In this judgment the appeal court had to consider whether the claimant who owned goods damaged by fire at the insured’s warehouse premises was entitled to an indemnity under the relevant policy of insurance.

The lower court held that on a proper construction of the “interests of other parties” clause in the policy as interpreted in the context of the relevant legislation, the claimant was entitled to an indemnity as a third party beneficiary under the policy.

A fire occurred at a warehouse owned by the insured under an Industrial Special Risks Policy. The claimant had engaged in the business of importing beverages into Australia and at the time of the fire had stored beverages at the warehouse.

The goods were not otherwise insured.  The claimant sought to claim under the policy as a third party beneficiary for the loss of stock as a result of the fire.

Central to the claim were rights provided under the Relevant Insurance Contracts Act (“the Act”) given to a third party beneficiary under a contract of insurance to recover from the insurer in accordance with the contract the amount of any loss suffered by the third party beneficiary even though that beneficiary is not a party to the contract. The Act defines a third party beneficiary as a person who is not a party to the contract but is specified or referred to in the contract whether by name or otherwise as a person to whom the benefit of insurance cover provided by the contract extends.

No similar legislation exists in South Africa.

The question before the court was the proper construction of the policy with the lower court judge confirming that insurance contracts must be interpreted with the commercial purpose and context in mind.

The policy contained an “Interest of Other Parties” clause which provided:

“The insurable interest of only those lessors, financiers, trustees, mortgagees, owners and all other parties specifically noted in the records of the Insured shall be automatically included without notification or specification; the nature and extent of such interest to be disclosed in the event of damage.”

The policy also contained an endorsement dealing with goods providing:

“The policy extends to insure goods belonging to the Insured’s customers at the Premises, to the extent that such goods are not otherwise insured.”

 The majority appeal judges agreed with the lower court judge. The claimant clearly fell within the class identified as “Owner” in the endorsement. The interpretation was commercially sound, noting that it is well-established that a bailee may insure the bailed goods to the full value, and that the insured warehouse owner received commercial benefit out of the arrangement.

The endorsement was important as it created a basis for the third party beneficiary provisions of the Act to operate.

The insured’s records demonstrated that the claimant kept goods or products at the insured warehouse owners’ premises and that was sufficient.  No specific register or formal record relating to the insurance was required.

Insurers should carefully consider the consequences of the use of “Interests of Other Parties”, noting of interest and similar clauses and their possible unintended expansion of who is covered under the policy.