Imagine you have car insurance, and something goes wrong. You file a claim, but the insurance company says, ‘Sorry, we’re not paying.’ That’s what happened in a recent court case, a judgment delivered by the Supreme Court of Appeal in the matter of King Price Insurance and Concise Consulting Services (Pty) Ltd. The judges had to look closely at the words in the insurance contract, like a detective examining clues. They found that some of the wording was confusing, and the insurance company was using that confusion to avoid paying the claim.
This case is important for everyone who has insurance or plans to get it. The court’s decision means insurance companies can’t just hide behind tricky language anymore. They have to be clear and fair. If there’s any confusion in the contract, the judges said it should benefit the person who’s insured, not the company.
So, what does this mean for you? If you already have insurance, this ruling could make it easier to get your claims paid. If you’re looking to get insurance, it means companies will have to be more straightforward about what they’re offering. This decision aims to make sure insurance contracts are balanced so that both the insurance company and the person buying the insurance are treated fairly. In the past, companies might have written contracts that heavily favoured themselves, but now the courts are saying that’s not okay. This ruling helps protect everyday people from being unfairly treated by insurance companies.
This article will aim to identify what impact this judgment may have on consumers who are currently insured and those who may enter into insurance contracts in the future.
Many consumers believe that insurance companies are notorious for finding reasons to reject the claims of policyholders. In a recent Supreme Court of Appeal judgment on the King Price matter, the court had to determine the interpretation of an ambiguous clause in an insurance contract. Here the insurance company (King Price Insurance) had rejected a claim due to the false information provided by a third party to the contract. On the face of it this would seem like it is a reasonable reason for the rejection of a claim. However, the Court delved deeper into the wording of the contract and looked to the intent of the third party when providing false information.
In this matter, the Court was faced with a scenario where the Insured Party was not the regular driver of the insured vehicle. The regular driver of the vehicle was an employee of the Insured party. The driver had driven the vehicle outside of working hours while intoxicated and had subsequently driven into a wall as a result. For fear of the consequences, he would face with his employer, the employee provided false information to his employer and not with the intent to defraud the insurance provider. The employer then innocently provided such information to the insurance provider (King Price Insurance).
In this judgment, such ambiguous phrases were interpreted by King Price Insurance to favour the insured and not the insurer. Here the Court had to interpret the meaning of an ‘agent’ and the phrase ‘on behalf of’ about a third party to the insurance policy/ contract. When the Court inspected the intent of the third party in providing the false information, it was determined that such intent was to avoid the consequences of his actions at the hands of his employer and not to defraud the insurance provider. The Court then further determined that the third party was not within the role of an agent or acting on behalf of the employer when providing such false statements and as such ruled in favour of the insured and not the insurer.
Insurance companies may draft contracts to be intentionally ambiguous or to cover a broad scope of scenarios. They may believe that contracts drafted in such a nature are more likely to favour their interests. This judgment will force insurance companies to review their policies and, in all likelihood, cover the gaps in the policies exposed by this judgment. The Supreme Court of Appeal regarded the clause as ambiguous and that the benefit of the ambiguity should be in favour of the insured. The danger of this is that insurance companies will now try to eliminate these ambiguities/ loopholes in their contracts. This may lead to insurance contracts which are severely restricted and heavily favouring the rights of the insurance companies. This is extremely concerning as contracts of such a nature would be contrary to the basis of contract law as it requires contracts to be balanced. This means that all parties to a contract should be on even footing and one party should not suffer prejudice as a result of the terms and conditions of the contract. However, it should be noted that contracts entered into before this judgment may have ambiguous clauses and as such all parties to such contracts may make use of such ambiguity to their benefit.
Should you require assistance with insurance-related matters or any other aspect of the law, contact us and we will gladly assist you.
Saeedah Salie
saeedah@bbplaw.attorney
Associate
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