Readers who have been following the latest allegations before the State Capture Inquiry regarding Gavin Watson, will have been keeping an eye on the recent debates on non-disclosure that arise from time to time. Further, anyone with a long memory may recall the case of Van Zyl and Maritz v Sasria; a judgment that brought together some members of the same Watson family and issues of non-disclosure in an insurance contract.
The judgment delivered in 1995 dealt with a fire at the Watson’s residential premises a decade earlier. The defendant insurers had sought to avoid the relevant policy on the basis of material non-disclosure of both moral and physical risks. The insurers argued that each of the respective insured parties had a duty to disclose all facts and circumstances of which they had knowledge, and which were material to the risk to be undertaken by the insurers.
The insurers alleged (and bore the onus of proving) that there was non-disclosure that the insured parties were in serious financial difficulties. Serious threats of physical attack on the partnership’s dwelling and shop premises had been received by the insured parties, which induced the insured parties (or some of them) to seek guarding for the house and shop.
The court dealt at some length with the evidence before it regarding threats allegedly made in respect of the premises and admitted on the pleadings, and decided the issue on the basis of those admissions. The threats received comprised at least one threat that the Watson residence would be attacked and one threat that the shop premises would be attacked. Both threats were received in the period 1982 to 1983, although on separate occasions.
There was some debate about the seriousness of the threat to the house. It was regarded as sufficiently serious for an armed guard to be mounted over the house for the whole night. The shop premises were also guarded.
The court found that the insurers had succeeded in proving that a very serious threat to the house (i.e. that it would be attacked) was received around 1983 and that subsequently, during the same period, a very serious threat that the shop premises would be attacked was also received.
The question then posed was whether those threats were sufficiently relevant at the time when the policies in question were effected, or renewed, in 1985.
The court accepted that where property is sought to be insured, a threat that the property will be attacked (provided that the threat is regarded as serious and is sufficiently proximate in time) would be material in that it would reasonably be relevant to the risk in question and must be disclosed to the insurer.
It was argued that the threats were not serious and had become watered down to such an extent that, at the relevant time, they could be discounted. Further, they were not material at the relevant time and the insured parties had been under no obligation to disclose them to the insurers.
There had been threats not only to the property referred to above, but also to the claimants and their family members. The non-disclosure of those latter threats had not been pleaded. The court said that that was not to say that those threats were to be ignored as totally irrelevant. The personal threats, even if they were not implemented, assisted the insurers. Both categories of threats, i.e. to property and person, arose out of the persistent widespread and considerable unpopularity of the Watson family borne of their openly stated and implemented political views (i.e. against the apartheid state).
While the personal threats were not carried out, they sprang from the same origin as the threats against the property and continued to persist and were current at the relevant time (that is, when proposing for insurance). They were therefore part of the context in which the property threats should be assessed.
In this context, the threats against the property remained material at the relevant time – they were reasonably relevant to the risk undertaken by the insurers and the non-disclosure thereof entitled the insurers to avoid the policies in question.
The court turned to consider the admissions on the pleadings and other evidence of the financial affairs of the various insured parties, who were found to be in dire financial straits (except for the third plaintiff). They were, at least, commercially insolvent.
The question that arose was whether the financial position of the various insured parties was material and should have been disclosed to the insurers.
The court, however, accepted that information concerning the financial position of an insured touched on their so-called moral risk and, therefore, the insured’s financial position was regarded as touching on their whole personality.
The case law is clear and the position remains that the adverse financial position of an insured may give rise to a moral risk.
The court found, on the facts, that evidence as to the materiality of the information is unnecessary in that it was clearly material. Whether or not a person is bankrupt or not affects their whole personality. The description “bankrupt“ is applicable not only to a person who has been declared insolvent, but also to a person who is in fact unable to meet their liabilities.
Where the insured is in the desperate financial situation that the Watson family was, at the time, dangers such as that the insured may institute an inflated claim under the policy; or may not take proper and reasonable steps to protect the property from any loss it is insured against; or may, even themselves, deliberately cause damage to the property; are – as in the case of the declared insolvent – just as real. In this case, the possibility of the dangers referred to speak for themselves. And the dangers are so clearly material that evidence thereof is unnecessary. The financial difficulties identified should have been disclosed as material, leaving it to the insurers to make their own assessment thereof. The court therefore found in favour of the insurers on the basis of non-disclosure.
The position in South African law has not changed as regards the moral and physical risks dealt with in the Maritz judgment.
The fact that a proposer for fire insurance had previous fires, suggesting carelessness on their part or the part of their employees; or made an unfair or excessive claim; or is fond of litigation, are all material facts which should be disclosed and will go to the character of the insured. The risk experience of the proposer must also be disclosed.
And, of course, the insurance record of the proposer may be material – including the fact that the policy had been cancelled, a proposal declined or renewal of previous policies refused.
It isn’t necessary, however, to disclose circumstances that diminish the risk; circumstances known or presumed to be known to the insurer (e.g. matters of common notoriety or knowledge, and that which the insurer in the ordinary course of business ought to know); any circumstance as to which information is waived by the insurer; and any circumstance which is superfluous to disclose.