Aris Enterprises (Finance) (Pty) Ltd v Protea Assurance Co Ltd

• Jurisdiction: South Africa
• Judge: Corbett JA, Joubert JA, Cillie JA, Holmes AJA and Galgut AJA
• Judgment Date: 24 March 1981
• Hearing Date: 12 March 1981
• Court: Appellate Division

Corbett, JA.:

This appeal is mainly concerned with the interpretation to be placed on an endorsement to an insurance policy. Appellant was plaintiff C in an action instituted against respondent (as defendant) in the Witwatersrand Local Division. In this action appellant claimed an order declaring that respondent, as insurer, was obliged to indemnify appellant, as the insured, for certain losses totalling in all R15 659, 18, which appellant alleged were covered by the policy of insurance issued by D respondent and for an order for the payment of this amount. In the Court a quo the action was dismissed with costs. Hence the appeal to this Court.

There is little or no dispute about the essential facts. Minutes of a pre-trial conference attended by counsel for both appellant and respondent reveal that the parties were agreed that the matter for consideration was E in essence a question of law and that in order to curtail the duration of the trial and obviate or limit the need to call witnesses the parties made a series of admissions. In the result only one witness was called. He was Mr D J Kondopulos, the managing director of appellant, who naturally gave evidence on appellant's behalf.

F From the admissions made and from what appears to be common cause on the pleadings the undisputed facts may be summarized as follows:

Appellant is a corporation which carries on business as a finance house. The insurance policy in question (which was numbered B5115J) was issued to appellant by respondent in 1968. At that time appellant, in the course of G its business, hired out to the proprietors of restaurants and cafés various kinds of catering equipment in terms of written lease agreements. These agreements were for various periods, but mostly for three years. The policy was designed to provide cover for loss suffered by appellant owing to loss of, damage to, or the destruction of, equipment leased in H terms of these agreements. Although the policy called itself an "All Risks Insurance Policy" and commenced by providing that "subject to the terms, exceptions and conditions contained herein or endorsed hereon" the insured would be indemnified if any part of its property "be lost, damaged or destroyed", the specific terms of the policy showed that the actual cover was narrower than this. It appears from the schedule and certain memoranda, which were part of the policy, that the property insured was limited to:

"Various items of cafeteria equipment on lease to the lessees as endorsed

Corbett JA

hereon from time to time and more fully described in declarations lodged with the company".

Two of the memoranda (nos 3 and 4) further indicated how the A subject-matter of appellant's lease agreements was to become part of the property covered by the policy. They read as follows:

"Memorandum 3:

The insurance in respect of each item which may be endorsed hereon shall be effective from the date of signature of the lease agreement and shall expire at the termination of the agreement provided always that no one term of insurance shall exceed a period of three years. (In script: Later amended to five years.)

B Memorandum 4:

The insured shall within 14 days of the expiration of each month furnish the company with a declaration setting out the following details in respect of each lease agreement entered into during the preceding month:

(1)

Commencement date

(2)

Lessee

(3)

Description of equipment

(4)

Sum to be insured

and the insured agrees to pay the company the appropriate additional premium."

It seems that respondent had fixed scales in terms of which the D additional premium could automatically be determined, having regard to the sum insured (which would be declared in terms of memorandum 4) and the term of the lease. It is common cause that in practice once an agreement of lease was declared in terms of memorandum 4 the appropriate premium was paid in a lump sum for the full period of the lease. In other words it was a once-and-for-all payment, not a periodic payment of premiums.

E Furthermore, in terms of memorandum no 1 of the policy, the risks insured against were limited to four specified perils. Of these only one (viz para D) is relevant in this case: "Theft or attempt thereat". The F schedule further recorded the total sum insured to be "as per declaratios" and the period of insurance to be as from "19 June 1968 to various". One of the conditions of the policy is also worthy of note. It, condition 8, read:

"The company may cancel this policy by sending seven days' notice by registered letter to the insured at the insured's last known address and in such event the insured shall become entitled to the return of a G proportionate part of the premium or renewal premium corresponding to the unexpired period of insurance. This policy may be cancelled by the insured on written notice and the premium hereon shall be adjusted on the basis of the company receiving or retaining the customary short term premium or minimum premium providing no claim has been made in the current period of insurance in which case no refund shall be allowable."

This contract of insurance was concluded through a firm of insurance H brokers, Peter Caspari (Pty) Ltd. This firm's name was subsequently changed to P Caspari and Pogir (Pty) Ltd and thereafter it was absorbed into a firm called J Hirschmann and C Saron (Pty) Ltd. For convenience I shall simply refer to these firms as "the brokers". The brokers continued to act as appellant's insurance broker during the period under consideration and in general operated as a channel of communication between appellant and respondent.

Appellant and an associated company, Industrial and Mercantile Corporation (Pty) Ltd ("IMC"), were both subsidiaries of a common

Corbett JA

holding company. IMC carried on a business similar to appellant's, but on a hire-purchase basis. IMC also had an insurance policy with respondent, A similar to appellant's, and had also taken this policy out through the agency of the brokers.

It appears that some time after its policy was issued appellant expanded the scope of its business and in 1972 an endorsement was added recording the different types of equipment then handled by appellant. The obvious B intention of this endorsement was to include amongst the property insured under the policy equipment of all these different types when hired out under lease agreements by appellant. Another alteration to the policy subsequently effected was an extension of the three-year period mentioned in memorandum 3 to five years.

On 26 February 1974 respondent notified the brokers that the insurances C for, amongst others, the appellant had come under review and owing to adverse claims experience it had become necessary to make upward adjustments to the premium rates and excesses. It is common cause that the bulk of the claims made by appellant under the policy related to loss D of leased equipment as a result of the theft thereof by lessees or their employees. Cover for this type of loss, which fell under the general ambit of para D of memorandum 1 (quoted above), was described in the trade as "absconsion risk". It is also common cause that the increased premiums proposed by the letter of 26 February were caused by the volume of such E absconsion claims and the retention of absconsion risk in the policy. Although the position is not entirely clear, it would seem that the new rates and excess provisions (which were accepted by appellant) came into operation on 1 May 1974. This appears from a letter dated 22 May 1974 F written by the brokers to Mr Kondopulos. The relevant paragraph reads:

"(1)

Lease policy B5115J - Aris Enterprises

The premium rates will be increased by 50 per cent, to 1½ per cent for one to three year contracts and to 2¼ per cent for three to five year contracts. In addition an excess of R50 per unit will apply to all absconsion claims."

Despite these new terms, the claims experience in respect of appellant's G policy, and also on the policy issued to IMC, seems to have made the insurances unprofitable from respondent's point of view. On 4 February 1975 respondent addressed a...