A Pretoria homeowner has been ordered by the Supreme Court of Appeal to refund Discovery the R1.64 million, plus other costs it paid him for a genuine storm damage and household contents insurance claim, because part of the claim related to emergency accommodation was fraudulent.
Judge Xola Petse, the deputy president of the Supreme Court of Appeal (SCA), and acting SCA Judge Mokgere Masipa, with judges Halima Saldulker, Nolwazi Mabindla-Boqwana and Sharise Weiner concurring, on Wednesday upheld with costs Discovery’s appeal against the Pretoria High Court judgment handed down in September 2021.
The court ordered Tshamunwe Masindi to refund Discovery R1 594 980.12.
Discovery commenced the case against Masindi on 14 December 2017.
Masindi took out insurance with Discovery during May 2016 in terms of which he insured, among other things, his residential property in Pretoria and household contents.
Damage and household contents cover
The policy covered repairs to Masindi’s house and damage to household contents while also making provision for alternate emergency accommodation in the event the insured property was damaged, and as a result, became uninhabitable.
The material terms of the policy were that if any claim or part thereof was fraudulent, Discovery would have the absolute right to cancel the policy retrospectively from the date of the reporting of the incident or the actual date of the incident, in which event the insured would forfeit all the benefits under the policy from the date of cancellation.
A storm on 11 November 2016 damaged Masindi’s house and household contents and also made the residence uninhabitable.
Insurance claim filed
Masindi claimed for the repairs to his insured residence, compensation for damages to the household contents and reimbursement for the emergency accommodation expenses.
Discovery paid the claim in full but subsequently discovered that part of the claim relating to emergency accommodation was fraudulent.
This resulted in Discovery cancelling the policy retrospectively from 11 November 2016 and reclaiming the full amount it had paid out by way of compensation to Masindi.
However, the High Court in Pretoria held in its adjudication of the dispute that Discovery was not entitled to repayment of the full amount claimed but only that portion of the claim that was tainted by the undisputed fraud.
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It held that Masindi had acquired accrued rights to the payment of the genuine portion of his claim and that those rights remained intact and unaffected by the subsequent fraud.
In addition, the High Court held that the policy clause that provided for forfeiture of claims tainted by fraud was, for all intents and purposes, a penalty clause, in terms of the Conventional Penalties Act.
It found that the enforcement of this Act would – to the extent that it would enable Discovery to recoup even the amount paid in settlement of the genuine portion of the insurance claim – result in disproportionate prejudice to the Masindi.
The High Court consequently declined to enforce the Discovery policy clause.
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The total proceeds of the genuine component of Masindi’s claim for the damage to his residence and household contents amounted to R972 592.67.
This was the amount Masindi claimed was not recoverable by Discovery because it had not only already accrued but was also paid out to him at the time when Discovery terminated the policy.
Fraudulent claims rules
The SCA held that clause 5.13, which deals with fraudulent claims, is clear and unambiguous and effect must therefore be given to it.
It said that if effect was not given to this clause, the underlying purpose that the clause was designed to serve – to protect Discovery against fraudulent claims and discourage attempts by insured persons to gain undue advantage by lodging falsely inflated claims – would be undermined.
On the facts of the case, the SCA held that the doctrine of accrued rights was not applicable because there could be no rights accrued as the forfeiture clause applied with retrospective effect from the date of the incident that gave rise to the claim.
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The SCA added the Conventional Penalties Act was not the issue before the High Court as it had not been raised by the parties.
It reiterated that courts were not permitted to stray outside the issues raised by the litigants themselves.
The SCA concluded that it does not agree with the interpretation of clause 5.13 favoured by the High Court.
Breach of terms
It said the High Court’s interpretation entirely overlooked the fact that clause 5.13 explicitly provides that, upon breach of its terms, Discovery would be entitled to terminate the policy with retrospective effect from the date of the incident giving rise to the claim, which was 10 November 2016.
“Bearing in mind this crucial consideration, we are driven to the conclusion that when the respondent [Masindi] lodged the claim on 11 November 2016, he had already forfeited all the benefits under the policy,” the SCA ruling said.
“Simply put, once the policy was terminated on 10 November 2016 there was no policy in extant under which the respondent could claim any of the benefits that would otherwise have been available to him had the policy not been terminated a day earlier.
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“Concomitantly, Discovery was under no obligation to pay out any moneys to the respondent [Masindi] on 5 December 2016 onwards because the policy had, on 10 November 2016, already terminated,” it said.
