South Africa: High Courts - Gauteng Support SAFLII

You are here:  SAFLII >> Databases >> South Africa: High Courts - Gauteng >> 2006 >> [2006] ZAGPHC 75

| Noteup | LawCite

Ivanov v Santam Limited (21903/04) [2006] ZAGPHC 75 (8 August 2006)

IN THE HIGH COURT OF SOUTH AFRICA

(
WITWATERSRAND LOCAL DIVISION)



CASE NO: 21903/04






In the matter between:



VICTOR IVANOV                                                          Plaintiff



and



SANTAM LIMITED                                                         Defendant



J U D G M E N T




MALULEKE, J:

[1]      Plaintiff’s claim against the defendant is for payment of the sum of R170 000 as the insured value or market value of plaintiff’s BMW TI 2002 model car registration number NPF 583 GP (hereinafter referred to as “the insured vehicle”) which was stolen or hijacked from plaintiff on 30 July 2004 in Kensington. The insured vehicle was at the time comprehensively insured for an amount of R170 000,00 by defendant inter alia against loss by theft under and in terms of a written contract of insurance (the policy) entered into by the parties on 26 March 2004 through the services of an intermediary or insurance broker named Willsure (Pty) Ltd. Defendant repudiates the obligation to indemnify the plaintiff under the policy on the grounds that the claim is fraudulent and is supported by incorrect and untrue information wilfully misrepresented by plaintiff.

THE FACTS

[2]      Plaintiff’s case is based on the evidence by the plaintiff and two expert witnesses namely Louis James Edward Kendall (“Kendall”) who is a qualified panel beater and assessor of values of motor vehicles pre and post collision; and Raymond John Curran (“Curran”) a general and used motor vehicle dealer of some 25 years experience and experienced in the valuation of used motor vehicles. The case for the defendant is based on the evidence of Johannes Grobler (“Grobler”) an expert loss adjuster and assessor with experience in the adjustment and settlement of motor vehicle insurance claims. In addition, bundles of documents were admitted to evidence by consent of the parties.

[3]      On the basis of the evidence and admitted facts, the following are relevant issues are common cause:

3.1     
The insured vehicle, then owned by one W Mkanzi and insured by defendant, was on 5 July 2003 extensively damaged in a motor vehicle collision and defendant acquired ownership of the vehicle after paying the resultant claim. Thereafter the insured vehicle was in the damaged state acquired from defendant by Bonerts (Pty) Ltd (“wreck dealer”) as a used or second hand vehicle (Code 2 vehicle). On 23 August 2003 plaintiff purchased the insured vehicle in the damaged state from Bonerts for an amount of R75 000,00 as a used or second vehicle (Code 2 vehicle). At the time of the collision aforesaid the vehicle was insured by defendant for an insured value of R179 000,00.

3.2     
Plaintiff had the insured vehicle repaired by Kendall who carried on business as Auto Body Fix CC Panel Beaters and Spray Painters and thereafter the repaired insured vehicle was valuated by Kendall and Curran and was inspected for insurance purposes by P G Glass on behalf of the defendant and a Vehicle Inspection Certificate showing inter alia that the vehicle was free of defects or damage was issued by P G Glass on 26 March 2004 (Bundle C4). This certificate was issued to defendant through the broker, Willsure. On the same date the contract of insurance (“the policy”) was validly entered into by the parties as facilitated by the insurance broker Willsure and in terms whereof defendant insured the plaintiff’s vehicle for the insured value of R170 000.00 against a monthly premium of R1 236,67.

3.3     
On 3 July 2004 the insured vehicle was hijacked or stolen from plaintiff in Kensington and consequently plaintiff lodged a claim with defendant on 5 July 2004 timeously and in accordance with the terms and conditions of the policy submitted by submitting a duly completed “Theft Claim Form” (Document C15). Defendant repudiated the claim on the basis that plaintiff made fraudulent misrepresentations or wilfully made false statements to Grobler who was engaged by defendant to investigate the claim. Defendant repudiated the claim on the basis that plaintiff has breached the terms and conditions provided for in paragraph 9 of the General Conditions of the Policy which provide:

9        Fraudulent or wilful acts

                           All rights of indemnity will be forfeited if:

(a)     
a claim is in any respect fraudulent or if fraudulent means are used by you or on your behalf to obtain benefit under the policy;

(b)     


(c)      Information in connection with a claim is not true.


[4]      It is common cause that the insurance contract was validly entered into and was valid at the time of the hijacking of the insured vehicle and that plaintiff lodged the claim in accordance with the provisions of the contract.


The following provision in the policy is also relevant for the determination of the dispute:

         “2        Limit of indemnity

The maximum amount we will pay for loss or damage to the vehicle is limited to the insured amount of the vehicle or its reasonable market value – whichever is the lesser amount.


The insured value is R170 000,00 as stated in the policy and the reasonable market value is generally defined as the price that a willing buyer would pay a willing seller for the vehicle. Expert evidence is often required to establish this latter value.

[5]      The performance of the contracting parties under the insurance policy is regulated in terms of the relevant legislation. The following provisions from the Short Term Insurance Act No. 53 of 1998 are particularly relevant for a proper interpretation of the performance terms and conditions of the policy relied upon by defendant:

         “Section 53(1)

(a)      Notwithstanding anything to the contrary contained in a short-term policy … -

                  (i)      the policy shall not be invalidated;

(ii)     the obligation of the short-term insurer thereunder shall not be excluded or limited, and

                  (iii)    the obligation of the policy holder shall not be increased,

on account of any representation made to the insurer which is not true, or failure to disclose information, whether or not it has been warranted to be true, unless the representation or non-disclosure is such as to be likely to have materially affected the risk under the policy concerned at the time of its issue or at the time of any renewal or variation thereof;

(b)      The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information constituting the representation or which was not disclosed, as the case may be, should have been correctly disclosed to the short-term insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk.

These provisions clearly apply to the interpretation of the pre-contract obligations as well as to the interpretation of the performance obligations under the contract. See Joubert v Absa Life Ltd, 2001 (2) SA 322 (W) which considered similar provisions in the Long-Term Insurance Act 52 of 1998.

[6]      It is clear from these provisions that materiality is a vital requirement for alleged fraudulence or wilful misrepresentation to vitiate the contract of insurance or performance under the contract. (See Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality 1985 (1) SA 415 (AD) at 432 and more particularly see Strydom v Certain Underwriting Members 2000 (2) SA 482 (WLD) at 486H-I where Labe J stated the principle eloquently as follows:

The contract of insurance is a contract which demands the utmost good faith from both parties … It would be condoning a breach of good faith on the part of the defendant if the court were to non-suit the appellant because in making a legitimate claim he knowingly made a fraudulent statement which did not affect the defendant’s position to its prejudice at all, i.e. it was not material. The statement made by the plaintiff did not exaggerate the claim nor did it have the effect of bringing the claim with the purpose of the appellant seeking to recover something under the policy to which the appellant was not entitled.

[7]      The defendant bears the burden of proof to establish on a preponderance of probabilities that plaintiff made the fraudulent representation or false statement with the wilful intention to defraud. The provision relied upon by the defendant to limit its obligation to indemnify requires to be interpreted strictly with proper regard to the main purpose, general nature and object of the contract to in (see Videtsky v Liberty Life Insurance Association of South Africa Ltd 1990 (1) SA 386 (W) and Schoeman v Constantia Insurance Co Ltd 2002 (3) SA 417 (W)). The defendant bears the onus to establish that plaintiff willingly made false statements with the intention to defraud and that the falsehood could reasonably have influenced the defendant as a prudent insurer to accept, reject or compromise the claim or to pay to plaintiff a benefit higher than he is entitled to (see Strydom v Certain Underlining Members supra at 486G).

[8]      In essence the defendant’s case is that after a valid claim was properly lodged with defendant by plaintiff, plaintiff wilfully presented to Grobler a false and incorrect invoice (Bundle C2) in respect of the cost of repairs effected to the insured vehicle before the contract of insurance was concluded. According to Grobler the invoice was fraudulent and untrue in that:

8.1     
The invoice is dated 16 September 2003 whereas it was in fact only generated and issued in July 2004 and the presentation of the backdated invoice constitutes fraudulent misrepresentation.


8.2     
The invoice shows that the cost of the repairs with VAT amounted to the sum of R95 874,00 whereas the correct cost of repairs is in the region of R60 000,00 which is the figure initially given to him by Kendall.

The evidence of plaintiff and Kendall is that they each informed Grobler when they met with him individually that no invoice was generated and issued when the repairs were completed in September 2003 for the reason that the costs of repairs were paid for partly in cash and partly by furnishing new and second hand spare parts some of which were bought from different suppliers and paid for direct by plaintiff. The invoice in question was indeed computed and generated in July 2004 from cash sale vouchers, and notes kept by Kendall after Grobler demanded proof of the cost of repairs. Kendall recalls telling Grobler that he estimated that the labour and painting costs were in the region of R50 000,00 to R60 000,00, exclusive of the costs of spare parts. No recording of the discussions between Grobler and plaintiff and those between Grobler and Kendall was produced. They each testified from memory on the actual discussions. There appears to be no material reason for plaintiff and Kendall to inflate the amount or to lie about the composition and date of the invoice. The evidence of plaintiff and Kendall is credible on the point.

[9]      In his Heads of Argument, Mr Lamplough, for defendant, contends, inter alia, that:

9.1     
The reasonable inference should be that the incorrect and untrue statements “were made fraudulently by the plaintiff to substantiate or higher valuation of the incorrect vehicle than was justified and accordingly was (sic) made in order to obtain a benefit under the policy to which he was not entitled in the form of an unduly highly indemnity”’; (Paragraph 5)

and further:

9.2     
Even if it is not accepted that fraud has been proved, it is clear that the plaintiff wilfully furnished incorrect information in connection with his claim, and the plaintiff’s claim must nevertheless be dismissed with costs.” (Paragraph 6)

This argument by Mr Lamplough is in my view flawed. It is common cause that plaintiff lodged an honest and valid claim which fall within the provisions of the policy. The antedating of the invoice and the figure given orally by Kendall as an estimate of the cost of labour and painting are insignificant and can in no way materially affect the assessment of the indemnity.

[10]     The provisions of clause 9 of the policy cannot be interpreted to mean that any false statement made after a valid claim has been lodged will have the effect of tainting the claim with fraud. The following dicta from the English case of GRE Insurance Ltd v Hornsberg and Others 29 SASR 498 which deals with the case where the insured made false statements to support his claim after he had lodged a valid claim and was quoted with approval in Strydom v Certain Underwriting Members, supra is pertinent:

Ordinarily a false and fraudulent statement will establish that the claim itself is fraudulent. It must be rarely that a claim supported by fraudulent evidence is found to be a valid claim. However in this case the concession has been made that the claim itself was valid. That being so it would not, it seems to me, become a fraudulent claim even if it were proved that there was an attempt to support the valid claim by evidence which was intentionally false.


Stated differently, the defence that plaintiff wilfully made false statements about the cost of repairs with the intention to recover a higher benefit than he knew he was entitled to is premised on the notion that the objective market value of the vehicle is less than the amount claimed and plaintiff knew or ought to have known that. The defendant’s argument in this regard is clearly flawed. As will be demonstrated later, the evidence supports the view that the plaintiff is in fact entitled to claim the amount claimed as this is the insured amount and further, credible expert opinion proves that the amount claimed is the objective realistic market value of the vehicle. Even if defendant’s valuation of the insured vehicle was correct, there is no basis on which it could be inferred that plaintiff knew or ought to have known that. It follows therefore that this defence is without substance. There can be no intention to defraud by the insurer who claims full indemnity on the basis of the insured value as provided for in the policy.

[11]     In casu, plaintiff submitted a claim for the insured value of the vehicle as prescribed for in the policy. He did not claim a higher amount than provided for in the policy. It is common cause that when the contract was executed there had been no fraudulent misrepresentation. The value of the vehicle was properly and validly established, accepted and agreed to by the parties. In these circumstances there seems to be no reason for plaintiff to manufacture false evidence to justify the indemnity he claims which is the value as provided for in the policy. The justification for the amount claimed is contained in the policy. On these premises, defendant has failed to discharge the burden to establish fraud on the part of the plaintiff. To sustain the defence it was necessary for defendant to prove that the conduct of plaintiff was fraudulent in the sense of an intention to deceive and defraud the defendant by getting a benefit he knew he was not entitled to. There is no evidence that plaintiff entertained such an intention to defraud. This defence in these circumstances is not sustainable.

[12]     The argument by Ms Lamplough that plaintiff must in terms of clause 9 forfeit his indemnity if it is shown that he furnished incorrect information to Grobler and that materiality of such falsehood is not a requirement, is in my view also flawed. The case of Strydom v Certain Underwriting Members (supra) is apposite in that the facts thereof are very similar to the instant case. In Strydom’s case the insurance policy contained a condition identical to clause 9 of this case. After the insured vehicle was damaged in a collision the insured submitted a claim wherein he knowingly stated a falsehood about how the collision had occurred with the intention to show that he was not negligent. The court found that it was not necessary for the plaintiff to have told untruths to hide his negligence because he was at any event insured and covered for damage to his vehicle caused by his own negligence. The court held that:
The fact that the statement was knowingly made could not have influenced the defendant as a prudent insurer to accept, reject or compromise the claim.

Clearly the ratio for this finding is on the basis that materiality is a central determining factor for falsehood or misrepresentation to entitle an insurer to escape liability under the policy.

[13]     On a consideration of all the evidence it is undisputed that plaintiff knew that in terms of clause 2 of the policy he was entitled to be paid the lesser of the amount of the insured value and the market value. There is merit in the argument by Ms Strydom for plaintiff that once it is established and accepted that the vehicle was properly repaired and restored to its market value, the actual amount that was paid for the repairs is irrelevant and is not material to the assessment of the claim. In the light of the case law already referred to as well as the legislative provisions of section 53(1)(a) and (b) of Act 53 of 1998. The argument by Mr Lamplough that “the materiality or otherwise of the false invoice are irrelevant. The policy wording provides for a forfeiture of benefits in the event of wilful submission of incorrect information by plaintiff” is somewhat astounding. In Avis Enterprises (Finance) (Pty) Ltd v Protea Assurance Co Ltd 1981 (3) SA 274 (A) at 289 it was held that like in other contracts, an insurance policy “must be interpreted in the context of the contract and object of the policy” and particular provision should not be construed to defeat the main purpose of the policy. In Klipton Clothing Industries (Pty) Ltd v Marine & Trade Insurance Co of South Africa Ltd 1961 (1) SA 103 (A) at 106 it was held that when interpreting an insurance contract “the court should incline towards upholding the policy against producing a forfeiture”. An insurer cannot escape liability to indemnify the insured by relying on some insignificant incorrect statement which is not materially connected to the risk or assessment of the claim.

[18]     To interpret clause 9 of the policy in the manner contended for by Mr Lamplough would amount to “condoning a breach of good faith on the part of the defendant” in circumstances where the alleged false statement is not material to the issue. When commenting on the importance of the Short Term Insurance Act 53 of 1998 Visser et al in “Gibson, S A Mercantile & Company Law” Eighth Edition at page 487 opined:

The basic object of these statutes is to avoid sharp practice and make sure that insurers conduct their business on sound financial lines so that members of the public may rely with confidence upon their stability.”



An untrue or incorrect statement which does not amount to wrongful or material misrepresentation cannot be relied upon to exclude or limit liability simply on the fact of its untruthfulness.


[19]     The expert evidence of Kendall, who is a qualified panel beater and experienced valuator of motor vehicles, is that the vehicle was properly repaired and restored to its perceived market value. The expert evidence of Curran, an experienced dealer in second hand vehicles, is that he valued the vehicle in December 2003 and was satisfied that the vehicle was in “showroom or mint condition” and in addition the vehicle had extras which he valued at about R20 000,00 . Kendall had the benefit to see and inspect the vehicle before it was repaired, he attended to the repairs and thereafter took the vehicle to BMW Agents for inspection. Thereafter the vehicle was also inspected and certified by P G Glass evidently on the request of defendant before the insurance contract was entered into. Curran inspected the vehicle after it was repaired. Grobler never saw the vehicle nor saw a photograph of the vehicle prior to the repairs or after the repairs. The opinions of Grobler on the value of the vehicle are based on tenuous and highly speculative grounds that the damaged vehicle should have been a Code 3 (irrepairably damaged) but he suspects or assumes that defendant and Bonerts colluded to surreptitiously transact the vehicle as a Code 2 (used or second hand vehicle). Grobler did not provide proof of such clandestine conduct on the part of the defendant who coincidentally and ironically is his principal or employer in this case. An opinion based on such grounds cannot be sustainable. See S v Mngomezulu 1972 (1) SA 797 (AD).

[20]     It is common cause and uncontested that plaintiff purchased the damaged vehicle from Bonerts as a Code 2 vehicle (used vehicle). Kendall inspected the vehicle and formed the opinion on the cost at which the vehicle could be repaired and proceeded to repair the vehicle on this basis, and so restored the vehicle to its pre-accident market value. Grobler’s evidence is that since the indications are that a damaged vehicle was sold by defendant to Bonerts on the basis of being uneconomical to repair, the vehicle should have been sold as a Code 3 by Bonerts to plaintiff. He is aware of a practice whereby by collusion between wreck sellers and insurance companies, Code 3 vehicles are sold as Code 2 vehicles. As already stated, this notion can be no sound basis for an expert opinion. The defendant is by all accounts before this court a large reputable insurer of motor vehicles and Bonerts are equally a reputable motor vehicle dealer. There seems to be no reason to willy-nilly accept that defendant and Bonerts indulged in crooked practices of colluding to sell Code 3 (irrepairable) vehicles as Code 2 (used vehicles) to each other and to innocent consumers and members of the public. This is unconvincing as a basis on which to found an expert opinion for the measurement of the value of the vehicle. Grobler’s opinion, based on this notion, is that the vehicle should be valued by dividing its market value by 50%. He basis this formula on information he allegedly obtained from BMW Agents. Both Kendall and Curran expressed consternation at this opinion and stated that they knew of no such practice in the industry. These witnesses both based their opinions on the valuation of vehicles on the recognised McGrauder Book on Values of used cars which is generally recognised as the authoritative work in the industry. Grobler has not given sound premises for his opinion and consequently his expert opinion on the valuation of vehicles has no probative value. See LAWSA Vol 9 at page 343.

[22]     The opinion of Kendall and Curran is to the effect that on the basis of their expertise and the accepted practice the fair market value of the vehicle was at least R170 00,00. The vehicle was insured for R170 000,00. In terms of the conditions of the policy the defendant is liable to pay the lesser of the amount for which the vehicle is insured as the reasonable market value of the vehicle, less 10% excess as provided for in the policy.
[23]     At the commencement of the trial counsel were invited to argue whether there could be prejudice to either party arising from the fact that a “Without Prejudice Offer of Settlement” in terms of Rule 34 was inadvertently disclosed to the court. After hearing argument I ruled then that these was no potential for prejudice to either party for the reasons that:

(a)      The valuation of the quantum of damages by the respective parties is clearly set out in the Expert Notices in terms of Rule 36(9)(a) and (b) of their respective experts filed of record.

(b)      The determination of liability was narrowed down to an interpretation of the provision of the policy regarding fraudulent misrepresentation and performance. Accordingly there could be no significant scope for bias or perception of bias in the determination of liability.

(c)      In these circumstances, by virtue of its training and oath of office, the court is not likely to be influenced by knowledge of a “Without Prejudice Offer of Settlement” which could have been made for any number of reasons, including commercial reasons.

Although the provisions of subrule 34(10) are worded in an imperative form, it has been held, correctly so, that courts have a discretion in appropriate circumstances to condone a breach of the subrule. The leading reported case in support of this interpretation is Jacobs v Santam Insurance Co Ltd 1974 (3) SA 455 (C) at 464G-H where it was held:

If the knowledge that there has been a payment into court could not reasonably cause any miscarriage of justice, the court in the exercise of its discretion may allow the case to proceed before it.




[24]     The evidence of Kendall and Curran on the value of the vehicle at the time the insurance contract was entered into is accepted and the opinion of Grobler on the valuation of the vehicle is rejected for the reasons stated. In this case the reasonable market value of the insured vehicle is the same as the insured value, which is the sum of R170 000,00 as is claimed and contended for by plaintiff. It is common cause that it is a term or condition of the policy that the determined amount of a claim for loss arising out of theft or hijacking must be reduced by a first amount payable or excess equal to 10% of the quantum of the claim and accordingly R170 000,00 less 10% leaves a balance of R153 000,00 as the value of the claim.

In the result I am of the view that plaintiff has succeeded in establishing his claim and consequently I make the following order:

         Judgment for the plaintiff against defendant for:

1.      
Payment of the sum of R153 000,00.

2.      
Interest on the said amount of R153 000,00 at the rate of 15,5% p.a. calculated as from 14 days after the date hereof.

3.      
Costs of suit including the qualifying fees for the experts Kendall and Curran.


_________________________
G S S MALULEKE
JUDGE OF THE HIGH COURT



COUNSEL FOR PLAINTIFF             ADV I STRYDOM

COUNSEL FOR DEFENDANT             ADV A LAMPLOUGH