The questions on appeal in this Supreme Court of Appeal judgment were whether the policy fraud clauses entitled the insurer to repayment of all the amounts paid to the insured subsequent to the insured event when the insured with full knowledge of his misrepresentations submitted a partly fraudulent claim; whether the doctrine of accrued rights applies in the context of the facts of the case; and whether the trial court was correct in its characterisation of the relevant clauses as constituting penalty clauses justifying the court’s refusal to enforce the clauses in question.

The relevant clauses read:

“5.13     All benefits in terms of this Plan in respect of any claim will be lost and this plan may be voided or cancelled at our discretion:

  • Where there is a misrepresentation, non-disclosure, misdescription by you or anyone acting on your behalf; or
  • If false or incomplete information is supplied for any fact and/or circumstance in connection with an application for cover or in connection with a claim in terms of this Plan by you or anyone acting on your behalf; or
  • If any claim or part thereof under this Plan is in any way fraudulent, or if fraudulent means or devices are used by you or any acting on your behalf to get any benefit under this Plan is occasioned by your intentional conduct or any person acting on your behalf or with your involvement;
  • If any fraudulent information and/or document whether created by you or any other party is provided to us by you or anyone acting on your behalf or with your involvement in support of any claim under this Plan and whether or not the claim is itself fraudulent.
  • If the size of any claim is inflated by you or anyone acting on your behalf or with your involvement, for any reason whatsoever, and whether the claim itself is fraudulent.
  • Where any benefit under this Plan is forfeited in circumstances set out in this section, we will have the right to cancel your Plan retrospective to the reported incident date or actual incident date, whichever is the earliest.”

“5.5       We reserve the right to cancel your Plan and claim repayment from you for any amounts we have paid in settlement of your claim if you breach or fail to comply with our procedure and the rules set out in this Plan Guide.”

The court agreed with the insurer’s contention that clause 5.13 recognises the right to terminate the policy retrospectively from the date, not discovery of the insured’s fraud, but from the date on which the incident that gave rise to the claim occurred which resulted in the insured forfeiting entitlement of all amounts already paid, payment having been post the date on which the incident giving rise to the claim occurred.

The court said that clause 5.13 is clear and unambiguous and effect must be given to it.  The court said that the underlying purpose of clause 5.13 is designed to protect the insurer against fraudulent claims and discourage attempts by insureds to gain undue advantage by lodging falsely inflated claims would be undermined.    The court held there was no cogent reason why full effect should not be given to the clause.

When the insured purported to submit his claim there was no longer an extant insurance policy because it had already been terminated with retrospective effect from the date of the incident ( the day before the claim was notified).

The court said that the logical conclusion is that when the insured lodged the claim it had already forfeited all benefits under the policy.  Once the policy was terminated on the date of the incident giving rise to the claim, there was no exiting policy under which the insured could claim any of the benefits that would otherwise have been available to him had that policy not been terminated a day earlier.

Accordingly, the insurer was entitled to a refund of all the monies previously paid to the insured, an amount of R1 594 980 plus interest at 10.25% from 8 June 2017. 

The court declined to deal with the argument that the forfeiture clause was a penalty clause in contravention of the Conventional Penalties Act because the issue had not been pleaded nor canvassed at trail but emerged for the first time in lower court’s judgment.

The court said in passing that the clause is “to all intents and purposes a penalty clause which is, for that reason, not enforceable.  It is not necessary to delve into this aspect”.  This issue and the application of the Conventional Penalties Act remains to be dealt with in the context of fraud clauses if and when properly pleaded and canvassed in the trial proceedings and is a question for another day.