IN THE HIGH COURT OF SOUTH AFRICA  /ES
(TRANSVAAL PROVINCIAL DIVISION)
								CASE NO:  31369/2005
								DATE:  5/9/2007

IN THE MATTER BETWEEN:
NKAKI SIDWELL MATLALA					PLAINTIFF
AND
MUTUAL & FEDERAL INSURANCE COMPANY LTD		DEFENDANT

JUDGMENT
PRINSLOO, J
Introduction and background
[1]	The plaintiff, as insured, claims indemnification from the defendant, as insurer, in terms of a certain short term insurance policy issued by the latter in favour of the former.

[2]	The claim flows from damage caused to the plaintiff's 1999 model Mercedes Benz S320 motor vehicle in a collision with a stray animal which occurred on 28 May 2005.

[3]	The quantum of the damages has been agreed between the parties in an amount of R90 659,18.

[4]	It is common cause that the defendant had been, from time to time, issuing short term insurance policies to the plaintiff from about the year 2002.

[5]	The insurance history of the plaintiff with the defendant had been a somewhat turbulent one.  Non‑payment of premiums was not an uncommon occurrence.  Policies had been cancelled before and replaced with new policies.

[6]	It is common cause that, at least immediately before May 2005 when the collision occurred, the plaintiff's Mercedes Benz was insured by the defendant under a so‑called "Motor Alone" policy no 78062763MA ("the policy").

[7]	The issue to be decided is whether or not the plaintiff enjoyed cover in terms of the policy on 28 May 2005.  It is common cause that the insurance premium for May 2005 was not paid by the plaintiff.

General Condition 7 of the Policy Wording
[8]	At the root of the dispute lies the wording of General Condition 7, and the question of how it should be interpreted.

[9]	It is convenient, in my view, to quote the wording of General Condition 7 before turning to the evidence and legal argument submitted by counsel.

	Mr Geyser appeared for the plaintiff and Mr Mills SC appeared for the defendant.

[10]	General Condition 7 reads as follows:
		"CANCELLATION/PREMIUM PAYMENT
		7.1	CANCELLATION
7.1.1	If the premium for this policy is payable annually this policy or any section may be cancelled
7.1.1.1	by you at any time given in writing and we will be entitled to retain the customary short term premium or minimum premium
7.1.1.2	by us by thirty days notice given in writing to you at your last known address and we will retain a pro rata premium.
7.1.2	If the premium for this policy is payable monthly this policy or any section may be cancelled
7.1.2.1	by you at any time given in writing and we will be entitled to retain the customary short‑term premium or minimum premium
7.1.2.2	by us by thirty days notice given in writing to you at your last known address and we will retain a pro‑rata premium.
			7.1.3	…
		7.2	PREMIUM PAYMENT
			7.2.1	ANNUAL POLICY
7.2.1.1	premium is payable on or before inception date or renewal date as the case may be.  We shall not be obliged to accept premium tendered to us after 15 days from inception date or renewal date as the case may be.
			7.2.2	MONTHLY POLICY
7.2.2.1	if the premium is not paid on the date that it was due to be paid
	7.2.2.1.1	…
7.2.2.1.2	for any reason other than as described in 7.2.2.1.1 we will redebit on the 15th of that month and should the outstanding premium not be paid when redebited, the policy will be cancelled from the date the first unpaid premium was due to be paid."
			(Emphasis added.)

[11]	It is common cause that the premium was payable, not only monthly, but also monthly in advance.

[12]	When completing the proposal form providing for the commencement date of 1 June 2004, the plaintiff elected the applicable method of premium payment to be "monthly debit order".  Another option offered was "annual policy" which was not adopted.

[13]	Above his signature as proposer, the plaintiff certified the following:
"Herewith I confirm receipt of the POLICY WORDING and undertake to study it carefully.  I will adhere strictly to the underwriting criteria and I agree that no cover will be in force until such time that I comply with all the underwriting criteria as laid down by the Underwriters.  Furthermore I accept that in the event of a claim, the average of the sum insured and the replacement value will apply to the claim value."

[14]	Pursuant to the plaintiff's aforesaid proposal, the defendant issued the relevant insurance schedule under the aforesaid policy number and displaying the personal particulars, including the postal address, of the plaintiff.  The Mercedes Benz was included in the schedule.  The following inscription as to the insurance period is, in my view, of importance:
"Cover effective from 01/06/04 to 30/06/04 and any subsequent period for which the applicable monthly premium has been paid."

	This schedule was signed by the plaintiff on 10 June 2004.

[15]	Finally, returning to the wording of General Condition 7, it was testified on behalf of the defendant, and not disputed, that the situations described under "7.1 CANCELLATION" and "7.2 PREMIUM PAYMENT" are entirely different: in the first instance either party can simply elect to cancel.  The cancellation need not be inspired by, for example, failure to pay a premium.  It was testified on behalf of the defendant that such a "7.1 CANCELLATION" is normally decided upon by the defendant insurer where the insured is a so‑called "multi claimant" and the insurance history reflects an unfavourable "loss ratio" which is a situation where claims paid out exceed premiums collected by more than 70%.  This is different from the "7.2 CANCELLATION" where cancellation flows from failure to pay a premium.  The latter is the state of affairs falling to be interpreted and decided in the context of this particular case.

The evidence
[16]	Most of the facts are common cause, as will be illustrated below, and the case essentially involves an interpretation of the insurance agreement.  Consequently, I do not propose dealing with the evidence at length.

[17]	The plaintiff was the only witness in support of his own case.  By referring to the dates of various insurance schedules for previous years, he said that he was under the impression that the policy was "continuously in force".  By this he meant that he enjoyed covered "from signature for a year until another renewal".  This evidence was unconvincing and unsubstantiated.  I did not understand it to be relied upon with any force by the plaintiff's counsel.

[18]	When referred to the policy document (running into some forty pages) the plaintiff said that he "didn't recall" getting such a document before submitting the claim.

[19]	He denied receiving a cancellation notice as intended by the provisions of General Condition 7.1.2.2.  I have already pointed out that condition 7.1 does not apply to this particular case.

[20]	He denied receiving "a notice" as intended by General Condition 7.2.2.1.2.  0n my reading of this provision, no such notice is provided for.  The wording has been quoted.  He also said that he never received notice that the premium would be redebited or any other notice that the policy would be cancelled or had been cancelled.  0n my reading of General Condition 7.2 such notices are not provided for.

[21]	The plaintiff confirmed that he was advised, regarding his insurance affairs, by Mr Borman of Diagonal Insurance Solutions ("Diagonal").  Mr Borman, as will be noted, testified on behalf of the defendant.

[22]	The plaintiff also referred to a document entitled "STATUTORY NOTICE TO SHORT‑TERM INSURANCE POLICYHOLDERS".  The plaintiff referred to paragraphs 3(f) and 3(g) of this document under the heading "0ther matters of importance".  These subparagraphs read as follows:
"(f)	The insurer and not the intermediary must give reasons for repudiating your claim.
(g)	Your insurer may not cancel your insurance merely by informing your intermediary.  There is an obligation to make sure the notice has been sent to you."

	The plaintiff complained that he did not receive notices of this kind.

This evidence appears to be incorrect because on 25 July 2005, after the plaintiff had filed his claim, the defendant (through Mercy Poole, assistant manager, personal motor claims), wrote as follows to the plaintiff at the postal address mentioned in the insurance schedule, supra:
"We refer to the above and acknowledge receipt of your claim for the loss, which occurred on 28/05/2005.

During the investigation of your claim, it was brought to our attention that the policy premium for the month of May has not been received.

Based on the above, we are left with no alternative other than to decline liability for the claim submitted.  Reference is made to your Policy wording, General Section Paragraph 7, 7.2 Premium Payment, 7.2.2.1.2 Monthly Policy, which states inter alia, 'if the premium is not paid on the date it was due to be paid … … for any reason other than as described in 7.2.2.1.1 we will redebit on the 15th of that month and should the outstanding premium not be paid when redebited, the policy will be cancelled from the date the first unpaid premium was due to be paid.'

We refer you to the provisions of Paragraph 5.7 of the General Section of your policy which reads: 'If we deny liability for any claim made under this policy we will be relieved of liability unless summons is served on us within 90 days of repudiation.'

0ur rights in respect of the policy are reserved in the event of the cover in terms of the policy itself becoming an issue.  All other rights that we may have are hereby specifically reserved.

Yours faithfully"

[23]	The plaintiff acknowledged that his premium in terms of the policy was not paid for May 2005.  It is common cause that the plaintiff tendered payment of the premium, through his attorney, on 16 August 2005.  The tender was not accepted.  This resulted in the action being instituted by the plaintiff.

[24]	In cross-examination details of the plaintiff's poor payment record, when it came to premiums over the years, were put to him and admitted.  I will return briefly to these details hereunder.

[25]	Details of the monthly insurance periods, and the advance premium payment by debit order were put to the plaintiff and admitted.

[26]	He admitted that he acknowledged the following above his signature on 12 May 2004 when he accepted the insurance quotation:  
"Your insurance premium is payable monthly in advance via debit order.  All premiums will be collected on the first working day of every month.  The onus rests upon the insured to ensure that the monthly premium due is paid.  In Terms of the Policy Protection Rules, you are permitted 15 days from the date on which the premium become due to effect payment.

Declaration By Insured
I, the Undersigned, declare that I have read and understand the above information with regards to my Insurance cover.  0n acceptance of this quotation I undertake to supply all relevant information as requested in order to effect my insurance cover.  I undertake to diligently study all notices, correspondence and requirements received and to unconditionally comply strictly and promptly with these requirements."

I pause to record that the fifteen day "grace period", also referred to in General Condition 7.2.2.1.2, flows from a provision to be found under the regulations of the Short-term Insurance Act 53 of 1998 (regulation 10.5).

[27]	The plaintiff acknowledged that he had agreed to pay the premiums in advance and that by signing the documents, he knew that the premiums would be collected on the first working day of the particular month.

[28]	It was put to him that the particular computer system employed by the defendant and/or Diagonal automatically dispatches appropriate notices to the insured when the debit order is not honored by the bank, either on the first of the month or the fifteenth of the month.  The plaintiff testified that he did not receive such notices.  More particularly, on a general reading of his testimony, he preferred to say that he "did not recall" receiving the notices rather than that he disputed such receipt.  He testified that he had an arrangement with Mr Borman, who acted as his agent, and advised him on his insurance matters, that "double debits" would be arranged with the bank in the event of premiums not being paid punctually.  He said that this was because his income flow was erratic and it happened from time to time that he could not meet his monthly commitments.  He said that he had similar arrangements with other creditors.  This Borman denied when he testified on behalf of the defendant.

[29]	By way of comparison, he acknowledged that an earlier policy had been cancelled because of non‑payment (in 2004) and in that case Borman advised him to re‑apply afresh for new cover.  He could not explain why this had to be done in the light of the alleged agreement that "double debits" would solve the problem.

[30]	He acknowledged the wording of the insurance schedule, supra, that cover would be effective for a calendar month and any subsequent period for which the applicable monthly premium had been paid.

[31]	The plaintiff was also confronted with the typical wording of a notice which the system, supra, would dispatch in the event of non‑payment of a premium.  Part of this notice reads as follows:
"We regret to advise that your premium debit for … in the amount shown below was returned by your bank for the reason shown below:  
…

In terms of Short Term Insurance legislation, you are permitted fifteen (15) days grace from the date on which your premium became due to effect payment.  The abovementioned premium will therefore be re‑debited to your account on the fifteenth (15th) of this month.  Please note that there will be no cover for the month(s) should the outstanding premium not be collected successfully within this grace period.

In addition to the premium amount referred to above, an administration fee of one hundred rand (R100) shall be deducted from your account on the fifteenth (15th) of this month.  Diagonal however do reserve the right to automatically re‑debit your account with a single premium on the first (1st) of the following month in order to restore cover for the following month.  A policy may be cancelled by Diagonal after three (3) consecutive unpaids."

The plaintiff responded that in the particular instance forming the subject of this dispute, there were not "three consecutive unpaids" because the payment for 1 June 2005 was made when the debit order was presented for payment.

In my view, it is clear from the wording of the example letter that the "three consecutive unpaids" approach can be adopted in the discretion of Diagonal and does not have any bearing on the wording of General Condition 7.2.  Moreover, it clearly prescribes that the third debit, if met, will "restore cover for the following month".  It will, consequently, not remedy the fact that cover for the month in question had lapsed in the spirit of General Condition 7.2.
 
[32]	The first witness called on behalf of the defendant was Ms Ingrid Elaine Beetge.  She works for Diagonal.  At the relevant time she was the claims and underwriting director.  Presently she is the operations director and assistant to the complaints officer.

[33]	It was clear, in my view, that this witness had a very impressive working knowledge of the subject at hand.  She explained that Diagonal accepts new business, collects premiums and administers claims on behalf of the defendant.

[34]	She testified about the "three consecutive unpaids" option and emphasised that cover may be restored for the following month, but not for the month in which the debit orders were not met, as intended by the provisions of General Condition 7.

[35]	With reference to General Condition 7 she confirmed that the cover lapses for the month during which payments were not met on the 1st and the 15th.

[36]	She confirmed the difference between a "7.1 cancellation" and a "7.2 cancellation" as analysed above.
 
[37]	She loosely referred to the policy either being "automatically cancelled" after the grace period when the second debit on the 15th is not met or the "cover lapsing".

	In this regard it should be recorded that in cross-examination she said that the policy was "never cancelled" as a result of the two non-payments in May 2005.  She did, however, emphatically state that where payments were not received for that month, the cover lapses for that month.

	It was put to her that the policy wording does not provide, even in General Condition 7.2, for an "automatic" cancellation in the event of non‑payment on the 1st and the 15th of the month.

	In view of this evidence, Mr Geyser, in his closing address, argued that the policy had not been cancelled by 28 May 2005 when the collision occurred.  It was argued that the policy was therefore still in existence and the cover provided intact.

	Mr Geyser then further developed this argument by submitting that the payment or non‑payment of the premium was at most a suspensive condition so that the liability of the defendant would only arise if the premium was paid.  For this reason, so it was argued, the defendant was not entitled to refuse the tender, in August 2005, to pay the premium for May.

	It was argued that the defendant's refusal to accept this tender brings the matter into the ambit of the principles applicable to fictitional fulfilment of agreements which, reduced to its essence, means that a party to a contract may not rely on the other party's failure to fulfil an obligation where that performance is tendered without there being a justifiable reason for such refusal.

	Such a case was not pleaded by the plaintiff.  In any event, I cannot accept the argument of Mr Geyser.  In my view the wording of General Condition 7.2 is clear and unambiguous:  if payment of the premium is not forthcoming after the grace period (on the 15th of the month) the policy is cancelled from the date the first unpaid premium was due to be paid (1 May in this instance).  Whether it is "revived" or "reinstated" if the debit order is presented and met on 1 June is immaterial with regard to the fact that the cover for May was non‑existent.  The "reinstatement" can only apply for the next month (June in this case) as clearly testified by Ms Beetge.

[38]	The witness testified about the letters dispatched by the system in the event of non‑payment of the premium and confirmed that they were sent to the plaintiff's recorded address, PO Box 11013, The Tramshed 0126.  In his evidence, the plaintiff confirmed that this was his address.

[39]	The witness was also confronted with computer entries (exhibit "A59") which illustrate that there were two entries in respect of the policy on 25 May 2005.  It turns out that the one entry had to do with the inclusion of a new motor vehicle in the policy schedule and the other related to the production of a new schedule.

	Mr Geyser argued that if the new schedule was produced on 25 May (before the collision and after the grace period had expired on 15 May) it supports his argument that the policy was never cancelled.  Mr Geyser argued that it cannot be argued that the new schedule was created because of the premium received on 1 June, because it predates that payment.  The witness countered by stating that when the new schedule (exhibit "A56") was created, it was done by someone in another department (the CRM department) which is not the same as the claims department and the creator of the schedule would not have known about the non‑payment of the premium.

[40]	In the case of A J Shepherd (Edms) Bpk v Santam Versekeringsmaatskappy Bpk 1985 1 SA 399 (A) a similar situation arose.  In terms of a "Farmers Multiplex" insurance policy issued by the respondent to the appellant, the premiums were payable by means of a stop order by the appellant's bank, "provided that if the bank should fail to pay on demand the insurance in terms of this policy shall be deemed … to have lapsed on the last day of the uninterrupted period for which the insured has paid premiums to the insurer …"  In that case, the last uninterrupted period in respect of which the appellant had paid a premium expired on 12 March 1981.  The collision occurred on 22 July of that year.  0n 7 July an endorsement was made on the policy, at the request of the appellant, "for cover for my motor car" whereby the motor vehicle in question was added to the items insured by the policy.  The clerk who made the endorsement was not aware of the stop order not having been paid.

	At 418F the learned chief justice says the following:
"Dit is waar dat op die endossement staan dat dit ingevolge die polis uitgereik is, en dit is natuurlik ook waar dat 'n endossement normaalweg nie uitgereik word ten opsigte van 'n polis wat verval het nie.  Die getuienis toon egter dat me Laups die endossement uitgereik het in die geloof dat die polis bestaan en, verder, dat die appellant haar laat aanneem het dat die polis bestaan.  Hy het gemeen dat die polis van krag was: dit is nie sy wat hom onder die verkeerde indruk gebring het en laat glo het dat die polis nog bestaan nie.  In hierdie omstandighede kan daar nie grond vir 'n pleit van estoppel wees nie."
 
[41]	I mention this, because the plaintiff, in this case, in his replication, pleaded that, where the defendant "renewed the agreement" on 1 June 2005, and collected the premium on 1 June 2005, "due for the month of June 2005 by presenting for payment a debit order issued in its favour which was duly met upon presentation for payment" the defendant is estopped from relying on an alleged automatic cancellation of the policy.

[42]	In my view the dicta in Shepherd can be properly applied to the present case.  Mr Mills, correctly in my view, argued that there was no evidence of a representation made by the defendant to the plaintiff as intended by the doctrine of estoppel, so that such an argument cannot avail the plaintiff in the present case.

[43]	Moreover, in Shepherd it was also held that there was no cover in the relevant time.  It was held that, when it was provided in the policy that, should the appellant not pay in terms of the stop order, "the insurance in terms of this policy shall be deemed to have lapsed on the last day of the uninterrupted period for which the insured paid premiums", it was clearly not meant that the respondent could terminate the insurance should he elect to do so, but rather that there would be no insurance after the expiry of the last period in respect of which a premium had been paid (in the present case, April 2005, given the wording of General Condition 7.2).

[44]	This also, in my view, takes care of any argument that the insurance policy remained in force until the defendant elected to cancel because of the non‑payment and duly notified the plaintiff of such cancellation.  Such a state of affairs was simply not applicable in view of what is stated in Shepherd and in view of the wording of General Condition 7.2.
 
[45]	The second (and last) witness called by the defendant was Stephanus Johannes Jakobus Borman.  He is a broker by profession and was attached to Wescol Brokers in Pretoria at the relevant time.  He knew the plaintiff who was a client of his.
  
[46]	Borman disputed the plaintiff's evidence that there was an arrangement in terms of which a "double debit" would always save the day in the event of a premium not being paid.

[47]	Borman also emphatically testified that he gave the plaintiff a copy of the policy wording.

[48]	Borman also testified that he assisted the plaintiff, in 2004, to apply for reinstatement of the insurance which had lapsed because of non‑payment of premiums.

[49]	This concluded the evidence.

[50]	I have already referred to the arguments advanced by Mr Geyser in his closing address and, to an extent, to some of the submissions made by Mr Mills.

[51]	Mr Mills also referred me, generally, to the discussion on the subject of the payment of the premium to be found in Joubert The Law of South Africa, 1st reissue, volume 12, at paragraphs 323‑338.  Mr Mills, correctly in my view, argued that the situation created by General Condition 7(2) is akin to that where non‑payment of the premium is a resolutive condition attached to the duty of the insurer.  It is put as follows by the learned author in paragraph 329:
"The resolutive condition does not affect the enforceability of an obligation, but it dissolves the obligation upon the happening of an uncertain event.  In the case of continuing contracts of insurance it is useful, by way of a resolutive condition, to make the continued existence of the insurer's duty dependent on the payment of the premium.  This means that if the insured fails to pay the premium by a specified time, the obligation will be terminated automatically."
 
[52]	In all these circumstances, I have come to the conclusion that the plaintiff did not enjoy insurance cover, given the wording of General Condition 7.2, when the collision occurred on 28 May 2005.  This was after the grace period expired on 15 May.  There was no cover from the date the first unpaid premium was due to be paid (from 1 May 2005 to the end of that month).  In the result, the claim falls to be dismissed.

[53]	I make the following order:
	1.	the plaintiff's claim is dismissed;
2.	the plaintiff is ordered to pay the defendant's costs, including the costs of senior counsel.

							           W R C PRINSLOO
							JUDGE OF THE HIGH COURT
31369-2005

HEARD ON:  8/8/2007
FOR THE PLAINTIFF:  W W GEYSER
INSTRUCTED BY:  POTGIETER MARAIS
FOR THE DEFENDANT:  D MILLS SC
INSTRUCTED BY:  GILDENHUYS LESSINA & MALATJI