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CASE NO. 417/82
/ccc
IN THE SUPREME COURT OF SOUTH AFRICA (APPELLATE DIVISION)
In the matter between
MARY
ROBIN APPELLANT
and
GUARANTEE LIFE
ASSURANCE
COMPANY LIMITED RESPONDENT
CORAM: RABIE CJ, KOTZé, TRENGOVE, NICHOLAS JJA et SMUTS AJA
HEARD: 7 May 1984
DELIVERED: 30 May 1984
2. TRENGOVE, JA
This is an appeal about a life insurance policy
(Policy No 451060) which was issued by the respondent on the life of the
appellant's
husband, Wilfred Robin, on 10 February 1981. In an application in
the Witwatersrand Local Division, the appellant, as the owner of
the policy,
applied for an order: (a) declaring that the respondent was not entitled to
claim additional premiums in the sum of R133,33
per month, or any other amount,
in respect of the policy; and (b) directing the respondent to refund to the
appellant all additional
premiums paid under protest by the appellant or her
husband in
3.
respect of the policy. The application was, however, dismissed with costs; hence this appeal. The aforesaid policy came into existence as a result of the exercise by the appellant of her rights under a conversion option clause in a 10 year term insurance policy (Policy No. 67241) issued by the respondent on the said Wilfred Robin's life in 1971. The central issue in this appeal is whether the respondent was entitled to load the premium payable in respect of a life policy issued in consequence of its obligations under the conversion option clause in policy no. 67241. The answer to this question depends, primarily, on the meaning and effect of the said clause and, more
particularly/
4. particularly, of paragraph 3 thereof.
The factual background of the dispute between the parties is, in short, as
follows. On 19 July 1971, a company, B Owen Jones Limited,
applied to the
respondent for a 10 year term insurance policy (with a conversion option) for
R200 000 on Wilfred Robin's life. Wilfred
Robin appears to have been the
chairman of a group of companies which were associated with B Owen Jones
Limited. In the proposal
form, which bears his signature, Wilfred Robin stated
that he would accept a loading of the basic premium calculated at the rate
of 8
per mille per annum on R200 000, being the sum assured. This came to
R133,3
per month. In this connection, he also completed
a/
5.
a questionnaire about the state of his health from which it appeared that he was, at that time, receiving medical treatment for hypertension. It was quite apparent from the particulars contained in these documents that he anticipated and accepted that the premiums payable in respect of the policy to be issued would be loaded on account of the state of his health. On 20 July 1971, the respondent advised B Owen Jones Limited, by letter, that its application had been accepted, and specifically drew its attention to the fact that the monthly premium on the policy would be R312,43, comprising a basic premium of Rl79,10 and a health loading of R133,33.
The/
6.
The policy (Policy No. 67241) was issued
on 23
July 1971. It was a 10 year term insurance
policy (with a conversion option)
for R200 000 on
Robin's life. The commencement date was 1 February
1971,
and the monthly premium R312,43. The conversion
option clause provided as
follows:
"While this policy is in force the COMPANY will issue without requiring any evidence of insurability a new policy for a Whole Life or Endowment Assurance on the life of the Life Assured subject to the following conditions:
1. In respect of the new policy a proposal and declaration shall be completed. 2. The Sum Assured under the new policy shall not exceed the Sum Assured stated in the Schedule of this policy as altered from time to time.
3. Premiums/
7.
3. Premiums shall be based on the
attained age of the Life
Assured at
the Commencement Date of the new
Whole Life or Endowment Assurance and on the rate then in force and the new Whole Life or Endowment Assurance shall be subject to the policy conditions current at the new Commencement Date.
4. The Sum Assured stated in the
Schedule of this policy as altered from time to time shall be reduced by an amount not less than the Sum Assured under the new policy.
5. The rights under this Conversion
Option Clause will expire on
the
expiry date of the term assurance
under this policy (unless
otherwise
stated below) after which they shall
not be exercisable."
These conversion rights were at some stage ceded to Wilfred Robin or his nominee. He subsequently nominated the appellant as his nominee in respect of these
rights,/
8. rights, and this was accepted by the respondent.
In January 1981 the appellant decided to exercise the option. On 28 January 1981, that is three days before the expiry date, an application by the appellant for the conversion of the Policy No. 67241 into a whole life insurance policy for R200 000 on her husband's life, was forwarded to the respondent, in terms of paragraph 1 of the conversion option clause. The basic monthly premium on such a whole life insurance policy, calculated at the rate then in force, came to R556. The appellant indicated in her proposal form that she regarded this to be the amount of the monthly premium which would be payable in respect
of/
9.
of the converted policy. The respondent was quite prepared to issue the new policy in terms of the undertaking contained in the option clause, but it claimed that any policy effected under that
clause would have to bear an extra premium at the
same rate as that agreed to by the appellant's husband
in the original application of 19 July 1971. This
meant, in effect, that
the new policy would also have to
bear an extra loading of R133,33 per month.
As a re-
suit of the respondent's attitude the appellant's husband wrote a letter to the respondent, on 30 January 1981, in the following terms:
"I record that on behalf of my wife, Mary Robin, I am paying to you the
sum/
l0.
sum of Rl33,33 in cash. This is in addition to her cheque already in your possession. You have agreed to accept this as legal tender. The aforesaid amount of R133,33 is paid to you under protest because it is in excess of the premium payable and all rights are retained to claim from you such excess."
The respondent, nevertheless, persisted in its attitude.
It issued the new policy (Policy No. 451060) on 16
February 1981, but
fixed the premium at R691,23 per
month which included a loading of Rl33,33
per month.
Those are the facts.
The original insurance policy clearly
consisted of two distinct but
inter-linked elements,
namely, the ten year term insurance contract
coupled
with/
11.
with the conversion option. Under the option the respondent offered to
exchange the term insurance policy for a whole life or endowment
insurance
policy. The terms upon which this
undertaking rests are contained in the
conversion
option clause which has already been quoted in full.
As I remarked at the outset of this
judgment, the dispute between the parties really, re-
solves itself into this: Was the respondent entitled,
in the light of the language used in paragraph 3 of
the conversion option clause, to load the monthly
premiums payable in respect of the policy (Policy No.
451060) effected in
consequence of the excercise
by/
12. by the appellant of the conversion option? Upon the receipt of
the proposal form, submitted by the appellant, on 28 January 1981,
in accordance
with the provisions of paragraph 1 of the conversion option clause, the
respondent became obliged to issue a whole
life insurance policy for R200 000 on
Wilfred Robin's life "without requiring any evidence of insurability". The
respondent committed
itself to calculate the premiums to be paid in respect of
this new policy on the basis prescribed in para-graph 3. This paragraph
provides
that premiums "shall be based on the attained age of the Life Assured at the
Commencement Date" of the new policy
and/
13.
and "on the rate then in force". According to the plain language used in paragraph 3 (which, it must be remembered, was the language the respondent saw fit to use) these were the only factors to be taken into account by the respondent in fixing the premium payable in respect of the new policy. There is no express reference to any loading of the premiums in paragraph 3, or in any of the other paragraphs in the conversion clause. In relation to insurance, the words "Premiums shall be based .... on the rate then in force" are common words, in every day use, having a perfectly plain and ordinary meaning. The term "premium" is the general term used to describe the
consideration/
14.
consideration which the insurer receives from the
insured for undertaking the obligations under the
insurance contract. "The rate" is the factor
which if applied to the sum assured yields the
premium payable. Thus, the premium is usually
charged at a basic rate of so much per R100 on the sum
assured. There can, in the very nature of things,
be no set rate of loading premiums on health grounds.
The rate of loading
would in each instance have to
be determined in the light of the state of
health
of the insured concerned. The words "rate then in
force", in my
view, clearly refer to the basic rate,
exclusive of any loading component, in
force at the
date of conversion.
It/
15. It was contended on behalf of the respondent that on a proper interpretation of the conversion option clause, read in its context, the premiums payable upon the exercise of the option were to be based on the factors referred to in clause 3, but were not confined thereto. The clear mutual intention of the parties, so it was contended, was to enable the holder of the option mutatis mutandis to convert the term insurance into whole life or endowment insurance. And it was further said that ex facie the conversion option clause the parties never intended to confer upon the option holder more favourable terms under the new insurance than those
held/
16. held under the original insurance, which would be the result,
so it was claimed, if the health loading component of the premiums
under the
original policy were to fall away on conversion. I cannot accept these
contentions.
A policy of insurance must be construed according to the
ordinary rules of construction applicable to written contracts. Referring
to
these general principles of construction, Wessels CJ said in Scottish Union
and National Insurance Co. Ltd. v Native Recruiting Corporation Ltd. 1934 AD
458 at pp 465-466:
"Now in construing a contract we must not only consider the intention of
one/
17.
one party, as we do in construing a
will or an Act of the Legislature, but
we must see what both parties intended,
and we must guard ourselves against
making a contract for the
parties.
We have no right, because we may think
that the contract is a
hard bargain, to
lean towards a construction more reasonable
to the insured than the
contract constituted
by the words of the document.
We must gather the
intention of the parties from the language of the contract itself, and if that
language is clear, we must give
effect to what the parties themselves have said;
and we must presume that they knew the meaning of the words they used. It has
been
repeatedly decided in our Courts that in construing every kind of written
contract the Court must give effect to the grammatical
and ordinary meaning of
the words used therein. In ascertaining this meaning, we must give to the words
used by the parties their
plain, ordinary and popular meaning, unless it appears
clearly from the context that both the parties intended them to bear a
different
meaning/
18/19
meaning. If, therefore, there is no ambiguity in the words of the contract, there is no room for a more reasonable interpretation than the words themselves convey. If, however, the ordinary sense of the words necessarily leads to some absurdity or to some repugnance or inconsistency with the rest of the contract, then the Court may modify the words just so much as to avoid that absurdity or inconsistency but no more."
The statement in the passage which I have underlined
applies, of course,
also to the position of the insurer.
(See also Worman v Hughes and Others 1948(3) S A 495
(AD) 505; MacGillivray and Parkington on Insurance Law,
7th ed.,
(1981) paras. 1031 - 1040; Colinvaux, The Law
of Insurance, 4th
ed. (1979) paras. 2 - 01 - 2 - 05;
Ivamy, General Principles of Insurance
Law, 3rd ed. (1975),
pp. 312/
20. pp. 312 - 333; and Gordon, The South African Law of Insurance, 2nd
ed. (1969) pp 213 - 215).
The conversion option clause appears, on the face
of it, to contain all the terms and conditions upon which the respondent
undertook
to exchange the term policy for a whole life or endowment policy.
These terms and conditions are set out in what seems to be a standard
printed
form to which nothing was added by the parties. As I have already pointed out,
there is no express reference in the clause
in question to the loading of
premiums. Parties to an insurance contract have to commit themselves to a
definite arrangement for
ascertaining the premiums payable
in/
21. in respect of the policy. The rate of the premium or the amount
of the premium must be agreed. In the present instance the agreement
was that
the premiums, i e the consideration for the new policy, would be calculated on
the basis laid down in clause 3. In my view,
it cannot be inferred from the
language used in this paragraph that the respondent and the option holder
agreed, at the time, that
the premiums would be calculated on any other basis,
or that any additional factors would be taken into account in the assessment
of
the premiums.
I am also unable to accept the contention that ex facie
the conversion option clause there was
no/
22.
no intention to grant the new policy on terms more favourable than those applicable to the original policy. Counsel for the respondent maintained that once the original policy was granted on the basis that there was a loading, the respondent was confidently able to allow the conversion option to take place without any evidence of insurability because it was accepted that the premiums payable under the new policy would likewise be loaded. Whatever the respondent's reason or motive might have been for not requiring any evidence of insurability, we are, at this stage, only concerned with what the parties' intention was as expressed in the
conversion/
23. conversion option clause. This clause was not simply a renewal clause. It
granted the option holder the right to exchange the
term policy for an entirely
different type of policy to which different
considerations apply. The parties
would have realised,
at the time, that upon conversion the risk to be covered
under the new policy would be different; that the duration of the insurance
cover would be different; and that the amount of the premiums payable in respect
of the new policy would, inevitably, also be different.
The respondent was
responsible for drafting the terms of the conversion option clause. It undertook
to calculate the amount of the
premiums on the basis
laid/
24.
laid down in paragraph 3, and this was accepted by the original option holder. If the respondent intended loading the premiums on policies effected in terms of the conversion option clause, this could so easily have been said in paragraph 3. Whatever the parties' true intention might have been, it cannot, in my view, be inferred from the language of the conversion clause that it was agreed between them that, on conversion, the premiums payable in respect of the new policy would be loaded to the same extent as the premiums on the original policy, or at all.
To sum up, thus far. In my judgment,
the/
25;
the terms of the conversion clause are perfectly clear and unambiguous. On
the plain and ordinary meaning of the words of the clause,
the respondent was
obliged to fix the premium payable in respect of policy no. 451060 on the basis
stipulated in paragraph 3, without
any additional loading on health, or any
other, grounds. It is common cause that the premium fixed by the respondent
included a loading
of R133,33. It follows that, to this extent, the premiums of
policy no. 451060 did not conform to the terms of the conversion option
clause.
However, counsel for the respondent sub
mitted that this
interpretation would necessarily re
sult/
26.
suit in absurdity and inequity. He pointed out that, on this interpretation, the option holder would have been entitled to exercise the conversion option on the day after the term insurance contract had been concluded in which event the respondent would have been obliged to issue a new policy without any health loading. He argued that the parties concerned could never have entertained the belief that that was what the respondent had agreed to. I am not persuaded that an interpretation based on the ordinary meaning of the words of the conversion option clause would necessarily lead to any real absurdity or inequity. It is true that on this interpretation the option
holder/
27. holder could have exercised his option the day after the
original policy had been issued, but the parties may well have considered
it
unlikely that this would happen. The option holder would not have gained any
real advantage by exercising the conversion option
before the end of the ten
year period. This may be why the option was not exercised until the very last
moment,. Under the original
policy the insured was covered for a ten year term
at a monthly premium of R312,43 and the option remained open right up to the
expiry
date, namely, 1 February 1981. If the option holder had exercised the
option immediately, he would probably
have/
28. have paid a much higher premium (even though it was not
loaded) for the same amount of cover during the ten year period. But even
if the
option contract may, in the circumstances, appear to be a hard bargain from the
respondent's point of view, that, in itself,
is no reason why the court should
not give effect to it. Where the language of a contract is clear and
unambiguous, as it is in the
instant case, the court must give effect to the
intention of the parties as expressed in the contract however harsh or
unreasonable
that may appear to be. (See Scottish Union and National
Insurance Co. Ltd. v Native Recruiting Corporation Ltd. supra, 465; and
John H Pritchard and Associates (Pty)
Ltd./
29. Ltd. v Thorny Park Estates (Pty) Ltd. 1967(2) S A 511 (D &
CLD) 515 A - C; Sleightholme Farms (Pvt) Ltd. v National Farmers Union Mutual
Insurance Society Ltd. 1967(1) S A 13(R) 18 B-C; Mac Gillivray and
Parkington op cit par. 1065.
I come, next, to the question whether there
is any room for importing a tacit term into the contract to the effect that the
premiums
payable in respect of a policy effected under the conversion clause
would be loaded on health grounds to the extent of R133,33. I
have considered
this question although it was not specifically raised on behalf of the
respondent. In my view, there is no room for
importing any such term into
the
contract. The parties have in clear and unambiguous
terms/
30.
terms dealt with the basis upon which the amount of the premiums would be assessed. They have stated categorically that the premiums would be based on (a) the age attained by the insured at the date of commencement of the new policy, and (b) on the rate then in force. A tacit term cannot be imported into a contract in respect of any matter to which the parties have applied their minds and for which they have made express provision in the contract. As was said by Van Winsen J A in S A Mutual Aid Society v Cape Town Chamber of Commerce 1962 (1) SA 598 (A) 615D:
"A term is sought to be implied in
an/
31.
an agreement for the very reason that the parties failed to agree expressly thereon. Where the parties have expressly agreed upon a term and given expression to that agreement in the written contract in unambiguous terms no reference can be had to surrounding circumstances in order to subvert the meaning to be derived from a consideration of the language of the agreement only. See Delmas Milling Co. Ltd. v du Plessis, 1955 (3) S A 447 (A D) at p. 454.,"
(See also: Mullin (Pty)
Ltd. v Benade Ltd. 1952 (1) S A
211(A) 215 D - H; Pan American World
Airways Incorporated v
S A Fire and Accident Insurance Co. Ltd.
1965 (3) S A
150 (A) 175C; Cape Town Municipality v Silber
1971(2)
S A 537 (C) 543 A - D; Christie, The Law of Contract
in
South Africa (1981) pp. 156 - 158). I should,
perhaps/
32. perhaps, also mention in passing that the respondent has not sought, nor
made out a case for, rectification of the terms of the
conversion clause.
To
conclude. Upon the exercise of the option by the appellant, the respondent
became obliged to issue a new policy in accordance with
the undertaking
contained in the conversion option clause. In terms of the provisions of this
clause the respondent was not entitled
to include a loading of R133,33 in the
monthly premiums payable in respect of the policy (i e policy no 451060) issued
in consequence
of the exercise of the option, and to this extent the respondent
has failed to do what it was
required/
33. required to do under the contract. The appellant is entitled to a declaratory order to this effect, despite the form of the order sought.
The following order is accordingly made:
1. The appeal is upheld with costs; 2. The order of the court a quo is set aside and the following order is substituted therefor:
(a) The respondent was not entitled to include a loading of R133,33 in monthly premiums payable in respect of the policy no. 451060 which was issued by the respondent over the life of Wilfred Robin in consequence of the exercise by the applicant of her option under the option conversion clause
in/
34.
in policy no. 67241.
(b) The respondent is directed to
refund to the
applicant all additional premiums of R133,33 per
month paid
under protest by the applicant and/or
Wilfred Robin in respect of policy no.
451060.
(c) The respondent is directed to pay the costs
of this
application.
TRENGOVE, JA
RABIE, CJ )
KOTZé, JA ) Concur
SMUTS , AJA )
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