The plaintiff insured instituted action against the defendant insurer, in relation to a claim arising from a fire on the insured farm (in May 2015) which the plaintiff alleged resulted in damage in the sum of around R14 million. The plaintiff’s insurance claim was rejected by the insurer in June 2016 on the grounds that the plaintiff had misrepresented which portion of the farm the fire originated from. The insurer alleged that the fire originated in a sawdust and timber waste area and that this waste area was not mentioned by the plaintiff in the insurance renewal form. The waste area required a fire break of at least 30 meters wide around the whole immediate exterior perimeter, and the plaintiff failed to maintain that fire break area. Both parties presented voluminous amounts of evidence and various witnesses were called.

The court noted that the insurer had to prove the materiality of a misrepresentation or non-disclosure, and that the test is objective (would a reasonable person think that the risk should have been disclosed to the insurer). The test for inducement to enter into the contract remains subjective (that is, whether the particular insurer was induced by the material non-disclosure to issue the policy).

Based on the evidence, the court concluded that the sawdust heap must have been the origin of the fire. It is common cause that the plaintiff had not ever informed the insurer of the sawdust heap. The evidence of the plaintiff was that it had been dumping at the site since 2003, in order to fill up the area to enable it to plant more trees there. The insurer alleged that allowing sawdust and timber waste to be dumped in that area increased the risk of fire.

The policy was taken out in 2001. In the 2015 renewal proposal form, the plaintiff answered “no” to the question of whether there were any factors which had increased the fire risk of the farm since the last proposal form was completed. The court accepted that this was a reasonable response because the plaintiff had been dumping at the sawdust site since 2003 and there had been no fire in that area since then. The court did not therefore find the answer to that question on the proposal form to have been a misrepresentation or fraudulent.

It was never disputed by the plaintiff that the dumping had taken place at the sawdust dump area. The question that the court had to consider, therefore, was whether there was a duty to make disclosure of the dump site to the defendant. The court noted that there was no specific mention in the insurance certificate or in any other documents that stated that the dumping of sawdust waste is not allowed. The plaintiff was of the view that it was not a fire hazard, while the insurer alleged that it was a fire risk that had to be disclosed.

The court noted that the insurer alleged that it was convinced in November 2015, or at the latest by December 2015, that the fire had originated from the sawdust site – yet it did not mention this to the plaintiff until March 2016. There was an inquiry in this regard in February 2016, but still no indication that the insurer was of the view that there was a possible breach of the conditions of the policy that would entitle the insurer to cancel the agreement. To the contrary, the insurer inquired from the plaintiff what the salvage value would be of the timber that remained. The claim was not paid by the end of April 2016 and therefore the plaintiff did not renew its policy with the insurer, but took out cover with another insurer. The defendant insurer only rejected the plaintiff’s claim in June 2016.

The court stated that the question arises why, if during November 2015 the defendant was of the view that the breach had occurred which allowed the termination of the policy and rejection of the claim, it did not do so until June 2016. The court found that there could not have been a necessity for such a lengthy investigation to come to that decision. The court therefore concluded that the defendant insurer was itself not convinced about the origin of the fire and its decision to reject the claim.

Looking at whether a reasonable person in the position of the plaintiff would have considered it necessary to inform the insurer of the waste site, the court stated that the plaintiff had been dumping at that site for approximately 12 years. It would be reasonable that a person in that position, in circumstances where fire had not occurred, would not regard it necessary to inform the insurer of the site.

Even if the site did increase the fire risk, it was accepted by the insurer’s witnesses that pruning and trimming trees was done, and waste was left on the ground, which increased fire risk, and it was not considered necessary that that be reported. The insurer also did not think the risk was material enough to raise it with the plaintiff immediately. Further, if it was considered to be such a serious fire risk, the court noted that one would expect it to be specifically mentioned in the policy document.

The court stated that the insurer failed to prove that the disclosure or non-disclosure of the dump site would have affected its decision to insure the property. On the evidence, the court therefore found that the plaintiff was not guilty of material misrepresentation or non-disclosure and the insurer was ordered to pay the claim.

Normadien Farms (PTY) Ltd v SAFIRE Crop Protection Co-operative Limited (8960/2016P) [2023] ZAKZPHC 6 (26 January 2023)