3 June 2015 Insurance Matters

It's all about the evidence

Having the law of evidence on your side – and adhering to its precepts – is crucial if insurers hope to uphold a repudiation based on an insured's non-disclosure of material facts.

Section 59(1) of the Long Term Insurance Act, No 52 of 1998 and s53 of the Short Term Insurance Act, No 53 of 1998 permit insurers to escape liability under an insurance contract on the basis of misrepresentation, provided such misrepresentation would have likely materially affected the relevant policy's risk assessment upon issue.

The Supreme Court of Appeal's Willis JA recently clarified the legal position when insurers repudiate a claim upon discovering a material non-disclosure by an insured in his concurring but separate judgment in Visser v 1Life Direct Insurance Ltd 2015 (3) SA 69 (SCA) (28 November 2014)

1Life Direct Insurance Ltd (1Life) repudiated a life insurance policy claim after investigations revealed that the deceased insured had misrepresented and failed to disclose details of a pre-existing medical condition which would have materially affected the policy's risk assessment.

The High Court ruled in favour of 1Life. On appeal, the Supreme Court of Appeal held that 1Life did not discharge the onus of proving the truth and accuracy of the contents of the hospital records on which it relied to prove the deceased's pre-existing medical condition. 1Life failed to lead the necessary evidence and accordingly had to pay the R3,3 million claim out and foot the legal bill for its lack of attention to the evidence.

In his separate judgement, Willis JA discussed the requirements for insurers to secure a repudiation based on non-disclosure of material facts. These are that:

  • insurers bear the onus of proving all the elements to justify this type of repudiation;

  • the onus on insurers to defend a repudiation of this nature is extensive

  • insurers must prove that:

  • a representation was made;

  • the representation was untrue;

  • the true facts were known to the insured when the insured responded to the insurer's questions; and

  • the misrepresentation was likely to have materially affected the policy's risk assessment at the time of issue.

Assessing an insured's state of mind at the time of responding to their insurer's enquiries involves both objective and subjective elements to be inferred from the evidence available to the court. Subjective elements include what the insured thought and understood when making the disclosures, while an objective assessment is necessary to establish whether the insured could reasonably have been expected to know that their misrepresentation would materially affect the insurer's risk assessment.

Willis JA remarked that the materiality of a non-disclosure is a question of law and emphasised the importance of distinguishing questions of law from questions of fact in similar cases of repudiation.

The relevance and reliability of evidence as well as the Constitutional right to a fair trial must also be considered before disputed evidence may be admitted into evidence and relied upon by a court.

In future, insurers should not take shortcuts when asking a court to uphold a repudiation based on material non-disclosures and must ensure that they meet the high evidential bar of these types of actions.

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