Transparency in the Insurance Contract Law of South Africa

This means that contracts will be enforced and interpreted according to constitutional values and norms. Regarding the effect of the Constitution on the common law, it must be mentioned that the courts must develop the common law in the light of the spirit, purport and objects of the Constitution and by an appropriate evaluation of the values of ubuntu, as required by Sec. 39(2). The Constitution however enjoys a direct application to the relationship between the State and its citizens. This is however not relevant for this Report. See also Hutchison and Pretorius (2017), par 1.10 for an examination of the effect of the Constitution on contracts in general.

Act 52 of 1998.

Long-term insurance business “means the business of providing or undertaking to provide policy benefits under long-term policies”, which are defined as “an assistance policy, a disability policy, fund policy, health policy, life policy or sinking fund policy, or a contract comprising a combination of any of those policies; and includes a contract whereby any such contract is varied”. All these policies are defined individually in greater detail in the Act (Sec. 1). These long-term contracts provide policy benefits and are issued for a defined longer periods, usually exceeding 1 year.

The long-term PPR 2010 came into operation on 1 January 2011.

Act 53 of 1998.

Short-term insurance “means the business of providing or undertaking to provide policy benefits under short-term policies”, which include an engineering policy, guarantee policy, liability policy, miscellaneous policy, motor policy, accident and health policy, property policy or transportation policy or a contract comprising a combination of any of those policies; and includes a policy whereby any such contract is varied. All these policies are defined individually in greater detail in the Act (Sec. 1).

The short-term PPR 2010 also came into operation on 1 January 2011.

The PPR for the long-term and short-term insurance industries are issued and amended by the FSCA and published in the Government Gazette and enjoy legislative power.

Act 18 of 2017 that came into operation on 1 July 2018.

Act 37 of 2002.

Act 68 of 2008.

See Government Gazette 41329 (in terms of Section 55 of the Short-term Insurance Act) and in Government Gazette 41321 (in terms of Section 62 of the Long-term Insurance Act).

Act 97 of 1990. Note that the FSCA was also referred to as “the Regulator”. The new FSCA is now known as the “Authority”.

The FSCA is established by Section 56 the Financial Sector Regulation Act 9 of 2017.

Act 9 of 2017. This statute came into operation on 29 March 2018.

Internationally, consumer rights include the right to disclosure of information and the right to fair and responsible marketing to encourage responsible and informed consumer choices and behaviour. See in general the CPA s 3(1)(e); National Credit Act 34 of 2005 s 3(e)(ii) for national recognition of this basic consumer right.

See for example the Third generation EU Directives on insurance: Directive 92/94/EEZ (Third non-life insurance Directive) and Directive 92/96/EEZ (Third life insurance Directive) that apply to all EU Member States. An interesting distinction made in the EU is the so-called “large risks” and reinsurance fall beyond the scope of the statutory pre-contractual information duty. Large risks are described in PEICL 1:103(2) (a), (b) and (c). Such a distinction is foreign to our law. Information duties, whether pre-contractual or during the existence of the contract, apply to most policies. Differentiation applies to the content of disclosures, depending on the type of cover and the nature of the risks insured.

Act 4 of 2013.

Treating Customers Fairly: The Roadmap 31 March 2011 [accessed at www.​FSCA.​co.​za on 11 August 2013] (hereafter “TCF”) 6.

Act 37 of 2002.

See in general Hutchison and Pretorius (2017) and Christie and Bradfield (2016).

In this context, the requirement for concluding a contract that serves the criterion of fairness requires that cognisance be taken of the African concept of ubuntu, which can be broadly defined as a humanist philosophy. It reflects the communal nature of society, and as the court held in S v. Makwanyane and Another 1995 (3) SA 391 (CC) at par 237, ‘carries in it the ideas of humaneness, social justice and fairness’. Under Koyabe and Others v. Minister for Home Affairs and Others (Lawyers for Human Rights as Amicus Curiae) 2010 (4) SA 327 (CC); and Barkhuizen v. Napier 2007 (5) SA 323 (CC) par 51, it envelopes ‘the key values of group solidarity, compassion, respect, human dignity, conformity to basic norms and collective unity’. See also Bennett (2011), p. 29; Gade (2011), p. 303.

2002 (4) SA 1 (SCA) 15.

2012 (1) SA 256 (CC).

In this case, the parties agreed that they would negotiate in good faith to amend or renew their existing contractual obligation. The appellant averred that the defendant did not enter into negotiations at all, breaching the agreement and its duty to negotiate in good faith. The court did not address the general duty of good faith, but rather the fact that our common law has to be developed and interpreted according to our Constitutional values and norms. It held that it was necessary to consider whether to develop the common law in accordance with the Constitution and whether the detailed provisions of the clause carry the necessary implication that the renewal was not to be regarded as null and void in every respect. The proposition that a common law contract principle provides meaningful parameters to render an agreement to negotiate in good faith enforceable is decidedly more consistent with Section 39(2) than a regime that does not. A common law principle that renders an obligation to negotiate enforceable cannot be said to be inconsistent with the sanctity of contract and the important moral denominator of good faith. Indeed, the enforceability of a principle of this kind accords with and is an important component of the process of the development of a new constitutional contractual order. There is no doubt that a requirement that allows a party to a contract to ignore detailed provisions of a contract as though they had never been written is less consistent with these contractual precepts: precepts that are in harmony with the spirit, purport and objects of the Constitution. Were a court to entertain Everfresh’s argument, the underlying notion of good faith in contract law, the maxim of contractual doctrine that agreements seriously entered into should be enforced, and the value of ubuntu, which inspires much of our constitutional compact, may tilt the argument in its favour. Contracting parties certainly need to relate to each other in good faith. Where there is a contractual obligation to negotiate, it would be hardly imaginable that our constitutional values would not require that the negotiation must be done reasonably, with a view to reaching an agreement and in good faith. This position was due to other complications in the case itself, not finally confirmed as a general rule of law that would apply to all contracts. The path has however been opened by this judgment to introduce such a disclosure duty based on constitutional values.

S 53 of the STIA. Also Allen v. Sixteen Stirling Investments (Pty) Ltd 1974 (4) SA 164 (D) 169; Feinstein v. Nigli 1981 (2) SA 684 (A) 700; and Bruwer v. Nova Risk Partners Ltd [2010] ZAGPJHC 96.

Fedgen Insurance Ltd v. Leyds 1995 (3) SA 33(A) 38(E); Durban’s Water Wonderland (Pty) Ltd v. Botha 1999 (1) SA 982 (SCA) 989H; Government of the Republic of South Africa v. Fibre Spinners & Weavers (Pty) Ltd 1978 (2) SA 794(A) 804C. See also Hutchison and Pretorius (2017), Chap 11 specifically par 11.6, and chap 17 par 17.5.7.6; Cornelius (2016) on all interpretation rules; Christie and Bradfield (2016), p. 232; Reinecke et al. (2013), par 235 specifically regarding its application in insurance law.

In the words of Milner (1957), p. 177 at 189. See also ABSA Bank Ltd v Fouche 2003 1 SA 176 (SCA) for a decision on the general duty to disclose information.

1985 1 SA 419 (A) 433.

1961 1 SA 178 (T).

At 185.

In the case of a delictual claim for damages, the normal requirements will apply of which fault is one.

Where the contract is in fact divisible.

This is possible where the misrepresentation is intentional or even where it was negligent, see Bayer South Africa (Pty) Ltd v. Frost 1991 4 SA 559 (A). As per the maxim imperitia culpae adnumeratur in the Digesta D 50.17.132 a lack of skill is regarded as culpable.

FSCA Treating customers fairly: A discussion paper prepared for the Financial Services Board (May 2010) 12 [accessed at www.​FSCA.​co.​za on 11 August 2013] (hereafter “TCF Discussion paper”). The FSCA explains: “In the case of search goods, quality and price can be ascertained at low cost prior to purchase or where a credible warranty is attached. Selection of a shirt, for example, typically involves an evaluation of the fit, style and price prior to purchase. By contrast, experience-goods are those whose quality can be ascertained at low cost through use, though not prior to purchase. So for example, evaluation of a vacuum cleaner is typically made after purchase. Moreover, a faulty vacuum cleaner can be returned and a replacement obtained at relatively low cost to the consumer. While the element of uncertainty at the point of purchase is clearly higher than in the case of search goods, the degree of uncertainty is bounded. Many services tend to fall into the experience category, as it is only after the laundry has been done, or the haircut performed, that the consumer may evaluate the quality. Credence goods and services, on the other hand, are those where quality can be ascertained only at some cost after purchase. A frequent characteristic of these goods and services is that the value of the purchase is either spread over a long period of time, or emerges only after a considerable lapse of time. Reversal of such a purchase usually involves considerable loss, both in terms of actual costs and benefits foregone of selecting some alternative.”

Act 37 of 2002.

See Part IV paras 1(a) and 1(b).

S 16(1)(c) of the FAIS Act.

“(1) An advertisement by any provider must-(a) not contain any statement, promise or forecast which is fraudulent, untrue or misleading; (b) if it contains- (i) performance data (including awards and rankings), include references to their source and date; (ii) illustrations, forecasts or hypothetical data- (aa) contain support in the form of clearly stated basic assumptions (including but not limited to any relevant assumptions in respect of performance, returns, costs and charges) with a reasonable prospect of being met under current circumstances; (bb) make it clear that they are not guaranteed and are provided for illustrative purposes only; and (cc) also contain, where returns or benefits are dependent on the performance of underlying assets or other variable market factors, clear indications of such dependence; (iii) a warning statement about risks involved in buying or selling a financial product, prominently render or display such statement; and (iv) information about past performances, also contain warning that past performances are not necessarily indicative of future performances; and (c) if the investment value of a financial product mentioned in the advertisement is not guaranteed, contain a warning that no guarantees are provided. (2) Where a provider advertises a financial service by telephone- (a) an electronic, voice logged record of all communications must be maintained. Where no financial service is rendered as a result of the advertisement, such record need not be maintained for a period exceeding 45 days; (b) a copy of all such records must be provided on request by the client or the registrar within seven days of the request; (c) all the information required by sections 4(1)(a) and (c) and 5(a) and (c) shall not be required: Provided that the client is provided with basic details (such as business name and telephone number or address) of the provider or relevant product supplier, and of their relevant compliance departments: Provided further that, if the promotion results in the rendering of a financial service, the full details required by those sections are provided to the client in writing within 30 days of the relevant interaction with the client. (3) Where a provider advertises a financial service by means of a public radio service, the advertisement must include the business name of the provider.”

Rule 10.4.1 of the Policyholder Protection Rules for long-term insurances (“Long-term PPRs”). The short-term PPRs contain a similar provision.

Rule 10.4.5 of the Long-term PPRs. The short-term PPRs contain a similar provision.

Rule 10.4.5 of the Long-term PPRs. The short-term PPRs contain a similar provision.

Rule 10.4.5 of the Long-term PPRs. The short-term PPRs contain a similar provision.

See Part IV par 3(b).

For instance, where a service is provided in connection with an insurance product, the information disclosed must be factually correct. In providing a service, the intermediary or advisor should avoid uncertainty and confusion and should not provide misleading information. All disclosures must be in plain language. See Sec. 3 of the General Code of Conduct (“GCC”) in terms of Sec. 15 of the FAIS Act.

Rule 11.3.8 of the Long-term PPRs. The short-term PPRs contain a similar provision.

Rule 11.4.1 of the Long-term PPRs. The short-term PPRs contain a similar provision.

In addition, the GCC stipulates that the provider must disclose to the client the existence of any personal interest in the relevant service, or of any circumstance which gives rise to an actual or potential conflict of interest in relation to such service, and take all reasonable steps to ensure fair treatment of the client. See vol II par 2.2 for an explanation.

Sec 3(d) of the GCC.

Sec 3(d) of the GCC.

Provided that where the maximum amount or rate of such valuable consideration is prescribed by any law, the provider may (subject to Sec. 3(1)(a)(vii)) elect to disclose either the actual amount applicable or such prescribed maximum amount or rate. As far as the proposed contract between the parties is concerned, the intermediary has an obligation to disclose to the client the following under Sec. 7 of the GCC, namely: concise details of any special terms or conditions; exclusions of liability, waiting periods, loadings, penalties, excesses; restrictions or circumstances in which benefits will not be provided; any guaranteed minimum benefits or other guarantees; to what extent the product is readily realisable or the funds concerned are accessible; any restrictions on or penalties for early termination of the contract or withdrawal from the product, or other effects, if any, of such termination or withdrawal; material tax considerations; whether cooling off rights are offered and, if so, procedures for the exercise of such rights; any material investment or other risks associated with the product; and where provision is made for increase of premiums, the amount of the increased premium for the first 5 years and thereafter on a 5 year basis but not exceeding 20 years.

As far as the proposed contract between the parties is concerned, the intermediary has an obligation to disclose to the client the following under Sec. 7 of the GCC, namely: concise details of any special terms or conditions; exclusions of liability, waiting periods, loadings, penalties, excesses; restrictions or circumstances in which benefits will not be provided; any guaranteed minimum benefits or other guarantees; to what extent the product is readily realisable or the funds concerned are accessible; any restrictions on or penalties for early termination of the contract or withdrawal from the product, or other effects, if any, of such termination or withdrawal; material tax considerations; whether cooling off rights are offered and, if so, procedures for the exercise of such rights; any material investment or other risks associated with the product; and where provision is made for increase of premiums, the amount of the increased premium for the first 5 years and thereafter on a 5 year basis but not exceeding 20 years.

See in particular clause 3(1)(ii) of the GCC.

Before the introduction of the IA, long-term insurance business meant the business of providing or undertaking to provide policy benefits under long-term policies, which are defined as “an assistance policy, a disability policy, fund policy, health policy, life policy or sinking fund policy, or a contract comprising a combination of any of those policies; and includes a contract whereby any such contract is varied”. All these policies are defined individually in greater detail in the Act (Sec. 1). These long-term contracts provide policy benefits and are issued for a defined longer periods, usually exceeding 1 year.

Before 1 January 2018, long-term PPR applied to the actual contracts as of 1 January 2011 and prescribed obligatory and standardised disclosures, deal with notices, void contractual provisions, the general format of policies, the effect of waivers and offences, and penalties levied for offences in contravention of the Act, the consequences of failure to pay premiums, non-compliance with policy conditions, cancellation of policies, cooling-off periods, and prescriptions on the contents of insurance agreements. The 2018 rules are much more detailed.

Rule 6.2.

Before the enactment of the Insurance Act, short-term insurance meant “the business of providing or undertaking to provide policy benefits under short-term policies”, which included an engineering policy, guarantee policy, liability policy, miscellaneous policy, motor policy, accident and health policy, property policy or transportation policy or a contract comprising a combination of any of those policies; and includes a policy whereby any such contract is varied. All these policies are defined individually in greater detail in the Act (Sec. 1). These short-term contracts were (and still are) concluded to provide policy benefits for only a defined short term, mostly for 1 year or less and are usually renewable.

More specifically, as seen above, the LTIA also includes the following non-life insurance contracts, namely, assistance policies, disability policies, fund policies, health policies, sinking fund policies or contracts comprising a combination of any of those policies.

“Personal” or “personal use” refers to use of any insurable interest for private purposes only. For instance, a motor vehicle that is used for trips to and from work, shopping, holidays and social visits very clearly falls within the meaning of “personal use”. If the same vehicle is used by a sales representative for furthering his business, then the vehicle is also used for commercial purposes. “Commercial” means that the objective of the user of an insured object is to generate a profit, to use the property for industrial, trade, business or business-related activities. See also www.​inseta.​co.​za, visited on 25 November 2015.

See Table 2 of the IA.

See in general the South African National Treasury (2011) The South African Microinsurance Regulatory Framework, Policy Document, Cape Town, South Africa.

In accordance with the Policy Document, funeral insurance is by far the most popular in the country, as 45% of adults in the country are currently covered.

So-called ‘light products’.

Aggressive telemarketers who work in high-pressure environments are often motivated by set targets for sales and high commissions, which may very well lead them to manipulate the gullible insurance consumers.

However, those who undertake to advise clients on matters including an important legal component do so at their peril if they have not informed themselves sufficiently on the law.

Rule 2A.4 of the short-term PPRs stipulates that a microinsurance policy may not have a contract terms of more than 12 months. In addition, the value of the policy may not exceed “the maximum amounts as prescribed by the Prudential Authority.” (Rule 2A.4.2). Furthermore, a microinsurance policy must, upon expiry of its contract term, either be automatically renewed or terminated under the requirements of Rule 2A. Rule 2A.4.4 stipulates that a microinsurance policy may not provide that any of the policy benefits thereunder is subject to the principle of average. Further stipulations pertain to the variation and renewal of a microinsurance policy (Rule 2A.5), waiting periods (Rule 2A.6), exclusions (Rule 2A.7), excesses (Rule 2A.8), claims (Rule 2A.9), reinstatement (Rule 2A.10) general provisions in Rule 2A.11 and extensive provisions on the reporting of a new product.

Tables 1 and 2 under the Insurance Act, 2017.

Nienaber and Reinecke (2009), pp. 74–77.

Nienaber and Reinecke (2009), pp. 73–74.

Nienaber and Reinecke (2009), pp. 75–77.

Sec. 7 of the GCC.

Sec. 7 of the GCC.

For the general discussion on error see Hutchison and Pretorius (2017), chap 3; Christie and Bradfield (2016), chap 9 on mistake.

For a general discussion see Hutchison and Pretorius (2017), chap 4; Christie and Bradfield (2016), Chaps. 7 and 8.

Moolman et al. (2012), p. 202.

See in general Christie and Bradfield (2016), pp. 565–588; also Hutchison and Pretorius (2017), chap 13, par 13.5.

For a general discussion of damages claims for delicts see Neethling and Potgieter (2015), chap 6. For clarity, it may be mentioned that in other jurisdictions wrongful acts are referred to as torts. The requirements for a delictual claim are briefly (a) conduct (an act or omission to act); wrongfulness; fault (intent or negligence, or none where a strict liability is imposed by law); causation (factual and legal) and damages.

See in particular Sec. 3 of the GCC. This aspect is discussed in more detail in Part B II 1(a)–(e).

Sec. 1(1)(a).

See in general Hattingh and Millard (2016), p. 167, par 4.2 for a summary of the referral of the complaint and requirements for its adjudication.

Sec. 28, which includes the right to order payment of interest at a rate and as from a date as determined by the Ombud.

Sec. 20.

Hattingh and Millard (2016), p. 164.

Hattingh and Millard (2016), pp. 181–198.

Sec. 10(a).

Hattingh and Millard (2016), p. 172.

Hattingh and Millard (2016), pp. 181–198.

Moolman et al. (2012), pp. 28–31.

Sec. 9.

Sec. 8; see also Hattingh and Millard (2016), p. 181 for a general discussion on suspensions and withdrawals of licences.

Sec. 38.

Sec. 8(1).

Sec. 26; see also Hattingh and Millard (2016), p. 195 for a discussion on the appeals procedure.

See Cl 1 of the GCC, sv “conflict of interest” and see Vol II para 2.2. See also Moolman et al. (2012), pp. 168–169.

Cl 3A(2)(a) of the GCC. Refer to Moolman et al. (2012), p. 170. This policy requires providers to identify and manage conflicts of interest and in addition, this policy should be brought to the attention of its employees, representatives and associates. This policy should be seen as a compass that guides all those involved in the area of conflicts of interest to ensure that they remain on the right side of the law. Furthermore, the policy should not be regarded as another document in the compliance file but as an honest and hard look at the dealings of a services provider. In addition, the all-important values of fairness and honesty should remain at the core of any of these policies to ensure that the policy serves the purpose as intended by the FAIS Act.