insured for loss suffered by him. The usual
means of performance by the insurer is by payment of money
i.e indirect compensation.

The insurers performance may also be by way of direct or

physical compensation if the contract so stipulates, for
example, reinstatement clauses frequently encountered in
insurance contracts, in terms of which the insurer is given the
option to restore the property affected by the peril to the
condition in which it was before the loss.

In Department of Trade and Industry vs St. Christopher

Motorists Association Ltd 1974 (1) Lloyds Rep 17, the
court came to the conclusion that a contract in terms of which
a person is entitled to claim a chauffer service if he becomes
incapable of driving his own car amounts to insurance.

A contract which merely confers on a person a benefit not

amounting to either monetary or direct compensation cannot
qualify as a contract of insurance e.g a benefit that a claim to
compensation will be considered at the sole discretion of the
insurer.
An undertaking to compensate the insured in money usually

involves

not

certain

but

merely

an

ascertainable

performance.
-

The performance of the insurer in non-indemnity insurance is

usually in the form of money. However, it does occur that in
certain

instances

the

insurer

undertakes

to

perform

something other than pay money. The amount insured may be

specified or may be in periodic payments.
(c)

Risk/uncertain event

-every true contract of insurance depends on an element of

uncertainty or contingency in the contract that the contract
provides that the insurer will be liable to perform if a specified
but uncertain event occurs. This event is dependant upon a
peril or hazard and the possibility that the peril will cause
harm is known as the risk.
- A contract can only be classified as an insurance contract if
the bearing of the risk by the one party is a substantial part of
the contract.

(d)

Insurable interest as a characteristic of insurance

Doctrine of interest
-the idea that the actual existence of an insurable interest
is an essential feature of an insurance contract forms part
of one of the oldest and most fundamental doctrines of the
law of insurance, namely, the doctrine of interest. This
doctrine dates back to the Lex mercatoria of the Middle
Ages.
- The Doctrine lies at the root of the distinction between
wagers and insurance. The first prominent commentator on
the doctrine was De Casaregis, who argued that if the
parties concluded a genuine contract of insurance the
insured would only be entitled to hold his insurer liable in
terms of the contract if the insured had an interest in the
lost goods. This liability of the insurer was limited to the
value of the insureds interest..
Conversely, if the parties concluded a wager on the
outcome of an event liability would follow in spite of the
fact that the value of any interest that might exist was less
than the amount claimed or even that no interest
whatsoever existed.
The foregoing view held by De Casaregis is fully in
harmony with the rules of English common law as it stood
when

wagers

were

legally

enforceable.

The

English

common law provided that an insurance

contract was only enforceable if supported by an interest
when the event insured against occurred, while a wager

was enforceable irrespective of whether or not there was

any insurable interest.
Whereas the requirement of interest started merely as
explanatory of the principle of indemnity, with time the
idea developed that the actual existence of an insurable
interest

was

Prudential

required

for

Insurance.

true

Co.

insurance.
Inland

Thus

in

Revenue

Commissioners 1904 KB 658 @ 663 it was stated that

A contract which would otherwise be a wager may
become an insurance contract by reason of the
assured having an interest in the subject-matterthat is to say the uncertain event which is necessary
to make the contract amount to insurance must be
event which is prima facie adverse to the interest of
the assured
The position of Roman Dutch Law regarding the doctrine of
interest is more or less in harmony with the view of De
Casareges and English common law.
INSURANCE INTEREST AS A CHARACTERISTIC OF
INDEMINITY INSURANCE.
-

Although the doctrine of insurable interest was originally

conceived to distinguish insurance from wagers, the rules of
insurable interest are in fact more suitable to determine who
is entitled to claim on a contact of insurance and what the
extent of the claim is.

In the case of the Saddlers Co v Bad Cock (1743) 2 Atk

554 it was decide that for insurance purposes an insurable

interest insurance purpose an

insurable interest must exist

both upon the conclusion of the contact an at the moment

upon which the event insured against occurs.
-

The more prevalent approach in English law appears to be

that the interest required for indemnity insurance contract
need to exist only when the event insured against takes place.

In South Africa the doctrine of insurable interest has been

applied by some Courts in order to decide whether an insured
has a claim for compensation. However, it has not yet been
clearly decided whether the existence of a contract of
insurance depends on proof that an insurable interest in fact
exists. When called upon to consider this aspect of the
doctrine , the Transvaal court in the case of Philips v
General Accident Insurable

Co. (SA) Ltd 1983 (4) SA

652, took the view that insurable interest is a foreign doctrine

and that there is no justification for applying it in preference
to the principles of Roman Dutch law. In dealing with the
distinction between insurance and wager, the court came to
the conclusion that the real inquiry should not be whether the
contract in question is, according to the intention of the
parties, a wager or not.
-

The English law view that for true insurance an insurable

interest must exist, or that a person wishing to conclude a
contact of insurance must at least expect an interest has
faced stiff resistance in South Africa, primarily on the ground
that a suitable alternative can be found in the principle of
indemnity for which there is ample support South African and
even European case authorities.

INSURABLE

INTEREST

AS

INSURANCE IN ENGLISH LAW.

AN

ELEMENT

OF

NON-INDEMINTY

In English Law life assurance was originally equated with

indemnity insurance, However, in the celebrated case of
Dalby v India and London Life Assurance Co. (1854) is
Cb 365 this view was departed from. The Court decided that a
distinction must se drawn between indemnity insurance and
life assurance. In the case of life assurance an insurable
interest must exist at the time of conclusion of the contract
although it needs not exist at the time when the event insured
against occurs.

Since the interest required for non-indemnity insurance needs

only to exist at the time when the policy as taken out, it does
not matter if the interest no longer exists at the time the
contract is enforced e.g as a result of divorce.

A second possible function of the concept of

insurable

interest is to constitute a requirement for the validity of the

contract of insurance.
-

Insurable interest serves a further function not only at the

conclusion of the contract i.e when the insured is called upon
to perform its part of the

bargain it must be established

whether the insured had an insurable interest, and if so to

what extent his insurable interest has been infringed.
-

Also, the insurable interest of the insured is regarded as the

object of the insurance i.e it is interest as such that is insured.

INSURANCE AS A PRINCIPAL & INDEPENDENT CONTRACT

SIMILARITIES BETWEEN INSURANCE & SURETYSHIP

-

Both are depended upon an uncertain event

Both accomplish a mere indemnity to the exclusion of profit.

Certain legal rules applicable to insurance have counterparts in

the law of suretyship e.g. the right to claim a contribution, the
right to demand a cession of action, and the right to be
subrogated. The later right, which enables an insurer who has
made good a loss (compensated an insured) to proceed against
the party who caused the loss, has given rise to the courts
equating an insurer to a surety.

PURPOSE OF DISTINGUISHING

(1)A contract of suretyship must be in writing whereas a contract of

insurance need not be in writing.
(2)A surety is entitled to sue the debtor in his own name while an
insurer is only entitled to make use of the name of the insured in
actions against 3rd parties.

The distinction is also of significance with regard to

provisions of the Insurance Act.

(3)The distinction is rather a fine one. Usually a contract of

suretyship requires no performance in favour of the person who
stands surety whereas insurance is reciprocal.

(4)The real distinction seems to be that a contract of insurance is a

principal contract

An insured answers for its own obligations

while a surety undertakes to fulfill the obligation of another.

Thus, if performance in terms of the contract is in effect subject
to the condition that a specific person does not perform his
contract, it can only be insurance if it is the intention of the
parties that the insurer will indemnify the insured for any loss
caused by the event concerned, that is, non fulfillment of a
contract. If it is the intention the obligation as such must be
fulfilled by the other party, the contract amounts to suretyship.

FORMATION OF A CONTRACT OF INSURANCE

GENERAL PRINCIPLES

The

basis

of

misunderstand

contractual
each

other

liability
is

where

consensus

the
ad

parties
idem

do

not

amino

contrahendi.
-

In those cases where the parties misunderstand each other and

apparent consent exists, liability rests on the reasonable reliance
by a contracting party on the existence of consensus. This may
be termed constructive consent. Alternatively a party can rely on
the doctrine of

estoppel if they can satisfy the stringent

requirements of estoppel and wishes to avail himself of this

remedy in order to hold a party bound by the appearance of
consensus he created. However, for a contract to exist as such
actual or constructive consent must exist.

A contract of insurance comes into existence as soon as the

parties have agreed upon every material term of the contract
they wish to make such as the person or property to be insured,
the event insured against, the period of insurance and the
amount of premium. The parties need not necessarily agree on
non essential terms, just that they must agree on the essentials
for insurance.

As a rule, the parties to a contract of insurance do not apply their

minds to each specific term but rather contract on the basis of
the insurers usual terms for the particular type of risk to be
insured against.

The contract of insurance only comes into existence when

consensus is reached.

THE PARTIES

The ordinary indemnity policies there are usually two parties i.e.
the insurer and the insured. The insured is the person who enjoys
protection in terms of the policy and he is first holder of the
policy. Subsequent holders of the policy are in the position of
cessionaries.

In terms of Part III Section 7 of the Insurance Act, an insurer must

be a body corporate registered in terms of the Act.

There may also be a third party interested in a particular policy,

viz, the beneficiary in terms of a contract in favour of a 3rd party.

The parties to a contract of insurance may be represented by

agents.

OFFER

In general insurers do not make binding offers to insure but

rather invite the parties to apply for insurance i.e. an invitation to
treat.

The actual offer is therefore made by the proposed insured by

completing the proposed form which, as formulated by insurers
do not leave much room for bargaining between the parties.

Most of the terms of the proposed contact are not expressly

stated, the intention being to contract on the usual terms of the
insurer. Once a reference to the usual terms is included in the
contract, the insured actually agrees to them and cannot
afterwards be heard to say that he did not have the opportunity
to ascertain the exact content of such terms.

In a case where the proposal by the insured to be is not

acceptable to the insurer as it stands but where the insurer is
willing to contract on other terms, a counter offer may be made
by the insurer.

ACCEPTANCE

This means an express or tacit statement of intention in which an

offeree signifies his unconditional assent to the offer.

The insurer as offeree usually accepts the offer by sending the

proposer

policy

accompanied

by

covering

letter

communicating the acceptance. Usually the very act of sending

the policy is sufficient to communicate acceptance.
-

A demand for the premium by the insurer may also operate as an

acceptance.

A firm acceptance may also be contained in a an interim cover

note, albeit such note is generally an acceptance of a proposal
for temporary cover.

If a policy which is dispatched to the proposer differs from the

terms of the offer but the insurer did not intend it to differ, the
dispatch of the policy, subject to rectification of the policy, is
sufficient to signify the insurers acceptance. Conversely, if the
policy issued is intended to differ from the proposal received by
the insurer, the issuance of the policy can at most be a counter
offer requiring acceptance by the insured to be.

THE POLICY

is the document expressing the terms of a contract of insurance .

a contract of insurance does not need to be in writing to be valid
but it has become standard practice to reduce the contracts to
writing.

The effect of reducing the contract to writing is that the

document, by virtue of the parol evidence rule, becomes the only
record of the transaction between the parties, provided the
parties accept the written document as the sole memorial of
their transaction.

While the traditional method of indicating acceptance of a

document as the embodiment of a contract is by affixing a
signature thereto, the practice in insurance is that the policy is
never signed by the insured but only by or on behalf of the
insurer.

Where a particular policy is accepted as the sole memorial of the

contract, the terms of the contract cannot be sought outside the
policy and its constituting parts such as schedules, slips or
endorsements. Other separate documents such as proposal
forms or prospectuses are not admissible as evidence of
particular terms (Parol evidence rule). However, if any such other
document has been incorporated, expressly or tacitly, by
references, it is part and parcel of the policy. This usually
happens with proposal forms.

REQUIREMENTS FOR A VALID CONTRACT OF INSURANCE

A

CONTRACTUAL CAPACITY
-

The general rule that the parties to a contract must have

contractual capacity for the contract to be valid is subject to
exceptions in the context of insurance.

LAWFULNESS

like any other contract a contract of insurance must be lawful.

The common law renders illegal all contracts which are contrary
to public policy or good morals.
The prohibition of a contract by the law may relate to the
conclusion or the contract performance in terms of the contract,
or the purpose of the contract.

In line with the principle of sanctity of contracts and the rules of

interpretations a court, when called upon to decide whether an
insurance contract is unlawful, attempts to uphold the contract
by establishing whether the objectionable elements can be
severed from the contract with the remainder being enforceable.
Unless the illegality appears ex facie the transaction sued upon,
a litigant who wishes to rely on a defence of illegality must plead
and prove such illegality and the circumstances upon which it is
founded.

The requirements of lawfulness of contracts are governed by the

general principles of the law of contract and there are no
principles peculiar to insurance contracts.

The litmus test for legality in respect of certain contracts of

insurance is to be found in the provisions of the Insurance Act,
for instance Part IX of the Act, Section 41 forbids insurers to
insure lives of young children in excess of certain amounts:
Section 7 of the Act also prohibits persons from carrying on any
class of insurance business in Zimbabwe unless he is registered
in terms of the Act as an insurer in the class of insurance
business carried on by him. Other prohibitions relate to licensing
and other related aspects.

The Act does not expressly provide that a contract concluded in

contravention of its provisions is invalid. What the Act simply
does is to provide for general penalties for non compliance. The
mere fact that conclusion of a contract is by implication contrary
to the provisions of a legislative intention to prohibit the contract
and thus render it unlawful. Such intention may be inferred
according to the general rule of interpretation, but each case
must be dealt with in the light of its own language, scope and
object and considerations of justice and convenience. (Metro
Western Cape (Pvt) Ltd v Ross 1986 (3) SA 181)

PERFORMANCE MUST BE LAWFUL

A contract of insurance is not often unlawful on account of

performance since the performance of both parties is normally of
a monetary nature. However, if the contract of insurance is to be
performed in contravention of the exchange control laws, it
becomes illegal because of the illegality involved in the
execution of the contract.

PURPOSE OF CONTRACT MUST BE LAWFUL

If the parties conclude an insurance contact to cover the insured

where the crime or civil wrong of is closely associated with it, the

purpose of the agreement and therefore the agreement itself is

unlawful.
-

In Richards v Guardian Assurance Co. 1907 TH 24 it was

decided that an agreement to insure a house which was being
used as a brothel was unlawful. The court explained that where
the legislature has laid down that certain acts are illegal, all acts
which tend to facilitate or encourage such illegal acts must
themselves be regarded as illegal.

UNREASONBALE CONTRACTS

If there is no ambiguity in the language of the contract and the

ordinary sense of the words does not lead to absurdity,
repugnancy or inconsistency with the rest of the contract, the
contract as concluded by the parties is enforceable no matter
how unreasonable its effects may be.

CONSEQUENCES OF UNLAWFUL AGREEMENTS

Normal effect is that they are null and void. The law allows no
exceptions to this rule, not even if the parties were totally
unaware of the illegality.

If performance has been rendered, such performance may be

recovered with the rei vindicatio where applicable or the
enrichment action known as the condictio ob turpen vel iniustam
causam. Of course the recovering is subject to the par delictum

rule which bars recovery unless public policy will be better

served by allowing recovery of what has been performed.

PERFORMANCE MUST BE POSSIBLE & ASCERTAINABLE

Since performance by the parties to an insurance contract

invariably consists in payment of money, an obligation to pay
money is a generic obligation which cannot be impossible.

However, where an insurer agrees to have the object of the risk

reinstated, the requirement that performance must be possible
becomes relevant. In this case if reinstatement is initially
impossible,

the

contract

must

provide

for

an

alternative

performance, viz compensation in money.

PERFORMANCE MUST BE ASCERTAINABLE

This requirement may operate in respect of the validity of an

offer or as a separate requirement for the validity of the contract.

In line with the general principles of the law of contract the

premium payable need not be a specified amount, it suffices if
the amount is merely ascertainable.

Regarding performance by the insurer, the undertaking to

compensate the insured is sufficiently ascertained.

FORMALITIES

No formalities required. Writing not required by the common law

for the validity of insurance contracts, nor has the Insurance Act
introduced any such requirement.

Although no formal requirement is laid down by the law, the

parties may agree that no contract will materialize unless
reduced to writing in the form of a policy and unless such policy
has been delivered to the insured.

Further, albeit there is no rule requiring prior payment of the

premium, the parties frequently contract subject to a clause that
no contract will come into being or that the liability of the insurer
will not commence until a premium is paid.

MISREPRESENTATION

GOOD FAITH
-

All contracts are subject to good faith i.e. they are bona fide.

In modern case law and literature insurance contracts have been

classified as contracts uberimmae fidei. This is the prevailing
classification in English Law.

In South Africa, the Appellate Division in Mutual Insurance Co.

Ltd v Oudtshoorn Municipality 1985 (1) SA 419 (A) rejected
the term uberimmae fides as an alien expression adopted from
English Law, vague and useless, without any particular meaning
other than bona fides.

The Appellate Division, however, did not set out the content of
the requirement of bona fides as it pertains to insurance; thus
authority which dealt with the content of uberimma fides is still
persuasive although one must keep in mind that the duty
concerned is not one of exceptionally good faith but simply good
faith.
-

Generally contracts uberimmae fides impose a duty on the

contracting parties to display utmost good faith towards each
other during negotiations leading to the conclusion of the
contract, and only exceptionally during the subsistence of the
contract itself.

The duty of good faith applies to both the insurance proposer

and the insurer.

It has been said that in respect of principles of good faith is of

limited duration and applies during pre- contractual negotiations
only. Once the contract has been concluded, it is generally said,
no special duty of good faith attaches. (See Pereira v Marine
and Trade Insurance Co. Ltd 1975 (4) SA 745 (a)

One consideration which has been raised and which may

constitute a duty of good faith attaching to an insured during the
subsistence of the contract is the question whether an insurer is
entitled to avoid a policy if the insured brings a fraudulent claim.

The duty of good faith existing during the subsistence of the

contract must not be confused with the position of the parties
upon renewal of a contract of insurance.

The duty of good faith attaches to renewal of a contract of

insurance as it did in the conclusion of the original contract.

Requiring uberimma fides instead of mere bona fides has been a

way of expressing the fact that in insurance contracts, a
contracting partys conduct may more readily be found to have
infringed the right protecting the other party from mala fide
conduct during pre-contractual negotiations. It does not refer to
a principle of law distinct from liability for misrepresentation.

Therefore reference outmost good faith does not indicate a

distinct principle of law; there are no degrees of good faith, such
as little, more or utmost good faith (See Mutual & Federal
Insurance Co Ltd v Oudtshoorn Municipality @ 433)

IN fact uberimmae fides has been called one of the indicia,

rather

than

consequence

of

insurance See Iscor

Pension Fund v Marine and Trade Insurance Co Ltd 1961

(1) SA 178 (T)
-

Therefore a party to an insurance contract who wishes to

proceed on the basis of a breach of the duty of good faith must
place his claim within the four corners of the requirements for
misrepresentation.

The principle underlying the requirement of good faith signifies

that either party may avoid a contract of insurance if the other
party has positively misrepresented a material fact.

Although insurers rarely commit a breach of the duty of good

faith, there are

certain instances where such breach may be

committed; for instance, an inaccurate statement of the nature

of insurance offered or the extent of cover made in the invitation
to take out insurance , or the amount of premium payable by the
insured.
-

Generally, however, the duty of good faith relates to the right of

the insurer to receive correct and complete information about
material facts relating to the risk.

Accordingly the duty principally rests on the proposer and

requires the proposer to refrain from furnishing false information
he possess concerning material facts.

Put

differently

straightforward,

is

it

the

candid

proposers

and

duty

accurate

in

to

be

honest,

making

positive

statements about material facts and to make full disclosure of

such facts.

JUSTIFICATION OF THE DUTY OF GOOD FAITH

An insurer who wishes to calculate the insurability of a specific

risk must be able to quantify the possibility of loss into a degree
of probability. To this end the insurer requires extensive
information about and knowledge of the facts affecting the risk.
It is only after the insurer has been furnished with adequate
information that it can calculate the risk and come to a decision
whether it is prepared to accept the risk, the extent of the risk to

be accepted and the terms of the contract such as the amount of

premium to be charged.
-

Since decisions concerning the risk and premiums are included in

the contract they must be taken before the contract is
concluded.

In view of the fact that the requirements of good faith and the
duty to disclose material facts can obviously be classified as part
of the law on misrepresentation and not as some distinct and
strict or principle, the position of the proposer is not unduly
aggravated by the existence of these duties.
The principles of misrepresentation and good faith apply to all
types of insurance.

REQUIREMENTS FOR LIABILITY FOR MISREPRESENTATION

-

Misrepresentation is a delict and as such a party to a contract of

insurance who seeks relief on the ground of misrep must prove
that the misrep meets all the requirements for liability in delict,
namely, an act (conduct) committed by the wrongdoer, an
element

of wrongfulness attached to the act, a detrimental

result which was caused by the wrongful conduct, and (usually) a

blameworthiness on the part of the wrongdoer.
MISREPRESENTATION BY COMMISSION
-

Is a positive act consisting in a pre-contractual statement of fact

made by one of the parties to a contract of insurance. The
statement must be false or inaccurate and wrongful, and may be
accompanied by fault or may be innocent, and must induce the

other party to enter into the contract or to agree to specific

terms in the contract, contrary to what he would have done if he
had not been misled.
ELEMENT OF MISREP BY COMMISSION
POSITIVE ACT OF COMMISSION
-

The representation takes place by means of a positive act or

commission in the form of an actual statement and not through
omission.

The statement may be written or oral, it may comprise of an

incorrect or inaccurate answer given to a question by an
insurance agent or in a proposal form.

STATEMENT OF FACT
-

A misrepresentation give rise to liability only if it consists in a

statement of fact. A mere opinion does not suffice to incur
liability on the party expressing it.

FALSE OR INACCURATE STATEMENT

-

the statement must be wholly false or at least inaccurate.

The accuracy of a settlement must be gauged by considering it

within the context in which it was made.

It is sometimes said that a statement need not be correct in

every detail, however or substantially correct.

WONGFULLNESS
-

A positive representation is only wrongful if it relates to material

facts, if it is false and if the party to whom it is addressed was
actually misled in the sense that he put his faith in the false
representation.

MISREPRESENTATION BY OMMISSION
-

A misrepresentation by omission is a wrongful omission by on of

the parties to a contract of insurance to disclose, during the
course of pre-contractual negotiations certain facts within his
knowledge, thereby inducing the other party to enter into the
contract or to agree to specific terms in the contract, contrary to
what he would have done if the facts had been disclosed. The
omission may be accompanied by fault or may even be
completely innocent.

OMMISSION
-

although is can be typical as a settlement of fact, the act which

creates a wrong impression is not a positive one, but an
omission, namely the failure to remove an existing fact which
would have done so. The omission may be a deliberate
concealment or an inadvertent non-disclosure.

(a)

Duty to disclose

An omission is wrongful if it is committed in breach of a duty,

resting on a party to act positively.

A duty to act positively arises if the circumstances are such that

the imposition of a duty is reasonable according to the legal
convictions of the community. A duty to disclose exists with
reference to facts, which are material to the contract in question
and if the representative has actually been mislead by the failure
to disclose.

The duty to disclose has been said to be the correlative of a

right of disclosure which is a legal principle of the law of
insurance: (see Mutual Federal Insurance Company Limited
v Oudtshoorn Municipality case)

The reference to the duty of disclosure as being particularly

related to the contract of insurance must be understood as an
expression of the fact that the circumstances surrounding
insurance contracts are typically circumstances giving rise to a
duty to disclose.

(b)
-

Facts within knowledge of Representor

In Joel v Law Union and Crown Insurance Co 1908 (20 KB
863 (LA) 884 Fletcher Moultin LJ said that the duty in point : is
a duty to disclose, and you cannot disclose what you do not
know. The obligation to disclose, therefore, necessarily depends
on the knowledge you possess

Section 18 of the Marine Insurance Act of 1906 provides that an

insured is deemed to know every circumstances which, in the
ordinary course of business, ought to be known by him.

Whereas some English authorities suggest that this principle of

constructive knowledge has general application, South African
case law follows the view that a duty only exists to disclose
material facts within ones actual knowledge.

(c)
-

Extent of duty of disclosure

Although in principle the duty of disclosure attaches to all
material facts, the extent of the duty may be limited in certain
instances. An insurer may either expressly or tacitly limit or
waiver the duty.

Whether or not a waiver has taken place depends on the facts of

each case.

Ramsbottom J, in Whytes Estate v Dominion Insurance

Company of SA Limited 1945 TPD 382 @ 404 said The fact
that a question is put to elicit certain information does not
necessarily relieve the proposer from disclosing further facts of a
kindred nature. Further, an insurer may expressly limit the duty
by stating that no further information on a particular subject is
required.

The duty may also be extended by question in a proposal form.

Certain categories of facts which are, in principle, material

nevertheless fall outside the ambit of the duty to disclose e. g.
those facts which are actually known to the other party such as
those which are matters of common knowledge existing in the
public domain or those matters that live within the sphere of
knowledge of the ordinary professional insurer.

A proposer need not disclose facts tending to diminish the risk

although they are material to the insurers decision on whether
to undertake the risk and at what premium

(d)
-

Duration of duty of duty of disclosure.

The duty seems to relate only yo negotiations preceding the
contract. As Corbett

JA remarked in Pereira V Marine and

Trade Insurance Company Limited 1975(4)

SA 745 (A) 756A

the purpose and rationale of the pre-contract duty of

disclosure could hardly apply after the conclusion of the
contract.
-

Therefore the duty attaches to material facts that come to a

partys attention during negotiations. Once the contract comes
into existence, a party needs no disclose material facts coming
into his knowledge.

If a contract of insurance is renewed the duty of disclosure

attaches just as

concluded. This means that a party is obliged

to disclose all material facts

including those which have come

to his knowledge since the conclusion of the

Materiality of non disclosure

original contract.

The courts limited the actionability of false representations to

those relating to

insurance matter are concerned.

See Stumbles V New Zealand Insurance Co. Ltd 1963 (2)

SA 44 (SR),
Kelly v Pickering 1980 ZLR also reported in 1980(Z) JA
758 (R),
Pickering V Standard General Insurance Co Limited 1980
(4) SA 326 (ZA) @ 331
Mutual and Federeal Insurance Co Limited V Oudtshoom
Mnicipality 1985 (4) (SA) 419 (A).
-

The courts expressly refer not to a comprehensive duty to

disclose facts in

general, but a duty to disclose material facts

only. For instance in Colonial

Industries

Ltd v Provincial

Insurance Co Ltd 1922 AD 33 the court was

concerned with a

duty to make a full disclosure of all material facts

-

In Pereira v Marine and Trade Insurance Co. Ltd where, with

reference to an

alleged

duty

to

disclose

facts

stante

contractu, it was said that any such supposed duty of disclosure

would,

of

necessity,

be

limited

to

material

facts

or

circumstances
The concept of materiality is primarily used as a requirement for
liability distinct
(e)

from the element of inducement

The test for materiality

-

The test for materiality is objective facts are material if they are

of such a nature

that knowledge of the facts would probably

influence the representative in deciding

whether

representee in deciding whether to conclude the

influence

the

contract and on

to conclude the contract and on what terms (see Karroo and

Eastern Board of Executors & Trust Co v Farr 1921 Ad 413)
-

The difficulty that arises is what criteria is used to determine the

probable
-

influence on the mind of the representative.

The difficulty arises in relation to misrep made by a proposer

towards an insurer

where the facts are regarded as material if

they will probably influence the decision of the insurer whether to

accept the risk, and if so, at what premium.
-

The criterion for determining the influence on the insurers

decision is the

reasonable man test (See Fine v The

General Accident, Fire and Life

Assurance

Corp

Limited, Colonial Industries v Provincial Insurance Co,

Pereira V Marine
Federal Insurance v
-

and

Trade

Insurance,

Mutual

&

Oudtshoorn Municipality.

According to the Appellate Division this test is applied to

determine, whether or

not, from the point of view of the average

prudent person, the undisclosed

information

or

facts

are

reasonably relative to the risk or the assessment of the premium.

-

A number of decisions suggest that the criterion is the judgment

of a prudent and

experienced insurer, which means the facts are

material if they will influence the

mind

of

prudent

experienced insurer in relation to the risk and its premium

and
(See

such cases as Colonial Industries v Provincial Insurance Co,

Whytes

Estate v Dominion Insurance Co of Mutual &

Federeal Insurance Co v
-

Oudsthoorn Municipality).

Other decisions hold that the criterion is whether a reasonable

man in the position of

the

insured

would

particular facts as relevant to the decision

have

of

regarded
an

the

insurer

concerning the risk and the premium.

-

It has been said that the two schools of thought represent two

separate test for

materiality. However, prevailing authority has

suggested that it is not necessary to

separate

completely

criteria of the reasonable proposer and the prudent

the

insurer.

Reference to the test of the reasonable proposer is simply an

attempt to

limit the scope and strictness of the test of the

prudent and experienced insurer

-

without discharging it.

A hybrid test for materiality would be whether, according to the

opinion of a

reasonable man in the position of the particular

proposer, the facts in point are

likely to influence the decision a

prudent and experienced insurer regarding the

risk

and

its

premium. (See Anglo African Merchants Ltd v Bailey 1970

(1) QB 311 @ 319.
-

The reasonable man test as formulated in the Mutual and

Federal Insurance Co

Ltd case reflects an attempt to do justice

to the interests of both the insured and

the insurer.

The test is said to be objective and the court personifies the

hypothetical diligens

paterfamilias to which the test applies.

For the sake of clarity, the test of materiality formulated in the

Mutual and Federal case is best expressed as referring to those

facts which are reasonably related to the insurers decision when all
the circumstances of the case are taken into account.
EXAMPLE OF CATEGORIES OF FACTS THAT HAVE BEEN HELD TO
BE MATERIAL
-

Facts indicative of exceptional exposure to risk such as a

dangerous occupational

or hobby, characteristics or attributes

making the person or object exposed to the risk

particularly

vulnerable.
-

The insurance record, for instance the fact that was cancelled

(Colonial
-

Subjective

Industries).
circumstances

proposers financial or

affecting

business

the

risk

such

integrity,

as

the

circumstances

indicating that motive for insurance may be illegal or dishonest, or

the fact that the proposer is prone to cause the risk to

materialize.

An example is where an insured fails to disclose that he is an

unrehabilitated insolvent
1985(4) SA 7 (T) or failure

(See Steyn

v A Ounderlinge

to

that

disclose

the

premises

covered by a fire insurance contract are used as a brothel

(See

Richards v Guardian Assurance Co 1907 TH 24) or the fact that

the

proposer previously suffered loss in a manner indicating

carelessness on his part

(Israel Bros v Northern Assurance Co

and the Union Assurance Society (1892)

-

4 SAR 175).

The rule is that facts which reflect on the character of the insured

or of those

persons of objects exposed to the risk must be

disclosed (Malcher & Malcomes

and Trust Co (1883) 3 EDC

271 279 289)

-

The proposers interest in the subject matter does not normally

affect the risk and

is therefore not material. However where it

does affect the risk it becomes

material.

THE DOCTRINE OF SUBROGATION

In the context insurance subrogation embraces a set of rules
providing a right of recourse for an insurer which has indemnified its
insured
It means that a contract of insurance creates a personal right for an
insurer against its insured it terms of which it is entitled to recoup
itself out of the proceeds of any rights the insured may have against
3rd parties in respect of the loss.
The right for reimbursement cannot be for more than the amount
paid out the insurer as indemnity to the insured.
The right is also subject to the insured receiving (whether from the
insurer or from another source) a full indemnity in respect of the
insured interest.
In effect subrogation requires a settlement between the insurer and
the insured if the insureds claims against 3rd parties successful.

Subrogation is concerned exclusively with the mutual rights and

liabilities of the parties to the contract of insurance, it confers no
rights and imposes no liabilities on third parties.
Because the insurer is, as against its insured entitled to be
reimbursed out of the proceed of the insureds remedies against 3 rd
parties, the insured may not actively deal with his rights against 3 rd
parties to the detriments of the insurer, for instance by releasing
the 3rd party from liability.
In support of its right to reimbursement, an insurer is also entitled to
its insureds consent to bringing an action against a third party in
the name of the insured. This latter right is known as the insurers
secondary right only arises where the insured has lost all interest in
the outcome of the proceedings in that he has received full
compensation for all losses caused by the event insured against.
The insurer then becomes the dominus litis although the action
proceeds in the name of the insured. The advantage for the insurer
is that it can ensure that an action is brought against the 3 rd party
and that the proceedings are properly conducted.

THE PURPOSE OF SUBROGATION

It purpose is to prevent the insured from retaining an indemnity
from both the insurer and a third party.
Further, through subrogation the insurer is recompensed for the
amount it has paid to the basis of the insured. This right of redress
is the basis of the insureds duty not to prejudice the insurers
position.

By affording the insurer a right of redress, the cost of insurance to

the public is kept low, since the insurer is enabled to recoup its loss
from a source other than premium income.
On a social level the doctrine serves to safeguard the principles that
a person who has caused loss to another by his unlawful conduct
must bear that loss since a wrongful cannot hide behind insurance.
The doctrine of subrogation also strengthens the position of an
insurer by creating a trust in favour of the insurer. In Ackerman v
Boubser 1908 OPD 31 the court referred to an insured who had
recovered compensation from a third party as a trustee for the
insurer.
THE BASIS FOR THE DOCTRINE
The insurers right of subrogation rests on contract. It is by virtue of
the terms of the contract that the insurer is entitled to benefit from
the proceeds of the insureds remedies against third parties in
respect of the loss.
Likewise, it is in terms of the contract that the insurer is entitled to
consent of the insured to bring an action against a third party in the
name of the insured.
The terms giving rise to the personal rights and duties in the
context of subrogation may be express, but more often then not
they are implied by operation of law.
SCOPE OF THE DOCTRINE

Since one of the justifications of the doctrine of subrogation is to

prevent the insured from receiving double indemnity, subrogation
applies to all forms of indemnity insurance. However, it has no
application in non indemnity insurance unless the parties have
expressly agreed to grant the insurer rights of subrogation.
The locus classics on subrogation is Castellain v Preston (1883)
11 QBD 380 (CA) wherein the court considered the scope of the
doctrine

and

expressed

itself

as

follows

As

between

the

underwriter and the assured the underwriter is entitled to the

advantage of every right of the assured the underwriter is entitled
to the advantage of every right is entitled to the advantage of every
right of the assured, whether such right consists in contract, fulfilled
or unfulfilled, in remedy for tort capable of being insisted on or
already insisted on, or in any other right, whether by way of
condition or otherwise, legal or equitable, which can be, or has been
exercised or has accrued, and whether such right could or could not
be enforced by the insurer in the name of the assured by the
exercise or acquiring of which right or condition the loss against
which the loss is insured can be or has been diminished
The insurer is therefore not only entitled to the advantages of the
insured

remedies

against

3rd

parties

who

are

contractually,

delictually or otherwise liable for compensation for the loss, but also
to the advantage of every other right, provided it serves as a total
or a partial substitute for the insured interest, such as the proceeds
of a sale of an insured asset or compensation upon expropriation.
Subrogation applies also to rights received by the insured even
though no right to receive such gifts existed when the loss occurred.

REQUIREMENTS FOR THE OPERATION OF THE DOCTRINE

(a) Valid contract of indemnity Insurance.

(b)Since the insurers right to subrogation is derived from the
contract of insurance, no subrogation can take place where it has
paid for a loss in terms of an invalid contract of insurance.
(c) However where an insurer pays a claim in terms of a contract
which is voidable (eg a contract induced by fraud) payment is
effected in terms of a valid and existing contact and therefore
the insurers right to subrogation is beyond doubt.
(d)Insurer must have been indemnified.
(e) Although the right vests upon the insurer at the conclusion of the
contract, it becomes enforceable only when the insured has been
fully indemnified. This means that the insurer must both admit
and pay everything due by it in respect of the particular claim of
the insured.
(f) The insured remains the dominus litis until the insurer has
effected payment unless the parties have agreed otherwise in
the policy.
(g)Insureds loss must have been fully compensated
(h)Where the insurance contract does not provide full cover in
respect of the loss, (for example the insured is under insured or

insured is bound to bear a portion of the loss by virtue of an

excess clause} the insured remains dominus litis unless the
parties have agreed otherwise.
(i) In the case of a consequential loss, i.e loss which is not insured
but which is caused by the event insured against, the insured
also remains dominus litis.
(j) Right of action against third party must exist subrogation can
only operate if the insured in fact has a remedy against a third
party (See Ackerman vs Louber 1918 OPD 31 @ 37)

RIGHTS OF THIRD PARTIES

Although it is usually the contracting parties who enjoy the benefit
of a policy, a third party may become entitled to claim under the
policy by virtue of a transfer of right to him or by virtue of a
novation in his favour.
Yet another way in which a person may become entitled to claim in
terms of a

policy concluded by another in his own name, is

accepting a benefit conferred upon him in the policy.

The notation of a third partys interest in a policy has certain
consequences.
1. CESSION
(a) Ordinary cession of insureds rights.

(b)The insured can effect a transfer of his right(s) by way of cession.

(c) Cession by definition is an agreement which provides that the
cedent transfers a right to the cessionary.
(d)Cession depends on consensus in the sense that cedent must
have the intention to transfer the right to cessionary and that the
cessionary must have a corresponding intention to receive the
right.
(e) An insured can cede his claim in either indemnity or no
indemnity insurance whether before of after the materialization
of the risk insured against.
(f) Although in principle rights under insurance policies may be
freely ceded without the consent of the insurer, policies
frequently contains clauses prohibiting or regulating transfer.
Thus a policy may contain an out and out prohibition on
alienation requiring the consent of the insurer to be obtained for
a valid cession. However, such a clause must be shown to serve
a useful purpose otherwise it cannot be enforced. (See Northern
Assurance Co. Ltd v Methuen 1937 SR 103, Fouche v The
Corp of London Assurance 1931 WLD 145 @ 157, Gowie v
Provident Insurance Co (1885) 4 SC 118 @ 122) (See also
Section 75 of the Act)
(g)Another type pf clause requires the insured to give notice of an
intended cession and states that the cession will take effect only
upon registration by the insurer.

(h)The effect of a cession is that the claim vests in the cessionary

and nothing remains with the cedent. The cessionary is the
creditor and a such is the only person who can sue for or receive
payment. Thus of the insured cedes his conditional right to
indemnification if the cessionary who can claim and receive
payment should a loss occur to the insured thereafter.
(i) The right which is transferred to the cessionary is the right which
the cedent had, thus if the right which has been ceded is the
insured conditional right to indemnification, the cessionary can
upon occurrence of a loss, sue only for the loss suffered by the
insured and not for any loss the cessionary himself may have
suffered.
(j) Further, the right is transferred subject to all defects and
limitations attached to it in the hands of the cedent including the
payment of premiums, observance of warranties and the
following of proper claims procedure. It is important to note that
cession of the insureds rights does not transfer the insureds
duties as such, but non fulfillment never the less provides the
insurer with a defence.
(k) Having ceded his right, the insured remains liable to the insurer.
(l) A valid cession of a claim under a policy can be defeated by a
subsequent agreement canceling the cession and amounting to a
re-transfer of the right.
(m)

Cession in security for debt.

(n)Right under both indemnity and non-indemnity policies are

frequently employed to secure a debt.
(o) In some older insurance cases, the court adopted the view that a
cession in security in security for debt is tantamount to the
granting of a pledge. This line of thought culminated in the case
of National band of South Africa Ltd v Cohans Trustee 1911 AD
235, wherein the Appellate Division held that a trustee of an
insolvent estate was entitled to claim and administer the amount
payable under a fire policy which had been ceded by the
insolvent as security for debt.
(p)Another school of thought a cession in security for debt is a
complete cession of the right subject only to a fiduciary pact. The
cedent is completely divested of his right but in terms of the
pactum adiectum the cessionary may retain the right so ceded
for security purposes. Moreover, this right must be re-ceded to
the cedent as soon as the secured debt has been redeemed.
(q)The reasonable conclusion seems to be that the so-called cession
in securitatem debiti can take one of two forms. It can be an out
and out cession subject to a fiduciary pact or it can be
tantamount to the granting of a pledge.
(r) The question whether an ordinary cession with no strings
attached, a cession in securitatem debiti sensu stricto or a
transaction in the nature of a pledge has occurred depends on
the intention of the parties and not on the parties and not on the
outward form of the transaction.

(s) It has been decided that where a policy has been employed as
security, the holder of the policy can cede his right to the
balance of the proceeds of the policy as security for yet another
debt.
(t) A person who has taken a policy as security may not deal with
the policy in disregard of the insureds rights, for example by
compromising a claim.
2. SUBSTITUTION
(a) Voluntary substitution of insured
(b)A contract of insurance is a personal contract and in principle
does not follow a transfer of the interest which is the object of
the insurance. The consent of the insurer must be obtained is a
voluntary substitution of the insured is desired, for instance upon
a sale and transfer of the insured property.
(c) A distinction and a cession of the insureds rights under the
policy. A valid substitution means that another person takes the
place of the original insured; i.e. assumes the obligations and
rights of the initial insured.
(d)Substitution of the insured requires a novation of the policy.
(e) Substitution of the insured by operation of the the law
(f) Takes place upon death, marriage in community of property and
sequestration.

3. INSURANCE FOR THE BENEFIT OF THIRD PARTIES

Is founded on the basis of the conventional contracts for the benefit
of third parties commonly known as stipulatio alteri.
A contract in favour of a third party is contract in terms of which one
party, the promittens, agrees with another, the stipulates, that he
will perform something for the benefit of a third party. The stipulates
does not act in the name of third party but in his own name
although for the benefit of the third party.
In the case of Wallachs Trustee v Wallach 1914 AD 202, the
Appellate Division stated that a contract for the benefit of a third
party is not simply a contract to benefit a third person, but a
contract between two persons which is designed to enable a third
person to step in as a party to a contract with one of those two. A
typical making the proceeds of the policy making the proceeds of
the policy payable to a third person or a stipulation in an indemnity
policy extending indemnification to persons other than the policy
holder.
The courts have held that a third party does not acquire any right
from an agreement in his favour unless he accepts. Upon
acceptance by the third party a legal tie is created between the
promittens and the third party.
The third party who is to benefit from a policy must be described in
such a way that he can be identified. It is not necessary to name a
specific beneficiary, a class of beneficiaries may be designated
provided that it is done in clear terms.

Whether the

third party must possess an insurable interest

depends on the terms of the policy. If the third party is merely to

receive the proceeds of the policy, the policy is supported by the
insurable interest of the policy holder. Consequently, the third party
need not have an insurable interest. If, on the other hand, according
to the terms of the policy the third party can claim indemnification
for damage sustained by him, he will have to prove damage and
therefore cannot claim if he has no interest.
(a) Life Assurance
In life assurance policies contracts for the benefit of third persons
take the form of a stipulation requiring the insurer to pay the
proceeds to the third person. The nominee may be an identified or
identifiable person; the nomination may be unconditional or
conditional; and it may be revocable or irrevocable.
A contract for the benefit of a third person by way of nomination in
a policy in favour of a beneficiary can exist in isolation. Often,
however, it is intertwined with another transaction when it is
employed as a mechanism to carry out an obligationary agreement
in favour of the beneficiary.
In Curtis Estate v Gronmingster 1942 CPD 511 the insured took
out a heritage policy.
DOUBLE INSURANCE
Occurs when the same interest is insured by or on behalf of the
same insured against the same risk with two or more independent

insurers. Insurance in favour of a third party may also result in

double insurance.
The concept is important for two reasons
if and double insurance amounts to over-insurance (i.e the total of
all insurances is more than the total value of the insureds interest)
an insurer who pays more than its proportionate share of the loss
has a right to contribution against each of the other insurers.
policies often contain provisions that the insured must disclose
other insurances which subsist at the time the policy is issued or
which are contracted subsequently and that in the event of double
insurance the insurer will only be bound to pay the insured its
proportionate share of the loss.
REQUIREMENTS
(a) The policies must overlap as to the event insured. It is necessary
that the policies cover exactly the same risks but they must have
a particular event in common before they amount to double
insurance in respect of that risk.
(b)The policy must relate to the same interest
They policies may each cover a variety of interest but all must
cover the interest, which eventually suffers
(c) The policies must relate to the same object of risk, otherwise the
insurance cannot be in respect of the same interest.
(d)The policies must be in force at the same time and they must be
valid and effective.

(g)The existence of other insurance policies is usually not a material

fact which requires disclose by the insured but then policies
frequently require the insured to notify the insure of such
existence. Such clauses usually provide the unless timorous
notice is given, the policy will be forfeited .The Courts have
decide that whole the decide that whole specify the time within
which the notice must be given, the notice must be given within
a reasonable time. What constitutes reasonable time determined
on the special facts circumstances of each case. Clause limiting
or excluding liability on the basis of double insurance. Policies
often contain clause either limiting liability or excluding liability
altogether. Such clause are valid at law but if liability is excluded
on account of double insurance and it appears that the other
policy also contains a similar clause, the two clauses are deemed
to cancel each other.
(h)A clause limiting liability saves the insurer the inconvenience of
having to claim a contribution from a co-insurer.
The nature and basis of the right to contribution.
The insured in a case of double insurance is free to decide how
much of his loss he wishes to claim from a particular insurer but in
full amount of his loss. If the insurer has paid more than its ratable
proportion of the loss, it is entitled to claim to proportion of the loss,
it is entitled to claim, in its own name, from the other insurers that
they each contribute proportionately.
The right is one of recourse by one insurer against another insurer
which has also insured the same loss.

This right is one of recourse by one insurer against another insurer

which has also insured the same loss.
This right substitutes any right to subrogation which the paying
insurer could possibly have had to the proceeds of the insureds
rights against other insurers.
A right to contribution is s natural consequence of a contract of
insurance.
It is one of the legal consequences of the contract of insurance that
an insurer which has paid more than its pro rata proportion of the
loss succeeds to the rights of the insured against the other insurers
subject to the qualification that only the pro rata proportion may be
recovered from each insurer.
Contribution is restricted to indemnity insurance.
Requirements for the right of contribution
(a) The insurer claiming contribution must have discharged its
liability to the insured.
(b)It must have paid more than its prorata proportion of the loss
(c) The payment must have been in respect of an interest which is
the subject of double insurance..
The calculation of the proportionate share of each insurer is often
simple. Where the various policies are identical in all material

respects, such as the amount of cover, the loss is apportioned

equally between or among the various insurers.
If the policies only differ as to the amounts insured, all amounts
insured must be added up and compared with the amount of the
loss. Each insurer then becomes liable for such a proportion of the
loss as the amount underwritten by it bears to the aggregate
amount insured by all the policies.
In practice the issue of apportioned is a matter of negotiation
between the parties.
OVER INSURANCE
Over insurance occurs when the sum insured is more than the
total value of the insureds interest.
In indemnity insurance the sum insured is usually described as the
limit of liability. There is no objection to a policy containing a limit of
liability which is more than the value of the insureds interest but
the insured cannot recover more than his actual loss.

UNDER INSURANCE
Occurs where the sum insured is less than the value of the insureds
interest.
A person under insured his interest is in the event of a loss
entitled to recover up to the sum of the amount insured or the

amount of the loss whichever is the lesser. In marine insurance,

however, if a person insured for less than the insurable value, he is
deemed to be his own insurer for the insured balance.
In order to discourage under insurance certain clauses have been
developed such as the condition of average.

COMPULSORY THIRD PARTY MOTOR INSURANCE

(i) This is governed by Part IV and Part 5A of the Road Traffic Act
[Chapter 13:11}
(j) Section 22 of the Act makes it compulsory for one to have a
policy of insurance or a security in respect of 3rd party risks.
Failure to comply with the provisions of this section attracts a
criminal penalty.
(k) The requirements for a statutory policy of insurance are provided
in Section 23 of the Act and these include
(i)

a statutory policy shall be issued by a person who is approved

by the Minister as an insurer. In other words the statutory
policy ought to be a valid policy issued by a registered insurer.

(ii)

A statutory policy shall insure such persons or classes of

persons as may be specified in the policy in respect of any
liability which may be incurred by them in respect of (a) death of or bodily injury to, any person ; and

(b)the destruction of, or damage to, any property.

caused by or arising out of the use of the motor vehicle or
trailer concerned on a road.
Section 24A (introduced by the Road Traffic Amendment Act
No 3/2000) provided for a certificate of insurance or security
issued by the insurer or by the Minister as the case may be.
Section 38A Part VA provides for Compulsory No Fault
Insurance for Passenger public service vehicles.
The part defines a passenger in very broad terms but excludes
persons employed or engaged by the owner of the vehicle.
(l) Section 38B makes it compulsory for Passenger service vehicle to
carry no fault insurance cover.

CRITICISM OF THE AMENDMENT ACT

(m)

Whereas the amendment Act can be applauded for

recognizing the need to protect 3rd parties who suffer loss of life
or injury or loss of property the question that begs attention id
the amount of cover afforded by the Act.
(n)Section 23 (3) provides that a statutory policy shall not be
required to cover
(i)

any contractual liability; or

(ii)

liability in respect of death, or bodily injury, persons who were

being carried in or entering or getting on to or alighting from
the vehicle or trailer concerned when the event out of which