LEVEL 4 SKILLS PROGRAMME
Self Study Guide
Introduction
1
Purpose
Linked Unit Standards
Note to the Learner
Introduction to Commercial Lines
Module 1
The Law of Contract
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1
2
3
4
Learning Outcomes
Introduction
Consensus
Capacity
Physical Impossibility
Legality
Formalities
Discharge of Contract
Breach of Contract
Law of Delict
Knowledge Self Assessment – Module 1
Model Answers to Knowledge Self Assessment – Module 1
Module 2
The Short Term Insurance Contract
Learning Outcomes
Introduction
Definition
The Contract
Caveat Emptor versus Uberrima Fides
Duty of Disclosure
Insurance Contracts
Summary
Warranties and Breach of Warranties
Interpretation of Contracts
Insurable Interest
Indemnity
Subrogation
Contribution
Proximate Cause
Some Specific Short Term Insurance Principles
Knowledge Self Assessment – Module 2
Model Answers to Knowledge Self Assessment – Module 2
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Module 3
Practice of Underwriting
57
Learning Outcomes
Perils
Other Forms of Theft
Surveys
The Survey Request
The Completed Survey
Underwriting the Risk
Section I – The Premises
Section II – Fire and Allied Perils
Section III – Burglary
Section IV – Money
Section V – Claims History
Surveyor’s Comments
Asking for Improvements
Knowledge Self Assessment – Module 3
Model Answers to Knowledge Self Assessment – Module 3
Module 4
Standard Features of the Multimark Policy
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90
Learning Outcomes
Introduction
General Provisions
Knowledge Self Assessment – Module 4
Model Answers to Knowledge Self Assessment – Module 4
Module 5
Fire and Perils (Multimark)
Learning Outcomes
Introduction
Defined Events
Specific Exceptions
Specific Condition – Average
Additional Perils (if stated in the schedule to be included)
Clauses and Extensions
Other Fire Classes
Body Corporate Wording
SASRIA – South African Special Risks Insurance Association
Knowledge Self Assessment – Module 5
Model Answers on the Knowledge Self Assessment – Module 5
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101
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107
113
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119
Module 6
Business Interruption
121
Learning Outcomes
Introduction
The Cover
Defined Events
Specific Conditions
Item 1: Gross Profit
Item 2: Gross Rentals
Item 3: Revenue
Item 4: Additional Increase in Cost of Wording
Item 5: Wages (Number of Weeks Basis)
Item 6: Fines and Penalties for Breach of Contract
Definitions
Extensions and Clauses
Geographical Limits
SASRIA
Knowledge Self Assessment – Module 6
Model Answers on the Knowledge Self Assessment – Module 6
Module 7
Principles of Liability Insurance
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138
Learning Outcomes
Introduction
Legal Principles
Defences
The Purpose of Liability Insurance
Knowledge Self Assessment – Module 7
Model Answers on the Knowledge Self Assessment – Module 7
Module 8
Other Forms of Liability Cover
Learning Outcomes
Introduction
Buildings Combined Section
Office Contents Section
Employer’s Liability Section
Professional Liability
Directors and Officers’ Liability
Libel Policies
Construction Risks
Product Recall
Pollution and Environmental Impairment (EIL)
Vehicle Risks
SASRIA
Knowledge Self Assessment – Module 8
Model Answers on the Knowledge Self Assessment – Module 8
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152
Module 9
Theft, Money, Fidelity, Goods in Transit
153
Learning Outcomes
Introduction
Theft Section – Defined Events
SASRIA
Money Section – Defined Events
Fidelity Section
Goods in Transit Section
Knowledge Self Assessment – Module 9
Model Answers on the Knowledge Self Assessment – Module 9
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170
Module 10
Accounts Receivable, Glass, Business All Risks, Accidental Damage
172
Learning Outcomes
Introduction
Accounts Receivable Section
Specification
Glass Section
Business All Risks Section
Accidental Damage Section
Knowledge Self Assessment – Module 10
Model Answers on the Knowledge Self Assessment – Module 10
Module 11
Group Personal Accident and Stated Benefits
Learning Outcomes
Introduction
Personal Accident and Stated Benefits
Defined Events
Definitions
Provisos
Extensions
Specific Exceptions
SASRIA
Knowledge Self Assessment – Module 11
Model Answers on the Knowledge Self Assessment – Module 11
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Module 12
Electronic Equipment Section
198
Learning Outcomes
Introduction
Sub-section A: Material Damage
Basis of Indemnification
Definition of Market Value
Limit of Liability
Clauses and Extensions
Sub-section B: Consequential Data/Programmes
Defined Events
Definitions
Clauses and Extensions
Special Exception (Sub-sections A & B)
General Extension – Incompatibilty Cover
SASRIA
Knowledge Self Assessment – Module 12
Model Answers on the Knowledge Self Assessment – Module 12
Module 13
Other Classes of Insurance
Learning Outcomes
Introduction
Advance Profits
Assets All Risks
Aviation
Cancellation and Abandonment
Engineering Insurance
Marine Insurance
Reinsurance
Knowledge Self Assessment – Module 13
Model Answers on the Knowledge Self Assessment – Module 13
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Module 14
Claims
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Learning Outcomes
Introduction
Fire and Business Interruption
Tenants
Accident Classes
Personal Accident
Accidents in the Course of Employment
Liabilities
Fidelity
Motor
Court Bonds
Government Bonds
Commercial Guarantees
Knowledge Self Assessment – Module 14
Model Answers on the Knowledge Self Assessment – Module 14
Module 15
South African Special Risks Insruance Association (SASRIA)
Learning Outcomes
Background
Types of Cover
Functrioning of SASRIA Business
Types of Coupons
Underlying Policy
Premium Accounting
Accounting Returns to SASRIA
Value Added Tax (VAT)
Monthly Premiums
Pro Rata Premiums
Cancellation of SASRIA
Claims
Claims Procedures
Claim Documentation
Adjusters Loss
Prescription Period
VAT: Claims
Namibian Special Risks Insurance Association (NASRIA)
Knowledge Self Assessment – Module 15
Model Answers on the Knowledge Self Assessment – Module 15
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Module 16
Compensation for Occupational Injuries and Diseases Act (COIDA)
250
Learning Outcomes
Reasons for the Act
Events Covered under COIDA
Classes of Benefits under COIDA
The Employer
Assessments of Employers
Risks under COIDA
Injury Related Benefits
Fatal Accidents
Death Benefits under COIDA
Occupational Diseases
The Course of Employment
Underwriting Criteria
Claims Ratios
Negligence of the Employer
Determine of Negligence
Misconduct on the part of the Employee
Knowledge Self Assessment – Module 16
Model Answers on the Knowledge Self Assessment – Module 16
Glossary of Terms
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Purpose
The purpose of this skills programme is to enable you, the learner, to meet the minimum
requirements in terms of the FAIS legislation as stated within the Fit and Proper guidelines.
The skills programme is comprised of 16 Modules. Each of these Modules is linked to unit
standards taken up in the NQF qualifications framework.
Linked Unit Standards
The following unit standards are linked to this skills programme:
Unit Standard
Number
Title
Level
Credits
14994
Demonstrate knowledge and understanding of insurable risk
4
2
14980
Apply technical knowledge and skill in order to manage risk in
business interruption
4
2
14998
Describe the operational consequences of incidents and losses on
an entity
4
2
10194
Demonstrate knowledge and insight into the Short Term
Insurance Act (No 53 of 1998) and the accompanying regulations
4
2
10364
Describe insurance cover against damage caused by riots and
acts of terrorism and violence against public authorities in South
Africa
4
3
10376
Demonstrate knowledge and understanding of Commercial and
Industrial, and Corporate insurance in South Africa
4
4
10377
Demonstrate knowledge and insight into the Compensation for
Occupational Injury and Disease Act 130 of 1993 (COIDA)
4
2
10378
Demonstrate knowledge and understanding of the statutory cover
afforded under the Compensation for Occupational Injuries and
Diseases Act, 130 of 1993, as amended (COIDA)
4
3
(This unit standard will be addressed via the Awareness
Training.)
4
2
14991
Apply the law of contract to insurance
4
2
14995
Explain the nature of risk and the risk management process
4
4
15008
Determine risk exposure in order to manage the risk in a specific
situation
4
2
12164
Demonstrate knowledge and insight of the Financial Advisory and
Intermediary Services Act (FAIS) (Act 37 of 2002)
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Notes to the Learner
Target Audience
This learning intervention is aimed at all banking staff, new and existing who are involved in Short
Term Insurance Commercial Lines.
Delivery Method
This is a self study guide which contains all the information you require in order to meet the
requirements of the unit standards linked to this programme.
Duration
It will take you approximately
hours of self study to master the outcomes of this programme.
Knowledge Self Assessments
At the end of each Module you will be required to complete a knowledge self assessment. Model
answers have been provided against which you can assess you answers.
Assessment Method
Once you have worked through the learning material, you will be required to answer a number of
knowledge questions. These questions will be presented in the form of an Assessment Guide.
You are required to achieve 100% in order to pass this assessment.
The assessment process and gathering of evidence will be discussed with you by your
Assessor/Line Manager during a pre-assessment discussion.
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Commercial insurance is a broad term that is applied to the short term insurance
requirements of businesses. This could range from a small proprietorship (such as a
corner café or home industry SMME) to large conglomerates. In most insurance
companies, the larger risks are actually handled through a special corporate division.
The bulk of the standard commercial business in South Africa uses the Multimark
(currently version III) clauses that have been agreed upon by the industry in general, but
these are sometimes modified slightly to suit particular risk circumstances.
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Module 1: The Law of Contract
Learning Outcomes
By the end of this Module, you will be able to:
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Explain the need for consensus between two parties, the one making an offer and the
other signifying acceptance, in order that a contract can come into being;
Discuss the different aspects of consensus that can result in agreement being deemed to
be in place;
Describe the different means of communication that can be used to confirm consensus;
Discuss some of the special terms that may result in consensus to enter into a contract;
Discuss the need for a person to have some type of legal capacity to be able to enter into
a contract;
Explain what circumstances will result in it being deemed physically impossible for a
contract to be entered into;
Discuss the legality of contracts entered into under particular circumstances;
Briefly describe the formalities applicable to the coming into being of a contract;
Explain how a contract can be “discharged” (terminated);
Discuss the circumstances under which a party to a contract will be deemed to be in
breach thereof;
Describe some of the remedies available where a breach of contract has occurred;
Explain the importance of the law of delict in a discussion on contract law.
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Introduction
The law of contract is a category of the law of obligations. In Roman law obligations could arise
from contract, delict, quasi-contract or quasi-delict. Quasi means “as if”, and this is the sense in
which the term is used here. The obligations falling under that heading did not truly arise from
contract or delict, but it seemed as if they arose from that source. For purposes of the present
discussion delict and quasi-delict can be disregarded (this will be dealt with in a later module).
Two important examples of obligations which arise from quasi-contract are those for unjust
enrichment and the negotiorum gestor. Enrichment will be referred to in more detail in the
discussion on minors, and negotiorum gestor will be referred to in the later module on agency.
Lee and Honoré, in their work entitled on The SA Law of Obligations, define a contract as an
agreement which creates or is intended to create legal obligations between the parties thereto.
In Farlam and Hathaway, Contract: Cases, Materials and Commentary, it is stated that
contractual obligations are created by the agreement (or apparent agreement) of the parties –
unlike many other obligations, they are supposed to arise voluntarily.
The parties to the contract usually agree to do or not to do something, or to give or not to give
something. A person cannot contract with him- or herself, and therefore there must be two or
more parties to constitute a valid contract.
The essentials of a valid contract can be listed as follows:
i)
consensus (agreement)
ii)
capacity
iii)
physical possibility
iv)
legality
v)
formalities
These essential will be discussed in more detail in this module. Note that if any one of these
components is lacking a valid contract does not come into existence and the purported
agreement is said to be void.
Consensus
The easiest way to explain the coming into existence of a contract is to state that it consists of an
offer and acceptance. This is generally the case, but it cannot always be stated that one party
made an offer and another accepted. “Consensus”, or “agreement”, implies an actual “meeting of
the minds”. There are, however, cases where a contract comes into being, or is given a certain
content, even though there is no actual meeting of the minds. The courts do not work only with a
simple psychological concept of contract but will also consider a normative view so, while the
courts use “meeting of the minds” as a point of departure, in certain instances a normative view
(i.e. where the parties are expected to behave in certain ways and their acts attract particular
consequences), will be held. In Anglo Carpets (Pty) Ltd v Snyman (1978) judge Coetzee said: “It
is perfectly true that there is no evidence of a crisp offer and acceptance … but this is not a fatal
flaw.”
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The element of certainty can also be regarded as an essential for a valid contract, although this is
often seen as part of the “consensus” requirement – the parties must be certain about what they
agree upon. The courts are reluctant to hold void for uncertainty any provision in an agreement
between parties which was intended to have legal effect.
The courts always try to balance matters so that, without violating essential principles, the
dealings of persons in business may as far as possible be treated as effective, and that the law
may not incur the reproach of being a destroyer of bargains.
Cases of True Consensus
We will proceed on the basis that there is an offer and an acceptance. The offer must be firm,
definite and couched in such form that it can be accepted, and that the result would be the
existence of a contract. The offer must contain all the essentials required for the specific type of
contract. If the person to whom the offer is directed does not simply accept it, but adds a further
term, this is called a counter-offer, which must be accepted by the person who made the initial
offer before the contract can be said to have come into existence. If the offer is not so definite that
it can lead to a contract upon mere acceptance, it is usually described as an invitation to do
business.
The so-called “gentlemen’s agreement” must be distinguished from a contract. Sharrock;
Business Transaction Law quotes a good example of a gentlemen’s agreement: A document
embodying an agreement between two parties contained a clause which specifically stated that it
was only “a definite expression and record of the purpose and intention” and that the agreement
was not signed “as a formal or legal agreement, and shall not be subject to legal jurisdiction in the
law courts”. The court ruled that this was merely a gentlemen’s agreement and not legally
enforceable.
There is an important distinction between an offer on the one hand and an option on the other. An
option is an agreement to hold an offer open for a certain or reasonable time within which the
other party can then decide whether or not to accept. The option is in effect a contract to enter
into a contract and if the offeror fails to observe one or more of the terms s/he commits a breach
of contract and can be held liable in damages. The so-called “right of first refusal” must again be
distinguished from the option.
Conduct Conflicting with Intention: The Doctrine of Quasi-mutual Assent
It happens on occasions that a party to a contract has some particular idea in mind, but conducts
him- or herself in such a way as to give the impression that s/he intends to do something
different. His or her conduct is then said to be in conflict with his or her intention and since it
would be quite impossible for the parties to a contract to read each other’s minds, the law on this
point is that it is the conduct which is binding and not a person’s thoughts or intentions. This type
of contract comes into existence through the doctrine of “quasi-mutual assent” – there is no true
consensus between the parties, yet the contract has the same force as others.
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Forms that Contracts can take
A contract can exist in various forms:
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in writing;
verbal;
tacit; or
implied.
Writing is a legal requirement for certain contracts (which are discussed under “formalities”), but
in most cases an oral, tacit or implied contract is just as valid. A contract can come into existence
without a word being said and in such a case is referred to as a tacit contract. A typical example
would be where a person takes a newspaper from a vendor and offers money. A contract has
come into being.
The Parol Evidence Rule and Rectification of Contracts
This rule states that if a contract has been reduced to writing, the writing is the sole source of the
contract and evidence may not be given as to verbal negotiations or other terms which preceded
the actual signing. The document is the only source of the terms of the contract. However there
are exceptions to this rule, and the law also provides for rectification where the written document
does not fully or correctly reflect the parties’ true agreement but, in general, they should ensure
that the contract which has been reduced to writing contains all the terms upon which consensus
was reached.
Tacit Terms: The Officious Bystander Test
Sometimes there is disagreement between the parties as to whether a particular term is part of
the contract or not. One party alleges that it is a tacit term, the other disagrees and in such cases
the officious bystander test is applied, the latter person being one who has nothing to do with the
contract. If s/he inquires about a certain aspect and both parties respond the same way, that
particular point does not require further clarification since agreement had seemingly been
reached although not formally expressed. As such, the matter concerned is said to be an implied
term of the contract.
A distinction can be drawn between “tacit terms” which are manifested by the conduct of the
parties, and “implied terms” which are fictitiously imported into the contract by the law. The former
are inferred from the facts and the conduct of the parties; the latter are implied by law. This
distinction is not always drawn and the words “tacit” and “implied” are often used to distinguish
such terms from those which were expressly agreed upon by the parties.
Terms Implied by Law, Trade Usage or Circumstance
Terms can be implied in contract by law, by usage and circumstance. In a contract of purchase
and sale, for example, an inference derived from common law is that the goods are free from
latent (hidden) defects. If two people have been doing business for a considerable period and
payment has always been made by cheque, it can then be regarded as a term implied by
circumstance that payment under future contracts will follow the same course. A contract is,
therefore, subject to implied terms – some being imported by law – which might not even have
been considered by the parties. As such, it may be said in this sense that a contract is made
partly by law.
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Means of Communication
Before a contract can come into existence the parties must communicate their respective
intentions to each other. If they are both present and the contract is an oral one, no difficulty
exists. It is, however, also possible that the parties may discuss the contract over the telephone
or by letter. In these cases special rules apply regarding the offer and acceptance. Usually when
an offer is made, it is assumed that the offeror prefers that method of communication and would
wish the acceptance by the same means. If, however, s/he definitely requires the acceptance in a
particular way the instruction must be clearly given (e.g. “this offer can only be accepted by letter
posted”). In such case the acceptance communicated by other means is invalid (even if more
expeditious than that used) and does not lead to a valid contract.
An offer may be revoked before it has been accepted but not thereafter. Once there has been
acceptance, the contract comes into being and cannot be revoked. In cases where both parties
are present when the contract is made, and with contracts entered into over the telephone, it is
quite clear that once the acceptance has been communicated to the other party the contract
exists and cannot be undone by the revocation of the acceptance. The position regarding
contracts entered into by post is not quite so simple as the contract only comes into existence
when the letter of acceptance is posted. As the offeror thus does not know about the acceptance
until s/he receives the letter it would seem that there is no true meeting of the minds until that
time. This also allows the offeree the opportunity to use a quicker method of communication (i.e.
telephone, telegram, telefax) to cancel his or her acceptance.
Special Terms in Contracts (“ticket cases”)
The question sometimes arises whether special terms form part of a contract or not. An example
would be where a person purchases a ticket, on which special terms (usually excluding liability for
loss or damage) are printed. Before it can be said that such terms form part of the contract
between the parties, the following must be clear
i)
The terms must be in contractual form
If a person takes an item and receives a ticket merely as a receipt, terms printed on that
receipt do not form part of the contract.
ii)
The terms must be contemporaneous with the contract
If, having entered into a contract to stay at a hotel, a guest finds a notice behind his or her
door listing certain terms, the latter do not form part of the contract because they were not
in existence at the time s/he completed the agreement at the reception desk.
iii)
The terms must have been read and understood by the person seeking to be bound by
them
In this regard, parking garage cases come to mind. Usually the sign excluding liability for
any loss caused by theft or other hazard is exhibited on a very large notice displayed at
the entrance to the parking garage. This notice will assist the owner of the garage to prove
that the terms were read and understood by the person who parked the car. Should the
latter however say that, for some excusable reason, s/he did not see the sign or could not
read it s/he will not be bound to the terms thereof.
iv)
The person who wishes to hold the other to the terms must show that s/he took all
reasonable steps to draw the notice to the attention of the other party
In this regard s/he must show that, in so far as may have been necessary, s/he pointed
out and explained the sign containing the special terms to the other.
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The True Nature of the Contract Prevails
Parties may themselves misunderstand the true nature of the contract between them, or they
may, for some reason best known to themselves, desire to clothe it in a form which is not true.
Thus a contract of sale may be called a lease. In this regard the law states that the true nature of
the agreement prevails and not what the parties say they are doing (plus valet quod agitur quam
quod simulate conciptur – it is more valid what parties do than what apparently comes into being).
Where one person makes an unambiguous statement of fact to another intending that the latter
should act upon it, and the representation turns out to be untrue, the representor is prevented or
“estopped” from denying its truth if the other does act upon it to his or her prejudice. As the result
of the application of the doctrine of estoppel, a person may be prevented from proving the actual
position as s/he gave the other party the impression that a different situation prevailed.
The state interferes in the contractual relationship between parties to a greater or lesser extent.
Three situations can be distinguished where the state:
i)
forces parties to make contracts which contain certain terms;
ii)
prevents a person from enforcing his or her rights under contract; and
iii)
actually amends the terms of the contract between the parties.
Many contracts today are in a standard form drawn up by the party in the stronger bargaining
position. S/he simply says to the other: “These are my terms of contract, take it or leave it”. In
many instances the other party will find that the terms are virtually “standard” throughout the
particular industry, as is well illustrated by standard clauses used by life insurers, and the shortterm industry’s use of products such as “MULTIMARK”.
It must be appreciated that the making of a contract is not – if it ever was – a completely private
thing. There are other than merely private interests in the making of a contract and the state, by
legislation and through the courts, and by applying normative rather than psychological criteria,
have given due weight to these. The existence of a contract and the exact terms thereof cannot
be determined by simply looking at what the parties thought (psychologically) they were doing.
The norms of society, as expressed in legislation, the common law and by the courts, must be
superimposed on the parties’ “agreement”, in order to determine the true and exact nature of the
contract. “Consensus” is objectively determined, not subjectively.
Capacity
This requirement relates to the capacity of the parties to the contract. Whilst there are a number
of instances were a person may not have full contractual capacity the one that is probably best
known is that of a minor. In terms of common law persons under the age of 21 years are minors.
However, as marriage automatically changes a person’s status from that of a minor to that of a
major, married persons, divorcees, widows and widowers, even if under the age of 21 years,
have full contractual capacity. The general rule regarding minors is that they have a limited
contractual capacity. This means that no obligations arise for the minor but obligations do arise
for the other contracting party if s/he is of full age. This limited capacity can be supplemented by
the consent of the guardian of the minor. The consent can be given before, during or after the
contract. Where the consent is given after the contract, it is referred to as ratification.
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Both parents are the legal guardians of a minor, even where the parents are divorced and living
apart. This will only not apply if a special order was made at the time of the divorce awarding
“sole guardianship” to one of the parents. The court can also at any time appoint a guardian for a
minor. The High Court is the upper guardian of all minors in its area of jurisdiction. Where parents
thus unreasonably refuse to consent to any contract into which a minor wishes to enter, the High
Court can grant such consent (and overrule the parents).
There are, however, certain circumstances under which a minor may enter into contracts without
the consent of his or her guardians. An example would be where a minor, who is over the age of
18, has been expressly emancipated by the High Court. A minor who is emancipated has full
contractual capacity. There is also the possibility of a “tacit emancipation”. As a general rule it can
be stated that a minor is tacitly emancipated if s/he lives economically independent of his or her
parents. Tacit emancipation can be general or special. A minor at boarding school may be tacitly
emancipated for purposes of his or her requirements (i.e. clothes and books), but not generally
(e.g. to buy a car or to start a business).
A minor who has entered into a contract before the age of 21, and then continues with his or her
obligations under the “contract”, is held to have ratified and accepted the contract, which is then
of full force and effect.
There are also various statutory provisions which enable minors to enter into certain contracts
without the need for consent from their guardians. For example, a minor who has attained age 18
has full contractual capacity to enter into long-term insurance contracts in terms of the Long-Term
Insurance Act of 1998.
If a minor enters into a “contract” unassisted by his or her guardian, s/he is not bound by it
because one of the essentials is lacking, namely his or her capacity to contract. However, there is
a doctrine in our law which states that no person may be unjustly enriched at the expense of
another, and thus a minor is liable in enrichment. S/he will have to reimburse the other party to
the extent of his or her enrichment (but not according to his or her obligations under the
“contract”), while the other party must place the minor back in the position s/he was before the
contract.
The fraudulent minor will also not be immune to some form of obligation. For example, a minor
informs the other party that s/he is of full age and thus has full contractual capacity, or states that
s/he has the permission of his or her guardians to enter into the contract. Once the contract has
been formalised the minor now admits to his or her status or lack of permission, and informs the
other party that s/he is thus not bound by its terms. The courts have agreed that the fraudulent
minor is not liable in contract (because there is no valid contract), neither is s/he liable on the
basis of estoppel (because the effect would be the same as if there had been an contract).
However, the court has held that a minor cannot, because of fraudulent conduct, be placed back
in the same position as before the contract and that the court would thus leave the situation as it
was. The fraudulent minor can also be held liable in delict on the basis of the civil wrong which
s/he committed (fraud), causing the other party to suffer a loss.
As was mentioned earlier there are other instances in which a person’s contractual capacity is
restricted. The following, although not an exhaustive list, are a few examples of the more
common occasions.
Mentally ill persons
A person whose mind at the time of entering into the purported contract was such that s/he could
not understand the nature of the transaction because of his or her specific mental illness or
condition, is not bound by the contract because s/he did not have the requisite capacity.
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Drunkenness
Drunkenness will invalidate the contract only if the person who entered into it could not
understand the provisions because of his or her state of inebriation. One must however
appreciate that the person will not be able to gain from the contract as a result of this defence.
Prodigals
A person who wastes away his or her means may, on application, be declared a prodigal by the
High Court. A curator is then appointed to manage his or her affairs, and s/he will not be able to
enter into any contracts with financial implications without the consent of the curator.
Insolvents
A person who has been sequestrated under the Insolvency Act may enter into contracts so long
as s/he does not purport to alienate any portion of his or her estate.
Physical Impossibility
It is essential that the obligations undertaken must be physically possible of performance. The
following principles apply in cases of alleged impossibility of performance:
i)
if the impossibility arises when the debtor is already in default, this situation is of no help
to him or her in so far as s/he could have performed previously;
ii)
the impossibility must not be due to the fault of the debtor;
iii)
if the debtor accepted the risk of impossibility, s/he may not invoke this situation to assist
him or her;
iv)
if the impossibility was foreseeable and the contract was of a speculative nature, the
debtor is at risk;
v)
the impossibility need not be absolute, in the sense that the debtor must show that s/he
could not perform by other means, before this can succeed as a defence;
vi)
the courts only recognise objective impossibility. Mere subjective impossibility is not
sufficient to render a contract void. (Lack of funds is always considered a subjective
impossibility and will not relieve the debtor from the contract.)
Legality
The maxim applied here by the courts is “ex turpi causa non oritur actio” – an immoral cause of
action does not give rise to a claim. Note that in such cases the “par delictum” (equal guilt) rule
will apply, i.e. “in pari delicto potior est conditio defendentis” (if the parties are equally guilty the
defendant is in a better position), and therefore, in other words, the courts will not interfere. While
in certain cases the specific facts may require the court to relax the par delictum rule and come to
the assistance of one of the parties, in general it will have nothing to do with an illegal contract. In
such cases the court does “simple justice between man and man”. It must be appreciated that a
contract may be illegal for several reasons.
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Against Common or Statutory Law
Murder is an offence under common law. A contract whereby two persons agree to commit a
murder is thus illegal and void. A statute may prohibit parties entering into certain contracts
which, if concluded, could then be void and unenforceable depending on the wording and intent
of the legislature. Sharrock in Business Transactions Law lists the following considerations in
determining the intent of the legislature:
i)
whether the statute provides sufficient criminal penalties and other measures to control or
prevent the activity at which the legislation is aimed;
ii)
whether recognition of the contract would bring about or give sanction to the very situation
which the legislature wishes to prevent; and
iii)
whether greater hardship or inconvenience would flow from holding the agreement void
than from recognising it.
Sharrock refers to the decision in Metro Western Cape v Ross (1986) where the court found that
the fact of the trader not possessing a certificate of registration or a trading licence did not render
a sale of goods void. The court held that the penalties provided in the legislation were sufficient to
achieve the aim that businesses generally are run by suitable persons in proper premises and
that to find the sale void would cause grave inconvenience and injustice, both to innocent
members of the public and to traders.
Contracts with Illegal Purposes
In the past much weight was given to the intention of the legislature, especially with regard to
apartheid-legislation. This approach changed under the 1996 Constitution with its horizontal
approach – giving rights to all persons.
Gambling Transactions
Gambling transactions are regarded as against public policy and therefore gambling debts are
unenforceable. However, if A requests B to place a bet for him the contract between A and B is
not illegal and B is obliged to pay over the winnings to A as he acted as agent in terms of a legal
agency contract. Only the gambling debt itself is unenforceable.
Agreements in Restraint of Trade
In the past the view was held that a person should be entirely free to enter into any contract s/he
wishes, and if a contract restricted his or her freedom of trade it would be void. This view has
undergone considerable development over the years and the position today is that a person
must, on the whole, do what s/he has agreed to, irrespective of whether his or her contractual
freedom is restrained or not. However, the question as to whether a restraint can be enforced
must be decided in the light of the possible harm to the public interest. In order to decide this
question, the reasonableness of the restraint is considered, especially as to the area and time
period.
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Formalities
Most contracts are equally valid, no matter that they are entered into verbally or impliedly and not
in writing. In a number of cases, however, the law requires compliance with certain formalities.
For example some contracts, particularly those dealing with the sale of land, must be in writing
and signed by the parties thereto, otherwise they are of no force or effect. Contracts under the
Credit Agreement Act of 1980 are also required to be in writing, but failure to do so does not
affect their validity. There are some contracts that have to be notarially executed, which means
they must be attested by a notary public – the ante-nuptial contract being an example.
Other examples of where contracts must be in writing in order to be enforceable are with
donations where the object has not yet been given, or suretyship contracts. Long leases (in
excess of 10 years) must also be in writing and must be registered in the Deeds Office in order to
be binding on third parties.
It is necessary here to distinguish between a contract of suretyship – which must be in writing in
order to be valid – and an indemnity, which need not. A surety promises to answer for a debt,
default, or misappropriation of another person. There are three parties concerned in a suretyship,
namely the creditor, the debtor and the surety. In simple terms, the surety says to the creditor, “If
the debtor does not pay you, I shall”. Under the contract of indemnity there are only two parties
and the indemnifier in effect says to the creditor, “Let him/her have the goods and I shall see that
you are paid”.
Discharge of Contract
The rights and obligations of the parties to a contract can be ended in a number of ways. While
each method may be driven by its own unique circumstances the end result remains the same,
the termination of the contract.
Completion of the obligation
One method of termination is through the completion of the obligations of the parties concerned,
in accordance with the terms of the contract. This performance and completion of an obligation is
the usual way that contracts are discharged. If there is a time fixed for performance of the
contract, it must be concluded at or within that time. Where no timeframe is set, completion within
a reasonable time is required. What is reasonable depends on the facts of the case in question.
Where a particular mode of performance is stipulated it must be observed, but if there are several
different ways in this can be done, a person may choose whichever is the more convenient to him
or her. The performance of the task may be the provision of a service as agreed between the
parties to the contract, or the payment of a debt within a given period. It sometimes happens that
a debtor owes several distinct sums to one person, and s/he then makes one payment in respect
of one or more of the amounts outstanding. In making payment the debtor can expressly or
impliedly intimate that it is in respect of a particular debt, otherwise the creditor may inform him or
her that s/he has decided how the payment will be appropriated. If no party makes an
appropriation, the law allocates the money according to a fixed "order of precedence". If a debit
bears interest, payment is made first to the interest and thereafter of the capital.
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By mutual agreement
The parties to a contract, having entered into it by mutual agreement, may similarly bring it to an
end. Where both have obligations to perform, they may mutually agree to release each other.
This is sometimes described as waiver, and no particular formality is required to give up the
contract. The waiver may be oral even though the original contract was in writing. This of course
does not apply where the original written contract specifically provides that no addition to it will be
of any force or effect unless reduced to writing and signed by the parties.
Release
Where one party has performed all his or her obligations under a contract and is entitled to
performance by the other, he may release the latter from his or her obligations. While, in English
law "consideration" is required for a release, in South African law any reasonable cause for the
release is sufficient, and even generosity in itself would be acceptable.
When debtor and creditor become the same person, the obligation is terminated. This would for
instance be the case where the lessee of a property becomes the owner and thus becomes both
lessor and lessee. As it is impossible to contract with yourself, the lease agreement is discharged
by merger.
Novation
Novation is the substitution of a new contract for an existing one. The parties to an investment
arrangement agree, for example, that instead of buying a house for R1 million, they will purchase
a hotel on offer for R10 million. There must be a clear intention to novate, otherwise both
contracts will be judged independently.
Compromise
Compromise, according to Christie, The Law of Contract in South Africa, is the settlement by
agreement of disputed obligations. It is a form of novation, and involves a waiver of existing (or
claimed) rights. Compromise must be clearly proved by the party alleging it. A mandate to
negotiate in this way is generally included in a Power of Attorney which a client gives to his or her
legal advisors at the outset of proceedings. Compromise brings to an end the contract and acts
as an absolute bar to further proceedings.
If two parties to a contract owe each other money the debts can be set off against each other,
and are thereby extinguished. Where the amounts are not equal, they can be extinguished to the
extent that they correspond. Certain requirements for the “set-off” of a contract of mutual debt
must be met, i.e.:
i)
ii)
iii)
both debts must be due;
both debts must be liquidated (able to be expressed in money terms);
both debts must be between the same parties;
Note that set-off is automatic and thus has to be pleaded and proved only to inform the court that
it has occurred.
A creditor should be alive to obligations which are owed to him or her, and if s/he fails to attempt
to recover the debts for a certain period of time, they are discharged through prescription. A debt
can become prescribed through extinctive prescription, meaning that it is slowly extinguished and
of no further force or effect.
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Prescription
Goods, rights or obligations can be acquired or lost through prescription. If a person holds
property openly (i.e. not by force and not by permission of the owner), as if s/he is the owner for a
continuous period of 30 years, s/he can become the owner thereof. This is known as acquisitive
prescription. The concept of extinctive prescription is found in the law of contract and delict. A
debt can be extinguished as the result of extinctive prescription. The Prescription Act, 1969
contains general provisions regarding prescription. The limit for most debts is three years, no
distinction being drawn between written, verbal or implied contracts. Prescriptions begins to run
as soon as the debt is due, unless the debtor prevents the creditor from finding out, in which case
it commences when the latter becomes aware of his or her liability.
Sequestration
The process of sequestering the estate of a person, or liquidating a company or close
corporation, does not automatically terminate all contracts to which they were party. Where no
specific provision is made for the type of contract in question in the Insolvency Act the trustee is
vested with a discretion to continue or terminate the agreement. This discretion is vested in the
trustee/curator as persons who are declared insolvent, or the directors of a company placed in
liquidation, are restricted from all further dealings with their estates or companies. However, the
final sequestration or liquidation will put an end to all prior debts as the resultant closing of the
estate or company will mean that these are now to be finally paid according to rules determined
by the Insolvency Act.
Death
The death of one of the parties does not as a general rule result in the ending of a contract, the
rights and obligations of that person passing to his or her executor. It is possible that, in making
the contract, the parties expressly or impliedly agree that it will come to an end on the death of
either or both. If there is no such agreement regard must be had to the nature of the contract.
Those of a personal nature are generally terminated by death. Thus, while the death of an
employee will put an end to an employment contract, the demise of the employer will not (unless
the services rendered were of a personal nature).
Estoppel
If a person by his or her words or conduct allows an opinion to form that a certain set of facts
exists, and thereby motivates another to act on that representation to his or her prejudice, the first
party is prevented (estopped) from raising, as a defence, that in truth such a state of facts did not
exist. (Estoppel is a disability whereby a person is precluded from alleging that a fact is not as
s/he made it appear.) A party may lose a right to enforce a claim by the operation of estoppel,
and if s/he cannot enforce his or her legal rights because of the doctrine, this has the same effect
as putting an end to the obligation. It may also be said therefore that estoppel can extinguish an
obligation.
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Breach of Contract
Parties enter into contracts for the purpose of having obligations performed, but in some cases
the obligations arising from the contract are not always fully appreciated and may thus not be
fulfilled. This is known as breach of contract and gives the innocent party the option to cancel, so
creating a further means whereby a contract may be discharged. State of mind (e.g. fault or
intent) is not considered relevant. There are a number of ways in which a party can be considered
to be in breach of a contract.





late performance by the debtor (mora debitoris);
late performance by the creditor (mora creditoris);
repudiation;
prevention of performance;
defective performance.
To determine whether the debtor is late in his or her performance it will be necessary to
determine when this is due. There are three possibilities:



time for performance is stipulated in the contract (mora ex re);
from the nature of the contract it is clear that although not stipulated time is of the essence
and performance must be on or before a given date. Alternatively there should be no
undue delay.
time for performance has not been determined in the contract and is not therefore of the
essence: here the debtor has to be given reasonable notice to perform (mora ex persona).
In a case where the time for performance is stipulated, the contract is breached if the specified
date arrives and the debtor fails to perform. If there is a cancellation (lex commissoria) the
creditor is entitled to invoke it and cancel the contract, otherwise s/he may only cancel when time
is of the essence. Where no date for performance has been fixed by the parties in the contract
the creditor may place the debtor in mora by demand, giving him or her a reasonable time to
perform, failing which it will be regarded as a breach (mora ex persona). This entitles the creditor
to cancel and use the other remedies available on breach of contract.
Where the parties to a contract are required to perform simultaneously, or where the plaintiff is
obliged to perform before the defendant, the latter can raise the so-called exceptio non adinipleti
contractus if s/he is sued for an alleged breach of contract. By raising this defence the defendant
admits that s/he has not performed, but alleges that the plaintiff also has failed to do so - it is the
"exception of the unfulfilled contract".
A creditor is in breach if s/he should delay fulfilment of the debt when performance completion is
possible. This is also the case where the debtor offers to perform but the creditor refuses to
cooperate. It is a fundamental duty of the creditor to co-operate and his or her failure to do so
constitutes a breach of contract.
Breach of contract by repudiation is said to arise when one party, either expressly or by
implication, indicates that s/he does not intend to perform his or her obligations or, having
performed part thereof, does not propose to complete performance. In Hochster v de la Tour
(1853) the defendant agreed to employ the plaintiff as from 1 August, but before that date,
repudiated the agreement. The plaintiff immediately brought an action for damages, and it was
held that he was entitled to do so, and did not need to wait until the time for performance.
However, the innocent party may ignore the repudiation and wait for the day set for performance,
at which time, if the other persists in his or her refusal to perform, there will be a breach of
contract in the form of mora debitoris. Repudiation may be made by words or conduct, provided it
is clearly made.
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The test of an intention being sufficiently evinced by conduct is whether the party repudiating has
acted in such a way as to lead a reasonable person to the conclusion that s/he does not intend to
fulfil his or her part of the contract.
If one party prevents the other from performing its obligations under a contract, it cannot say that
the second party has committed a breach. In such case the obligation is deemed to have been
(fictionally) fulfilled.
Remedies for Breach of Contract
A breach does not normally put an end to a contract. Once a breach has been committed by one
party the other must decide what s/he wishes to do about it, and after s/he has made his or her
choice - to cancel or to claim fulfilment – s/he is normally bound by it. The most common remedy
is a claim for damages, coupled to cancellation or a claim for fulfilment of the contract.
Normally a breach gives the innocent party the right to cancel the contract or stand by it (and
possibly claim damages in either case). These alternative rights reserved for the plaintiff are
clearly inconsistent: one aims at the enforcement of the agreement, the other at its dissolution.
Where a plaintiff thus claims both alternative rights his or her claim would be excipiable (open to
objection) as s/he would be "approbating and reprobating" - on the one hand s/he would be
standing by the contract, and on the other s/he would already have cancelled it – and these two
positions are clearly irreconcilable.
Where a debtor is in default of the stated and agreed terms, the creditor may cancel the contract
if it contains a term known as a lex commissoria (cancellation clause). If there is no such clause
the creditor may still cancel where time is of the essence, even when no stipulation to this effect
is included. In cases where no time is laid down in the contract, and it is not of the essence, the
creditor may give the debtor notice to perform within a specified reasonable time, and if s/he fails
to do so, the creditor may cancel the contract.
Cancellation of a contract extinguishes the duties to be performed thereunder. In place of this a
reciprocal duty arises to return whatever has been received. The innocent party is entitled to a
return of what s/he has given if s/he is willing and able to return whatever s/he has received.
However a tender for return is unnecessary where the liability to do so is not attributable to the
fault of the innocent party.
A plaintiff may pursue his or her remedy for the implementation of an agreement in one action
and, should the defendant fail to comply with the court's relief order, s/he may institute a second
action claiming rescission of the agreement and damages. A procedural practice has, however,
grown up in our courts, allowing a plaintiff to demand implementation of an agreement and in the
same action to ask the court for an order that, should the defendant fail to do so, it be set aside
and consequential relief granted. This has been described in the courts as the "double-barrelled"
remedy.
The cancellation of a contract is considered to simply be an act of a party thereto whereby s/he
puts an end to the contract and its future performance, and a court order is not necessary for this
purpose. While the parties will sometimes ask the court to confirm that a contract was properly
and with due right cancelled this simply follows from the facts and their actions.
Where a breach of contract arises an order for specific performance, requiring the defaulting party
to do what s/he undertook in the first place in terms of a contract, can be requested from a court.
In South African law a plaintiff is in principle entitled to claim specific performance and this will be
granted subject to the court's discretion.
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The court will as far as possible give effect to a plaintiff’s choice to claim specific performance
but, where appropriate, it has discretion to refuse and leave the plaintiff to prove his or her claim.
The discretion, although it must be exercised judicially, is not confined to specific types of cases,
nor is it circumscribed by rigid rules. A right to specific performance exists in our law, subject only
to the qualification of the court's discretionary powers. This right is the cornerstone of our law
relating to specific performance and the matter of discretion is not completely unfettered - it
remains a judicial discretion, and is not to be exercised capriciously or upon a wrong principle.
An order for specific performance is made by applying the following principles:
i)
The order of the court should not produce an unjust result which will be the case if, e.g. in
the particular circumstances it will operate unduly harshly on the defendant.
ii)
The remedy should always be granted or withheld in accordance with legal and public
policy.
iii)
The court will not order specific performance where this has become impossible. Here a
distinction must be drawn between the situation where impossibility extinguishes the
obligation and that where performance is impossible, although the debtor remains
contractually bound. It is only the latter type of case that is relevant in the present context,
for in the former the creditor clearly has no legal remedy at all.
It should be noted that, although the view held in the past was that courts would not order specific
performance in a contract of personal service, the courts have ordered reinstatement of an
employee on the basis of a breach of contract. In view of the specific power of the court to grant
reinstatement orders under labour legislation it seems clear that specific performance can thus
also be ordered in the case of employees.
In a claim for specific performance, demand is not necessary before issue of summons: the
cause of action exists if the debtor fails to perform timeously, and summons can be issued
without first sending a letter of demand.
Law of Delict
When considering the law of contract (ex-contractu) and its legal status, and the legal
responsibilities associated therewith, the following can be considered a summary thereof:


contractual actions can be brought only by the parties to the contract - these are easily
recognised, and limited in number;
liability under contract law is assumed voluntarily.
By contrast a delictual action can be brought by anyone who has suffered harm through a breach
of general duty not to harm him or her in person, property or personality (character/reputation).
Therefore:


no contractual relationship is needed;
there may be many claimants involved; delictual duty does not depend on anyone's
consent. It arises involuntarily, although as a result of our actions or omissions.
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Naturally some overlap between contract and delict can occur. For example, a surgeon performs
an operation on a patient in terms of a contract. If s/he leaves a swab in the patient's body, the
patient (plaintiff) has the option of suing the surgeon in contract or in delict.
In essence therefore a delict is a civil wrong for which damages can be claimed as compensation
and for which redress is not usually dependent on a prior contractual undertaking to refrain from
causing harm. Thus the distinction between delict and crime can be stated as follows:




delict is a civil wrong whereas crime is a public wrong;
the main aim of an action in delict is to compensate the victim, not to punish the guilty;
action of delict are brought by the person who suffered the harm. Criminal actions are
brought by the State;
it may be easier to succeed in a delictual action than in criminal proceedings. Crime must
be proved beyond reasonable doubt. Delict can be settled on the balance of probabilities.
Note that for delict to be alleged there needs to be an element of each of the
following:





wrongfulness
conduct (either as intent, positive actions, negligence or omission);
fault;
causation;
loss or harm.
(Some commentators combine the first two, but they are perhaps best split from each other.)
In delict conduct is defined as a voluntary human act or omission. A juristic person (such as a
close corporation) may act through its members and thus be delictually liable. Allied to this is the
capacity to act, and/or to understand the consequences of one’s actions. For liability to attach
prejudice (harm) must be caused in a wrongful (legally reprehensible or unreasonable) manner.
Without wrongfulness a defendant cannot be held liable. Wrongfulness is a conclusion of law that
the court draws (or does not draw) from the facts pleaded and proved by the plaintiff. One cannot
“prove wrongfulness” though one can prove facts from which the court is prepared to draw the
conclusion that the defendant acted wrongfully. This can therefore relate to both a defendant's
positive act or a defendant's omission to act. The general rule is that an author of a deed does
not deliberately act unlawfully when s/he merely fails to prevent damage or bodily injury to
another. Liability only follows if its failure was unlawful, and it would only be unlawful if, under the
specific circumstances, there was a legal duty on the author to act positively to prevent the
damage, and s/he failed in this legal duty. Whether such a legal duty actually exists is answered
by means of the legal conception of society, the boni mores.
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Knowledge Self Assessment – Module 1
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
List the essentials of a valid contract.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2.
List the forms that a contract can take.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3.
Briefly discuss the special conditions linked to contracts known as “ticket cases”.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4.
Explain what the term “tacit emancipation” means when associated with the
contractual capacity of a minor.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5.
When will a contract entered into by a person who was drunk at the time be declared
invalid?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 1 - cont
6.
Can an insolvent enter into a contract? Explain your answer.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
7.
Briefly explain what the continued status of a contract will be if one of the parties to
the contract dies.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
8.
Discuss the difference between a delict and a crime.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
9.
Explain what is meant by the “officious bystander” test.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 1 - cont
10.
Explain at what stage a contract comes into being where acceptance is:
a)
by letter; or
b)
per phone.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
11.
Discuss the contractual capacity of a minor, with special mention of the concessions
grated by the Insurance Acts.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
12.
There is no doubt that murder is an offence under common law and that any
contract entered into with such intent is therefore illegal and void. Discuss this
statement with special reference to a long term insurance contract, particularly
where the murderer is named as the beneficiary on the policy in the event of the
death of the murder victim.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 1 - cont
13.
List the ways in which a party can be considered to be in breach of a contract.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 1
(Questions 1 – 8: the answers to these questions can be found in the Module’s text.)
9.
Explain what is meant by the “officious bystander” test.
Sometimes there is disagreement between the parties as to whether a particular term is
part of the contract or not. One party alleges that it is a tacit term, the other disagrees and
in such cases the officious bystander test is applied, the latter person being one who has
nothing to do with the contract. If s/he inquires about a certain aspect and both parties
respond the same way, that particular point does not require further clarification since
agreement had seemingly been reached although not formally expressed. As such, the
matter concerned is said to be an implied term of the contract.
10.
Explain at what stage a contract comes into being where acceptance is:
a)
by letter; or
b)
per phone.
Before a contract can come into being the parties must communicate their respective
intentions to each other. If they are both present and the contract is an oral one, no
difficult exists. However, it is also possible that the parties may discuss the contract over
the telephone or by letter. In these cases special rules apply regarding offer and
acceptance.
11.
a)
A in Cape Town makes an offer to B in Johannesburg which the latter accepts
during their telephone conversation. According to legal principles the contract
comes into existence in Cape Town where A (the offeror) heard the acceptance.
Should the line go dead during their conversation and A thus not hear the
acceptance there is no contract as there was no agreement - no "meeting of the
minds".
b)
A in Cape Town posts and offer to B in Johannesburg. The offer is acceptable to B
who then sends a letter of acceptance by return post. The contract comes into
being when the acceptance letter is posted by B. Note that this scenario only
applies where A initially posted the offer, thus granting B the opportunity to use the
same medium to signify acceptance.
Discuss the contractual capacity of a minor, with special mention of the
concessions grated by the Insurance Acts.
In terms of common law persons under the age of 21 years are minors. However, as
marriage automatically changes a person's status from that of a minor to that of a major,
married persons, divorcees, widows and widowers, even if under the age of 21 years,
have full contractual capacity. The general rule regarding minors is that they have a
limited contractual capacity. This means that no obligations arise for the minor but
obligations do arise for the other contracting party if s/he is of full age. This limited
capacity can be supplemented by the consent of the guardian of the minor. The consent
can be given before, during or after the contract. Where the consent is given after the
contract, it is referred to as ratification. However, there are various statutory provisions
which enable minors to enter into certain contracts without the need for consent from their
guardians.
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Model Answers to Knowledge Self Assessment –
Module 1 - cont
One of these provisions of particular interest to those active in the long-term insurance
industry are contained in the Long-Term Insurance Act of 1998. In terms of these
provisions a person of 18 years but not yet 21 years has also got full contractual capacity
to enter into a long-term insurance contract, and deal with the contract in anyway that s/he
wishes, without needing the consent of his or her guardian.
12.
There is no doubt that murder is an offence under common law and that any
contract entered into with such intent is therefore illegal and void. Discuss this
statement with special reference to a long term insurance contract, particularly
where the murderer is named as the beneficiary on the policy in the event of the
death of the murder victim.
Murder is an offence under common law. A contract whereby two persons agree thus to
commit a murder is illegal and would therefore be void. However, a long-term insurance
contract entered into between an insurer and the murder victim has absolutely no bearing
on the legality or otherwise of a murder contract. The contract is a perfectly legitimate
instrument and, in the event of the death of the insured the insurer is obliged (under
circumstances other than where normal exclusions apply) to meet the claim. This is even
so where the existence of the insurance policy, and the nomination of the murderer as the
beneficiary, directly resulted in a decision to commit the murder.
However, having said this, public opinion would never condone a murderer benefiting from
his or her actions. Roman-Dutch common law also specifically states that "the bloody
hand must not benefit from its actions" (Translated from the original Dutch). While the
insurer will therefore be required to meet the claim the benefit will not be paid to the
nominated beneficiary. The dependants or heirs of the deceased would thus inherit in
terms of the law of intestate succession but with the murderer, if related to his or her
victim, deemed to have pre-deceased the insured deceased and therefore unable to
inherit.
13.
List the ways in which a party can be considered to be in breach of a contract.
There are a number of ways in which a party can be considered to be in breach of a
contract.
 .late performance by the debtor (mora debitoris);
 late performance by the creditor (mora creditoris);
 repudiation;
 prevention of performance;
 defective performance.
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Module 2: The Short Term Insurance
Contract
Learning Outcomes
By the end of this Module, you will be able to:










Apply the principles of the law of contract to insurance policies;
Explain the difference between caveat emptor and uberrima fides;
Discuss the implications of the introduction of the “reasonable man test” on the insurance
industry and the onus of responsibility placed on a proposer by this doctrine;
Discuss the concept of “warranties” as this applies to insurance contracts;
Explain the general practices used in the interpretation of contracts and how these impact
on the insurance industry;
Explain how the need for an insurable interest became entrenched as a requirement of a
valid insurance contract, and when an insurable interest must be proved in the different
categories of insurance;
Discuss the concept of “proximate cause” as it applies to insurance contracts;
Explain the meaning of the terms “indemnity”, “contribution” and “subrogation” as they
apply to short term insurance contracts;
Discuss the duty of disclosure;
Explain what is meant by “indemnity” and some common measures of indemnity.
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Introduction
Insurance is about the transfer and distribution of the financial consequences of a risk. It is an
arrangement under which an insurer contracts to do something of value to the insured (pay,
replace, reinstate or repair) on the happening of a specified harmful chance event.
The insurance policy is the written evidence of this contract.
Note that, with a short-term contract, the purpose of the insurance is compensation for a
determinable loss and not the unnecessary enrichment of the insured. In the case of a long-term
insurance contract this takes the form of a cash payment (or payments) to assist the insured or
his or her beneficiaries in overcoming the trauma associated with death, illness, injury or
disablement. Cover is usually unrelated to any specific value placed on the life of the insured.
Definition
“Insurance is a contract of (the utmost) good faith between an insurer and an insured whereby
the insurer undertakes in return for the payment of a price or premium to render to the insured a
sum of money or its equivalent on the happening of a specified uncertain event in which the
insured has some interest”.1
Note, however that
i)
ii)
It is usual to charge a premium, but this is not essential in South African Law.
The words “the utmost” can now be considered redundant (Mutual & Federal Insurance
Company Limited vs Oudtshoorn Municipality (1985)).
The Contract
For there to be a valid contract between a proposer and an insurer there therefore needs to be
agreement on the following points:





who the insured person is;
the risk that has been insured against;
the amount at risk (sum insured);
the premiums due in terms of the contract;
the period of the insurance (the term of the contract).
Furthermore,


1
2
The insurance contract, like any other, is concluded when the parties agree to be bound in
accordance with certain terms.2
Normally it is the insured who makes the “offer”, the insurer merely inviting the public to do
Gordon and Getz, The SA Law of Insurance.
Gordon and Getz, The SA Law of Insurance
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



business with him. The offer is made in an application requesting the issue of a policy on
its usual terms and conditions.
The insurance contract is complete only when the insurer accepts the proposal
unconditionally - as is required for all contracts. If the insurer seeks to introduce different
terms, there is no acceptance at that stage.
What constitutes acceptance depends on the facts - it may be expressed by letter, or
implied from the insurer’s conduct. The issue of a “cover note” may amount to an
acceptance of the proposal.
Once complete, the contract cannot be altered, except by agreement of the parties.
Short-term insurers wishing to introduce different terms usually do so as a condition for
renewal of the policy, which might be on a monthly or an annual basis. Otherwise unless
the insured agrees to the change, they must invoke the cancellation condition and start a
new contract.
For personal lines business (defined in the Short-term Act as business where the policy
holder is a natural person) the policyholder must be provided with a copy of the policy
document within 30 days of entering into the agreement.
Commencement of the Contract
The policy is enforceable as from the date of its issue, unless the insurer suspends or qualifies its
binding effect by stating e.g. that it will only become binding once the first premium has been
paid.3
Payment of a premium by a policyholder in terms of his policy to an authorised intermediary
referred to in Section 45 of the Short-term Insurance Act and part 4 of the regulations, is deemed
to be specific performance in terms of the policy.
Rules of Interpretation
The general rules discussed apply to insurance contracts in the same way as to others and the
following are examples:




3
If a policy is issued in standard printed form and a typewritten endorsement attached, the
wording of the endorsement overrides that of the policy insofar as the wording may be
inconsistent.
Technical terms, such as the phrase “subject to average” in a property policy, are
construed by the courts as having the meaning associated with them in the normal course
of business dealings.
In a phrase such as “jewellery, works of art and other similar articles” the ejusdem generis
rule would require the words “and other similar articles” to be confined to items of high
monetary value in comparatively small bulk (although it is obviously preferable to avoid
the use of expressions such as “and other similar articles” or “and the like”).
If a phrase in a policy is ambiguous, the meaning more favourable to the insured is taken
under the contra proferentem rule, as it is only equitable that the insurers should suffer the
consequences of the uncertainty for which they are responsible. Indeed, rule is taken
even further, and the meaning is adopted which favours the insured, so as not without
necessity to deprive him of his protection under the contract (Kliptown Clothing Industries
(Pty) Ltd v Marine & Trade Insurance Co of SA Ltd (1961)).
Gordon and Getz, The SA Law of Insurance; African Guarantee & Indemnity Co v Couldridge (1922).
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Implied Terms
The same rules with regard to the presence or absence of implied terms apply to insurance as in
the case of other contracts.
In Videtsky v Liberty Life Insurance Association of Africa Ltd (1990) it was suggested that there is
an implied term in an insurance contract to the effect that if any fraudulent claim is knowingly or
recklessly made by an insured, he will not be entitled to recover. The judge held that in South
African law there is a presumption that the insurer who desires additional protection when claims
are submitted need only insert an appropriate term in the contract. More recent judgements have
challenged this view, but South African policies usually contain a specific condition excluding
fraudulent claims.
Caveat Emptor versus Uberrima Fides
There are basically two distinct ways that contracts can differ legally. Contracts undertaken in the
normal course of business are generally based on the premise of caveat emptor or “let the buyer
beware”, but contracts of insurance are based on a different concept – uberrima fides or “utmost
good faith”:
One must appreciate that in all business dealings one undertakes some form of contract, even if
most of these are simply oral. Examples of these are the purchasing of a loaf of bread or a packet
of cigarettes from a local tea room. Some contracts will not be as simple. They could be for large
amounts, such as the purchase of a car or even a house.
All of these contracts are based on "caveat emptor". The terms and conditions offered by the
seller are either queried at purchase or are otherwise accepted as true and correct. However, if it
can subsequently be proved that the seller deliberately withheld information from the buyer that
would in all likelihood have affected his or her decision to buy the buyer will have recourse, if
necessary, to the courts. Should this not be the case it is only where the seller provides some
form of warranty that there is a possibility of a “comeback”. It is often thought that there is a
"cooling off" period when a major purchase is made. This is, strictly speaking, not correct. The
cooling off period applies only to any credit agreement entered into. However, based on the
principles of common law a purchaser will be able to apply to the courts in the event of deliberate
fraud or misrepresentation of the facts. Note that ignorance of the facts cannot and will not be
accepted as a valid defence. One is expected to be aware of what one signs or agrees to at all
times and, as is often repeated, "Ignorance is no excuse in the eyes of the law."
The very nature of an insurance contract requires that the "seller" (the proposer) provides the
"buyer" (the insurer) with all the facts at his or her disposal. Nondisclosure or misrepresentation of
any of the fact will give the insurer the right to claim that the policy was void "ab initio" (from the
beginning). The duty of disclosure was highlighted in the well-known case of Carter v Boehm
(1766) where Lord Mansfield stated the rule and the reasons for it.
“The duty of disclosure is imposed by law (ex lege) and it is not based upon an
implied term of the contract of insurance. It does not flow from the requirement of
bona fides, nor from the special circumstances of insurance law, being only an
example of the application of general principles, especially relating to
misrepresentation.”
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Over the years this has led to a certain amount of confusion as to whether insurance contracts
are contract of "uberrima fides" (utmost good faith) or contracts of "bona fides" (good faith). The
often quoted case of Mutual and Federal Insurance Company Ltd. v Oudtshoorn
Municipality (1985) finally cleared up this confusing principle. The Appellate Division decided
that "utmost good faith" was an impractical concept since there can only be good faith or bad
faith. A person may be less than honest but cannot be more honest than honest and "utmost
good faith" was thus declared to be meaningless in South African law. With a contract "uberrima
fides" it was accepted that there was an obligation placed on the proposer to disclose all that s/he
knows, and the hiding of any material circumstance, whether the proposer thought it was relevant
or not, would allow the insurer to void the contract from inception. The implication of this court
ruling resulted in the conclusion that the principle of uberrima fides placed too heavy a
responsibility on the proposer. Further rulings have resulted in what is today known as the
"reasonable man test". The reasonable man test is equally important to long-term as well as
short-term business. While the following section therefore provides a general overview of its
application it will be dealt with in considerably more detail in the long-term and short-term units of
the Insurance Institute’s legal framework subjects that concentrate exclusively on these insurance
disciplines.
Duty of Disclosure
Good Faith
The duty of disclosure forms a central part of South African Insurance Law. It was always stated
that insurance is a contract uberrimae fidei - of the utmost good faith - Perreira v Marine and
Trade Insurance Co Ltd (1975). The duty of disclosure was highlighted in the well-known case of
Carter v Boehm (1766) where Lord Mansfield stated the rule and the reasons for it.
“The duty of disclosure is imposed by law (ex lege) and it is not based upon an implied term of
the contract of insurance. It does not flow from the requirement of bona fides, nor from the
special circumstances of insurance law, being only an example of the application of general
principles, especially relating to misrepresentation.”
In the case of Mutual and Federal Insurance Co Ltd v Oudtshoorn Municipality (1985) the
Appellate Division took a fresh look at utmost good faith and concluded that it was an impractical
concept since there can be only good faith or bad faith. A person may be less than honest but
cannot be more honest than honest and Uberrima Fides was accordingly declared to be an
expression without any particular meaning in South African Law.
Reasonable Man Test
While the basis of uberrima fides is still applicable in principle to any proposal for insurance it is
now generally accepted that the test to the validity of the contract will be determined by the
reasonable man test. The proposer is expected to provide an insurer with all the relevant
information required that a reasonable man would know to be material to the risk. It will be no
excuse to state that facts were not disclosed because it was thought that they were not important
or material.
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If a reasonable man would have recognised the facts to be material, the proposer is expected to
also have recognised this. This does not mean that every proposer now needs to be an
underwriter.
The emphasis is on what a "reasonable man" would consider to be necessary. Unfortunately
there does not seem to be a clear definition of what is considered to be a “reasonable man”.
Where this has been put to the test the opinion of a person with an average intelligence and
some form of tertiary education is considered adequate. A knowledge of insurance usually
disqualifies the person as the opinion of a layman is what is wanted.
Material Facts
This lack of clarity surrounding the exact nature of the “reasonable man” in no way affects the
duty of both insured and insurer to disclose, prior to the conclusion of the contract, facts which
are material to the risk or the premium to be charged but the extent of that duty and the nature of
the test for materiality also came under review. The court decided that the test should be applied
objectively from the point of view of the reasonable man, so ensuring justice and fairness to both
parties.
Subsequently, however, this approach has been criticised on the grounds of vagueness and
failing to provide any real guidelines for assessing the extent of the duty.
Test for Materiality
Another opportunity for the Appellate Division to consider the nature of the test arose in the case
of President Versekeringsmaatskappy Bpk v Trust Bank van Afrika Bpk (1989). Here the court
ruled that a fact was material if, in the opinion of the reasonable man (not the reasonable insured
or insurer), it could influence the reasonable insurer in deciding whether or not to accept a risk,
and if he decides to accept it, what premium to charge. The test is not what the reasonable man
would regard as a material fact but whether the reasonable man would believe that the
information must be disclosed.
Legislative Protection
In the 1968 case of Jordan v New Zealand Insurance Co Ltd, the answer to a question on the
proposal for motor insurance asking the age of the insured on his next birthday was given the
force of a warranty. (Warranties are explained later in this module). The insured incorrectly
answered the question and stated 22 years instead of 23 years and although in court it was
argued that the answer was substantially true the insurer repudiated liability. The judge took the
view that there was no room for the doctrine of substantial performance in considering the
truthfulness or otherwise of an answer in an insurance proposal form. He said a statement is
either true or it is not; there are no relative degrees of truth. Once the insured has admitted that
the answer was untrue, the judge held, that was the end of the matter.
It was immediately obvious that this was a most unfortunate position in that the insurer could now
invoke any untrue statement made by the insured and repudiate liability on the basis thereof. As
a result section 63(3) was inserted in the former Insurance Act by the Insurance Amendment Act
39 of 1969, and a similar provision in the new Short Term Act.
Section 53 of the Short Term Act provides that
(1)
notwithstanding anything to the contrary in a short-term policy contained, whether
entered into before or after the commencement of this Act, but subject to subsection
(2) -
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

the policy shall not be invalidated;
the obligation of the short-term insurer thereunder shall not be excluded or
limited; and
 the obligations of the policyholder shall not be increased,
on account of any representation made to the insurer which is not true, whether or not the
representation has been warranted to be true, unless that representation is such as to be
likely to have materially affected the assessment of the risk under the policy concerned at
the time of its issue or at the time of any renewal or variation thereof.
(2) If the age of an insured under an accident and health policy has been incorrectly
stated to the short term insurer, the policy benefits shall, notwithstanding subsection
(1), be those which would have been provided under that policy in return for the
premium payable had the age been correctly stated: provided that if the nature of that
accident and health policy is such as to render such arrangements inequitable, the
Registrar may direct the short-term insurer to apply such different method of
adjustment to the policy benefits of that accident and health policy as the Registrar
considers equitable in relation to the misstatement of age.”
The test in 53 (1) is a subjective one, based on the underwriter’s opinion, not the ‘reasonable
man’ test. The underwriter need only show that the information would have influenced his
decision (Qilingele v South African Mutual Life Assurance Society (1993)).
Insurance Contracts
The nature of the subject matter of insurance, and the circumstances pertaining to it, are facts
particularly within the knowledge of the insured. The insurers are not generally aware of these
facts unless the insured tells them. While the proposer can examine a specimen of the policy
before accepting its terms, the insurer is at a disadvantage as he cannot examine all aspects of
the proposed insurance which are material to him. Only the proposer knows, or should know, all
the relevant facts about the risk being proposed. Scrutton, L.J. put it as follows:
“As the underwriter knows nothing and the man who comes to him to ask him to insure
knows everything, it is the duty of the assured, ... to make a full disclosure to the underwriter
without being asked for all of the material circumstances. This is expressed by saying it is a
contract of the utmost good faith.” (Rozanes v Bowen (1928)).
Questions in Proposal Form
The law is clear that the questions set out in the proposal form do not necessarily define the limits
of what is material for the insurer to know (Fransba Vervoer Beperk v Incorporated General
Insurances Ltd (1976)).
Continuing Duty
By means of a condition in the policy contract, disclosure of changes in material particulars is
usually extended to the entire period of the policy, and not only at inception or on renewal.
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Reciprocal Duty
The duty of full disclosure rests on the underwriters also (Carter v Boehm (1966)) and they must
not withhold information from the proposer, which leads him into a less favourable contract.
Summary
Facts which must be disclosed include:





those which would indicate that the risk is greater than would be expected from its class;
those which would tend to make the amount of the loss greater than normal;
previous loss and claim history;
previous application of penalty terms or restricted cover by other insurers;
the fact that the insured had absolved a third party from what would be normal legal
liabilities, thus depriving the insurers of potential subrogation rights.
Facts that do not need be disclosed include:





facts of law;
facts which lessen the risk;
facts about which the insurer is put on enquiry but does not pursue;
facts which the insurer is deemed to know from his business;
facts which the insurer’s surveyor should have seen.
Warranties and Breach of Warranties
Definition
A warranty is a term of the contract. It is an undertaking that something shall or shall not be done
or that a certain state of affairs exists, or does not exist.
Compliance with the warranty is, in law, fundamental to the liability of the insurer. The only time
when such liability is not affected is where the breach was immaterial to a loss or the assessment
of the risk.
Reasons for Warranties
The underwriter will draft warranties into polices for two main reasons:
 When the insured must comply with some requirements to make the risk acceptable e.g.

removal of waste materials in fire insurance or the use of certain protective devices in theft
insurance.
Where some adverse feature was absent or something advantageous present at the time
of survey and these factors have been recognised in fixing the rate e.g. in fire insurance, if
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no oils were stored or fire doors divided the complex into different types of fire risk.
Affirmative and Promissory Warranties
Warranties can be divided into affirmative and promissory warranties. The first category relating
to a fact in the past, such as good health, possession of an appropriate licence, or no history of
insurance being refused. Promissory warranties relate to the future where in motor insurance an
example would be to keep the vehicle in a roadworthy condition.
Interpretation of Contracts
It is only right that there are specific rules applicable to the interpretation of contracts. Contracts,
by their very nature, need to be clear to all the parties involved therewith. Any interpretation that
is subject to an objective and not a subjective analysis can only lead to confusion and, inevitably,
recourse to the courts for a legal ruling. While this module concentrates on contracts associated
with insurance business, the interpretation of contracts as included in this section applies to all
contracts entered into.













The cardinal rule of all interpretation is that the intention of the parties should prevail as
appears from the ordinary grammatical meaning of the words used.
The court attempts to determine the ordinary meaning of the words used by the parties.
The fact that the meaning of clear and unambiguous words operates harshly against one
party, or that a fairer result could be arrived at by giving them another meaning, are not
aspects taken into account.
When the words are not absolutely clear and unambiguous the court will adopt the most
equitable conclusion and will not interpret the contract to give one of the parties an unfair
or unreasonable advantage over the other.
Where words are susceptible to more than one meaning the conclusion adopted will give
effect to the contract rather than a sense which will render it inoperative. A court will then
lean towards a conclusion which will result in the least inconvenience.
Where a change of wording is used in the contract it will be taken to indicate a change in
the intentions of the parties.
The preamble and marginal notes are regarded as forming part of the contextual setting
for the purpose of interpreting the words in question, but if they suggest a different
meaning to that indicated by the operative part of the contract they are ignored.
If a word in the contract is deleted it is regarded as pro non scripto (as if it had not been
written) and as such the court will not draw any inferences.
Where the contract is expressed in a standard or printed form to which has been added
any typewritten or handwritten wording then, if there is any conflict between the two, the
latter will prevail as it is construed as representing the adaptation of a general form to
meet the needs of the particular case.
A written document must be construed as a whole, and words and phrases must not be
interpreted in isolation. For example, where a word or phrase is give a specific meaning in
one part of a document it is deemed to have the same meaning throughout.
An express term overrides an implied term where they are inconsistent.
The ordinary rules of grammar are to prevail if there is any ambiguity or lack of clarity.
General words are construed in their plain and normal sense but, where a technical term
is used, it will be given throughout the technical meaning normally assigned to it.
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



The significance of a word must be determined by its context. This is what is known as the
ejusdem generis rule – a reference to dogs, cats and other animals will be taken to refer
to domestic animals.
Words must be construed literally. If such construction is ambiguous, and one
interpretation would favour the party responsible for drawing up the contract as against an
alternative view supporting the other party, then the meaning which favours the latter is
taken. This is known as the contra proferentem rule.
The integration rule. This provides that, where a contract has been put into writing, it is
thereafter regarded as the exclusive memorial of the transaction, and no evidence (“parol
evidence”) may be given as to the meaning of the document which is inconsistent with the
terms of the written contract.
According to the “Plain Meaning Rule”, where the terms of a written contract are clear and
unambiguous, no evidence may be given to alter the plain meaning.
As we mentioned at the beginning of this section the rules of interpretation apply to all contracts,
and this thus includes insurance contracts. Here are a few examples of what we mean:




If a policy is issued in standard printed form with a typewritten endorsement attached, the
wording of the endorsement overrules that of the policy insofar as the wording may be
inconsistent.
Technical terms, such as the phrase “subject to average” in a property policy are
construed by the courts as having the meaning associated with them in the normal course
of business dealings.
In a phrase such as “jewellery, works of art and similar articles” the ejusdem generis rule
would require the words “and similar articles” to be confined to items of high monetary
value in comparatively small bulk (although it is obviously preferable to avoid the use of
such vague words entirely).
If a phrase in a policy is ambiguous the meaning more favourable to the insured is taken
under the contra preferentem rule as it is only equitable that the insurer should suffer the
consequences of the uncertainty for which it is responsible. Indeed this rule is taken even
further and the meaning is adopted which favours the insured so as not, without necessity,
to deprive him or her of his or her protection under the contract.
Insurable Interest
Introduction
The existence of insurable interest is an essential ingredient of any insurance contract and is an
important and fundamental principle of insurance.
Remember that what is in fact insured is not the object itself (e.g. a building) but the interest of
the insured in the subject matter.
This can be further explained:
(a)
Subject matter of insurance
This relates to the actual property, or event, giving rise to the creation of a legal liability or
loss of legal right. It could be a building, stock, household goods, legal liability for injury, a
ship or a life which is to be insured.
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(b)
Subject matter of contract
This is the interest of the person in the object insured.
(c)
Insurable interest
In order to validly insure, the proposer must have an insurable interest in the subject matter
specified.
Definition
Where the insured is so situated that the happening of the event on which the insurance money is
to become payable would, as a proximate cause, involve the assured in the loss or diminution of
any right recognised by law or any legal liability there is an insurable interest in the happening of
that event to the extent of the possible loss or liability. 4
Essential Features
By expanding upon this definition we can identify at least four features essential to insurable
interest:
 there must be some property, rights, interest, life, limb or potential liability capable of being



insured;
such property, rights, interests and the like, must be the subject matter of insurance;
the insured must stand in a relationship with the subject matter of the insurance whereby
he benefits from its safety, well-being or freedom from liability and would be prejudiced by
its damage or the existence of liability;
the relationship between the insured and the subject matter of insurance must be
recognised at law.
South African Law
In the United Kingdom insurable interest was introduced by means of a number of statutes, the
most important of which are the Marine Insurance Act 1745, the Life Assurance Act 1774, and the
Gaming Act 1845 (sometimes referred to as the Gambling Act). The latter rendered all contracts
of gambling or wagering null and void, one effect of this being that insurances where no insurable
interest existed were nothing more than wagers.
Authors on Roman-Dutch law at the end of the eighteenth century held the view that all gaming
and wagering contracts were unenforceable, and this view was adopted by the South African
courts. As Gordon and Getz point out, it therefore follows that an insurable interest is required in
South Africa. Insurable interest is in a sense the converse of wagering.
The South African legal system has since been amended to allow certain forms of gambling and
wagering. Horse-racing, casinos and the LOTTO are good examples of this. However, this does
not change the basic principles of our common law. The legitimate gambling activities permitted
are very carefully and strictly monitored by control boards set up by stringent legislation. Any
gaming or wagering not condoned by specific legislation remains illegal and contrary to public
interest, and therefore unenforceable. Having said this the question must naturally and inevitably
arise as to when insurable interest must actually be present for an insurance contract to be
acceptable. With regards marine insurance insurable interest need only exist at the time of loss.
4
MacGillivray, Insurance Law.
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When Insurable Interest must Exist
In marine insurance insurable interest need only exist at the time of a loss. This protects
merchants who assume an interest in cargo during a voyage and may have it included in a
floating policy.
In a life insurance the rule is the reverse. Insurable interest needs to exist when the policy is
effected, not necessarily at the time of the claim (Dalby vs The India and London Life Assurance
Company (1854)).
In the case Rixom vs Southern Life Association of Africa & Collins & Bain the court decided
that – “Insurable interest must be in existence at the beginning of the contract”. This decision was
related to a life insurance contract and is now generally accepted as applicable to all long-term
insurance contracts. In a long-term insurance contract it is thus only necessary to prove insurable
interest at the commencement of the contract. There is no need to prove insurable interest at
claim stage.
For all other insurances, insurable interest must be present both at the time of effecting the policy
and when any claim is made. The practical operation of certain covers e.g. holiday insurance,
has meant that policies are sometimes issued to commence at some future date.
In the case of Commercial Assurance Company vs Kern the court decided that – “The
fundamental principle is that once the assured is deprived of his insurable interest in the insured
car, the policy ceases to have any validity”. This has now generally come to be accepted as the
ruling for all insurances other than those of a marine or long-term nature. Insurable interest thus
needs to be present at commencement, during, and at claim stage for most insurance policies.
Common Features
 The liability of the insurer to pay claims gives him insurable interest and this allows him to
seek reinsurance.
 A mere expectation of acquiring insurable interest in the future may not be enough to
create such interest (Cook v Field (1850)).
 Lawful possession normally supports insurable interest.
 The interest need not be specified.
 Insurable interest will not apply in the case of criminal acts.
 In a reasonable sense insurable interest must be capable of financial valuation.
Cessions
As is often the case with life assurance contracts, the insured may want to cede his contractual
rights against the insurer to a third party, either absolutely or as security for a debt.
Although this can be done without the knowledge of the insurer, the cession is without effect
against the insurer until he has notice of it.
Short-term insurers, however, choose to emphasise the personal nature of the contract by a
condition along the following lines:
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“Unless otherwise provided, nothing in this policy shall give any rights to any person other
than the insured. Any extension providing indemnity to any person other than the insured
shall not give any rights of claim to such person, the intention being that the insured shall
claim on behalf of such person. The receipt of the insured shall in every case be a full
discharge to the company”.
This also helps to ensure that the claimant was the person actually concerned with matters that
might be in dispute, such as compliance or non-compliance with policy conditions and warranties.
However, the original owner of the subject matter of insurance might cede all or part of his
interest to another party, for example where the owner takes out a mortgage bond on the security
of his property. The mortgagee has a separate insurable interest to the extent of the amount
owed. For the mortgagee to secure the protection of the policy, the insured might now be shown
as “J. Blank as owner, and J Soap as Mortgagee, for their respective rights and interests.”
Indemnity
Definition
The exact amount sufficient to place the insured in the same financial position after a loss as he
enjoyed immediately before it happened.
Introduction
In the leading South African case on indemnity the following was said:
“The amount recoverable under a policy of insurance in the event of a fire, must not
exceed the sum necessary to indemnify the insured fully against any loss which he may
have actually sustained in consequence of the fire. He is not entitled to recover the
amount specified in the policy unless it represents his actual loss. The main purpose of
the policy is to fix the total amount of the premium and to mark the limit beyond which the
liability of the insurers is not to extend. The insured is, therefore, entitled to a full
indemnity within the limits of his policy, for the loss which he has sustained in respect of
the subject-matter of the insurance” (Nafte v Atlas Assurance Co Ltd (1924)).
Lord Justice Brett, in the case of Castellain v Preston (1883), said that indemnity was the
“controlling principle in insurance law”.
A further quotation from Castellain v Preston emphasizes the important position indemnity plays
in insurance:
“The very foundation, in my opinion, of every rule which has been applied to insurance law
is this, that the contract of insurance contained in a marine or fire policy is a contract of
indemnity and of indemnity only ... and if ever a proposition is brought forward which is at
variance with it, that is to say, which either will prevent the assured from obtaining a full
indemnity or which gives the assured more than a full indemnity, that proposition must
certainly be wrong.”
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Property insurance is a contract of indemnity. The insurer’s liability is limited to the smaller of


the real and actual value of the insured’s interest in the loss suffered (the insured cannot
make a profit from his misfortune
the sum insured.
In the same way, liability insurance covers damages which the insured may become legally liable
to pay in consequence of the events insured against, subject to the indemnity limit in the policy.
Not all insurance contracts are contracts of indemnity. It is impossible to financially indemnify for
loss of life or limb, accordingly, personal accident/stated benefits policies are referred to as
contracts of compensation.
Measures of Indemnity
The fundamental principle is that the insured be restored, as far as money can do so, to the
position he occupied immediately before the loss.
Usually this will mean the market value at the time and place of the loss.
If the property has risen in value since it was originally insured, the insured is entitled to the
benefit, subject always to the adequacy of the sum insured. In the same way, market conditions
might have deteriorated, or the insured may have advertised the property for sale at a lesser
figure, resulting in a reduced value.
Reinstatement
Sometimes payment on market value will not restore the insured to his original position, and the
loss cannot be made good except by reinstatement. In partial losses, this may be the only
measure available.
There is an important difference between the insurers agreeing a payment representing the cost
of reinstatement, as might be evidenced by a repairer’s quotations, and their agreeing to
reinstate.
Once insurers have elected to reinstate, they must perform as a contractual obligation, and
cannot withdraw, even if this proves to be more difficult and expensive that was anticipated and
the sum insured is exceeded.
Valued Policy
A valued policy is one which specifies the agreed value of the subject-matter at commencement.
This is sometimes done for items where a market value cannot readily be ascertained, e.g.
collectors’ items, vintage cars.
Excess and Average
These do not alter the basic principle of indemnity. An excess is that part of a loss for which the
insured is liable. By the application of average, he is regarded as his own insurer in the
proportion that the value of the property exceeds the sum insured.
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Link with Insurable Interest
There is a link between indemnity and insurable interest as it is the insured’s interest in the
subject matter that is covered. In the event of any claim the payment made cannot therefore
exceed the extent of such interest and there are cases where it will be less.
Subrogation
Introduction
Subrogation is a corollary, or natural result of indemnity. When an insurer has already fully
indemnified his policyholder, the policyholder cannot make a profit by a further recovery from
another source, such as a third party responsible for the loss.
Similarly, when an insurer has paid a claim to his policyholder, and another (third) party was, in
law, liable for the cost of the loss, the third party should not be able to avoid his or her financial
responsibilities. It would be unjust that the guilty party should escape his obligations because of
the other’s good sense in arranging insurance.
Definition
Subrogation is the right of one person to stand in the place of another and avail himself of all the
rights and remedies of that other, whether already enforced or not.
The fundamental point is that the insured is entitled to indemnity but no more than that.
Subrogation simply means that in instances where the insurers have paid the claims of the
insured they are entitled to take over his rights in seeking recovery of their outlay - Schoonwinkel
v Galatides (1974), Aviation Insurance Co Ltd v Bates & Lloyd Aviation (Pty) Ltd (1982).
Contracts not Subject to Subrogation
Personal Accident/Stated Benefits insurances are not subject to the doctrine of subrogation as
they are not contracts of indemnity. If death was caused, say, by the negligence of another
person then the deceased’s representative may be able to recover from that source in addition to
the policy monies.
When the Right Arises
The common law right of subrogation does not arise until the insurers have admitted the claim
and paid it. To ensure their position is not prejudiced, however, insurers place a condition on the
policy giving themselves subrogation rights before the claim is paid, i.e. they are able to
commence subrogation proceedings immediately.
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Contribution
Contribution is the right of an insurer to call upon others similarly, but not necessarily equally,
liable to the same insured to share the cost of an indemnity payment.
Here again, the common law position is modified by the terms of the policy, which provides that
the insurer will be liable only for its own rateable proportion of the loss. To gain a full indemnity,
the insured will then claim individually from each of the insurers involved.
Proximate Cause
Introduction
In insurance contracts, the perils against which cover is given must be set out in such a way that
the intention of the parties is clearly defined.
In modern contracts, these are usually called “Defined events”, “Insured events” or
“Contingencies”.
Usually, the insurer is liable only for losses proximately caused by an insured peril.
Proximate cause is important to insurers for the following reasons:




they are only issuing cover for certain perils;
there may be certain causes which they are excluding;
there may be certain results which they are excluding;
the premium which has been charged will have taken account of these factors.
Definition
Proximate cause means the active efficient cause that sets in motion a train of events which
brings about a result, without the intervention of any force started and working actively from a
new and independent source. Scottish Union and National v Alfred Pawsey (1908).
Excepted Perils
In most policies, (particularly those on an ‘All Risks’ basis - termed “policies of exclusion”) the list
of exceptions or exclusions is longer and more comprehensive than the insured perils. Some of
these mean that the exclusion is not limited to loss or damage directly caused by the peril, but
any loss arising incidentally out of the peril is also excluded.
An example is the war exclusion in the Multimark Personal Accident section:
“This section does not cover death or injury directly or indirectly caused by, related to or in
consequence of war, invasion, act of foreign enemy, hostilities (whether war be declared or
not), civil war, mutiny, insurrection, rebellion, revolution, military or usurped power.”
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Chain of Events
The proximate cause is neither the first nor the last cause, it is the dominant cause (Leyland
Shipping Co v Norwich Union (1918) or the efficient or operative cause (P. Samuel & Co Ltd v
Dumas (1924)).
Frequently, there is a chain of events or causes leading up to a loss rather than a single cause. It
is necessary to examine this chain to determine the proximate cause and whether it is excluded
from cover or not. If an insured peril operates and directly gives rise to the loss, then it will be
covered provided that there was no excepted peril which effectively or dominantly interrupted the
chain of events.
On the other hand the final loss need not be the consequence of an insured peril, provided that
the cause of loss was proximately initiated by an insured peril. For example, fire policies make no
mention of water or smoke damage, but provided that the cause of the fire is not an excepted
peril, all losses resulting from water or smoke afterwards as frequently follows intervention by the
fire brigade, are deemed to be fire damage.
Sequence of Events
 Unbroken sequence with no excepted peril:
Cover applies to all losses starting with the insured peril onwards

Unbroken sequence with an excepted peril:
If the excepted peril occurs first there is no liability; if the insured peril occurs first there is
cover up to but not including the excepted peril.

Broken sequence with no excepted peril:
Cover for all losses starting with the insured peril
 Broken sequence with an excepted peril:
Cover from the insured peril onwards if this occurs after the excepted peril and the break;
cover up to the break if the insured peril occurs first and the excepted peril occurs after the
break.
A New Cause
Sometimes a new cause starts to operate independently of and subsequently to the peril insured
against, and it is difficult to say with certainty what were the relevant roles which each played in
bringing about the loss. An examination of two cases will illustrate this point.
In Gaskarth v Law Union Insurance Co (1876) fire had left a gable wall standing, but a
subsequent gale blew it down, and it was held that the damage caused by the falling gable was
not damage by fire.
On the other hand in Roth v South Easthope Farmers (1918) where a building was first damaged
by lightning and shortly afterwards by a high wind, it was held that the whole of the damage was
caused by lightning.
The crucial factor seems to be whether the original peril was still operating and was the dominant
cause of the loss. In the first case it was evidently felt that the wall was secure after the fire,
whereas in the second case this was not so and the gale operated before remedial action could
be taken. In Alston v Marine and Trade Insurance Co Ltd (1964) the court said that the cause
would be regarded as superseding where:
(a)
Its intervention brings about harm different in kind from that which would otherwise have
resulted from the actor’s negligence. The results appear after the event to be extraordinary
rather than normal in the light of the circumstances at the time of its operation.
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(b)
(c)
It operates independently of any situation created by the actor’s negligence and is not an
act done as a normal response to such a situation.
It is due to a third person’s act or the victim’s own act.
Concurrent Causes
It is possible for more than one cause to be operating at the same time. If the extent of damage
from each cause (one insured, the other not) can be determined, the loss from the insured peril
will be covered and the other not. If the damage cannot be separated and one of the causes is
an excepted peril, the insured cannot recover since the loss is as much due to the exception as to
the insured peril. On the other hand if one peril is insured and the other not, but not excluded, all
losses can be recovered if they cannot be separated.
In Nelspruit Combined Butcheries (Edms) Bpk v Santam Versekeringsmaatskappy (1974) the
defendant had undertaken under a burglary policy that in the event of the insured goods being
lost or damaged as the result of a burglary it would make good such loss or damage. The policy
gave the word “burglary” a limited meaning, viz “theft of property from the premises pursuant to
an unlawful entry to the premises by actual, visible and forcible means”. A thief had made a hole
in a wall in the plaintiff’s butchery - the insured premises - in order to gain entry. This place was
next to the refrigeration plant which chilled the meat inside the premises. In order to gain entry
the thief had broken off a pipe of the refrigeration plant resulting in it ceasing to operate and all
the meat became bad. On appeal the court held that in terms of the definition in the policy, it
could not be said that the damage arose as a result of theft of property pursuant to unlawful
burglary of the premises. The theft had followed after the damage to the pipe during the breaking
in and the court held that the policy did not cover the putrefaction of the meat nor the
consequential damage.
Burden of Proof
The insured must prove that the loss was caused by a peril against which he holds insurance
while equally it is a matter for the insurer to prove the operation of an exception should it wish to
dispute liability. Where an insured wishes to claim that only part of the loss falls within the
exception, the burden of that proof falls back to him.
Occasionally, the terms of a policy may shift the normal burden of proof, such as when a certain
type of loss is excluded:
“except to the extent that the insured shall prove to the satisfaction of the insurers that the
loss does not fall within the exception”.
In such case the insured has to prove not only that he has suffered prima facie a loss by an
insured peril, but also that his loss does not fall within the exception.
Perils Relevant to Proximate Cause
The perils which must be considered can be classified under three headings:
1.
2.
3.
Insured perils: those named in the policy as insured;
Excepted perils: those named in the policy as excluded, either as causes of insured
perils or as results or consequences of insured perils;
Other perils: those which are not mentioned at all in the policy but which may form part
of a chain of events leading to a loss.
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Rules for the Application of Proximate Cause




The risk insured against must actually take place. (The fear of losing goods by an insured
peril is not loss by that peril (Moore v Evans (1917)).
Further damage to the subject matter due to attempts to minimize a loss already taking
place, is covered. Therefore water damage from sprinklers or firemen’s hoses is covered
(Johnston v West of Scotland Insurance (1928)).
If a new cause intervenes (novus actus interveniens) loss caused thereby is not covered.
Thus, if during a fire onlookers cause damage to surrounding property, the cause of such
damage is the misdemeanor of the crowd and not the fire (Marsden v City & County
Assurance Co (1865)).
In instances where the original peril has meant that loss was more or less inevitable, the
original peril will be the proximate cause even though the last straw comes from another
source (“last straw” cases). (Leyland Shipping Co Ltd v Norwich Union (1918).
Comparison with Causation in the Law of Delict
In the insurance contract, a peril is covered if so stated in the policy with words linking the peril to
the loss (the causation). Normally these will point to “proximate cause” and only if the peril was
the “proximate” cause will liability attach under the policy.
Elsewhere in the course, we have discussed causation in the law of delict, where the test is
whether the loss was sufficiently closely or directly linked, for legal liability to ensue.
Some Specific Short Term Insurance Principles
The basic concept of short-term insurance, other than in long-term insurance, is to compensate
an insured for the financial loss s/he may have undergone. The purpose of the insurance is to put
the insured back into the same position, financially, that s/he was in before the loss. The insured
cannot profit from the insurance but should simply be put back in the same position s/he held
before the loss. This act of putting the insured back into the position held is called indemnity.
Following on this requirement of a short-term contract that the insured should not be enriched as
a result of the payment of a claim comes the concept of “contribution”. Basically contribution
means that, where two or more policies are in force each insurer will only pay its rateable portion
of the loss and not the full sum insured.
As short term insurance is primarily intended as protection against the loss of “things” there is
always a possibility for some recovery. An example of this is that stolen property can occasionally
be recovered but, invariably this only happens after a claim has already been met. The recovered
property therefore now belongs to the insurer.
There is also the loss arising from a road accident where, even though the insured was the
innocent party, his or her insurer is called upon to repair the damages. Short-term insurers
therefore include a subrogation clause in their contracts. Subrogation means that the rights of one
person to take legal action are taken over by another. In the case of theft the insured thus grants
the insurer the right to take such legal steps as are necessary to recover any portion (or all) of the
items that have been recovered, and which the insurer will then be entitled to sell at auction to
recoup its financial outlay in the meeting of the claim. In the case of a motor accident the insured
grants the insurer the right to sue any guilty party in the accident for a recovery of its expenses in
making the necessary repairs to the insured’s vehicle.
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(Most insurers will, on the specific request of the insured, include the amount the insured was
required to pay as an excess on the claim as part of their action.)
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Knowledge Self Assessment – Module 2
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
In order for there to be a valid insurance contract, certain terms must be agreed on.
List these terms.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2.
Briefly explain what the term "caveat emptor" means.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3.
Define the term "warranty".
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4.
Explain the difference between affirmative and promissory warranties.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5.
Explain how the need for insurable interest has resulted in the difference between an
insurance contract and a wager.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 2 - cont
6.
Define "proximate cause".
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
7.
Explain what the term "indemnity" means.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
8.
Explain what the term "contribution" means.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
9.
Explain what the term "subrogation" means.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
10. Explain the implications of the Mutual and Federal Insurance Company Ltd. v
Oudsthoorn Municipality (1985) case with regards "uberimma fides".
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 2 - cont
11. There are a number of relevant facts that must be disclosed in terms of the
"reasonable man test”. List these.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
12. List five (5) of the rules of interpretation applicable to contracts.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
13. List and briefly explain the rules of interpretation used for contracts that apply
particularly to insurance contracts.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 2 - cont
14. John’s insurance policy has a warranty that all opening windows are protected by
burglar bars, and there are grille gates on all doors. John mentioned to his broker,
Dave, that there is an upstairs bathroom window that is not barred, but Dave felt that
this was not important because the window is high up and not readily accessible.
Thieves entered by forcing open a grille gate on the ground floor, and insurers have
repudiated the claim.
Discuss the insured’s rights against the insurer and against his broker.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
15. John insured his girlfriend Susan’s car under his own insurance policy. The car was
damaged by a hailstorm, and John claimed under his policy. The insurer refused to
accept the claim. Discuss the rights of John and Susan under the policy, and in
respect of the premiums paid.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 2 - cont
16. During heavy rain, Elijah’s car was swept off the road. The bodywork was damaged,
and all four tyres burst. The motor assessor found that although the tyres were still
roadworthy, the tread was more than 50% worn. Insurers say that Elijah must
contribute 50% of the cost of replacement tyres. Elijah objects, saying that he is
entitled to the cost of repairs and replacements, less the policy excess. Who is right
and why?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
17. Johannes was in his garden at home when there was an explosion at a nearby factory.
He was struck in the head by flying debris and lost an eye. His house was also
severely damaged, but is fully insured under a houseowners policy.
Assuming that the factory owners are negligent, discuss subrogation as it affects
Johannes/s building and contents insurances and his personal accident policy.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 2 - cont
18. Several other houses were damaged by the explosion, and the occupants had to find
other accommodation. Thieves took advantage of this to break into some of the
homes. Discuss whether or not these losses were proximately caused by the
explosion.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 2
(Questions 1 – 9: the answers to these questions can be found in the Module’s text.)
10. Explain the implications of the Mutual and Federal Insurance Company Ltd. vs
Oudsthoorn Municipality (1985) case with regards "uberimma fides".
The very nature of an insurance contract requires that the "seller" (the proposer) provides the
"buyer" (the insurer) with all the facts at his or her disposal. Nondisclosure or
misrepresentation of any of the fact will give the insurer the right to claim that the policy was
void "ab initio" (from the beginning). Over the years this has led to a certain amount of
confusion as to whether insurance contracts are contract of "uberrima fides" (utmost good
faith) or contracts of "bona fides" (good faith). The oft quoted case of Mutual and Federal
Insurance Company Ltd. v Oudtshoorn Municipality (1985) finally cleared up this
confusing principle. The Appellate Division decided that "utmost good faith" was an
impractical concept since there can only be good faith or bad faith. A person _ay be less than
honest but cannot be more honest than honest and "utmost good faith" was thus declared to
be meaningless in South African law. With a contract "uberrima fides" it was accepted that
there was an obligation placed on the proposer to disclose all that s/he knows, and the hiding
of any material circumstance, whether the proposer thought it was relevant or not, would
allow the insurer to void the contract from inception. The implication of this court ruling
resulted in the conclusion that the principle of uberrima fides placed too heavy a
responsibility on the proposer. Further rulings have resulted in what is today known as the
"reasonable man test".
11. There are a number of relevant facts that must be disclosed in terms of the
"reasonable man test”. List these.
The nature of the subject matter of insurance, and the circumstances pertaining thereto, are
facts particularly within the knowledge of the insured. The insurer is not generally aware of
these facts unless informed thereof by the insured. Only the proposer knows, or should
know, the relevant facts about the risk being proposed. Other than the answers to the
questions on the proposal forms there are thus further facts that must be disclosed. These
include:






those which would indicate that the risk is greater than would be expected from its
class;
those which would tend to make the amount of the loss greater than normal;
previous loss and claim history;
previous application of penalty terms (Ioadings) or restricted cover (exclusions)
imposed by other insurers;
the fact that the insured had absolved a third party from what would be normal legal
liabilities, thus depriving the insurer of potential subrogation rights (only applicable to
short-term contracts);
any medical information that could materially affect the assessment of the risk,
whether the condition was referred to in the medical questions or not (usually only
applicable to long-term contracts).
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Model Answers to Knowledge Self Assessment –
Module 2 - cont
12. List five (5) of the rules of interpretation applicable to contracts.
Any five (5) of the following would be acceptable.
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The cardinal rule of all interpretation is that the intention of the parties should prevail
as appears from the ordinary grammatical meaning of the words used.
The court attempts to determine the ordinary meaning of the words used by the
parties.
The fact that the meaning of clear and unambiguous words operates harshly against
one party, or that a fairer result could be arrived at by giving them another meaning,
are not aspects taken into account.
When the words are not absolutely clear and unambiguous the court will adopt the
most equitable conclusion and will not interpret the contract to give one of the parties
an unfair or unreasonable advantage over the other.
Where words are susceptible to more than one meaning the conclusion adopted will
give effect to the contract rather than a sense which will render it inoperative. A court
will then lean towards a conclusion which will result in the least inconvenience.
Where a change of wording is used in the contract it will be taken to indicate a
change in the intentions of the parties.
The preamble and marginal notes are regarded as forming part of the contextual
setting for the purpose of interpreting the words in question, but if they suggest a
different meaning to that indicated by the operative part of the contract they are
ignored.
If a word in the contract is deleted it is regarded as pro non scripta (as if it had not
been written) and as such the court will not draw any inferences.
Where the contract is expressed in a standard or printed form to which has been
added any typewritten or handwritten wording then, if there is any conflict between
the two, the latter will prevail as it is construed as representing the adaptation of a
general form to meet the needs of the particular case.
A written document must be construed as a whole, and words and phrases must not
be interpreted in isolation. For example, where a word or phrase is give a specific
meaning in one part of a document it is deemed to have the same meaning
throughout.
An express term overrides an implied term where they are inconsistent.
The ordinary rules of grammar are to prevail if there is any ambiguity or lack of clarity.
General words are construed in their plain and normal sense but, where a technical
term is used, it will be given throughout the technical meaning normally assigned to it.
The significance of a word must be determined by its context. This is what is known
as the ejusdem generis rule - a reference to dogs, cats and other animals will be
taken to refer to domestic animals.
Words must be construed literally. If such construction is ambiguous, and one
interpretation would favour the party responsible for drawing up the contract as
against an alternative view supporting the other party, then the meaning which
favours the latter is taken. This is known as the contra preferentem rule.
The integration rule. This provides that, where a contract has been reduced to writing,
it' is thereafter regarded as the exclusive memorial of the transaction, and no
evidence ("parol evidence") may be given as to the meaning of the document which is
inconsistent with the terms of the written contract.
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Model Answers to Knowledge Self Assessment –
Module 2 - cont

According to the "Plain Meaning Rule", where the terms of a written contract are clear
and unambiguous, no evidence may be given to alter the plain meaning.
13. List and briefly explain the rules of interpretation used for contracts that apply
particularly to insurance contracts.
 If a policy is issued in standard printed form with a typewritten endorsement attached,
the wording of the endorsement overrules that of the policy insofar as the wording may
be inconsistent.
 Technical terms, such as the phrase "subject to average" in a property policy are
construed by the courts as having the meaning associated with them in the normal
course of business dealings.
 In a phrase such as "jewellery, works of art and similar articles" the ejusdem generis rule
would require the words "and similar articles" to be confined to items of high monetary
value in comparatively small bulk (although it is obviously preferable to avoid the use of
such vague words entirely).
 If a phrase in a policy is ambiguous the meaning more favourable to the insured is taken
under the contra preferentem rule as it is only equitable that the insurer should suffer the
consequences of the uncertainty for which it is responsible. Indeed this rule is taken
even further and the meaning is adopted which favours the insured so as not, without
necessity, to deprive him or her of his or her protection under the contract.
14. John’s insurance policy has a warranty that all opening windows are protected by
burglar bars, and there are grille gates on all doors. John mentioned to his broker,
Dave, that there is an upstairs bathroom window that is not barred, but Dave felt that
this was not important because the window is high up and not readily accessible.
Thieves entered by forcing open a grille gate on the ground floor, and insurers have
repudiated the claim.
Discuss the insured’s rights against the insurer and against his broker.
To successfully dispute liability, the insurer must be able to show that this is a material fact
which was not disclosed and which would have materially affected its assessment of the risk
undertaken. It accepted the insurance on condition that all opening windows are protected
and so is entitled to repudiate the claim.
The broker, Dave, is the agent of the insured. One of the agent's main duties is to exercise
care and skill in the performance of all acts done in the course of his duties. A person
professing to be an insurance broker must show the appropriate degree of skill and
knowledge, higher than that of a part-time agent. The insured disclosed the material facts to
his broker, and it was the duty of the broker to give the insurer the correct information. The
insured will have a claim against his broker.
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Model Answers to Knowledge Self Assessment –
Module 2 - cont
15. John insured his girlfriend Susan’s car under his own insurance policy. The car was
damaged by a hailstorm, and John claimed under his policy. The insurer refused to
accept the claim. Discuss the rights of John and Susan under the policy, and in
respect of the premiums paid.
In order to validly insure, John must have an insurable interest in Susan's car. Friendship is
not enough - there must be some connection, recognized by law, whereby John benefits by
the safety of the car, or is prejudiced by its damage.
The policy is void for lack of insurable interest. The insurer has never actually been at risk,
and unless it can prove fraud on John's part, it is obliged to refund the premium to him.
Susan had an insurable interest, but was not a party to the contract between John and his
insurer, so has no rights under the policy.
16. During heavy rain, Elijah’s car was swept off the road. The bodywork was damaged,
and all four tyres burst. The motor assessor found that although the tyres were still
roadworthy, the tread was more than 50% worn. Insurers say that Elijah must
contribute 50% of the cost of replacement tyres. Elijah objects, saying that he is
entitled to the cost of repairs and replacements, less the policy excess. Who is right
and why?
The policy is one of indemnity. Indemnity is defined as the exact amount sufficient to place
the insured in the same financial position after the loss as immediately before it happened. If
the worn tyres are replaced by new ones, Elijah will benefit, so insurers are entitled to ask
him to pay part for the cost of the tyres. (The alternative would be to supply tyres in a
similarly worn condition, which could lead to other complications).
17. Johannes was in his garden at home when there was an explosion at a nearby factory.
He was struck in the head by flying debris and lost an eye. His house was also
severely damaged, but is fully insured under a houseowners policy.
Assuming that the factory owners are negligent, discuss subrogation as it affects
Johannes/s building and contents insurances and his personal accident policy.
Johannes will be indemnified under the building and contents policies. His right of recovery
against the factory owners will immediately be subrogated to the insurers, who will pursue a
recovery action.
The personal accident insurance is a contract of compensation, not indemnity. He is entitled
to the policy compensation for the loss of his eye, but also has grounds for an action in delict
against the owners of the factory. Subrogation does not apply.
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Model Answers to Knowledge Self Assessment –
Module 2 - cont
18. Several other houses were damaged by the explosion, and the occupants had to find
other accommodation. Thieves took advantage of this to break into some of the
homes. Discuss whether or not these losses were proximately caused by the
explosion.
Sometimes a new cause starts to operate independently and subsequent to the peril insured
against. In Alston v Marine and Trade Insurance Co Ltd (1964) the court said that the cause
would be regarded as superseding where:
a) its intervention brings about a harm different in kind from that which would otherwise have
resulted from the actor's (in this case the factory owner's) negligence;
b) the results appear after the event to be extraordinary, rather than normal in the
circumstances;
c) it operates independently of any situation created by the actor's negligence, and is not an
act done as a normal response to such a situation;
d) it is due to a third person's act (the thieves) or the victim's own act.
The losses result from a new peril, theft, and are not directly linked to the explosion.
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Module 3: Practice of Underwriting
Learning Outcomes
By the end of this Module, you will be able to:
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identify some main perils covered by insurance policies;
indicate ways in which the risk of these perils can be minimised;
describe the duties of the surveyor, and how surveys are carried out;
explain how the insured’s duty of disclosure, and the insurer’s rights, are affected by the
survey.
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Perils
Definition - Fire
Fire is an extremely rapid, self-sustaining, energy conversion system, whereby the energy stored
in the fuel is released as heat, and (usually) visible as light.
 There must be actual ignition:
Something must be burning, and there will usually be some sort of flame.
 As far as the insured is concerned, the fire must be accidental:
Many fires are started on purpose, but if the insured had nothing to do with this, it is still
accidental as far as he is concerned.
 There must be something on fire that ought not to be on fire:
Wood or coal in a stove or grate is meant to be burnt and to give off heat, but when the
insured hid her valuables in the fireplace, forgot this and lit the fire, this was something
that was not meant to be on fire. If the fire accidentally gets beyond the fireplace, and
ignites other property, this damage is covered.
How Things Burn
Four things are needed:
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Fuel:
Most things can burn, but some burn more easily than others. (Some even contain their
own supply of oxygen.)
Oxygen:
Air contains about 21 % oxygen.
Heat:
If something burns easily, a spark may be all that is needed; other substances need
enough heat to get the fire going.
Chain reaction:
This really means that the burning is able to continue; the heat from one part sets fire to
the next.
Loss Prevention
You can prevent or limit the fire by interfering with any one of the above.
Most fires happen because combustibles (fuel) are sitting in harmless contact with air (oxygen),
and some form of heat is introduced. The idea is to spot these situations, and remove the heat
source from the combustibles or the combustibles from the heat!
Fires usually start from small beginnings. With prompt use of the right kind of fire extinguisher,
the fire can be put out before it gets too large and hot to control.
Remember the danger of arson (fires deliberately started by others). Malicious damage, except
by thieves, is also covered as an extension to most fire insurances. For these reasons, we might
also have to think about keeping the premises secure against such people.
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Definition - Explosion
A sudden and violent release of large amounts of gas and or vapour.
How things Explode
Explosion can be similar to a fire; the difference is that the reaction is so rapid and violent that
the gasses cannot escape fast enough. The speed of the reaction is equal to or more than the
speed of sound and a shock wave is produced. (The heat generated by the reaction also
increases the volume of the gases produced).
“Explosives” as such, need special underwriting, but explosions can also happen in quite
ordinary ways, for example:
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gas vapour, such as from petrol or other flammable liquids, in the air;
the right concentration of dust suspended in the air;
overheating and bursting of gas cylinders;
too much steam pressure in a water boiler.
The explosion might not even be on the insured’s premises. A sweet factory lost an entire day’s
production when a nearby explosion shattered the windows, and everything was covered in tiny
pieces of glass.
Loss Prevention
Care in using or storing flammable liquids and gas storage cylinders. Extractor fans to suck
gasses and dust into the open air.
Definition - Lightning
An electrical discharge within clouds, or between clouds and earth.
How Damage Occurs
The electrical charge is extremely powerful. The heat can also start fires. Apart from direct
“strikes”, lightning can cause damage to electrical equipment up to a kilometre away, and set up
power surges that are carried along power lines and telephone connections.
Loss Prevention
Usually, lightning strikes at the highest point. You will have seen the tall masts put up where there
are thatched buildings. These are meant so that electrical discharges can flow safely to the
ground before they build up to a lightning strike, and any actual strike will also be diverted.
Special equipment can be installed to guard against the effects of power surges.
Storm, Wind, Water, Hail or Snow
These explain themselves. No structure above ground is entirely safe from storm and wind, but
solidly constructed buildings are less likely to be damaged.
Not all water damage is covered. Among others, there are exclusions for:
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wear and tear, and lack of maintenance;
any process involving the application of water;
subsidence or landslip;
leakage from sprinkler systems - a special extension is available to cover this.
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Some areas are known for their hailstorms, and stocks of vehicles have to be protected by nets.
Hail also blocks gutters, so that water overflows to the inside of the building.
The weight of snow on the roof can damage buildings, especially those that have a fairly flat roof.
Water channels must be kept clear and there must be good drainage. We try to protect goods
inside the building by raising them a few centimetres from the floor on shelves or wooden pallets.
Earthquake
So far, these have not been common in South Africa, and have happened in remote areas. An
earthquake in a built-up area would cause immense damage. Solid buildings with good
foundations stand a better chance of surviving minor shocks. Usually there are special excesses
or exclusions for “tremors arising from mining operations”. (A tremor is a kind of minor
earthquake).
Definition - Theft
The wrongful taking or handling of property with the intention of depriving the owner or lawful
possessor of his ownership or rights in the property.
Some policies cover this wide definition of theft, but most limit this to theft following forcible and
violent entry or exit.
Almost anything can be stolen. If it is too big to move, it may still be damaged by thieves.
Malicious damage by thieves falls under the theft section, and might cost more than the actual
theft. The policy also gives limited cover against damage to the building in the course of breaking
in or out.
Property most at risk is:
 easy to dispose of;
 valuable;
 easy to transport; and
 where the real owner cannot be easily traced.
Some examples are money, cigarettes, liquor, metals such as brass, copper, and aluminium,
radios, television sets, power tools, and clothing.
Loss Prevention
For security reasons, we should like to stop the “wrong” people from getting anywhere near the
building, but usually we cannot do this.
Imagine that you are a thief planning to break into the building. How best could you get in? What
could be done to prevent this? Remember that thieves do not care how much damage they
cause, and might also be prepared to do things you or I would consider too dangerous. (Like
climbing roofs, or balancing on a drain pipe, three or four storeys up, to knock a hole in the wall).
As we all know, private houses are also a target for thieves. The doors and locks fitted by the
builders do not give much protection, and most insurers will now ask for external grille gates.
Some of these are also cheaply made, and can be opened by a few good kicks, or levered with a
garden spade.
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Deter, Delay
The whole idea is to make things harder for the thief. The longer it takes him to break in, the
better chance that he will give up trying rather than risk being caught.
Detect
Business used to rely on night watchmen, but this is now a dangerous job. A security team with
dogs would stand a better chance, but this is too expensive for the smaller business. Mostly we
use automatic security alarm systems.
Security alarms may be fitted to cover:
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the perimeter, i.e. doors, windows, roof space;
the interior “space protection”.
Probably, we should like both of the above, but perimeter protections tend to set off false alarms.
The system must also be cost-effective (economic to install and maintain).
We shall not describe the different kinds of detectors; new ideas are being developed all the time,
but all of these systems are only as good as the response. The alarm can call for help, but who
will come, how long will this take, and how much can be stolen before anyone gets there? We
might ask for:
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an armed response service;
some kind of service contract, so that the alarm is tested regularly and kept in good
working order;
alarm monitoring, so that we know that the alarm is switched on between the right times.
Other Forms of Theft
Money Risks
We protect money on the premises with suitable safes and alarm systems, although there is
always the possibility of an armed hold-up. Money on the move is an even bigger risk. Risk
reduction includes:
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reducing the amount of actual cash (pay staff directly into their bank or savings account,
encourage customers to pay by credit card or bank transfer);
varying the method and timing of money movements;
banking more often, so that the amounts are smaller;
special containers that dye-spray the notes if theft is attempted;
using specialist cash-in-transit services.
Cash registers are expensive, and we don’t want them to be stolen, or wrecked by the thieves. To
prevent this, cash registers must be left empty after business hours, and with the cash drawer
open.
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Fidelity Risk
Definition: Loss of money and/or other property stolen by an insured’s employee, or financial loss
as a result of employee fraud or dishonesty. (Ordinary Theft policies do not cover this.)
There are many ways of doing this; stealing equipment from the company store, altering records
to show non-existent customers and sales, issuing false receipts for money, and stealing and
cashing company cheques are just a few of these.
Usually, this is regarded as an example of a moral hazard, and the quality of staff is important.
However, poor systems of control over stock and money invite dishonesty, and are an unfair
temptation to the staff. Often, theft starts with small amounts, but if this is not detected the sums
will get bigger as time goes by, and the employee begins to rely on this as extra income.
Liability
Definition: Amounts you are legally liable to pay because of injury to other people, or damage to
their property.
We all have to live, work, and do business with one another, Every person and every business
must take proper care that they are not a danger to others because of the what they are doing, or
because they have not taken proper precautions to prevent loss or injury.
This is important for a Risk Manager to know about, but for this course you are not expected to be
an expert. Common sense can often avoid a dangerous situation. Sometimes, a look around the
client’s premises can show dangers that they have become used to, and simply do not notice any
more.
Trades using power-driven machinery, especially cutting machines, are more hazardous than,
say, office jobs. Employees become used to the danger and become careless.
Road accidents are a major cause of death and injury. Some occupations involve more road
travel than others, but most policies are issued on a “24 hour” basis, so that they will cover road
accidents and spare-time hobbies, and activities, except those specifically excluded by the policy.
Surveys
Introduction
You might get details of the risk from the proposal form or from information supplied by the
intermediary, but today insurance companies survey most of the risks on their books. Even
private homes, with their high sums insured, are being surveyed with the idea of reducing losses.
“The surveyor is the eyes and ears of the underwriter.” This may seem an exaggeration, but in
fact is very true. When the surveyor visits an insured’s, or a potential insured’s premises, he is
acting on behalf of the underwriter.
There are two very important points that we will look at here. They are:
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1. The surveyor must supply the underwriter with full facts, so that the policy can be correctly
underwritten.
2. The underwriter must be able to interpret these facts and use them to underwrite the policy.
Insurers’ Rights
If the surveyor carries out a survey, he affects the rights of insurers. If there should be a loss and
an adverse feature is discovered, which the surveyor saw, or should have seen when he
conducted his survey, the insurer cannot use the adverse feature to repudiate liability.
This is demonstrated with the use of an example:
Example
1. The ABC Insurance Company sends out Fred, their surveyor, to Smith Brothers Supermarket;
2. The supermarket carries large stocks of flammable liquids, such as paraffin;
3. There is a fire at the premises and the large quantity of paraffin causes an explosion, which in
turn causes a total loss for insurers;
4. The amount of paraffin carried was not normal for this type of risk, but the surveyor was
aware of it;
5. The fact that he omitted it from his report cannot prejudice the client.
Broking
Today larger brokers also complete surveys and risk control reports, with copies being given to
the client and the potential insurer. These are normally carried out on the large, corporate type of
business. If the insurer accepts this, it is the same as if it had been done by its own surveyor.
We mention here that brokers will sometimes have surveys carried out by their own surveyors
and will give these to insurers. An important point is that the broker will then be working as an
agent of the insurer and if material facts are not disclosed the insurer would again be unable to
repudiate liability.
This is one reason why insurers are not happy to accept broker’s surveys. It is not because they
do not trust the broker, but rather that the insurer’s legal position is prejudiced.
The Survey Request
Introduction
When a new business is offered to an underwriter, if the sum insured warrants it, he will request a
survey from the company surveyor.
In practice today the surveyor may be a professional surveyor or the company inspector/marketer
responsible for the account. It is normal practice for the professional surveyor to survey the larger
more complex risks, with the company inspector surveying the smaller, retail type risk.
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The Request Form
Most companies have a survey request form which they complete with full details of the risk to be
surveyed. Information that it calls for includes:
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The insured’s name and occupation;
The risk address;
The sums insured required for the different sections of the policy;
A contact name and number;
Details of the current cover;
Renewal / inception date;
The loss history;
Reason for the survey.
Note: an example of a request form is included on the next page.
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Illustration of the Survey Request Form
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The table below explains the information that needs to be completed on the survey request form.
Field …
Name and occupation
… and the reason for asking …
 The name is important so the
surveyor finds the right
company/insured.
 the occupation of the insured is very
important, as this will affect the
retention limits and risk protections.
 The area where a risk is located is
very important.
The risk address
The sums insured for
each section
A contact number and
name
Renewal / inception date
 Again the surveyor will judge risks
differently if they have higher sums
insured. The exposure for his
company is greater.
 This allows the surveyor to make
an appointment.
 This is important as most changes
in cover take place at renewal.
 The surveyor needs to know if the
company is already on risk.
Detils of current cover
Loss history
 He needs to know if the cover is
changing substantially or if the
change is minor.
 The surveyor can pick up problem
areas from this and assess the
possible exposure while carrying out
the survey.
 Is this a new business?
… and the impact it can
have
The level of cover granted.

The protections
required by the
underwriter.
 Whether the surveyor can
find it or not.
 The level of cover
granted.
 The protections required.
 The protections required.
 The limits for reinsurance
purposes.
 The insured will be
required to give
information and will be
unhappy if the surveyor
just “drops in”.
 It is easier to impose
terms and conditions at
inception rather than midterm.
 If the company has had a
large exposure and
suddently asks for risk
imporvements, for a
minor change, the client
could be upset.
 The surveyor needs to
know “what has been
acceptable” up to now.
The type of risk improvements
required can be affected by
previous losses.
 Cover may not be granted
for problem areas.
 If this is a new business,
then we will not have
asked for risk
improvements previously.
 Is this an existing account?
 If this is an existing
account, what protections
have we requested
previously?
 Is this a post-loss survey?
 If there is a large increase
in cover required, why?
Reason for the survey
 Is there an increase in cover
required?
 Is this to check on improvements
previously requested?
 What were the
improvements we
requested and have they
been carried out?
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The Survey Request
If an old survey is available this should also be included as it allows the surveyor to see if the risk
has changed.
A word of friendly advice to a surveyor that a claim is outstanding and may be problematic can
also be helpful. It would not be the first time that the client has taken his anger out on a surveyor,
who innocently walks into a fight he knew nothing about!
Confidential
There is a very important point to note here and that is that the surveyor’s report is private and
confidential. Whilst his recommendations can be forwarded to the broker it is not advisable to give
them a copy of the report. The reasons for this are:




There are confidential details contained in it, perhaps relating to moral hazard, et cetera;
It will probably also contain full details of the premises, protections, et cetera, which are
very helpful to a burglar;
The client may be upset or may even sue if he believes the statements to be false or
defamatory;
Your company paid for the report to be completed and it is therefore your company’s
property.
The Next Step
If everything were perfect the survey would be done the next day and a report given to the
underwriter within say, 48 hours. This is the best possible scenario, but in real life, surveys,
particularly of the larger risks, can take a number of weeks to be completed. Accordingly the
underwriter must diarise his request and follow it up.
Effect of Delay
If the client requests an increase in cover, often the underwriter will not grant it until a survey has
been completed. The client is not very happy about this and if the survey takes six months to
complete he is liable to consider moving his business. At the very least he is going to ask for the
cover to be granted.
Example
The ABC Shoe store requests an increase in theft cover from R10 000 to R50 000.





The underwriter advises the broker that he is unable to increase cover without a survey;
The surveyor sends his report only 6 weeks later;
In the meantime the client has a theft and R40 000 worth of stock is taken;
The underwriter says “sorry but the limit is R10 000";
How happy is the client going to be?
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The Surveyor
The surveyor has the request from the underwriter. At this stage of your studies we are
concerned with the simpler type of survey. The following process will normally be followed,
although your organisation may be slightly different.
Step
When
… and then …
1
Survey request received.
The surveyor makes an appointment with the client.
2
Surveyor visits the client’s premises.
Completes a survey report form and takes pictures.
3
The surveyor has the pictures developed and makes recommendations for risk improvements.
The report is returned to the underwriter.
4
The underwriter extracts the necessary information from the report.
Advises the marketer and the broker of the surveyor’s findings.
5
The findings are sent to the client or broker in writing.
Normally, 30 days are given for the risk improvements or no cover granted until risk improvements are
implemented.
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February 2004
The Completed Survey
BRANCH:
Smith Street
POLICY NO:
223456
SURVEY DATE:
2/10/2002
INSURED:
The Small Street Supermarket and Take Away cc.
RISK ADDRESS:
22 West Street, Elandsfontein
NATURE OF OCCUPANCY:
Supermarket and fast food outlet
BROKER/AGENT: Smedley, White and Partners
Please note: Sections I, V, VI and plan must be completed.
SECTION I – THE PREMISES
1.
Construction of building
2.
Combustible linings and
partitions, staircases and
other floor openings
3.
Age and condition of
building
4.
Portion occupied by the
insured
5.
Occupation of remainder of
building
Separation from /
communication with
adjoining tenancies
Exposure from adjoining /
adjacent tenancies
6.
7.
5
8.
Type of neighbourhood
9.
Security fencing, lighting
and security patrols
(a) Walls: part brick and metal
(b) Roof: wood trusses with IBR Sheeting5
(c) Floors: concrete with ceramic tiles over
(d) Height: one lofty storey
 Roof has flammable wool type lining.
 There are no staircases as the building is split into two sections with bulk
storage towards the back of the premises.
 The two areas are separated by a dry wall that does not go all the way up to the
roof.
 The building is approximately 20 years old.
 There are a number of holes in the roof, which the owner insists will be repaired
before the rainy season.
The insured occupies the main building with a petrol station approximately 10
metres from the building, with underground tanks within 5 metres of the front of the
supermarket.
Not applicable.


Petrol station approximately 50 metres away.
Underground tanks under the supermarket.



Busy petrol station.
Truckers stop for food regularly.
Exposure from petrol.






Industrial area.
Unoccupied at night, except for garage, which is open 24 hours.
No security patrols.
Isolated at night.
Garage has attendants 24 hours.
Police station 15 minutes away.
IBR is a kind of corrugated iron roofing material.
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February 2004
SECTION II – FIRE & ALLIED PERILS
1.
Process and products
produced
2.
Machinery used
3.
Raw materials
4.
Packing materials used and
quantities kept



(d) smoking controls
8. Fire Protection
(a) fire extinguishing
appliances



Fast food outlet with deep fat fryers at front of premises.
Bakery section towards rear of premises has two ovens for baking bread.
Butchery department has saws for the cutting up of meat, mincing machines and
other normal butchery equipment.
Deep fat fryers.
Baking ovens.
Butchery equipment.
Foodstuffs such as fish, chicken, flour, etc.
Supermarket section buys in bulk from wholesaler.
Plastic carrier bags.
Plastic packets.
Boxes from wholesaler are stored outside the rear of the premises in a large mesh
cage, where customers can collect them.
Standard supermarket type shelving approximately 3 metres high.
Bulk stocks of products stored on top shelves.
Housekeeping needs improving.
Extractor hood over deep fat fryer is heavily covered with fat deposits. Doubt if
cleaned in the last year.
Floors in the store are clean, but are slippery from polishing.
Maintenance appears to be on an “ad hoc” basis with no planning.
Note: roof mentioned previously.
Large stock of paraffin kept (500 litres).
Also petrol in the tanks underground.
Fireworks were also on premises at time of visit.
Smoking is freely allowed.
Inception hazard high.
Space heating is electrical
Deep fat fryers are LPG powered, with 3 x 50 kg tanks outside the premises, not
protected from the weather.
Ovens are electrically powered.
Electrical system appears to be overloaded, particularly in the butchery where
there were a number of 5 plug extension cords.
At the freezer section cables were lying across the alleyways, with customers
having to walk over them.
None.
One 9 kg water extinguisher by deep fat fryer.
Hose reel system installed.
(b) brigade and water supplies



Municipal water supply.
Brigade 15 minutes away in Primrose.
No booster connections.
(c) accessibility of premises

Area is easily accessed.
9. Exposure from other
perils

These are detailed under the different sections.
10. EML
Include comment on adequacy of
sum insured.


100 %.
Sum insured appears to be on the low side. Would estimate it at R750 000 rather
than
R500 000.
Insured also owns building, but no sum insured included.
He advised that there were no bond holders.
5. Storage practices and
storage height
6. Housekeeping standards
7.
Inception Hazards
(a) hazardous commodities,
flammable liquids and gases quantities kept and how they
are stored
(b) space and process heating
(c) condition of electrical system



























Risk Classification: J (due to petrol station) Area: B
(e) welding controls
Not applicable.
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February 2004
SECTION III – BURGLARY
1. Nature of contents
2. Maximum Rand Value
3. Value in display window
4. Total Value at Risk
5. First Loss Sum Insured
6. Alarm
7.
Protections
(a) windows and how they
are secured
(b) doors and how they are
secured, types of locks
etc.
(c) roof - are the premises
accessible from the roof?
(d) is a watchman employed?
(e) who is responsible for the
locking of the premises
and are the keys
removed?
6












Food stuffs.
Paraffin.
Tobacco products.
Wine.
Saucepans and cooking utensils.
Cleaning agents.
Charcoal and fire lighters.
Frozen foodstuffs.
Fresh produce.
Small electrical goods.
Small selection of stationery and toys.
Cigarettes, tobacco and the like:
R20 000.
 Liquor:
R15 000
 Precious metal:
nil
 Radios, record players TV sets and similar
equipment:
R20 000
 Watches and jewellery:
nil
 Furs:
nil
 Motorised tools:
nil
 No display window.
 R750 000.
 R15 000.
Make:
Ultra Sensitive Alarms
Age:
2 years
Type:
Siren Alarm
Area Protected:
Perimeter only
Is there a maintenance contract?
No
 Mainly large plate glass windows which do not open.
 At the rear of the premises there are three small casement windows which have
burglar bars and are secured with stay bar and peg.





Main entrance is large plate glass sliding door.
Rear door is a solid wood with security gate.
Wood door has 2LMDL6.
Security gate has 5LMDL.
Yes.
If yes, professional or own employee?
NO WATCHMAN
 Owner opens the premises at 04:30.
 Owner locks premises at 21:15.
 Keys are left at garage in case of any trouble.
See abbreviations under Section VI of the report.
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SECTION IV – MONEY
1.
Details of transit and precautions taken. How often is money
banked?
2.
Where is money kept?
(a) during business hours
(b) after business hours
3.
How and where are wages made up?
4.
Are collectors used? If so give details …
5.
If the risk is a trade garage, what precautions are taken
regarding money with petrol attendants?
6.
Details of Safe


On a busy day takings of R100 000 not unusual.
Security firm collects money first thing every
morning.
 Over the weekend there could be
R300 000 on premises by Sunday night.
 In cash registers (5 of them).
 Money collected from them on an “ad hoc” basis.
 Bulk of cash in a category II safe.
 Each cash register has R500 float left in it.
 Cash register drawers are closed.
 Wages are made up in the office on a weekly
basis.
 Wages normally taken from takings.
 Wage bill approximately R10 000 per week (7 staff
members).
 There is a delivery boy who delivers groceries on
a push bike.
 Maximum order about R500.
 Cash on delivery basis.
Not applicable.
Make:
Chubb
Model:
D6543
Is it secured to the floor?
No
SABS category:
II
Number of sets of keys and key holder(s) names:
1 set, with Mr Dakary (owner)
In safe:
R300 000
On premises, outside safe:
R100 000
In transit:
R300 000
7. Maximum amounts
SECTION V – CLAIMS HISTORY
1.
Provide details of previous losses over last 5 years giving
dates, amount, circumstances et cetera.
2.
What measures have been taken to prevent recurrence?
The insured has had three burglaries in four years:
 1995 thieves came in through roof, loss was R50
000;
 1996 thieves held up owner at gun point when he
was locking up - R200 000 cash stolen and R50
000 goods;
 1996 thieves stole R50 000 cash in an armed
hold-up.
 Alarm was installed following burglary, but no
space protection.
 The insured employed security firm to collect
money daily.
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February 2004
SECTION VI – SURVEYORS OPINIONS AND RECOMMENDATIONS























this is a poor risk - should be viewed as accommodation business only
fire fighting equipment is totally inadequate and the wrong type - change to dry powder
need fire extinguishers at a rate of 1 for every 100 square metres
electrical cables must be removed from walk areas
slippery polish must be removed from floor and non slip coating put down
electrician should check out wiring and problem areas fixed
area is very busy with number of industrial type plant around
fast foods is high turnover
the insured has not dealt with the problem of large amounts of cash at the premises
the safe is inadequate for this amount of money
category IV safe at least, with full space and perimeter alarm protection, with armed response
money must not be left in cash registers overnight
money should be collected twice a day – morning and evening - to reduce exposure
heavy exposure at opening and closing times, suggest armed, independent security guard
lock on rear door is inadequate – change to minimum of four lever
the alarm which was installed is inadequate and is a make I’ve not come across before
theft limit of R15 000 is going to be “used up” if there is any break in
keys must not be left at garage as high temptation for theft
housekeeping needs to be improved
there is a risk of PL claim from slippery floor
deep fat fryer extractor hood must be cleaned on a regular basis
check if client has food poisoning cover
roof must be repaired or water damage excluded
Surveyed by:
D Sithenson
Date: 2/10/03
Use the following symbols:
Construction:
Alarm:
Walls
---------------------Doors
D
Windows
W
Door contacts
©
Vibrator switches (v)
Sonic detectors
Infra red beams ………………..
Passive infra red detectors
Control panel
CP
Abbreviations
LMDL – LEVER MORTISE DEADLOCK
LRDL – LEVER RIM DEADLOCK
CRL – CYLINDER RIM LATCH
CMDL – CYLINDER MORTISE DEADLOCK
OSPL – OPEN SHACKLE PADLOCK
LB – LOCKING BAR
CB – CROSS BAR
FB – FLUSH BOLT
TB – TOWER BOLT
BB – BARREL BOLT
OSPB – OPEN SHACKLE PAD BOLT
CSPB – CLOSED SHACKLE PAD BOLT
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February 2004
Underwriting the Risk
Accommodation Business
The surveyor says that the risk should be treated as “accommodation business”. This means
that the company should only take the risk if the connection is worth it. Examples of this would
be:


the broker is a valued broker to the company and gives the company most of his
business, which is normally excellent;
the client has other large accounts with the company which have very good claims
experience.
If the connection is not a valued one, then the risk should be cancelled. This would be the
easiest solution, but for the purposes of this module we will assume that we have to keep the
risk.
Section I – The Premises
Construction
It is virtually impossible to ask the client to change the structure of the premises. Therefore the
construction is either acceptable or not.
Three important points in this survey however are:



there are repairs that are needed and these must be carried out;
there is a flammable lining in the roof;
location of the petrol station.
Area
Problem
Options
Holes in roof
If it rains there will be water damage to
stock and contents.
 Write asking for repairs to be


Flammable roof lining
Location of petrol station
This will help spread fire very quickly
as the building is basically one large
room.
This is an obvious fire hazard, however
it could also be a liability hazard.
People obviously walk between the
petrol station and supermarket.

carried out, within a certain
period of time.
Exclude damage arising from
these holes, by endorsing the
policy.
Resurvey when repairs
completed.
Have insulation replaced by a
non-flammable lining.
 There must be adequate fire

protection.
The area between the petrol
station and supermarket must
be restricted so that vehicles
cannot drive into the area.
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February 2004
Conclusion
The building is either acceptable or not. Only limited risk improvements can be carried out. Whilst
we have stated that we are going to underwrite the risk, the best option would be to give notice of
cancellation.
Section II – Fire and Allied Perils
Processes and Contents
In the second section the type of contents, the machinery, housekeeping standards and inception
hazards are detailed. Let’s look at each individually.
Area
Problem
Process and products
produced, machinery
and raw materials



Packing materials


Storage Practices

Housekeeping



Options
Fast food outlet with deep fat
fryers can easily ignite if fat
builds up on them and the
extractor hoods.
If liability cover is given, do they
have food poisoning cover?
Is there personal accident cover
for staff who use butchery
equipment et cetera? Is the rate
adequate?
 Clean filter, et cetera, on a
The customers have access to
the back of the premises; this
could be hazardous from a theft
and/or liability point of view.
Cardboard boxes are stored
next to the gas cylinders which
could increase the inception
hazard and the fire load.
There appears to be no problem
here.
The insured needs to carry out
repairs and the question has to
be asked why have they not
been done?
His turnover is fairly large so
there should be money for it. Is
he perhaps a moral hazard?
Floor is slippery – this could
cause a customer to be hurt.







regular basis.
Install dry powder extinguisher
next to deep fat fryer; ensure staff
know how to use it.
Ensure that hygiene standards
are complied with.
Housekeeping must be of a very
high level.
Check rates and reinsurance
retention is adequate.
The insured must restrict access;
if customers want boxes staff
must fetch them.
Move materials away from
cylinders.
Mount fire extinguisher on wall
next to gas cylinders.
 Request that the premises be
cleaned up.
 Polish must be stripped from the
floor and a non-slip cleaner used.
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February 2004
Area
Inception hazards
Space and process
heating
Problem







Condition of electrical
system



7
Options
Large stock of paraffin.
Fireworks also kept.
No smoking controls in place.
Petrol7 close by.
Many household chemicals are
explosive when combined.



The surveyor has only stated
that the heating is electrical, but
has not told you type. You
would need to check with the
surveyor.
The tanks outside should be
shielded from the weather.

Overloading.
Cables lying in alleyway which
could be the cause of injuries to
customers.
Cables will become very worn if
walked on and this could cause
a fire.





Restrict stock of paraffin to a
lower level, or regulate where it
can be stored and how.
Restrict the storage of fireworks
to a special area away from
ignition sources.
Prohibit smoking on the
premises. Insist on 1 portable fire
extinguisher per 100 m² floor
area.
There should be no radiators
around which could burn
customers.
A cage should be put around the
gas cylinders to protect them
from the weather.
The cage should be locked so
that no unauthorised person can
tamper with them.
“Certificate of compliance” must
be obtained for electrical
installation from a qualified
electrician.
Extra power points to be installed,
by qualified electrician.
All cabling to be contained in
channels along the perimeter
wall, under the floor, or via the
roof.
Petrol is a Class A liquid, which means it will easily ignite at 22° C and above.
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February 2004
Area
Problem
Options
Fire extinguishing
appliances

There is a water filled
extinguisher by the deep fat
fryer. If you put water onto an oil
fire it is very dangerous. The
liquid will spread out and the fire
will therefore spread. It could
even explode.
There is only a municipal water
supply. Sometimes “booster
systems” are required. This
increases the water pressure,
which increases the amount of
water that can be delivered by
the fire tenders, when there is a
fire.
There is no sprinkler system at
the premises.
The fire brigade is 20 minutes
away. This would mean that a
fire could become well
established before the fire
brigade arrived.
There is no mention of any
evacuation procedures or fire
exits. Remember the deep fat
fryers are in the front area of the
store. If the fire started in this
area the exit would be blocked,
or at least very dangerous.
The surveyor has only stated
that the heating is electrical, but
has not told you type. You
would need to check with the
surveyor.
The tanks outside should be
shielded from the weather.

Overloading.
Cables lying in alleyway which
could be the cause of injuries to
customers.
Cables will become very worn if
walked on and this could cause
a fire.





Space and process
heating


Condition of electrical
system












The correct appliances must be
installed (see above).
Staff must be trained how to use
the equipment.
Evacuation procedures must be
implemented.
A sprinkler system may be an
option, but remember water
should not be applied to oil fires
and the sprinklers could leak and
damage stock.
Foodstuffs are easily damaged
and health regulations can mean
that if exposed to water or smoke
they have to be destroyed.
There should be no radiators
around which could burn
customers.
A cage should be put around the
gas cylinders to protect them
from the weather.
The cage should be locked so
that no unauthorised person can
tamper with them.
“Certificate of compliance” must
be obtained for electrical
installation from a qualified
electrician.
Extra power points to be installed,
by qualified electrician.
All cabling to be contained in
channels along the perimeter
wall, under the floor, or via the
roof.
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February 2004
Area
Problem
Options
Fire extinguishing
appliances






EML8
8

There is a water filled
extinguisher by the deep fat
fryer. If you put water onto an oil
fire it is very dangerous. The
liquid will spread out and the fire
will therefore spread. It could
even explode.
There is only a municipal water
supply. Sometimes “booster
systems” are required. This
increases the water pressure,
which increases the amount of
water that can be delivered by
the fire tenders, when there is a
fire.
There is no sprinkler system at
the premises.
The fire brigade is 20 minutes
away. This would mean that a
fire could become well
established before the fire
brigade arrived.
There is no mention of any
evacuation procedures or fire
exits. Remember the deep fat
fryers are in the front area of the
store. If the fire started in this
area the exit would be blocked,
or at least very dangerous.
The surveyor believes that the
maximum loss is 100%. This is
because there is no separation of
any of the risk. The store is split
into two, but the wall does not go
through the roof. This means that
it is not a “perfect party wall9”.




The correct appliances must be
installed (see above).
Staff must be trained how to use
the equipment.
Evacuation procedures must be
implemented.
A sprinkler system may be an
option, but remember water
should not be applied to oil fires
and the sprinklers could leak and
damage stock.
Foodstuffs are easily damaged
and health regulations can mean
that if exposed to water or smoke
they have to be destroyed.
 Retention and reinsurance limits

must take this into account.
The risk classification would also
be needed to calculate retention
limits.
Estimated Maximum Loss.
9
A perfect party wall is a solid brick wall, which goes from ground level right up to and through the roof. This prevents the spread of
fire along the interior of the roof.
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February 2004
Section III – Burglary
Introduction
While we have looked at the premises from a fire and allied perils point of view, we need to now
shift our attention to the burglary survey. We need to look at four areas under this section and
they are:




The location of the premises;
The protections at the premises;
The type of contents – how attractive the contents are to thieves;
The first loss sum insured and the total value at risk.
We will look at each of these in turn.
South African Law
When asking for protections under the theft section, underwriters should also examine how
susceptible the buildings and contents are to malicious damage and arson insured under the fire
section.
In South African law there is no such crime as that of burglary. In South Africa we refer to theft,
but the definition of theft is very wide. It means, in South African terms:
”to deprive a person of their property permanently”
There is no mention of forcible and violent entry or exit and therefore shoplifting, unexplained
losses and the like would be covered, if insurers used this definition. Policies therefore restrict
cover to losses following “forcible and violent entry or exit” only. This does not mean that full theft
cover is never given, but it is rare. The only way to know is to check the policy wording.
Area
Survey Comments
Location of the
premises


The premises are in an industrial
area, which is deserted at night and
weekends.
In its favour is the fact that the
garage is open 24 hours per day, so
there are people around.
Options

You either have to accept
the risk in this area or
decline it. You cannot ask
the owner to move his
premises.
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February 2004
Area
Survey Comments
Protections at the
premises









In the survey the surveyor does not
tell us how the front door is secured.
He does not tell us what size bar has
been used to burglar proof the
windows.
A 2LMDL is not a good quality lock.
There is a range of eleven keys for
this type of lock. A thief only needs a
set of keys and one of them will open
this door.
The 5LMDL is a much better type of
lock, but if it is welded onto the
security gate an angle grinder can be
used to cut it out.
The premises are accessible from
the roof and it is a metal roof, which
is considered a “soft roof” in other
words access is easily gained.
There is no watchman.
The alarm system is perimeter
protection only and is only a siren
alarm.
The owner opens very early and
closes fairly late. These are obvious
times for a hold-up.
The owner leaves the premise keys
at the garage.
Options
 Ask the surveyor for full
details of the locks.
 He needs to tell us, but the


bar should be at least
16mm flat steel bar,
spaced no more than
125mm apart, with tie bars
at 450mm apart (see
bottom of page). The bars
also should be set into the
brickwork or the building, if
possible.
The lock on the wooden
door should be at least a
4LMDL and there should
be some form of locking
bar10 on the inside of the
door.
The alarm system should
be changed to a radio siren
alarm with space and
perimeter protection.
Armed response should
also be used and the alarm
must have a service
contract. (See below)
Solid steel of at least 16mm, no more than
125 mm apart.
Tie bar; the solid bar
goes through holes
drilled in the tie bar.
10
A locking bar is a horizontal metal bar, which goes across the door and drops into mountings on the wall, on each side of the door.
It is then padlocked into this mounting.
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February 2004
Radio Siren
A radio siren alarm not only makes a noise at the premises, when triggered, but it sends a radio
signal to a control room at the alarm company’s premises. They are therefore alerted to the fact
that there is a break-in.
Space and Perimeter Protection
The roof at the premises is a “soft roof” – thieves can enter through it by removing the IBR
sheeting. Therefore if the alarm only covers the perimeter it will not detect anyone coming in
through the roof. Therefore sensors are required which will pick up movement, noise or body
temperature if any one breaks in.
Armed Warden Backup
We said that when the radio alarm is triggered a signal goes to a control room, and then the
alarm company can dispatch armed security guards to investigate. This means that the robbers
will have less time at the premises, so the loss should be smaller.
It also gives the client some protection when opening and closing the premises.
Service Contract
This is very important because the alarm is no good if it is not maintained and kept in good
working order. A reputable alarm company will make sure the alarm is working. If for some
reason it fails the owner will have some right of recourse if it is due to the alarm company’s
negligence.
The Company
The alarm that is installed should be from a company that has a good reputation and is a
recognised company – recognised by insurers. Insurers normally have details of the companies
they accept.
Type of Contents
The type of contents at the premises affects the likelihood of a burglary. Thieves will normally
steal goods that are easily resold. Therefore electrical goods are very attractive. Unfortunately it
is becoming harder to say what thieves won’t steal, but below is a list of attractive types of stock.
It is not the complete list, as we could never list everything, but it is a guide for you.
Jewellery
Video Recorders
Power tools
Printers (computer)
Hi-fi’s
Furs
Clothing
Cellular phones
Precious metals
Tools
Televisions
Liquor
Computers
Diamonds
Photo-copiers
Radios
Tobacco products
Fax machines
Food stuffs
Money
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Money is not covered in terms of the burglary policy, however the other items would be as long as
they were items contained in the premises and belonged to the insured.
The Contents at the Premises
The premises which have been surveyed have:



Tobacco products;
Liquor;
Radios, record players, TV sets, et cetera.
They are attractive to thieves and therefore the protections need to be very good.
The Sum Insured
The client has a R15 000 first loss sum insured, which is not a large amount. If however you look
at the total value of the contents and the limits for the more attractive stock, it is obvious that if
there is a burglary then the first loss limit will probably be exceeded.
Remember losses add up and 4 losses of R15 000 are the same as one R60 000 loss and the
claims history stated that there had been a number of losses.
Section IV – Money
Money at the Premises
The details are as follows:









The insured takes R100 000 on a busy day;
The money limit is R100 000;
R300 000 over the weekend sometimes;
Cash is collected by a security firm every morning;
Each cash register has R500 in it;
Cash is kept in a category II safe overnight;
Wages made up in the office;
R10 000 wages paid out every week;
Delivery man collects money up to an amount of R500.
How do we underwrite it? We need to separate it into three stages. These are:



Money at the premises during business hours;
Money at the premises outside business hours;
Money in transit.
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Money at the Premises during Business Hours
It is fairly difficult to underwrite this. The only precautions that can really be taken are to have a
drop safe with no keys at the premises. The security company then comes along with the safe
keys and opens up to remove the cash.
If money is kept in a safe and the keys are on the premises, any armed robber will insist on the
insured opening the safe. If your life is in danger you would open the safe.
Money at the Premises outside Business Hours
Here more can be done to safeguard the money. The client has a Category II safe. This is a safe,
which complies with the standards set by The South African Bureau of Standards. There are
various categories and they are acceptable for different money limits. These are:
No SABS grading
SABS Category I
SABS Category II
SABS Category II HD grading
SABS Category II ADM
SABS Category II ADM Grading D3
SABS Category III grading
SABS Category IV grading
R 2 500
R 5 000
R 12 500
R 25 000
R 50 000
R 75 000
R100 000
R200 000
Our client has a SABS Category II safe, which means he should only have a limit of R12 500 in
the safe. Obviously the protections need to be upgraded.
Protections
There are a couple of options open to the underwriter here. The underwriter can ask that:



The Insured installs a SABS Category IV safe;
The safe must be contained in a strong room;
The premises must have a radio siren alarm, with armed warden response.
Many companies will give a higher limit on a safe if it is protected by a radio siren alarm with
armed warden response.
The other option is to insist that the security firm collect the money twice a day or else in the
afternoon. This will reduce the amount of money at the premises overnight. If the collection is
made twice a day it will also give the insured more protection. There is less likelihood of an armed
robbery.
Wages
The insured makes the wages up at the premises. It would be much safer if the staff had bank
accounts and the money was transferred electronically. This gives the staff more protection also,
as they do not have to carry their wages around with them.
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Money in Transit
Money in transit is covered under the money section.
In some cases, wages are still paid out in cash, and could also be transported to contract sites,
increasing the risk of attack along the way. If this is so, these contract sites must be mentioned in
the schedule.
Insurers impose conditions on the escort of persons to the bank, varying according to the amount
being carried, and might also specify that the transit must be direct and unbroken.
Conclusion
Money is an extremely attractive risk from the thief’s point of view. Insurance companies have
taken severe losses in recent years. Clients tend to have a poor attitude to the safeguarding of
money. Limits have been increasing because of the effects of inflation. Things cost more so
companies have more money coming in.
The insured may have cover of R100 000 for “crossed cheques” at no extra premium, but there is
often a 25% excess if the cheque is not marked “not transferable”. Many companies are unhappy
to accept cheques today, because of the large amount of cheque fraud that is taking place.
Section V – Claims History
Claims History
The surveyor has found out the details for us. You must remember however that these are
material facts. If the insured has not given full details of previous losses then the policy could be
voidable, at the option of the insurer.
Indicator of Problem Areas
The claims experience shows you the problems there have been in the past and what measures
have been taken to improve the risk. Sometimes a client can install the best security and
protections, but for some reason the problem does not go away. They still suffer losses. This is
not the type of risk you should be involved in.
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Surveyor’s Comments
Eyes and Ears
The surveyor has seen the risk. He has, or should have, inspected it thoroughly. His
recommendations are therefore important. They are only recommendations however and it is the
underwriter’s responsibility to decide if they go too far, or perhaps are not strict enough.
Beware however that if you change the requirements, you have to be prepared to stand up and
face the consequences if anything goes wrong. This is not a threat, but if there is a loss and the
surveyor had recommended a risk improvement that may have prevented the loss, you will be
held accountable by the management.
Negotiation
When the risk improvements have been decided upon, it is normal for the underwriter to discuss
them with the marketing person concerned. This is not always the case, and there is nothing
worse than being a marketer arriving at a broker, knowing nothing about risk improvement, which
the underwriter requested.
There is a need for communication and negotiation at this stage.
Heavy Handed
There appears to be times when underwriters want to exercise power and insist on certain
protections. Yes the underwriter is looking after the company’s interests, but he should also be
flexible to a certain extent. The problem is knowing what is extremely important and what can be
negotiated. This is where experience and skill comes in.
Remember that the client can move his business and in some instances this may be preferable,
but you cannot stay in business if you have no clients.
Conclusion
We have spoken about negotiation and asking for the best risk improvements possible.
Remember however that they must also be economical. The client is not going to install a
R75 000 alarm system to protect R5 000 worth of goods.
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Asking for Improvements
Formal Request
The request for risk improvements should always be in writing. This does not mean that the
broker and underwriter cannot discuss it, but simply that any negotiations must be followed up
with a formal request.
Existing Policy
If the policy is an existing policy and it is not due for renewal, the insured must be given at least
30 days to implement risk improvements.
If the policy is due for renewal then you may be able to insist on the protections as part of the
renewal terms, but it is likely that the broker will not be very happy and will ask for the 30 days at
least.
Longer than 30 Days?
Can you give longer than 30 days for risk improvements? The simple answer is that you can give
as long as you like, but how long would it be advisable to give?




The risk improvements are necessary to prevent losses or minimise losses;
If they are not urgent then you can give extra time, but the insured will keep putting off, if
there is no fixed period;
At the end of the period you must be prepared to suspend or cancel cover, or else the
insured will not bother to do the improvements;
Your job could be on the line if there is a loss and improvements have not been
requested.
Conclusion
Risk improvements are very important, they can take a very poor risk and make it acceptable.
The worse the risk, the more insistent you must be on the risk improvements. If the risk has been
taken on as accommodation business, the broker has probably been unable to place elsewhere.
Therefore you can insist on risk improvements as a condition of acceptance.
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Knowledge Self Assessment – Module 3
Instructions
This knowledge self assessment consists of multiple true and false questions as well as one
longer written question. Answer all of the questions to assess whether you have mastered the
knowledge component. Model answers have been provided which you can use to assess your
answers.
Storm, wind and water damage includes cover for:
True
False
True
False
True
False
1. Damage by water leaking from a burst pipe
2. Clothes shrinking when you wash them
3. Damage due to lack of maintenance
Ordinary Theft policies cover:
4. Theft by the insured’s staff
5. Financial loss due to dishonesty by the insured’s staff
6. Damage done by thieves to the building
7. Property your neighbour borrowed, and forgot to return
For a “fire” in terms of the policy, it must involve:
8. Actual ignition
9. An accidental cause
10. Something that ought to be on fire
11. A deliberate act by the insured
12. Usually a flame
13. Something not meant to be on fire
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Knowledge Self Assessment – Module 3 - cont
14.
The survey request form is an important document in that it supplies details of the
risk for the surveyor. Discuss this statement with specific reference to why the
report form should be fully completed. Reference should also be made to the type
of information contained within the request form.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 3
Storm, wind and water damage includes cover for:
1. Damage by water leaking from a burst pipe
True
False
X
2. Clothes shrinking when you wash them
X
3. Damage due to lack of maintenance
X
Ordinary Theft policies cover:
True
False
4. Theft by the insured’s staff
X
5. Financial loss due to dishonesty by the insured’s staff
X
X
6. Damage done by thieves to the building
X
7. Property your neighbour borrowed, and forgot to return
For a “fire” in terms of the policy, it must involve:
True
8. Actual ignition
X
9. An accidental cause
X
False
10. Something that ought to be on fire
X
11. A deliberate act by the insured
X
12. Usually a flame
X
13. Something not meant to be on fire
X
14.
The survey request form is an important document in that it supplies details of the
risk for the surveyor. Discuss this statement with specific reference to why the
report form should be fully completed. Reference should also be made to the type
of information contained within the request form.
A survey request form supplies full details of the risk to the surveyor. Incomplete forms
can cause a great deal of problems, some of which are:





if the insured’s name and address are omitted the surveyor will not know where to
survey;
the sums insured are important as the surveyor will base the protections on the level
of cover;
a contact name and number enable the surveyor to make an appointment;
renewal or inception date help the surveyor to know how urgent the survey is as
improvements will normally be from that date. Also if it is an increase in cover, the
surveyor will need to survey before increased cover is implemented;
loss history tells the surveyor where there have been problem areas.
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Module 4: Standard Features of the
Multimark Policy
Learning Outcomes
By the end of this Module, you will be able to:




Explain how the two parties to the insurance contract are identified in the policy;
Briefly discuss the other basic information you would find in a policy;
Identify the insurer’s undertaking to the insured, as set out in the operative clause;
Distinguish between the general exceptions, general conditions, and general
provisions of the policy, and state the effect of each of these.
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Introduction
Aspects common to all sections of the Multimark policy are grouped together, to avoid repetition.
The individual sections then have their own “defined events” against which cover is given, and
their specific extensions and exceptions. There is a main, typed schedule giving the details that
apply to the individual insured, and further schedules with the specific descriptions and sums
insured/limits for the separate sections of cover.
The Main Schedule
Usually, this includes the following important details.
(i)
Insurer’s identification: The name of the insurer, and a physical address to which
correspondence can be delivered and legal notices can be served. Only registered
insurers (including Lloyd’s underwriters) are allowed to carry on insurance business.
(ii)
Insured’s name, title and address: The policy is a legal document, and these details
must be correct. The insured might be an individual, a partnership, a close corporation, or
a company, and there might be insurable interest other than as owner, e.g. as trustee or
bondholder.
(iii)
Territorial limits: The area in which the cover will apply. (The various sections also have
their own territorial limits).
(iv)
The business of the insured: This must be correctly and fully stated, because it affects
the nature of the insured risk - manufacturer, distributor, retailer, property owner, and so
on.
Period of insurance and renewal/anniversary date.
(v)
(vi)
Attestation: Here, or elsewhere in the document, the policy is signed by authority of the
insurer.
The Operative Clause
The insurer agrees:
 if the premium has been paid when it was due, (late payments are accepted at the option
of the insurer)
 subject to the terms, exceptions and conditions of the policy
 to indemnify or compensate the insured (there must be some kind of loss)
 if the events insured against occur
 during the period of insurance (some sections like Fidelity and Liability, have special
provisions)
 but not exceeding the sum insured or policy limit.
At the option of the insurer (not at the insured’s choice) indemnity can be by payment,
replacement, reinstatement, or repair. Compensation, applicable to personal accident
insurance, is by payment only.
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General Exceptions
Grouping together the exceptions and conditions applicable to most sections of the policy saves
repetition, but you must remember these when studying the rest of the policy wording.
1 (A) The Riot
This refers to loss or damage to property related to or caused by any of a long list of events,
mainly related to riot, strike, public disorder, and warlike operations of any kind. War is a national
concern, where Government becomes involved, but for other kinds of disorder, political or nonpolitical, cover is usually available from SASRIA (South Africa) or NASRIA (Namibia), and in other
ways.
1 (B) War Damage
The policy also excludes loss or damage caused directly or indirectly by any occurrence for which
a fund has been established in terms of the South African War Damage and Compensation Act,
or similar Acts in other territories.
2 The Nuclear Exclusion
The policy does not cover any loss of, or destruction or damage to property, any consequential
loss, or any legal liability arising from radiation contamination by nuclear fuel, nuclear waste from
the combustion of nuclear fuel, or nuclear weapons material. This is because no one insurer
could carry such a large risk.
Remember that other sources of radiation, such as radioisotopes, particle accelerators, X-ray
apparatus and lasers, are in use in industry, medicine and research. The exclusion does not
apply to these. Such risks must be carefully considered, but can be underwritten in the ordinary
material damage and liability policies.
General Conditions
Many of these modify or reinforce the position at common law, so that there is less chance of
disputes developing.
1.
Misrepresentation, misdescription and non-disclosure of material particulars renders the
particular section or item voidable at the insurer’s discretion.
2.
Other insurance - the policy will pay only its rateable share of the loss, in other words,
the insured himself must also claim from each of the other policies, (rather than claim from
only one, and then leave the insurers to sort out contribution between themselves). Also
provides for the “importation” of average, where this does not already apply to both
policies.
2 (a) Cancellation - immediately, by the insured (normal short period or minimum
premium may be charged) or on 30 days’ notice by the insurer, subject to a pro
rata refund.
2 (b) Continuation of cover - if premium is paid by debit order, the insurance
automatically lapses if the debit order is not met, unless it can be shown that this
was due to an error by the bank. The condition makes provision for monthly,
quarterly, half-yearly or annual premium payments.
3.
Premium adjustment - annual adjustment of premium on some sections of the policy,
based on the insured’s declarations.
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4.
Prevention of loss. The insured cannot be expected to prevent all losses (there would
be no point in having the insurance), but the precautions and action taken must be
reasonable in the circumstances.
5.
Claims.
(a)
As soon as reasonably possible, the insured must give notice of any event that
may result in a claim. This is especially important in connection with liability risks,
or where the insurer might want to insist on extra precautions.
If a claim then results, the insured must, as soon as possible:



submit full details in writing
provide the required proof and documentation, and immediately forward any third
party claim or summons to the insurer to deal with
in case of theft, notify the police, and cooperate in trying to recover the stolen
property.
(b) Insurers cannot allow a unlimited time between the event, and a claim being made.
Unless they agree specially, the maximum allowed is 24 months. This limit does not
apply to business interruption, fidelity, personal accident/ stated benefits, third party
liability and where there is pending legal action, but some sections of the policy have
their own special requirements.
(c) If the claim is rejected, the insured has only six months, from the date of repudiation,
to start legal action against the insurer. It is not enough to give notice of legal action,
the insured must also pursue this to finality.
(d) Insured, if asked to do so, has to assist the insurer in the recovery of lost or stolen
property. If he does not do so, he must refund the claim settlement.
6.
Company’s rights after an event.
(a) (i) Insured cannot abandon property to the insurer, but insurer can take possession of
damaged property. They must deal with the property in a reasonable manner,
otherwise they can be liable for any further damage that results from their actions.
(a) (ii) Subrogation. Insurer can take over the rights of the insured immediately, and
commence recovery against third parties. (In common law, they could do this only
after payment of the insured’s claim).
(b)
(c)
7.
Subrogation proceedings will be at the insurer’s expense, but the insured
must cooperate.
Liability to third parties. This might exceed the limit under the policy, so the
insurer has the option of paying the insured the limit of indemnity and
withdrawing from the claim.
Fraudulent claims. Any fraudulent claim is forfeited. This includes those insured who,
for example, intentionally set fire to their own property, or arrange to have it set fire to or
stolen.
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8.
Reinstatement after loss. Insureds, and even some brokers, do not always understand
that payment of a loss generally reduces the available cover, for example, if contents are
insured for R60 000 and R20 000 is then lost, only R40 000 is left for later claims during
the same period of insurance. If replacement property is bought, the original sum needs
to be reinstated. This condition makes this plain, and provides for reinstatement to take
place automatically, so that the client is not left with insufficient cover. Normally, an
additional premium is due, but insurers often reinstate small losses free of charge.
Note: this condition does not apply to Personal Accident/Stated Benefits. Stock
declaration conditions under the Fire section, and the Fidelity insurance section have
special provisions for reinstatement.
9.
Breach of conditions. A breach of conditions affects only the
particular section, not the policy as a whole.
10.
No rights to other persons. Emphasises that the contract of insurance is between the
insurer and the insured. No rights are given to any third parties.
11.
Collective insurances. Some large policies are issued by a panel of insurers, each of
them named in the policy together with their percentage. One insurer takes responsibility
for the issue and administration of the policy, and is called the “leading insurer” The
condition makes provision for this.
General Provisions
Claims preparation costs
Automatically provides 10% of claim, with a maximum of R1 000, for claims preparation costs.
This is in addition to any amounts specifically shown in the various sections.
Payments on account
At the insurer’s discretion, interim payments may be made to the insured, pending finalisation of a
claim.
First amount payable
The policy excess, as it features in some sections of the policy.
Members
If the insured is a close corporation, rather than a company, “member” is used instead of
“director”.
Liability under more than one section
This is to guard against accumulation of cover under the different than liability sections, but is not
meant to penalise an insured who may have insured the same risk under two policy sections, e.g.
rent under Fire as well as under Business Interruption.
Meaning of words
Policy wordings, schedules and endorsements must be read together with one another, and any
specific meaning applied throughout. (People who draw up policies have to take care that this
does not result in a meaning they did not intend).
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Premium payment
Premium is payable on or before the inception date or renewal date. Insurers do not have to
accept late payments, this is at their choice.
Holding covered
To form a valid contract, the terms including the premium must be agreed. If insurers are holding
covered, they will not reject a claim merely because the premium has not yet been agreed.
Schedule sums insured blank
This makes it very clear that if the sum insured/limit of indemnity is left blank, or shown as ‘nil’ or
‘not applicable’, this means no cover, not “no limit to the cover”.
Security firms
This does not mean that the policy now covers the security firm, but that:
 the insured’s rights under the policy are not prejudiced by entering into the contract
required by the security service, and
 if this contract prevents the insured from claiming against the security firm for loss or
damage caused by its employees, the insurers will, likewise, not exercise their rights of
recourse against this firm.
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Knowledge Self Assessment – Module 4
Instructions
This knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Explain why it is important to state the insured’s name and address correctly on the
proposal form.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
2.
Indicate the possible effect of a wrong or incomplete description of the insured’s
business on the proposal.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
3.
What is meant by “attestation” of the policy?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
4.
Briefly explain the effect of the Riot exclusion.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
5.
An engineering company has an X-ray machine for checking welding joints.
Explain whether or not this falls under the General exceptions of the policy.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
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Knowledge Self Assessment – Module 4 - cont
6.
The insured’s building was burning, but he did not call the fire brigade. Under
which policy condition are the insurers entitled to repudiate the claim?
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
7.
A steakhouse had a small fire on Friday night.
7.1 State when the insured must notify the insurers that this has happened
______________________________________________________________________
______________________________________________________________________
7.2 State when the insured must draw up a list of the damaged items and their cost,
and submit it to insurers
______________________________________________________________________
______________________________________________________________________
8.
The insurer rejects a claim, and the insured says he will take the matter to court.
State how long he has in which to start legal proceedings.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
9.
On investigation, an insured is found to have deliberately falsified some of the
claims figures, so as to get a bigger settlement. Explain whether the insurers are
entitled to reject the whole of the claim, or only this part of it.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
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Knowledge Self Assessment – Module 4 - cont
10.
Farmer Brown wants to renew his policy, but has not yet paid because he says the
renewal premium is incorrect. Explain what happens if there is a fire before the
parties have reached agreement on the premium.
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 4
1.
Explain why it is important to state the insured’s name and address correctly on the
proposal form.
The policy is a legal contract, and the person insured must also have an insurable
interest, so it is important to insure in the right name. A policy issued in the name of
“Leonard Lamb” will not cover property that actually belongs to “Lamb’s Winter Woollies
Ltd”. Also, to be legally effective, a notice of proposed alteration or cancellation of the
policy must be sent to the right insured at the correct address, and any claims discharge
must be signed by the insured entitled to the money.
2.
Indicate the possible effect of a wrong or incomplete description of the insured’s
business on the proposal.
The kind of business carried on is a material fact that influences underwriters in their
acceptance of the risk, and in fixing terms. An incorrect description can render the policy
voidable.
3.
What is meant by “attestation” of the policy?
The policy is signed by someone entitled to do so on behalf of the insurer.
4.
Briefly explain the effect of the Riot exclusion.
Excludes loss or damage to property, related to or caused by riot and other kinds of public
disorder (politically or non-politically motivated), and warlike operations of any kind.
5.
An engineering company has an X-ray machine for checking welding joints.
Explain whether or not this falls under the General exceptions of the policy.
The nuclear exclusion refers to contamination by nuclear fuel and waste products, or
nuclear weapons material. It does not apply to X-ray radiation.
6.
The insured’s building was burning, but he did not call the fire brigade. Under
which policy condition are the insurers entitled to repudiate the claim?
General condition 5, prevention of loss. Reasonable persons, acting in good faith, would
be expected to call the brigade, if they were able to do so.
7.
A steakhouse had a small fire on Friday night.
7.1 State when the insured must notify the insurers that this has happened
As soon as reasonably possible after the fire. Probably, this would be on Monday
morning, when the insurers’ office opened, but it might happen that the owner or manager
himself was away at the time, and there was no one else who knew about the insurance
and could do this on his behalf.
7.2 State when the insured must draw up a list of the damaged items and their cost,
and submit it to insurers
As soon as possible. The more complicated the loss, the longer it may take to put
together the required particulars. This is why claims preparation costs are insured. Even
if an adjuster is appointed to deal with the matter, his/her duty is to investigate and check
the insured’s claim, not to draw it up.
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Model Answers to Knowledge Self Assessment –
Module 4 - cont
8.
The insurer rejects a claim, and the insured says he will take the matter to court.
State how long he has in which to start legal proceedings.
Six months from the date of repudiation. It is not merely threatening to do this, or starting
and stopping legal action, the insured must be prepared to see the matter through to
finality.
9.
On investigation, an insured is found to have deliberately falsified some of the
claims figures, so as to get a bigger settlement. Explain whether the insurers are
entitled to reject the whole of the claim, or only this part of it.
If the claim is in any respect fraudulent, all benefit is forfeited.
10.
Farmer Brown wants to renew his policy, but has not yet paid because he says the
renewal premium is incorrect. Explain what happens if there is a fire before the
parties have reached agreement on the premium.
Strictly speaking, there is no contract because the terms have not been agreed upon. The
Multimark policy provides that if the insurers have agreed to hold covered in the interim,
they will not reject a claim purely on the basis that the premium has not been agreed
upon. (Although this is part of the Multimark wording, take note that not all other policies
contain this provision.)
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Module 5: Fire and Perils (Multimark)
Learning Outcomes
By the end of this Module, you will be able to:






List and briefly describe the “defined events” under the Fire section of the Multimark
policy, together with their extensions and special exceptions;
Reproduce the formulas for pro rata average, first loss average, and average applied to
the reinstatement value conditions, and be able to apply these in practical examples;
Describe the purpose of each of the standard clauses and extensions under the Fire
section;
Calculate a Stock Declaration premium adjustment;
Briefly describe the purpose and operation of Day One average;
Relate SASRIA cover to Fire insurance.
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Introduction
For many years, the fire insurance account was the main contributor to the profitability of shortterm insurers. Competition for business has since eroded rates, while there is a trend toward
larger losses. On average, claims, including storm and other perils insured in the Fire account,
now exceed R3,8m a day. (This does not include the floods in February 2000). The underwriting
profit has disappeared.
The Fire section of the Multimark is designed for ordinary risks, and has a minimum of
restrictions. There are often special problems, like the danger of spontaneous combustion
(materials that self heat), disposal of combustible waste, storage of flammable liquids, and
exposure to veld and bush fires. The underwriter cannot rely only on the insured’s duty to take
reasonable precautions, even though risk reduction measures benefit the insured as well.
Additional warranties or restrictions must be applied where needed.
It is not feasible to reproduce the whole of the wording. It will be helpful to study this and following
sections in conjunction with a specimen policy, although this is not essential for examination
purposes.
Defined Events
Each section of the policy has its own defined events - the events insured against. “Damage to
the whole or part of the property described in the schedule, owned by the insured (again see how
important it is to show the right name) or for which they are responsible, (there must be an
insurable interest but there is no need to make special mention of Goods in Trust), including
alterations made by the insured as tenants to the buildings and structures, by:
1. Fire
There must be:
 actual ignition
 something on fire that ought not to be on fire
 an accidental or fortuitous cause, at least as far as the insured is concerned.
Ensuing damage, such as smoke, scorching and heat, falling floors, roofs and walls, and
by the fire brigade, is automatically included. The actual fire might not even be at the
insured’s own premises, e.g. heat from another burning building could scorch the paint
and crack the windows of the insured’s building.
2. Lightning or thunderbolt
Electrical storms are common in many parts of South Africa and neighbouring territories. In
developed areas with a great deal of electrical and electronic equipment there are large
exposures, particularly as circuitry becomes more compact and easily damaged. Apart from
direct strikes, current surges are carried along the power distribution and telephone networks.
3. Explosion
Some explosions are the result of internal pressure, as in a boiler. Others are a chemical
reaction similar to a fire, but happening much more rapidly. In some older policies, explosion
was excluded unless specially mentioned, but full cover is now given.
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4. Additional perils, as stated in the schedule
All the exceptions and conditions also apply to these perils, as though the damage had been
by fire.
Specific Exceptions

Earthquake (whether arising from mining operations or otherwise). Can be added as an
“additional peril”.

Volcanic eruption or other convulsion of nature, (but subterranean fire is not excluded).
There is a reverse onus of proof, in other words, if the insurers say that the damage is
excluded by these exceptions, the insured must prove that the exception does not apply.

Damage to property by its undergoing any heating or drying process. This applies only to
the property being heated or dried. If a fire then started and spread, fire damage to other
property would be covered.
Note: Some materials increase in temperature without the application of an external heat
source and can catch fire by themselves.
This is called spontaneous
combustion, and is not automatically excluded, except sometimes in policies
specially designed for farming risks, where haystacks can be expected. Usually it
is up to the underwriter to apply special terms where the risk of spontaneous
combustion is present.

Damage to property insured by any Marine policy. Often, Marine policies cover storage
risks incidental to the transit. The Fire policy cannot be brought into contribution, but can
be used to make up the difference, if the Marine cover is insufficient.
Specific Condition - Average
This is known as the Pro rata condition of average. It states that if, at the time of damage, the
property is of greater value than the sum insured thereon, the insured shall be considered as their
own insurer for the difference, and shall bear a rateable share of the loss. It follows that the
insured is also entitled to a rateable share of any subsequent recovery. In terms of an agreement
signed by the majority of South African insurers, most material damage policies must be issued
subject to average.
The formula is: sum insured
value at risk
x
loss
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Additional Perils (If stated in the schedule to be included)
Earthquake, excluding damage to property in the underground workings of any mine.
Special Perils
Damage caused by:
1. Storm, wind, water, hail or snow excluding damage to property:
(a) arising from its undergoing any process necessarily involving the use or application of
water
(b) caused by a tidal wave originating from earthquake or volcanic eruption (storm waves
and spring/autumn tides are not excluded)
(c) in the underground workings of any mine
(d) in the open (other than buildings structures and plant designed to exist or operate in the
open)
(e) in any structure not completely roofed
(f) being retaining walls (walls that support or hold back earth or water)
Items d, e, and f above can be included, usually at special terms, if specifically insured as a
separate item.
No structure aboveground is completely safe against wind and storm, but solid buildings
obviously resist better than those of light construction. There are localised areas where it is not
advisable to give cover against flood risk, and others where hail is a problem. Special care is
needed in the case of motor manufacturers and dealers. It is usual to require hail nets, and an
excess per vehicle.
2.
Aircraft and other aerial devices or articles dropped therefrom. If the aircraft can be identified,
the owner is liable. This is not a frequent occurrence, but there have also been instances of
heavy blocks of ice forming on aircraft at high altitudes, and falling off as the aircraft
descends.
3.
Impact by animals, trees, aerials, satellite dishes or vehicles, excluding damage to these
items themselves, or property in or on vehicles. This is ANY vehicle, animal, tree, etc.
including those belonging to the insured.
Exceptions to the special perils cover
This extension does not cover:
1.
wear and tear and gradual deterioration. The idea is to exclude repairs that should fall under
general maintenance.
2.
damage caused or aggravated by:
 leakage or discharge from any sprinkler or drencher system or other fire extinguishing
installation or appliances in the buildings insured hereby or in buildings containing
property insured hereby.
The intention is that water from a fire hose-reel or portable extinguisher, leaking or
perhaps turned on in error, is covered under the special perils extension. Sprinklers,
drenchers and other fixed systems are excluded, and need special cover.

subsidence or landslip. (A separate extension is provided, but the risk might not be
acceptable to insurers).
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
the insured’s failure to take all reasonable precautions for the maintenance and safety of
the property insured and for the minimisation of any damage.
It is again stated that reasonable precautions must be taken. The insured should take at
least as much care as if uninsured.
Leakage extension
Damage caused by discharge or leakage from fire extinguishing installations/appliances.
If a sprinkler system is triggered by a fire, the resultant water damage is treated as part of the fire.
The leakage extension is concerned with destruction or damage by water accidentally
discharged. Possible causes include:




damage to a sprinkler head or other part of the installation by impact, e.g. by a vehicle
passing under it, or by someone carrying a ladder.
heat other than by a fire, e.g. portable heating appliances, portable plant with heat,
excessive heat from a boiler flue.
mechanical defect in the installation, e.g. a leaking pipe joint. (Wear and tear is not
excluded, but the insured must still take reasonable precautions).
burst pipes due to the water freezing, earthquake/tremor. (For the purposes of this
extension, the policy does not need to be specially extended to cover earthquake).
A leakage that remains undetected for a number of hours, especially over a weekend or public
holiday, can cause extensive damage to stock and other contents. This type of insurance is
sometimes overlooked, particularly where the insured is a tenant and does not think about the
presence of the sprinklers, but it is important and relatively inexpensive.
Two forms of cover are available:


Full value, subject to pro rata average in the normal way
First loss basis, where the sum insured represents the maximum amount of damage that, in
the insured’s opinion, is likely to be caused by sprinkler leakage. This becomes the limit of
the insurer’s liability for any one event, and the “First Loss “ average clause set out below,
comes into effect.
“If the property insured is, at the commencement of any damage to such property by
discharge or leakage, collectively of greater value than the sum insured against fire
damage, then the company shall be liable under this extension only for that proportion of
the first loss limit as the sum insured against fire bears to the total value of such property
and the insured shall be considered as being their own insurer for the difference and shall
bear a rateable share of the loss accordingly. Every item, if more than one, to which this
extension applies shall be separately subject to this clause.”
This is a very specific way of saying that if the fire sum insured is insufficient, so that average
would have applied, the first loss limit is reduced in the same proportion.
Formula: Fire sum insured
Value at risk
x
First loss limit
The rate of premium for the first loss is based on the relationship between the first loss sum
insured and the full value. As the total value at risk rises, so should the first loss premium,
(although not necessarily in the same proportion).
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Subsidence and landslip extension
This cover is relatively expensive, being subject to a market agreement to which most insurance
companies subscribe, with a minimum rate. There is usually an excess - in the Multimark policy
this is 1% of the sum insured, with a minimum of R500.
A common cause of subsidence is dolomite, a form of calcium magnesium carbonate. This rock
formation is gradually dissolved by water, leaving an underground cavity. Other causes include
leaching by water from underground pipes and drains, and tree roots.
The usual cause of landslip is clay soil, particularly black clay, which can absorb a large amount
of water, adding greatly to its weight. The soil is then impervious to any further water, and the
entire mass tends to slide gradually down hill, taking parts of the surface structure with it. (A
further problem is that the soil contracts when dry and expands when wet, exerting pressure on
building foundations).
Insurers approach the subsidence extension with caution, and may require a certificate from the
local authority that the land is considered safe to build on.
Malicious damage extension
The wording has been amended to make it quite clear that this does not cover moveable or
immovable property that is:



Stolen
removed or damaged in an attempt to steal it, or part of it
damaged while breaking in or out of the premises
There is cover for wilful damage other than by theft or attempted theft.
Other exclusions are:





fire and explosion. (This is already covered elsewhere in the policy)
consequential loss of any kind (other than rent, if specifically insured). An example might
be a business competitor who enters the insured’s premises and defaces dies used in the
production process. The cost of replacing the dies is covered, but not the lost production.
interruption of work.
dispossession by lawful authority.
the riot and war exclusion.
Due to the problem of vandalism of unoccupied buildings, malicious damage cover is suspended
if the property becomes unoccupied for 30 consecutive days, and during this 30 day period the
insured is responsible for 20% of any claim before deduction of any excess.
Riot and strike extension
SASRIA is a section 21 (not for gain) company established to deal with riot and civil commotion
risks in the Republic of South Africa. Obviously, this does not include risks in neighbouring
territories such as Swaziland, Botswana, and Namibia. Namibia has its own association, called
NASRIA which deals with risks in that territory. Elsewhere than in RSA and Namibia, the policy
can be extended to cover property against riot and civil commotion. War risks are still excluded.
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Clauses and Extensions
Except for:
 Escalator clause
 Stock declaration conditions
 Disposal of salvage clause
All of the following clauses and extensions that follow are automatically included in the fire
section. It is up to the underwriter to delete any that should not apply in any particular case. For
example, it would be bad practice to include reinstatement value conditions for an old building in
a run-down area.
Rent Clause (if insured is under column 2)
Rent might be payable, (tenants) receivable, (owners) or rental value (owner occupant). The
proper description and the number of months insured must be given. Note that this pays only
until the premises are again tenantable. This does not mean that the premises are let, only that
they are able to be let. Wider cover is available under the Business Interruption section.
Designation of property clause
Insurers agree to accept the classification (building, plant, fixtures, stock) of property in the
insured’s books of account.
Other contents clause
Some minor items, not specifically insured elsewhere, are grouped together under this heading.
This must be read together with the limitations clause, which follows.
Limitations clause
Other contents, and limitations must be read together. Both refer to column 3 of the schedule,
the last part of which reads “all other contents excluding property more specifically insured ”.
Cover is limited to:



R5 000 for any one individual, for personal property
R5 000 for money and stamps
for designs, patterns, models and moulds, and for documents and business records,
including computer media, the cost of materials and labour.
Alterations and misdescription clause
Gives temporary cover for changes. The insured must notify insurers of these, as soon as
possible.
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Architects’ and other professional fees clause
Reinstating or replacing buildings or plant may involve payment of fees for plans, supervision and
so on. This does not form part of “claims preparation costs”, but is automatically covered under
columns 1 and 3 of the schedule, up to 15 % of the sum insured. This is not free additional cover
- the sum insured by the item must be enough to cover the fees as well as the actual property.
Capital additions
Gives temporary cover, up to an extra 15 % of the sum insured, for newly acquired property,
(other than stock). The insured must advise then advise the insurers each quarter, and pay the
additional premium.
Cost of demolition and clearing and erection of
The sums insured on buildings, plant and stock, must be sufficient to cover these costs.
Note that:
Hoardings clause
 this includes removal of stock debris
 cover is limited to the site of the property damaged or destroyed and the area immediately

next to it.
there is no cover against pollution or contamination of property that is not insured by the
policy section.
Fire extinguishing charges clause
Any costs, such as fire brigade charges and the cost of recharging extinguishers, related to
putting out or fighting a fire, are covered in addition to the sum insured. The insured must be
legally liable for the costs, and the insured property must be in danger from the fire.
Mortgagee clause
The mortgagee is the lender and the mortgagor is the borrower. When property is used as the
security for a loan, the mortgage bond requires that the property has to be kept fully insured. The
mortgagor might do something on the property that normally would render the insurance void or
voidable. This clause protects the mortgagee to the extent of his financial involvement, but only if
he is not aware of the actions of the mortgagor.
Municipal plans clause
Municipalities charge for scrutinising and approving building plans.
Column 1, Buildings, must be sufficient to include the cost.
The sum insured under
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Public authorities requirements clause
Many buildings were erected before modern building regulations and town planning came into
being.
For example, rebuilding after a fire might be allowed only subject to additional fire walls and fire
escapes, or extra washrooms for staff.
The sum insured must not be exceeded, but these necessary changes will not be considered as
betterment, provided that the insured had not already had notice served on him to do these,
before the loss or damage took place.
Railway and other subrogation clause
Agreements entered into between the insured and Transnet, or other similar bodies are
conditional upon the waiver of some of the insured’s common law rights. Normally, insurers
would object, because this then affects their rights in subrogation. This clause allows the insured
to enter into these particular agreements without prejudice to the policy cover.
Reinstatement value conditions clause
The amount payable is the cost of replacing or reinstating property of the same kind or type, but
not superior to or more extensive than the insured property when new. Usually, buildings are
reinstated with new materials, but machinery replacements can be with good second-hand
machinery in like condition, or similar new equipment, without deduction for wear and tear.
(Reinstatement conditions do not apply to stock).




The cost is based on reinstatement at the same site, but insurers may agree to another
site provided that this does not increase their liability.
The insurers must be advised promptly of the intention to reinstate, (within six months, or
if longer, by special written agreement), and the work must be carried out without undue
delay.
The insured must have actually incurred expenditure in reinstatement.
The sum insured must represent the cost of replacement or reinstatement of the whole of
the property insured, (other than stock), otherwise average will apply.
Formula:
Sum insured_____________ x reinstatement cost of damaged property
Reinstatement cost of the whole of the property
Alternative replacement conditions (design capacity) clause
With changing methods, and advances in technology, similar machinery and equipment may no
longer be obtainable. If the property insured has a measurable function, capacity or output the
insurers will pay the cost of replacing with property as near as possible, but not inferior to the
quality, capacity, function or output of the original.
The provisos are similar to the above, but for purposes of average, the sum insured must now be
enough to provide for replacement with the modern equipment.
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Temporary removal clause
Insurance should cater for the normal activities of the insured. It is common for machinery and
other property to be sent away for repair or renovation. The temporary removal clause provides
cover against the same perils as at the insured’s premises, including transit by road, rail, or inland
waterway, anywhere in RSA, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe, and Malawi.
If the temporary removal is not for cleaning, renovation, repair or similar process, the insurer’s
liability is restricted to 15% of the sum insured on the item.
Tenants clause
Just as the mortgagee clause protects the mortgagee, the tenants clause protects the owner in
case the tenant does or omits anything to invalidate the insurance, provided that the owner was
not aware of this. In the same way, if the tenant is the insured, he is protected in respect of
similar things done by the owner without the tenant’s knowledge.
Stock declaration conditions (if stated in the schedule to apply)
The value of stock may vary considerably throughout the year. If the insured takes out cover for
the maximum amount, this sum insured will often be more than needed. On the other hand,
insuring for the average value at risk will mean there are times of under insurance, and average
will be applicable in the event of loss. The stock declaration conditions can take care of this.







A provisional premium is charged, calculated on 75 % of the sum insured.
At the end of each month/quarter (as stated in the schedule) the insured gives the insurer
a written declaration of the market value of stock and materials in trade. This must be
done within 30 days from the month/quarter end, otherwise the insured is deemed to have
declared the full sum insured.
Claims are settled on the basis of the market value immediately prior to the damage.
At the end of each period of insurance, the final premium is calculated on the average
sum insured, i.e. the total of the values declared or deemed declared, divided by the
number of declarations that should have been made, resulting in an additional or a refund
premium.
Up to 50 % of the provisional premium is refundable, so the insured is very unlikely to pay
more premium than necessary (unless the required declarations were not made).
The sum insured is the limit of the insurer’s liability, and premium is not receivable on
values in excess of this. Any additional premium under the adjustment cannot be more
than 1/3 of the provisional premium.
These specific conditions apply separately to each item to which stock declaration
conditions apply.
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Example of stock declaration adjustment
Sum Insured (maximum at risk)
Rate, 300%
Provisional premium R800 000 x 300% x 75%
Monthly declarations:
January
February
March
April
May
June
July
August
September
October
November
December
R800 000
R
R800 000
R700 000
R650 000
R800 000
R500 000
R400 000
R550 000
R550 000
R600 000
R700 000
R800 000
R800 000
No declaration, so sum insured used
R900 000 but limited to
Total
1 800
R7 850 000
Average
R654 167
Premium on R654 167 @ 300%
Provisional premium paid
Additional premium due
R1 962,50
R1 800,00
R 162,50
The premium calculation is simple, but there are some additional aspects.



Outstanding declarations should be followed up by insurers and intermediaries, and if any
declaration exceeds the sum insured they should suggest that this be increased
immediately.
Losses are automatically reinstated. The additional premium for this is separately
charged, and does not form part of the declaration adjustment.
If after the occurrence of damage it is found that the last declaration is less than it should
have been, the amount recoverable under the claim is reduced in such proportion as the
amount of the declaration bears to the amount that ought to have been declared or to the
sum insured, whichever is the lesser amount. This operates cumulatively with average.
The operation of this is best shown by an example.
The calculation is made in two stages:
Last declaration................................... R 9 000 000
Should be..............................................R 12 000 000
Loss...................................................... R 5 000 000
Sum insured........................................ .R 10 000 000
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The specific sum insured is R10 000 000, so this is the maximum according to the conditions. A
declaration of R 9 000 000 is 90% of this maximum, so the amount payable is 90% of the loss.
This amount, R 4 500 000, is taken for the calculation of average.
Sum insured: R 10 000 000
True value: R 12 000 000
Total claim payment
Insured is own insurer for
x
R 4 500 000
R 3 750 000
R 1 250 000
We can see that this is correct, because the declaration was only 3/4 of the right amount.
Public supply connections clause
This gives cover against accidental damage (not just fire and perils), to water, sewerage, gas,
electricity and telecommunication connections, the property of the insured or for which they are
legally responsible. It does not cover installations in or on the building.
Escalator clause extension (if stated in the schedule to be included)
During the year of insurance, inflation can increase the replacement value of buildings and
machinery to a point where there is under insurance. The escalator clause allows the insured to
cover the anticipated increase at 50% of the normal rate, rather than have to revise the sum
insured several times a year.


Each renewal date, the insured must notify the insurers of the new sum insured for the
coming period of insurance, and the percentage required to allow for inflation. If this is not
done, the clause ceases to apply. This point is often overlooked.
The clause does not apply to Stock, because Stock can be insured under the declaration
conditions.
Disposal of salvage clause (if stated in the schedule to be included)
General condition 7(a)(i) gives the insurer the right to take possession of damaged property and
deal with it in any reasonable manner. When the salvage includes branded goods, the
manufacturer might not want these to be resold in a damaged state, because this could harm the
manufacturer’s reputation. This clause gives the insured first option to buy back the damaged
goods at a fair valuation.
This completes the list of standard clauses normally offered. You may also come across “Day
one average”, which is briefly explained below.
Day one average
There might be further inflationary increases during the period of rebuilding after a loss - for
extensive premises this could be two or three years. It is difficult for the insured to estimate this
so far in advance, and avoid over- or under-insurance.
The day-one basis of reinstatement cover was introduced to overcome this difficulty. The sum
insured is calculated in two parts. The first part, called the “declared value” is the cost of
reinstatement at the beginning of the period of insurance (day one), including cost of public
authorities requirements, professional fees, and debris removal, but without allowance for
subsequent inflation.
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This “declared value” is notified to the insurers at commencement, and at each subsequent
renewal. Average applies only to this “declared value”.
The second part of the sum insured is an added provision for inflation, not usually exceeding 50%
of the declared value.
The premium is based on the “declared value” and can be:
(a)
non-adjustable, applying the normal rate plus 15% loading, or
(b)
adjustable, using a 10% loading at commencement, and an adjustment based on 50% of
the difference between this provisional premium and the provisional premium for the
following period of insurance.
Inflation for the following period will be more than for the previous one, and this adjustment
should result in an additional premium. If the new “declared value “ is not notified to insurers
(because of cancellation or non-renewal) an additional premium, based on a percentage of the
previous premium, is charged.
Insurances on a “day one” basis are not allowed to be subject to the escalator clause as
well.
Farming insurance
Generally, fire insurance for farms is restricted to buildings and contents, and farming implements
in the open. Runaway bush fires are a major problem. Livestock is sometimes insured against
death by fire, lightning, and perhaps flood, all with a limit for any one animal.
Some insurers specialize in agricultural risks, including growing crops, and there is a limited
specialist market for the insurance of growing timber.
Other Fire Classes
Buildings Combined
This section also includes cover for theft of parts of the building, and property owner’s liability.
Buildings combined is meant for buildings in less hazardous occupation, such as flats, offices,
schools, professional rooms, hospitals and medical suites, museums, art galleries, and libraries.
Sometimes a special form of policy is used for sectional title developments.
Insurers will have an underwriting guide specifying the full list of occupations for which they are
prepared to give Combined cover. Some buildings are occupied partly as shops and partly as
flats or offices. Ideally, the commercial section should form a separate fire risk (see the section
on SASRIA cover, which follows), but this is no longer generally true. A survey should be done to
determine the degree of commercial exposure and the terms on which the insurer is prepared to
write the business.
The fire perils insured are similar to the fire section, but simplified due to the type of property for
which the policy is meant. The section has a similar extension for accidental damage to public
supply connections. Accidental damage to sanitary ware is covered subject to a R250 excess.
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



Cover is subject to the pro rata condition of average.
Water damage does not exclude sprinklers, so there is no need for a sprinkler leakage
extension.
There is automatic cover against loss of rent due to any of the “fire” perils. Rent is
calculated on the rent payable or the rental value, immediately before the damage, and is
limited to 25% of the sum insured. (Sub-section C).
If stated in the policy, this includes loss or damage to property within a 10 km radius that
prevents or hinders access to the property insured.
Body Corporate Wording
Body Corporate, or Sectional Title developments are increasing in number and the provisions of
the Sectional Titles Act need special consideration. Each owner has an interest in his own unit
and there is usually a bond in favour of a financial institution. All share in the common property
such as boundary walls, entrance development and facilities such as laundromat and swimming
pool. It is preferable that one policy be issued, in favour of the Body Corporate. A schedule is
attached showing the sums insured for the separate units, and for the common property.
However, there is nothing to prevent an individual owner from taking out separate insurance on
his unit. The wording does not form part of Multimark, and differs from the usual “Combined”
section in several important respects.
Defined events
There must be actual physical loss or damage to the insured property. Any special provisions of
the Sectional Titles Act do not affect the interpretation of the policy.
Sub-section A Property
The policy includes some additional cover and provisos:
1)
Bursting or overflowing of water pipes apparatus or pipes including damage to such
apparatus or pipes. This cover is given under domestic “Houseowners” policies, so is
included here.
2)
Theft of building fixtures and fittings is covered, except from vacant units or when the
entire property is vacant.
3)
Accidental breakage or collapse of radio or television aerials or masts is included. This,
too, follows the “Houseowners” practice.
4)
Accidental breakage of fixed glass or sanitary ware, but excluding damage of a cosmetic
nature.
5)
Accidental damage, not exceeding R500, to swimming pool machinery or borehole motors
by:
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a)
b)
c)
crushing or stress from pressure
sudden electrical or mechanical breakdown
accidental outside causes, but excluding:
i)
the first R50 of any claim
ii)
repair or replacement necessitated by gradually operating causes, or for
cosmetic reasons.
Similar to cover available in domestic policies.
6)
Escape of oil from any fixed oil-fired heating installation or connected apparatus.
Remember that we are only concerned with damage to the building, which normally
includes fitted carpets. The oil itself is not insured - only the resultant damage.
Sub-section C Rent
1)
Loss of rent receivable from Tenant. This is similar to sub-section C of the Combined
wording.
2)
Owners / occupiers will receive reimbursement for alternative accommodation up to 25%
of the sum insured for the affected unit in respect of the reasonable cost of equivalent
alternative accommodation (not full board at a smart hotel).
Similar provisions exist in domestic policies. If the owner / occupant already has this cover under
contents insurance, the Body Corporate policy will not contribute, except in respect of any
shortfall.
Clauses and Extensions
Mortgagee Clause
The usual wording is considerably extended. Instead of one owner or Mortgagor, and a
Mortgagee we have to provide for the owners of all the individual units, the Body Corporate - the
controlling body, and the interests of various mortgagees. This results in a much longer wording,
although the end result is similar to the usual clause.
A further provision is made. Under a “single ownership” policy, the Insurance Company would
repair or reinstate damage. If a payment is made in lieu of repairs, the insurer usually consults
with the mortgagee, since this affects his interest in the property.
With a sectional title scheme, the interest of other unit holders must also be considered.
Unrepaired damage to any unit affects the property of all. The proceeds of the insurance must be
applied to reinstatement. If for some reason this cannot be done, the proceeds of any claim must
be paid to the mortgagee(s), up to the amount still owing.
Owners Clause
The act or omission of an individual owners affects the insurance on his part of the property only.
The interests of the Body Corporate are protected to the extent that they were unaware of these
circumstances.
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Office contents
Practice among insurers differs, but generally office contents insurance is suitable for the
contents of offices and consulting rooms, but not for those forming part of trade premises. In this
module, we are concerned with the fire perils, but the Office contents section also includes some
accident and liability cover.



Pro rata average applies.
There is a simplified list of fire perils, and sprinkler leakage is not excluded.
Rent cover is automatic, restricted to the period necessary to make the premises
habitable, and to a maximum of 25 % of the sum insured. Cover against prevention of
access applies to any premises in the vicinity, damage to which prevents or limits access
to the office premises.
There are sections to cover loss or damage to documents, (All risks basis) and increased cost of
working.
SASRIA - South African Special Risks Insurance Association
Except for motor, there must always be an underlying policy covering the property for risks other
than riot. Fire insurances are permissible underlying policies for the issue of SASRIA cover.



Lower SASRIA rates apply to residential, cultural, educational, religious and medical
occupation, provided that this is perfectly separated for fire insurance purposes from any
commercial operation. (Full details of the separation required are contained in the
SASRIA regulations).
Where this separation exists, the SASRIA policy can be issued with two separate sums
insured and rates, otherwise the higher rate applies overall.
If the underlying policy includes free rent cover, the SASRIA cover will also do so, but
limited to:
o 25 % of the sum insured;
o the period needed to make the premises tenantable; and
o property occupied for residential purposes.
In all other cases the SASRIA sum insured must be increased by the total amount of
the rent cover.

When stock declaration conditions apply, 100% deposit premium is charged, of which a
maximum of 25% is refundable on year-end adjustment.

Where Day One Average applies, the total sum insured and (in brackets) the total
declared value must be shown in the SASRIA coupon.
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Knowledge Self Assessment – Module 5
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
List the three requirements for a loss to be regarded as “fire”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
Explain the difference between spontaneous combustion, and a heating or drying
process.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
Briefly state what kind of damage is covered by the malicious damage extension.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Suggest two reasons why it is important that insurers and intermediaries follow up
outstanding stock declarations.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
Show how a total loss is dealt with in terms of the pro rata condition of average.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 5 - cont
6.
A motor trader’s employee drove into the employer’s yard too fast, and knocked
down a wall. Explain whether the employer can claim under the special perils
extension to their fire policy for the damage to their wall and to their vehicle, if this
formed part of their stock.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
Most of the additional charges, such as architects’ fees, mentioned in the clauses
and extensions must be provided for in the sum insured, but there is one exception.
Give the name of this clause.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Suggest what type of client would need to have the Disposal of Salvage clause
included in their policy.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Explain how the calculation of the provisional and refund premium for stock
declaration policies under the SASRIA insurance is different from that under the fire
insurance policy.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 5
1.
List the three requirements for a loss to be regarded as “fire”.
There must be actual ignition, something on fire that ought not to be on fire, and an
accidental or fortuitous cause. Provided that the damage is a consequence of fire, the
actual fire need not be at the insured's own premises.
2.
Explain the difference between spontaneous combustion, and a heating or drying
process.
Some materials increase in temperature without the application of an external heat
source, and can catch fire by themselves. This is called spontaneous combustion. Heating
or drying processes generally involve external heat sources.
3.
Briefly state what kind of damage is covered by the malicious damage extension.
Willful damage, other than by theft or attempted theft.
4.
Suggest two reasons why it is important that insurers and intermediaries follow up
outstanding stock declarations.
If declarations are not made, premium is charged on the full sum insured. The additional
premium may be difficult to collect, especially if there was a long period without
declarations. Secondly, the sum insured might no longer be enough. Without prompt
declarations this will not be detected in time to increase the sum insured and avoid
average applying to a loss.
5.
Show how a total loss is dealt with in terms of the pro rata condition of average.
For sprinkler leakage cover, it is likely that only one or two heads will be damaged, or a
pipe leak at a particular place. The sum insured is the maximum amount of damage that,
in the insured's opinion, is likely to be caused by sprinkler leakage. The premium charged
is based on the relationship between the first loss sum insured and the full value – the
larger the premises and the greater the value of contents, the higher the chance of loss. If
the fire insurance is for less than full value, the first loss limit is reduced in the same
proportion.
First sum insured x first loss limit
Value at risk
6.
A motor trader’s employee drove into the employer’s yard too fast, and knocked
down a wall. Explain whether the employer can claim under the special perils
extension to their fire policy for the damage to their wall and to their vehicle, if this
formed part of their stock.
The employer can claim for the damage to the wall, because the special perils extension
covers impact by any vehicle. Damage to the vehicle itself is specifically excluded.
7.
Most of the additional charges, such as architects’ fees, mentioned in the clauses
and extensions must be provided for in the sum insured, but there is one exception.
Give the name of this clause.
Fire extinguishing charges clause.
8.
Suggest what type of client would need to have the Disposal of Salvage clause
included in their policy.
Manufacturers and distributors of branded goods, for example, pharmaceuticals and
toiletries, or high class clothing, where sale of these as salvaged in a damaged condition
could harm the manufacturer’s reputation.
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Model Answers to Knowledge Self Assessment –
Module 5 - cont
9.
Explain how the calculation of the provisional and refund premium for stock
declaration policies under the SASRIA insurance is different from that under the fire
insurance policy.
The provisional premium for the stock declaration item on the fire policy is calculated on
75% of the sum insured, and a maximum of 50% of this is refundable in the declaration
adjustment.
For SASRIA cover, the provisional premium is based on 100% of the sum insured, and a
maximum of 25% is refundable.
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Module 6: Business Interruption
Learning Outcomes
By the end of this Module, you will be able to:





Describe the purpose of the Business interruption section of the Multimark policy;
Identify the relationship between the material damage cover and the interruption
insurance;
Describe the operation of the Additions basis and Difference basis and the different basis
of calculation;
Explain the other items and definitions in the section;
Relate SASRIA cover to business interruption insurance.
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Introduction
Business Interruption, also known Consequential Loss or Loss of Profits Insurance, takes over
where the material damage policy leaves off. It is easy to see how physical property is damaged
by the perils insured under a fire policy, and how this is repaired by the operation of the policy,
but this is not the only problem facing a business.
During repairs and rebuilding, the premises may need to be closed and temporary premises
rented. Even without closure, there can be a loss of production or sales, i.e. “reduction in
turnover ”. The income from the business is less, profit is reduced or disappears, yet many of the
costs continue at their usual level, and there may even be extra expenses. Business interruption
insurance is designed to provide for this.
The Cover
Subject to a sufficient sum insured and indemnity period (explained later), the policy will:



pay for charges that continue regardless of reduction in turnover;
pay net profit that would otherwise have been earned;
meet additional costs if these will help the business recover more quickly and reduce the
loss.
Example 1
Guiseppe operates a pizza parlour. Following a fire, he can use only one of his two ovens and
half the floor space. Service suffers, and customers start going elsewhere. For three months he
sells only half the number of pizzas, until repairs are completed and the business recovers.
Guiseppe buys only half as much flour and other ingredients, and uses less fuel, so these are
savings or variable charges that do not need to be insured. He still has to pay his rent, interest
on the bank loan he took out to start the business, wages, advertising, and insurance premiums.
These are fixed or standing charges. He also needs his profit, for his own living expenses. In the
policy, all this is called gross profit; the sum of the net profit and the standing charges.
Each pizza sold represents one half ingredients, one quarter fixed overheads and one quarter net
profit i.e. half consists of variable charges, and half is gross profit. We can say that the rate of
gross profit is 50%. This is the percentage that Guiseppe loses on every pizza he cannot
produce and sell as a result of the fire damage.
Standard turnover:
10 500 pizzas at R 16 each = R 168 000
Turnover after fire:
5 500 pizzas at R 16 each = R 88 000
Reduction in turnover:
= R 80 000
Reduction times rate of gross profit (50%)
R 40 000
Guiseppe has a very simple operation, making only one standard item. In real life, we would not
count numbers of pizzas, but would get the figures we need from the accounts of the business.
With the basic principle in mind, we can look at the wording of the policy section.
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Defined Events
Loss following interruption of or interference with the business in consequence of damage
occurring:



during the period of insurance
at the premises
in respect of which payment has been made or liability admitted under:
(i)
(ii)
(iii)
(iv)
the fire section of this policy
the buildings combined section of this policy
the office contents section of this policy
any other material damage insurance covering the interest of the insured,
but only in respect of perils insured under the fire section hereof (hereinafter termed “Damage”).
For business interruption, the insured can elect to omit some of the insured fire perils, but cannot
include perils not included in the fire insurance.
A business interruption insurer insists on there being material damage cover in force
because:
1. the insurer is protected by all the terms and conditions of the material damage policy and
these do not have to be repeated in the business interruption cover. If the material damage is
not covered, the business interruption claim falls away
2. through having material damage cover, the damage can be reinstated promptly, so reducing
the period of interruption. Otherwise, the necessary funds might not be available. The two
policies do not have to be with the same insurer, but this is better because there might
otherwise be a conflict of interest. (A prudent business interruption underwriter would want to
know the extent of the material damage cover and sum insured, if this is not with his own
company).
Specific Conditions
Business closed
If the business were wound up, instead of continuing, there would be no costs or profit and the
policy falls away. If instead it was put into liquidation or under judicial management, this would
normally be because of financial problems. Insurers would need to consider full details before
continuing.
Insured’s responsibilities in a claim
There is the usual requirement to do everything reasonably practicable to reduce the loss, and
the insured is given 30 days after the expiry of the indemnity period to submit written details of
their claim. This period may be extended at the insurer’s discretion.
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Item 1: Gross Profit
There are two ways of arriving at this. A choice must be made when the cover is taken out.

Additions basis
The net profit plus the standing charges that will not reduce proportionately to reduced
turnover, as in the pizza parlour example.

Difference basis
The sales/turnover and closing stock
less
the opening stock, purchases and other uninsured costs (those that will reduce in
proportion to turnover). In the difference wording, there is no need to mention net profit.
If the figures are correctly extracted from the insured’s books, either basis will give the same
result.
Example 2
Stock at beginning of year
(opening stock)
R13 000
Sales
R100 000
Purchases
R60 000
Stock at end of year
Variable charges
(other than purchases)
i.e. uninsured costs
R15 000
Standing charges
R20 000
Net profit
R10 000
R118 000
R 18 000
R118 000
Additions basis:
Net Profit + Standing Charges
Difference basis:
Sales + closing stock R118 000
less
Opening stock, purchases and
Uninsured costs
=
R 30 000 Gross Profit
=
R 88 000
R 30 000 Gross Profit
R13 000 + R60 000 + R15 000
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Item 2: Gross Rentals
The business might not have a turnover figure, but be a property owning company deriving its
income from rent.
Item 3: Revenue
Some businesses derive their income from providing services, rather than from trade.
Increase in cost of working
Each of the above items also provides for extra expenses incurred solely in order to avoid or
lessen the reduction in turnover, provided that these expenses are not more than the reduction
they avoid.
In Guiseppe’s example, suppose that he persuades a relative to produce pizzas at home which
he then sells at his shop. He supplies the ingredients, and pays R5 each for labour. Extra
transport costs average R1 per pizza. In this way, 1 500 extra pizzas are made and sold, and the
figures in example one change.
Example 3
Standard turnover
10 500 @ R16
Turnover after fire
7 000 @ R16
The reduction in turnover is now
Multiplied by the rate of gross profit, 50%
Add increased cost of working (1 500 x R 6)
= R 168 000
= R 112 000
R 56 000
= R 28 000
R 9 000
The 1 500 extra pizzas were sold for R24 000. If the rate of gross profit is applied to this, we get
R12 000, so there is clearly a saving.
The policy pays a total of
R 37 000
Item 4: Additional Increase in Cost of Working
This is a separate, optional item with its own sum insured, not subject to average. It is for cases
where the indemnity payable in respect of increase in cost of working would not be enough to
maintain the operation of the business. The indemnity is payable in addition to the main item,
Gross profit and increased cost of working.
For example, newspaper proprietors must continue printing even if this is done elsewhere and at
a loss, because they are committed to their advertisers and must maintain their circulation
figures. Bakeries might want to continue production so as not to lose regular orders.
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The expenditure must be:



not recoverable under other items
for the purpose of maintaining the normal operation of the business
reasonable, and with the consent of the insurer.
(There can be rare circumstances where an enterprise needs cover for additional increase in cost
of working only. This is a special case that need not worry us in this course).
Item 5: Wages (Number of Weeks Basis)
This provides for a separate item covering one or more week’s actual wages of employees whose
services cannot be used at all, following the damage, and a proportionate share of wages for
employees who cannot be fully utilised. A higher rate is usually charged for this item, because it
is the first and most likely to be used in the case of a claim.
In the past, salaries referred to permanent staff, usually paid monthly, in administrative or
executive positions. They were considered essential to the running of the business, so salaries
were included in the gross profit item.
Wages were regarded as a variable charge, because labourers could be hired or fired, largely as
needed. This is no longer the case.



Wage earners may be more important to the ordinary running of the business, than salary
earners, because administrative functions can be out-sourced.
Often, modern factory production lines call for the same number of work stations, whether
working at 100% capacity or less. Stores, canteens and maintenance departments still
need to be manned.
Labour legislation and trade unions make it more difficult and expensive to lay off workers.
In many businesses, and especially in smaller concerns, there is a special relationship
between employer and employee, and dismissals arise only when forced by a major
stoppage.
In many cases, and especially for small businesses, it may be best to treat all wages as a
standing charge.
Item 6: Fines and Penalties for Breach of Contract
Damage could result in the non-completion or late completion of orders, and the insured may
become legally liable to pay fines and penalties under contract.
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Definitions
Indemnity period
The period beginning with the commencement of the Damage and ending not later than the
number of months stated in the schedule, during which the results of the business are affected.
The insured must decide how long it will take for the business to fully recover from even the most
serious fire or other loss. This could be anything from a few months to several years, and is often
underestimated. There are delays in the supply of machinery, and it takes time to regain lost
customers.
Remember that the indemnity period is separate from the period of insurance. The original
damage must occur during the currency of the policy, but the results of the business can be
affected for a long time afterward, even if the policy has since been discontinued.
Business interruption is rated on the average rate, for fire and other insured perils, that applies to
the corresponding material damage insurance. This is called the base rate.
For indemnity periods up to 12 months the sum insured is the annual turnover multiplied by the
rate of gross profit. This is the limit of the insurer’s exposure, and the premium is calculated on
this figure.
Suppose now that we have a very short indemnity period of 3 months. It is unlikely that the whole
year’s turnover will be made or lost in 3 months, so it would be unfair to charge the full base rate.
It would also be unrealistic to charge only a quarter of the premium. If damage occurred during a
very busy time, more than a quarter of the year’s turnover would be affected.
Accordingly, rates for short indemnity periods are (effectively) loaded, while those for longer
periods are discounted. Loss of turnover will be more severe in the initial weeks after damage,
but the position should gradually improve afterwards.
For these reasons, a percentage of the base rate is applied according to the indemnity period
chosen. Insurers each have their own scales, but the following are possible examples.
3 months indemnity
6 months
9 months
12 months
50 % of the base rate
60 %
80 %
90 %
When the indemnity period is more than 12 months the sum insured is a multiple of the annual
figure, i.e. for 18 months it will be one and a half times the annual amount, for 24 months twice,
and so on.
However, the rate applied is proportionately less - one might charge about 70 % of the base rate
for an 18-month indemnity period.
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Turnover
“Money paid or payable to the insured for goods sold and delivered and for services rendered in
the course of the business at the premises”. Goods sold but not yet delivered do not affect the
turnover figure.
Revenue
“Money paid or payable for goods sold and services rendered in the course of the business at the
premises”. For some operations, this is more suitable than the turnover basis.
Gross rentals
“Money paid or payable to the insured by tenants in respect of rental of the premises and for
services rendered”. This gives wider cover than a corresponding insurance under the material
damage section. If the indemnity period is sufficient, cover continues until the rentals reach their
previous level i.e. the premises are not only tenantable, but are re-let.
Gross profit (Difference basis)
We have explained how this is calculated.
Uninsured costs (Difference basis)
These should be carefully considered. Items not listed as uninsured are automatically included.
For example, if wages are not listed as an uninsured cost, they are insured, and the insured may
not have allowed for this in his gross profit figure. If the whole wage roll is not to be insured, the
uninsured costs could have an item, say, “70% of the annual wage roll”. Only the remaining 30%
will be insured as gross profit. There are other items, like electricity and water, that diminish to
some extent, but not in proportion to the turnover.
Gross profit (Additions basis)
This is not the same as the “gross profit” that might be shown in the balance sheet of a business.
For the purposes of the policy, gross profit is net profit plus insured standing charges (or standing
charges less net loss).
Net profit
Net trading profit (excluding items of a capital nature) after provision for standing charges, but
before profits tax.
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Insured standing charges (Additions basis)
The popular generalisation “All standing charges of the insured’s business” is not really in the
insured’s best interests, because neither the insurer, the insured, or the insured’s accountant,
really knows what is meant to be included and what is not. Incorrect gross profit declarations and
claims disputes can arise.
The standing charges, including those that are only semi-variable (like the electricity charges
mentioned above) should be carefully considered and individually listed.
Standard turnover (Additions basis)
We compare the turnover/revenue/gross rentals after the damage with the results for the
corresponding period in the twelve months immediately before the date of the damage (not the
last financial year). Most businesses have their busier and quieter periods, so we must compare
“apples with apples’.
Annual turnover
The figure for the (whole) twelve months immediately before the date of the damage.
Rate of gross profit
The rate of gross profit earned on the turnover during the financial year immediately before the
date of the damage. For either the difference basis or the additions basis, the sum insured on
gross profit is the rate of gross profit times the turnover during the past financial year. In our
original example, if Guiseppe’s turnover was R300 000 a year, and his rate of gross profit 50%,
his sum insured should be R150 000.
Average is applied:
Gross profit sum insured
x
Rate of gross profit x annual turnover
loss
Provision for adjustment
The Standard turnover, Annual turnover, and Rate of gross profit, can all be adjusted in the actual
loss settlement, to provide for upward and downward trends in the business and other special
circumstances, before or after the Damage, that would have affected the results of the business,
so that the final result is as close as possible to what it would have been if the Damage had not
occurred.
Memo
Normally, turnover is derived from business at the premises. During the indemnity period, the
insured might make temporary use of other premises, or someone could help him by selling
goods on his behalf. This would go toward reducing the loss.
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Extensions and Clauses
Accountants clause
It is up to the insured to provide proof of his claim. This clause provides that figures produced
and certified by the insured’s own auditors or professional accountants will be accepted as prima
facie evidence, without outsiders going through the insured’s business books.
Accumulated stocks clause
The insured has a duty to mitigate the loss. One way of doing this might be by using up
accumulated stock, to temporarily maintain turnover during the indemnity period. This clause
ensures that the insured does not eventually lose by doing this.
Departmental clause


Rates of gross profit/rentals/revenue may vary between different departments and
branches of a business. If the independent trading results can be ascertained, a more
accurate indemnity is achieved.
Following damage, it then becomes simpler to extract the figures, because only the
branches or departments affected need to be examined.
Deposit premium clause
The insured, at the beginning of the year, does not know what the results of the business will be
at the end of the year - this can only be an estimate.
The premium for gross
profit/revenue/rentals is calculated on 75% of the sum insured and there can be an additional or
refund of 33,3% of this, based on the year-end declaration. The insurer and the intermediary
should make sure this declaration is actually made, otherwise they risk losing premium and
commission, and the renewal will be on out of date figures.
Output (alternative basis) clause
At the option of the insured, output (the sale or transfer value of goods manufactured or
processed) can be used instead of turnover. This is sometimes used where there is a very short
indemnity period, or the nature of the product suits this.
Salvage sale clause
Salvage sales mainly benefit the material damage insurer, because they reduce the amount of
the loss. The clause allows the turnover from the sale to be disregarded, provided that the gross
profit earned from the sale is deducted from the final claim settlement.
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Extensions to other premises
Apart from its own premises, the business depends on supplies and services at other premises,
not under its control. It might also have goods on the move. Damage (as defined in the policy) at
these premises is covered in the same way as if it resulted from loss or damage used by the
insured at the premises.
(a) Specified suppliers/ subcontractors (if stated in the schedule to be included)
This is not an automatic extension. If it is requested by the insured, the suppliers/contractors
must be named in the policy, together with the specific percentage dependency. They might
be anywhere in the world, and the insurer needs to fix a rate according to the risk involved,
and the extent to which the insured’s business depends on each supplier.
(b) Unspecified suppliers (if stated in the schedule to be included)
This is for cases where there are a number of small suppliers, and is limited to suppliers in
the geographic area mentioned later. (Basically, RSA and neighbouring territories). The
percentage dependency must be stated.
(c) Storage transit and vehicle
Property stored at premises elsewhere, or in transit by air, road, rail, or inland waterway or
being the insured’s motor vehicles. In this, and in almost all of the following extensions,
remember that Damage has to be by a insured peril, for example, loss due to a vehicle and
goods being swept away in a flood is covered, but not hi-jacking.
(d) Contract sites
Any situation not actually occupied by the insured but where they are carrying out a contract.
(e) Prevention of access
Property within a 10 km radius of the insured’s premises, destruction or damage to which
hinders or prevents the use of, or access to, the insured’s premises. A fire can result in the
street being temporarily closed. Imagine the effect of this on a retailer, on a busy shopping
day. A bridge or road can be washed away by a flood.
(f)
Prevention of access - extended cover (if stated in the schedule to be covered)
This is similar but extends the cover to property within a 10 km radius of other premises,
such as those of suppliers, or contract sites.
(g) Additional premises
This gives temporary cover for premises that are newly added or occupied, subject to
notification to the insurer as soon as reasonably practicable, and payment of additional
premium if required.
(h) Customers (if stated in the schedule to be covered)
The insured might depend heavily on sales to one or more large consumers. If this demand
is interrupted because of Damage at the customer’s premises, the insured’s turnover will
suffer. The customer(s) and the percentage dependency must be specified.
(i) Public utilities - insured perils only (if stated in the schedule to be included)
Supplies of water, gas, and electricity are essential to the operation of most businesses.
Interruption of the insured’s business as a result of Damage (by insured perils) to the
property of the supply authority is covered as if it had occurred at the insured’s own
premises.
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(j) Public telecommunications - insured perils only (if stated in the schedule to be
included)
In the same way, businesses depend on telephones and computer links via the
telecommunication network.
Public telecommunications - extended cover (if stated in the schedule to be included).
All risks of damage, but excluding:




drought
a fault in the installation at the insured’s premises
any authority legally withholding the facility
riot, strike, civil commotion and war
If the interruption or interference is due to electrical/electronic or mechanical breakdown, there is
no cover unless this extends for more than 24 hours.
Public utilities - extended cover (if stated in the schedule to be included)
All risks of loss or damage, but excluding:






drought
pollution of water
shortage of fuel or water
a fault in the installation at the insured’s premises
any authority legally withholding the facility
riot, strike, civil commotion and war
If the interruption or interference is due to electrical/electronic or mechanical breakdown, there is
no cover unless this extends for more than 24 hours.
Geographical Limits
(a) Specified suppliers (where the supplier/sub contractor is specified, and the insurers can
enquire where this business is situated), worldwide.
(b) Additions to premises, RSA and Namibia
(c) All others, RSA, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe, and Malawi.
Accidental damage (if stated in the schedule to be included)
This clause extends the “accidental damage“ section of the Multimark to include business
interruption. (Accidental damage cover is designed for physical damage for which insurance is
not otherwise available, other than under business all risks).
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SASRIA

SASRIA cover is not available for net profit. Cover can be taken based on either the
“difference” or the “additions” basis, but covers only Standing Charges or Working
Expenses, i.e. the sum insured for SASRIA will be less than that for business interruption.
The standing charges must be listed. ( If the Difference basis is used for the underlying
policy, and all working expenses are insured, the uninsured working expenses on the
SASRIA coupon can be shown as “none” (apart from 100% of purchases less discounts
received).

Unless there are more than 20 premises, the full street address of each situation must be
stated.

No extensions of cover are allowed, other than claims preparation costs. These are
incorporated in the wording of the SASRIA specifications and are limited to:
o additional fees paid to the insured’s usual auditors
o additional wages/salaries to own employees
o cost of materials used.
 There is no separate “wages” item. If salaries/wages are to be covered, this must be part
of the overall sum insured.
 The minimum indemnity period allowed is 12 months.
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Knowledge Self Assessment – Module 6
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Give the three main objectives of a business interruption cover.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
Explain why there are no “specific exceptions” in the Business interruption section
of the policy, and a very short list of “defined events”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
State whether the material damage insurance and business interruption insurance
must always be with the same insurer.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Distinguish between a Standing charge and an Uninsured cost.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
What is meant by the indemnity period?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 6 - cont
6.
Define standard turnover.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
Define annual turnover.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Give the formula for the application of average in a business interruption policy.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Distinguish between provision for adjustment (also called the adjustment clause),
and the deposit premium clause.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
Explain whether or not SASRIA cover is available for gross profit.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 6
1.
Give the three main objectives of a business interruption cover.
Pay for charges that continue regardless of reduction in turnover.
Pay net profit that would otherwise have been earned.
Meet additional costs to allow the business to recover more quickly.
2.
Explain why there are no “specific exceptions” in the Business interruption section
of the policy, and a very short list of “defined events”.
If the material damage is not covered, the business interruption cover falls away (unless
the material damage was excluded only because of falling within a policy excess). The
insurer is protected by all the terms and conditions of the material damage policy, so these
do not have to be repeated.
3.
State whether the material damage insurance and business interruption insurance
must always be with the same insurer.
The material damage and business interruption need not be with the same insurer, but this
is preferable. A prudent underwriter will need details of the material damage cover, to be
sure that funds will be available to reinstate the physical property. There could also be a
conflict of interest between the two insurers. The business interruption insurer wants the
property reinstated as soon as possible. Speed is less important to the material damage
underwriter.
4.
Distinguish between a Standing charge and an Uninsured cost.
Standing charges are those that will not diminish in proportion to reduction in turnover. In
the
Additions basis they are listed in the schedule and are added to the net profit, to
arrive at the sum insured.
Uninsured costs are those that will reduce proportionately. In the Difference basis, the
sum insured is the turnover less the uninsured costs, (also listed). Sometimes these are
called uninsured working expenses; the effect is the same.
5.
What is meant by the indemnity period?
The indemnity period is the period beginning with the commencement of the Damage and
ending not later than the (stated) number of months thereafter, during which the results of
the business are affected in consequence of the Damage. It is the maximum period the
insured estimates will be necessary for the business to fully recover.
6.
Define standard turnover.
The Standard turnover is the turnover during that period in the twelve months immediately
before the date of the Damage that corresponds with the indemnity period.
7.
Define annual turnover.
The Annual turnover is the turnover during the twelve months immediately before the date
of the damage.
8.
Give the formula for the application of average in a business interruption policy.
Average is applied:
Gross profit sum insured
x
loss
Rate of gross profit x annual turnover
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Model Answers to Knowledge Self Assessment –
Module 6 - cont
9.
Distinguish between provision for adjustment (also called the adjustment clause),
and the deposit premium clause.
Provision for adjustment. In the loss settlement, the Standard turnover, Annual turnover,
and Rate of gross profit can all be adjusted to provide for trends and special circumstances
that would have affected the results of the business, had the Damage not occurred, for
example, turnover might be found to be increasing at an average rate of 1% per month, and
this will be taken into account.
Deposit premium. The sum insured at the beginning of each period of insurance can only
be a reasonable estimate of the final result. So that the insured is not penalised by over
or under insurance, the premium for the gross profit/revenue/ rentals item is calculated on
75% of the sum insured, and 33.3% of this is payable or refundable based on the
insured’s year-end declaration.
10.
Explain whether or not SASRIA cover is available for gross profit.
SASRIA covers only Standing charges or Working expenses, without any net profit
element.
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Module 7: Principles of Liability Insurance
Learning Outcomes
By the end of this Module, you will be able to:




Distinguish between liability arising in contract, in delict, and by Statute;
Restate the main legal principles governing liability;
List and briefly explain some of the main defences to an action in delict;
Identify the purpose of liability insurance.
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Introduction
Everyone, and every business, runs the risk of incurring legal liability due to their actions or
omissions, or defects in the goods supplied. Members of the public visit the firm’s premises, and
the firm, through its employees, may be on the premises of others. Each business is open to its
own special types of risk. In America, Mac Donald’s fast food chain paid substantial damages to
a customer who spilt hot coffee in her lap, and they now print a warning about hot liquids, on their
cups.
We have not yet reached such extremes, but the courts tend to be sympathetic toward the injured
party, court awards are increasing, and our public is becoming more conscious of legal rights.
Even where a potential claim turns out to have no chance of success, the insurer may need to
carry out preliminary investigations into what happened, and get legal advice. This is not a legal
course, but you need to understand a few of the principles so that you will know what the policy
covers.
Legal Principles




The policy covers amounts for which you are legally liable. (It does not matter whether or
not you feel you are responsible).
You are legally liable to another party; you cannot be liable to yourself.
Liability arises out of contract, by statute, or in delict.
Employers can be held liable for the actions of their employees in the scope and course of
their employment. This is further explained below.
Contract
Parties are free to enter into contracts as long as these are not illegal, or against public policy and
good morals. For example, we cannot issue an insurance contract indemnifying someone against
the risk of speeding fines.
To a large extent, the parties to the contract can agree on their own terms, and there can be
contractual liabilities exceeding those imposed by the common law. For this reason, liability
policies usually exclude liability under contract, unless it would have arisen anyway, under
common law.
Statute
Some duties and penalties are imposed by statute, e.g. under the Occupational Health and
Safety Act. Failure to comply results in a criminal charge. We can cover defence costs against
this, but if the defence does not succeed we cannot indemnify the insured against the fines and
penalties laid down by the State. Sometimes the statutory remedy and penalty is the only one. In
other cases, a statutory offence also provides grounds for a separate civil action under delict.
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Delict
We all have a general legal duty not to harm the person or property of others by our action or
neglect. The wronged party (plaintiff) brings a civil action against the party (defendant) that
caused his loss or injury. To succeed in this, the plaintiff must be able to show that there was:



a wrongful act or omission (intentional or negligent) by the defendant
a link (causal nexus) between this and the loss or damage
a loss (harm) that can be expressed in terms of money (patrimonial loss).
The court must then consider whether or not the harm that resulted could reasonably have been
foreseen and avoided by a normally prudent person in the position of the defendant. (The
forseeability test and the reasonable man test).
If it finds the defendant responsible, the court awards the plaintiff compensation (damages) to be
paid by the defendant. “Damages” include consequential loss.
Often there is no need to go to court; settlement is negotiated by the parties concerned.
Vicarious liability
Usually, one person cannot be held liable for the actions of another, but an employer can be held
liable for the actions of employees, arising out of the scope and course of their employment. This
even includes actions forbidden by the employer, if they are still connected to the general
character of the employee’s work.
Defences
If any of the above elements (an act or omission that can be directly linked to a loss or harm), can
be shown to be missing, there is no case to answer. For example, the defendant may be able to
prove that there no negligence, or show that the act was actually committed by some other
person altogether.
The following are some other possible forms of defence:
1. Contractual exclusions
Contracts usually attempt to exclude some forms of liability. We have all seen notices at
entrances saying “vehicles are parked at owner’s risk”, “swimming is dangerous”, “paving
slippery when wet”, or there may be clauses in the agreements we sign.
These “disclaimers” do not work in every case, because further precautions may be needed.
2. Apportionment of damages
The plaintiff might be partially to blame for the accident. This will reduce the amount of the
damages awarded against the defendant.
3. Capacity
Children, especially those under seven years old, are regarded by the law as unable to
understand the consequences of their acts. The same might apply to someone who is
mentally deficient.
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4. Private defence
You may defend yourself, your family and property. This must be reasonable in the
circumstances.
5.
Necessity
To prevent harm. As an example, A breaks down the door of B’s burning house to rescue C,
trapped inside.
6.
Inevitable accident, and Act of God (vis major)
The accident or loss could not have been prevented by any reasonable precautions.
7.
Consent
The legal term is volenti non fit injuria - “a willing person is not harmed”. The courts will not
easily agree that a person consented to harm or the risk of harm, you must be able to show
that this was understood and agreed to.
The Purpose of Liability Insurance
Liability insurance is meant to indemnify the insured against civil claims arising from the
unintended or unexpected consequences of their actions (or neglect), together with the
associated legal charges and expenses. This will be further explained when we look at the policy
wording.
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Knowledge Self Assessment – Module 7
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
A wind storm blew the roof off a carport at your house. It landed on your
neighbour’s car and damaged it. Can your neighbour claim against you?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
You and your neighbour have always been very good friends, and you feel
responsible for the damage to his car. What can you do in these circumstances?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
Define what is meant by the term “damages”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Explain whether liability policies include liability assumed in terms of a contract.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
Suggest how the terms of a contract between the parties might affect the liability
cover.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 7 - cont
6.
State whether liability insurance has to do with civil charges, or with criminal ones.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
Essop is a salesman working for commission. He slipped on a patch of oil at the
petrol station, broke his hip, and was unable to drive his car or attend to his
business for six weeks. Explain whether he can claim against the petrol station for:
7.1 medical expenses
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.2 loss of income.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.3
Explain what tests the court would apply, in considering Essop’s claim.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 7
1.
A wind storm blew the roof off a carport at your house. It landed on your
neighbour’s car and damaged it. Can your neighbour claim against you?
Unless it can be shown that the roof was loose and you knew about this, it will be difficult
to prove negligence. Probably, this is an “unavoidable accident”. An advantage of being
insured is that the insurer will undertake the defence of the claim.
2.
You and your neighbour have always been very good friends, and you feel
responsible for the damage to his car. What can you do in these circumstances?
You could come to an arrangement with the neighbour as a goodwill gesture. This would
be an example of your accepting liability by agreement, and your insurers will not pay.
They should be informed of your intention, so that their position is not prejudiced.
3.
Define what is meant by the term “damages”.
“Damages” is the financial compensation the court awards the plaintiff, to be paid by the
defendant. This includes consequential loss flowing from the wrong.
4.
Explain whether liability policies include liability assumed in terms of a contract.
Liability policies usually exclude responsibilities assumed under contract, unless they
would have applied even without the contract.
5.
Suggest how the terms of a contract between the parties might affect the liability
cover.
A contract might contain exclusions (disclaimers) that are a defence against the liability
claim.
6.
State whether liability insurance has to do with civil charges, or with criminal ones.
Liability insurance is mainly concerned with claims in delict. These are civil claims.
7.
Essop is a salesman working for commission. He slipped on a patch of oil at the
petrol station, broke his hip, and was unable to drive his car or attend to his
business for six weeks. Explain whether he can claim against the petrol station for:
7.1 medical expenses
The petrol station employees failed to clean up the oil spill or warn of it. This was the
direct cause of Essop’s injury, so he can claim the cost of medical treatment.
7.2 loss of income
The loss of earnings is a consequence of the accident, and this also forms part of the
claim.
7.3. Explain what tests the court would apply, in considering Essop’s claim.
The foreseeability test. Was the oil spill in a place where members of the public might
be expected to slip on it?
The reasonable man test. Would a reasonably prudent person have done something to
remove the danger?
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Module 8: Other Forms of Liability Cover
Learning Outcomes
By the end of this Module, you will be able to:


State the purpose and effect of the other forms of liability cover described here;
Indicate the relationship between these and the principles and cover.
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Introduction
Now that you know the main principles and have studied the general public liability wording, the
liability cover provided by other sections of the Multimark wording, is easily explained. There are
also some specialist forms of cover not provided by Multimark, and you should have an idea of
these.
Buildings Combined Section
Because this section covers buildings, it has a liability sub-section covering liabilities in, on, or
about the property insured, and arising from the ownership thereof, up to a limit of R1 000 000.
The owner of a building and the land on which it stands has a responsibility to maintain it in a
reasonably safe condition. Claims commonly arise from defects such as faulty stairways and
railings, or people slipping and falling in the passages, but there could also be damage to other
peoples’ property. (The relationship with tenants depends on the terms of the lease agreement,
but this does not apply to visitors and their property).
An insured whose only business is the ownership of a building insured under the combined
section will not need a general public liability cover, unless it is felt that the R1m limit is not
enough.
The Multimark policy has a provision stating that the insurers will not be liable for the same
happening under more than one section of the policy. This means that the indemnity limit under
Buildings combined and that under a public liability section, would not be cumulative.
Office Contents Section
There are special sub-sections available to cover loss or damage to documents, the insured’s
own or belonging to clients, at the office, and legal liability as a direct consequence of this.
Liability under contract is excluded, so the cover is against liability arising in delict.
People entrusted with temporary possession of the property of others are liable to compensate
the owner for loss or damage to the property. They can avoid liability if they can prove that they
took all reasonable care in the circumstances, and the damage occurred in spite of this.
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Employer’s Liability Section
Under the previous Workmen’s Compensation Act, “workmen” were defined as those earning less
than a specified annual rate. These employees could claim compensation for occupational
injuries and illness from the Workmen’s Compensation Fund, so were not allowed to sue their
employer.
The Employers’ liability section provided cover on a claims made basis for liability for
occupational injury to employees who were non-workmen.
The Occupational Injuries and Diseases Act, which came into operation on 1st March 1994,
changed this.
Almost all employees fall under the terms of the new Act.
The only exceptions are:



people such as police and defence force personnel and trainees, (who fall under the
Police Act or the Defence Act)
independent contractors ( people who contract to carry out work, and hire other people to
work under them).
domestic employees in a private household.(Household and/or personal liability policies
provide cover against possible claims.)
In South Africa, the need for Employers’ liability falls away, except as a kind of contingency cover.
Professional Liability
The Multimark Liability section, and similar forms of general liability cover, excludes advice or
treatment of a professional nature. Apart from this, claims for professional negligence do not
always involve accidental injury, or damage to tangible property, so a special form of policy
wording is needed.
Nowadays, any business where advice or service is given needs professional liability cover.
Apart from the recognised professions, think of:



translators - wrong translation in a technical brochure
information technology - infringement of copyright, delayed delivery, viruses
advertising and marketing - mistakes in publicity material.
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Directors and Officers’ Liability
Some duties are imposed by statute, and there is a general common law duty to exercise the skill
and care that would normally be expected.
A special form of policy protects the directors and officers in their personal capacity, in
circumstances where they cannot claim from the company, and the company itself, where it is
required or allowed to indemnify directors.
Libel Policies
A ”libel” is a published false statement damaging a person’s reputation. In South African law, both
written and spoken publication of this kind is called “defamation”. The optional extension to the
Multimark policy provides for ordinary circumstances, but publishers of newspapers and
periodicals, and others with large potential exposures, need a special policy with a much higher
limit of indemnity.
Construction Risks
The risks involved in demolition, excavation and construction are insured by companies that
specialize in this field.
Product Recall
Product liability cover operates only in respect of the damage or injury actually caused by the
defective product.
Product recall insurance is to cover the cost of retrieving products considered or suspected to be
dangerous from the market place, before harm, or further harm, can result. We often read that a
particular model of car has been recalled for modifications. Other examples include Perrier
(mineral water suspected of being contaminated), Tylenol (pharmaceutical tampered with), CocaCola in Belgium (cans contaminated).
There are expert underwriters specializing in this business, and now cover can also be bought
for:
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



extortion (somebody threatens to sabotage the product)
loss of profit due to the recall
loss of market share, and loss of image
the cost of the product itself.
Pollution and Environmental Impairment (EIL)
There are social and legal problems associated with pollution. There is stricter legislation than in
the past, and the general concept that the “polluter pays”.
Pollution is not always “sudden and accidental”, as provided in the ordinary liability wording.
A wider form of insurance protection is known as environmental impairment liability, or EIL.
This is intended for normal injury or property damage claims as well as impairment or interference
with any other right or amenity protected by law, but is not meant to cover deliberate pollution.
Vehicle Risks
Cover is available in the Motor, Aviation and Marine markets against liabilities arising from the
use or operation of land, sea, and air vehicles, including aircraft hangars and private landing
strips.
SASRIA
SASRIA cover does not apply to liability insurance. Liability policies contain a “war” exclusion,
different from the “riot” exclusion that applies to other sections. There is no cover for injury,
damage or liability directly or indirectly caused by, related to, or in consequence of war invasion
act of foreign enemy, hostilities (whether war be declared or not), civil war mutiny, insurrection,
rebellion, revolution, or military or usurped power.
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Knowledge Self Assessment – Module 8
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
Your insureds / clients are insured under the liability section of a Multimark policy. Briefly
explain the special type(s) of cover, if any, needed in the following circumstances. The
insured:
1.
is the owner of the building.
_______________________________________________________________________
_______________________________________________________________________
2.
is a consulting engineer, and keeps plans and specifications that belong to clients.
_______________________________________________________________________
_______________________________________________________________________
3.
employs a cleaner and gardener at the business premises.
_______________________________________________________________________
_______________________________________________________________________
4.
advises clients on mechanical projects.
_______________________________________________________________________
_______________________________________________________________________
5.
publishes a news letter commenting on current events in the engineering field.
_______________________________________________________________________
_______________________________________________________________________
6.
is also a director of the company.
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 8 - cont
7.
owns a powerboat, used to entertain clients.
_______________________________________________________________________
_______________________________________________________________________
8.
is a construction company.
_______________________________________________________________________
_______________________________________________________________________
9.
is a company owning a small “health” farm, on which there is an aircraft landing
strip.
_______________________________________________________________________
_______________________________________________________________________
10.
distributes bottled “spa” water.
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 8
Your insureds / clients are insured under the liability section of a Multimark policy. Briefly
explain the special type(s) of cover, if any, needed in the following circumstances. The
insured:
1.
is the owner of the building.
Under the liability section, the description of the insured’s business should include
“property owners”. Apart from this, the building might also be insured under the Buildings
combined section, but the cover under the two sections will not be cumulative.
2.
is a consulting engineer, and keeps plans and specifications that belong to clients.
The Public liability section does not include property in the custody or control of the
insured. The cost of restoring or replacing the documents should be insured under the
Office contents section, which can then be extended to include legal liability as a
consequence of the damage.
3.
employs a cleaner and gardener at the business premises.
These are not domestic employees in a private household, so they fall under COID, and
cannot sue their employer for occupational accidents or illness.
4.
advises clients on mechanical projects.
Public liability excludes advice of a professional nature, so the insured needs Professional
Liability cover.
5.
publishes a news letter commenting on current events in the engineering field.
The optional defamation cover under the Public liability section may be enough. If the
limit is not sufficient, (or if insurers are not willing to give this), a separate “libel” policy is
needed.
6.
is also a director of the company.
Claims are likely to go beyond physical damage to tangible property, so Directors’ and
officers’ liability cover is needed.
7.
owns a powerboat, used to entertain clients.
Public liability excludes water craft, so a Marine or “Small craft” policy is needed to cover
collision liability, or injuring swimmers.
8.
is a construction company.
Minor alterations, repair and maintenance work can be included in Public liability. Work
involving excavation and the weakening or removal of support to any land, building, or
structure will need special cover under a construction risks policy.
9.
is a company owning a small “health” farm, on which there is an aircraft landing
strip.
Ownership of an airstrip is excluded from the Public liability policy. Special cover is
available in the Aviation market.
10.
distributes bottled “spa” water.
A products liability extension might be sufficient, but would not cover the cost of locating
and retrieving a faulty or contaminated batch from the market. Products recall can cover
this, and might also be extended, at an additional premium, to include loss of profit and
loss of market.
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Module 9: Theft, Money, Fidelity, Goods in
Transit
Learning Outcomes
By the end of this Module, you will be able to:





Define the crime of “theft”;
Describe the “defined events” under the above sections of the Multimark policy;
Discuss the cover afforded;
Explain the purpose and effect of the extensions, specific exceptions and other restrictions
on the cover;
Identify where SASRIA cover is available.
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Introduction
These four classes have been grouped together, because although the defined event is “loss or
damage”, in each case the main underwriting problem is that of theft:
“The wrongful taking or handling of property with the intention of depriving the owner or lawful
possessor of his ownership or rights in the property.”
Theft, as such, does not have to be for the purpose of financial gain, e.g. it might be out of
jealousy or spite.
Almost anything can be stolen, but property most at risk is:



in demand, and easily disposable
of high value in relation to its bulk
where the ownership is not easily identifiable.
Money is the best example; others include tobacco and cigarettes, liquor (especially spirits), and
non-ferrous metals, such as brass copper, and aluminium.
Foodstuffs and clothing, although more bulky, are readily disposable.
There are many ways of “wrongfully taking” property - shoplifting, fraud, hi-jacks, and so on, so
the wording of the different sections spells out the kind of loss the section is meant to cover.
Remember that as well as the specific exceptions and conditions mentioned, these sections are
subject to the General exceptions and conditions of the Multimark policy.
Theft Section – Defined Events
Loss of or damage to all contents (the property of the insured or for which they are responsible) of
any insured building at the insured premises described in the schedule as a result of theft
accompanied by violent and forcible entry into or exit from such building or any attempt thereat or
as a result of theft or any attempt thereat, following violence or threat of violence.
Notice that:





we are insuring the contents of a building or buildings.
this is not any building the insured occupies; the premises are as stated in the schedule.
shoplifting or pilferage is not covered. There must be forced entry, with a degree of
violence. (Not just opening an unfastened window, or turning the door knob.)
the thief might break in, or be hidden inside the premises and break out.
the policy also provides for violence in the form of armed robbery.
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Extensions
1. (a)
(b)
Loss or damage, caused by:
(i)
thieves concealed upon the premises before close of business.
(ii)
use of skeleton keys or similar devices, but not duplicate keys. (A skeleton key
has parts cut away, so that it will fit a number of locks; there are also picking
tools and picking guns. Proof that this happened is up to the insured, and is not
easy).
to property at additional premises, provided:
(i)
(ii)
(iii)
2.
insurers are advised of these within 30 days of the risk attaching
additional premium, if any, is paid.
this temporary cover is limited to 50% of the highest amount in the schedule for
any one premises.
In addition to the limit of indemnity,
(i)
(ii)
damage to the buildings and landlords fixtures and fittings
theft of buildings, fixtures and fittings.
There is automatic cover up to R5 000, but this can be increased at an additional premium.
3. In addition to the limit of indemnity, cover is provided (excluding the first R200) up to R2 000
for replacing locks and keys if there is reason to believe that keys have been stolen.
4. “All contents” includes personal possessions of the insured, directors or employees up to a
limit of R2 500 for any one person, and provided these belongings are not otherwise insured.
Limitations
The cost of replacing business records is limited to the value of materials and labour, and does
not include the information therein.
Specific exceptions
1. Loss or damage that can be insured under a fire policy. (But damage by explosives used in
an attempt to effect entry is covered).
2. Loss or damage insurable under a glass insurance policy.
3. Property more specifically insured, and, unless specially mentioned in the schedule, money
and negotiable instruments.
4. Theft by family or employees, or where they are involved as accessories. Theft by members
of the insured’s own household is uninsurable. Theft by employees can be covered by fidelity
insurance.
Specific conditions
1. Disclosure
At common law, there is no duty to disclose material alterations that take place during the
currency of the policy. This condition changes this to a continuing duty.
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2. Alarm warranty
This condition operates if the schedule states that the premises are subject to the alarm
warranty, and becomes a condition precent to liability. (The condition must be strictly
complied with, or there is no cover).



The alarm must be made fully operative whenever the premises are not open to business
unless a principal, partner, director (member, in the case of a CC) or employee is on the
premises.
The alarm must be maintained in proper working order. A service contract with the
suppliers will be sufficient proof of this.
Loss or damage following the use of keys to the alarm is not covered, unless the keys
were obtained by violence or threat of violence.
Insurers have developed further wordings requiring that the opening and closing of the premises
be monitored by the alarm company to ensure that the alarm system is activated at the relevant
times, and that there is an armed response unit.
SASRIA
Usually the property insured would also be covered by a fire policy, and this is recognised as the
underlying insurance for SASRIA.
There is no separate SASRIA policy for theft, but SASRIA covers looting following a SASRIA
insurable event, if the looting was the immediate objective or was an immediate, proximate, direct
and foreseeable result of the state of disorder.
Money Section – Defined Events
“Loss or damage to money occurring, except if otherwise specified, in the Republic of South
Africa, Namibia, Lesotho, Botswana, Swaziland, Zimbabwe, and Malawi.”
The Insured premises are specified in the schedule to the section.
Money means cash bank and currency notes, cheques, postal orders, money orders, postage
and revenue stamps, credit card vouchers certificates or negotiable instruments, the property of
the insured or for which they are responsible. Virtually all organisations handle money in one
form or another, although direct debiting by credit card reduces some of the risk.
In some cases, wages are still paid out in cash, and could also be transported to contract sites,
increasing the risk of attack along the way. If this is so, these contract sites must be mentioned in
the schedule. Filling stations and supermarkets take large amounts in hard cash.
Insurers impose conditions on the escort of persons to the bank, varying according to the amount
being carried, and might also specify that the transit must be direct and unbroken.
In the policy section, several different limits of liability apply.
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i)
ii)
iii)
iv)
v)
vi)
The “major” limit, or maximum cover provided, other than the special item on crossed
cheques. The amount is chosen by the insured and represents the largest amount
considered likely to be in transit or held on the premises at any one time. The premises are
specified in the schedule, and there could be a different major limit at each.
“Minor” limits. A small limit of R1 500 is provided for money at the insured’s residence, at the
premises but not contained in a locked safe or strong room outside the insured’s business
hours, in an unattended vehicle, or in the custody of a partner, director or employee on a
business trip anywhere in the world.
Seasonal increases. Many businesses need higher limits for certain periods, e.g. year ends,
when bonuses are paid out, or when trade is exceptionally busy. This item is specially rated,
and is for a specified period each year. If such “peaks” occur several times a year, such as at
long weekends, it is better to increase the major limit accordingly.
Special items. Separate limits are set for cash floats in the hands of petrol attendants,
collectors and others. Problems include cash-on-delivery transactions, and after-hours rent
collection.
Crossed cheques. A separate limit of R100 000 is automatically included in addition to the
other limits under the section. This is subject to special conditions, detailed later.
Limits in respect of safes. The schedule includes a list of categories of safes, mainly those
classified by the South African Bureau of Standards, and the maximum amount insurers will
cover in each type. Safes are graded according to how long they can be expected to resist
attack by various means - drilling, cutting disks, oxyacetylene torch, explosives. Even in the
case of the more highly graded and expensive safes this is not much more than an hour,
given the right technique and equipment, so that the extra protection of an alarm is needed.
Provision is made to allow a special limit for a specific safe. For example, the safe might be built
into a concrete shell, or be kept inside a strong room, which would increase the time needed to
break in.
Extensions
1. Receptacles and clothing
In addition to any other payment, insurers will indemnify the insured in respect of loss or
damage, as a result of theft, to:
 Receptacles- safe, strong room, strongbox, cash register/till, cash box or other receptacle,
or franking machine: R2 000, (or a larger amount, if stated in the schedule).
 Clothing and personal effects, not otherwise insured: R2 000
2. Locks and keys
This is similar to the extension in the theft section.
3. Riot and strike
Money can be insured under SASRIA. An optional riot and strike extension is available if
cover is required outside RSA/Namibia.
4. Skeleton keys
This is similar to the extension in the Theft section.
5. Personal accident (assault) extension (if stated in the schedule to be insured)
This optional extension covers death, disablement and medical expenses of employees
injured during theft or attempted theft of money. A flat per capita charge is made, based on
the number of employees to be covered. The sums insured are usually fairly small. The
insured tends to limit this to people actually involved in carrying money for the business,
forgetting that several of the staff could be injured in an armed hold-up at the premises.
Higher limits of compensation are available under a separate Group Personal Accident or
Stated Benefits insurance, discussed later in this Unit.
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Specific Exceptions and Memoranda
1. Dishonesty of employees. Losses are covered, but only if they are:


discovered within 14 working days, and
not payable under a separate fidelity insurance.
There is a separate First Amount Payable (excess) of:
(a)
2 % of the limit of indemnity, plus
(b)
10% of the balance of the loss.
2. Errors and omissions.
Shortages due to mistakes are considered a trade risk, and are not insurable.
3. Use of keys to the safe / strong room.
Losses are limited to R1 500, unless:


the keys were obtained by violence or threat of violence, or
the loss involves the dishonesty or collusion of the key holder.
4. Safes / strong rooms left unlocked and unattended. A limit of R1 500 applies, unless it
can be proved that this was dishonestly done with the intention of allowing the money to be
stolen.
5. Money left unattended. Money is sometimes left lying around or in desk drawers. The limit
and provisos in 4 above apply.
6. Money in unoccupied or unattended vehicles. Limited to R1 500 unless a director or
employee is actually in the vehicle, or able to watch it from not more than 5 metres away. Full
money cover applies if the occupants are incapacitated in an accident.
Payments under 3, 4, 5, and 6 above are not reduced by any first amount payable.
Special conditions applicable to cheques
1. Cheques drawn by the insured:
details of the procedure are given in the Multimark policy, but some main requirements are:






the cheque must be crossed, “not negotiable” and marked “not transferable”
the words “or order”, or “or bearer” must be crossed out.
the payee must be accurately and fully named.
the method used to complete cheques must be one that makes an ink impression on the
paper.
no spaces should be left which would allow anyone to add extra words or figures.
or
the cheque must be dispatched to the payee by certified post (or other post with security
equal to this).
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2. Cheques received by the insured:
 Immediately on receipt, must be crossed and marked “not negotiable” and “not
transferable”.
 The insured must record the amount of the cheque and the name of the drawer.
3. Cheques posted to the insured but not received:
 The cheque must have been drawn and crossed as above, or
 The cheque was sent to the insured by certified post (or other, as above)
or

The insured’s invoice, for which payment is being made, contained a message requiring
or recommending that the cheque be drawn in accordance with 1(a) above.
If these requirements are not met, the amount payable is reduced by 25%.
Fidelity Section
“Fidelity” is a strange name for this insurance, because the cover is really against the
consequences of infidelity. The reason for the original name is that people employed to handle
money used to be required by their employer to provide a financial guarantee under which
possible theft or fraud would be made good.
Today, it is employer who takes out the policy, to protect against the possibility of “insider” theft or
fraud. Insurers used to make careful enquiries each employee, something like the questions one
might be asked when applying for credit or taking out a credit card. With high staff turnover and
the pace of modern business much of this has fallen away. “White collar crime” is rife. Often
fraud and theft is related to poor internal controls and collusion between employees and outside
parties.
Defined events
1. Loss of money and/or other property belonging to the insured or for which they are
responsible stolen by an insured employee during the currency of this section.
(Remember that theft does not have to be for financial gain).
2. Direct financial loss sustained by the insured as a result of fraud or dishonesty of an insured
employee during the currency of this section which results in dishonest personal financial
gain for the employee concerned.



If an employee commits a fraud but gains no financial benefit from it, there is no cover
under the section.
Sometimes it is clear that fraud is taking place, but it is impossible to prove that any
particular employee gained financially.
The loss must be directly related to the fraud, and be financially quantifiable.
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Discovery period
Losses must be discovered within:
1(a)
24 months of the event. (This can be extended to 36 months, at an additional premium).
Apart from this, losses must also be discovered within:
(b)
12 months after the termination of:
(i) cover under the section, or
(ii) cover in respect of the employee concerned, or
(iii) the employment of the employee, or the last of the group of employees concerned,
whichever occurs first.
Definition of employee
An employee is any person under a contract of service with, or apprenticed to the insured, or
hired or seconded by another party into the service of the insured, whom the insured has the right
to govern, control and direct in the performance of his/her work in the course of the insured’s
business.
The policy can be issued to cover:
(a)
Blanket basis
All employees are included. The indemnity limit for any one event is the sum insured,
irrespective of the number of employees who may be involved in the incident.
(b)
Named or position basis
These would be people who regularly handle money or have control of stock, described by
name or according to the position held. A manufacturer, for example, might cover his
bookkeeper and store man.
The sum insured for each individual is stated against that name or position. Where several
employees are involved in the same loss, these limits are cumulative.
Premiums are calculated on the number of employees and the sum insured, so a
proportionately higher premium per person is needed for the named or position basis.
Specific exceptions
1(a) Loss resulting from the actions of:
 any partner, to the extent that he would benefit by the insurance. A partner cannot
commit a fraud or theft, and benefit as well from the policy.
 any principal, director or member, unless also an employee. (The responsibility and
liability of directors is the subject of Directors and Officers’ Liability, discussed elsewhere
in this course.
 any employee, from the time that the insured discovers that he/she has committed fraud
or act of dishonesty.
1(b) Any consequential loss.
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2.
Any company or legal entity acquired during the period of insurance. (They probably had
their own fidelity insurance, and in any case, the cover will have to be renegotiated).
3.
Any event arising from the dishonest





manipulation of
input into
suppression of input into
destruction of
alteration of:
any computer programme, system, data or software by any employee in the insured’s
electronic data processing department or area. This exception does not apply to
employees using non-networked (stand-alone) micro/personal computers, but a higher
excess is applicable to “computer theft”.
With computer literacy becoming more general, there is a huge potential for employees
at all levels to manipulate computers to their own advantage. Small and relatively
unnoticeable amounts can be transferred from individual accounts. Non-existent
suppliers can be “created” and paid. Stock records can be falsified.
Full cover for mainframes and networks can be obtained only on completion of a special
questionnaire and a thorough investigation of the computer system. Special terms will
apply.
4.
The partners/principals/directors/ or members who were not involved in the fraud may still
benefit from the insurance, but only to the extent of their shareholding or interest.
Specific Conditions
1.
The insured is free to run his business and make changes, but must continue to maintain
proper checks and audits
2.
If the loss exceeds the sum insured, the insured is entitled to recoveries, apart from the
basic policy excess, until the shortfall is made up.
After this, any further recoveries are allocated in accordance with item (b) of the First
Amount Payable.
Clauses and Extensions
Accountants’ clause
Certified information from the insured’s auditors or professional accountants is acceptable as
prima facie evidence. This can still be challenged, but the object is to avoid unnecessary
duplication of work.
Extended cover for past employees extension
Cover for past employees is extended for 30 days. Fraud might be committed after the employee
has officially left.
Retroactive cover extension
(If stated in the schedule to be included).
If there was no previous policy in force, this extends the cover to events (as yet unknown) during
the 12 months prior to inception but not more than 24 months prior to discovery. An additional
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premium is charged.
Superseded insurance extension
(If stated in the policy to be included).
This can be applied if there was previous insurance. Cover is restricted to losses that would have
been covered by the previous insurance, but are discovered too late. The limit is the lower of the
existing and the previous insurance. The period of backdated cover is decided by the
underwriter, and an additional premium is charged.
Other insurances
It is a condition that no other policy covering these risks may be in force, except for a money
policy, a pension fund policy not exceeding this section, or a policy declared to the insurers on
inception or renewal, or at the time of the claim.
Compulsory first amount payable
This escalates automatically as the sum insured increases. The policy holder cannot get around
this requirement by taking out a number of smaller policies, because these must be declared and
the sums insured will be added together for the purpose of the first amount payable.
There is a two-part calculation:
(a)
(b)
2 percent of the sum insured, (there is a maximum deduction of R 60 000, which would
mean a sum insured of R 3 m or more)
10 percent of the balance. (In Specific condition 2, this is referred to as coinsurance; the
insured carries 10% of the loss and the insurer 90%).
The calculation is illustrated by the following example:
Computer losses first amount payable
For those computer losses that are covered under the standard wording, i.e. non-networked
micro / personal computers, the percentage part in part (b) above is increased from 10% to 20%,
if the employee’s duties involve managing, supervision, design, creation or alteration of computer
systems or programmes.
First amount payable for losses discovered more than 12 months after they were
committed
The amounts under paragraph (a) and (b) of the First Amount Payable are increased as follows:
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More than 12 months, but not more than 24 months after being committed:
Para (a) from 2% to 4%
Para (b) from 10% to 15%
Computer losses from 20% to 30%
At additional premium, the discovery period can be increased from 24 months to 36 months, and
the First Amount Payable is increased in respect of losses:
Discovered more than 24 months, but not more than 36 months after being committed:
Para (a) from 2% to 5%
Para (b) from 10% to 20%
Computer losses from 20% to 35%
There is a third possibility. If the insured has had a professional audit carried out on the systems
of control and the detection of dishonesty, and subject to the implementation and maintenance of
the audit recommendations, the 24 month restriction may be removed.
For any loss discovered later than 12 months after the event, the amounts are
increased:
Para (a) from 2% to 3%
Para (b) from 10% to 12,5%
Computer losses from 20% to 25%
Voluntary first amount payable clause
(If stated in the schedule to be included).
As well as the compulsory amounts, the insured can carry a voluntary excess, and gain a
premium discount. Note that the insured is responsible for the difference between the
compulsory and the voluntary amount (provided always that the voluntary amount is larger) and
not the total of the two.
In the previous example of the first amount payable calculation, with a voluntary amount of
R40 000, the claim would cost the insurer R110 000, (R150 000 - R40 000). This last figure is
made up of the original deductible of R22 200 plus the difference: R17 800.
Reduction / reinstatement of insured amount clause
(If stated in the schedule to be included).
The payment of a loss reduces the sum insured for the remainder of the period of insurance.
Under the Fidelity section, the amount of the loss is not reinstated, unless the insured has asked
for this optional extension at inception or on
renewal. The number and amount of
reinstatements is restricted in such a way that the insurer’s maximum liability during any one
annual period of insurance will never be more than double the original sum insured shown in
the schedule.
Two additional premiums are applicable:
1. For the inclusion of the clause at inception, or on renewal. (A percentage premium loading).
2. For the actual reinstatement, following a loss. (Based on the amount of the loss).
Example
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This is a “flat” additional. No pro rata reduction is made for periods less than 12 months.
Costs of recovery extension
(If stated in the schedule to be included).
This comes into effect where the amount of the loss exceeds the sum insured. Normally the
insured has the option of trying to recover any shortfall from the guilty employee. The costs,
however, can be considerable, especially if this involves court action.
Under the cost of recovery extension, the insurers will repay these extra costs (up to the sum
insured under the extension), but any recovery made over and above the shortfall will be for the
benefit of the insurers, not the insured.
Computer losses extension
(If stated in the schedule to be included).
Subject to the completion and submission of a satisfactory questionnaire, cover can be extended
to main- frame and networked computers.
Specific exception 3, dealing with computer fraud, and the first amounts payable for computer
losses, are deleted.
Extension for losses discovered months after being committed
(If stated in the schedule to be included).
Cover is extended to losses that occurred up to 36 months prior to discovery. This also applies to
the superseded insurances extension, if there is one.
The effect of this extension on the first amount payable has already been explained.
Note that the insured always has the option to claim only for that part of the loss that was
discovered within twelve ( or twenty-four) months, in which case the lower first amounts payable
applicable to that period will apply.
Memoranda
1. General condition 6 of the policy requires that cases of theft be reported to the police. Memo
1 relieves the insured of this duty, unless insurers specifically require this. Often, there is a
better chance of recovery from the employee if this can be done without police involvement.
2. It has happened that the person who completed the proposal for fidelity cover was actually
engaged in committing a fraud at the time, and of course did not disclose this. As a result of
this memo, the policy itself is not invalidated in these circumstances.
3. The General exceptions of war, riot and nuclear risks do not apply to this section. General
condition 9 (Reinstatement) does not apply, because there are special reinstatement
provisions.
4. If the sum insured is increased, this will apply only to events committed (not discovered) after
the date of the increase.
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Goods in Transit Section
This is designed to cover the collection and delivery of goods. The insurance is usually on an “All
Risks ”basis, but the main risk is that of theft - along the way, by hi-jack, or simply for the value of
the vehicle. Many of the larger, long distance vehicles now have tracking systems installed. The
type of goods and the area of operation are important underwriting considerations.
The cover includes property owned by the insured or for which they are responsible. This is one
thing where we have manufacturers or trading firms moving their own goods, but special cover is
needed if the insured is a transport company. The transport operator is usually unaware of the
exact nature and value of the goods, and there are legal implications (beyond the scope of this
course).
The Goods in transit section is limited to property in RSA, Namibia Botswana, Lesotho, Swaziland
and Malawi. Outside this area, a Marine policy is needed. Some insurers prefer to do most of
their goods in transit business in the Marine department. Another aspect is the transportation of
machinery and plant, where special covers issued in the Engineering department may be more
appropriate.
Means of conveyance
The schedule to this section specifies the means of conveyance. When goods are carried by the
insured’s own vehicle(s) the insured retains control over the journey, and the goods are not
handled to any great extent. Sometimes large vehicles are used for the longer trips, and the
goods transferred to light delivery vehicles for the local delivery. A rate is charged based on the
limit per vehicle, and the number of vehicles.
Goods might also be dispatched by road or rail transport or by parcel post, with a limit for any one
consignment. The premium is based on the annual carry, or annual value of the goods
transported. A provisional premium is charged based on an estimate, and a final adjustment is
made at the end of each period of insurance, when the actual figures are known.
Other clients collect bulk stocks, bring them to their premises, and subsequently make individual
deliveries to customers, so the policy schedule would refer to transit to or from the insured.
Defined events
Loss or damage in the course of transit by any accident or misfortune not otherwise excluded.
Provision is made for a first amount payable (not applicable to fire, lightning, or explosion).
Liability for any one defined event shall not exceed the limit of indemnity stated in the schedule.
Memoranda
1. Transit starts at the consignor’s premises and ends when the goods are off-loaded and
delivered at the consignee’s premises. (Property that is carried around continually, and not
intended for delivery to a consignee, should be insured under Business All risks, described
later in the course). Cover is provided for temporary storage, not exceeding 96 hours, in the
course of the journey.
2. If the consignee refuses to accept the goods, the transit is considered to continue (by any
means of conveyance) until the property is returned to the insured.
3. If the insurance is on a specified vehicle basis, a loaned (not owned, leased or hired) vehicle
is allowed in substitution while the regular vehicle is away for repair or servicing.
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4. Similarly, measures can be taken to complete the transit by other transport in the event of
vehicle breakdown or other emergency.
Debris removal extension
(If stated in the schedule to be included).
Clearing up and removing debris after an accident can be very expensive, e.g. when a tanker
spills its load over the national road in some remote area. The limit provided is R 1 000, but this
can be increased if required.
Restricted cover
(If stated in the schedule to be included).
The normal cover is “All Risks” but in order to save premium this can be reduced to fire,
explosion, collision, overturning or derailment of the means of conveyance. Often, requests are
received to extend this to include theft following these events. (When the proximate cause of the
loss is an accident, theft or pilferage can usually be regarded as a direct consequence, unless the
goods are left unguarded long enough for the chain of causation to be broken).
This restricted cover may be suitable for goods where the risk of theft is low, e.g. printed matter or
chemicals in drums. There is a danger that the consignment be stolen for the value of the vehicle
alone, and the load simply dumped or destroyed, resulting in a serious loss to the insured.
Specific exceptions
1. (a)
(b)
(c)
(d)
(e)
(f)
This applies only to vehicles in the custody or control of the insured.
Theft from unattended vehicles is not covered, unless the vehicle is completely closed
and securely locked or is contained in a securely locked building. There must be
forcible and violent entry/exit.
Vermin, insects, damp, mildew or rust, or inherent fault.
Dishonesty of employees.
Confiscation by the authorities. (Special cover may be available in the Marine
department).
Transit by sea, or inland transit incidental to this.
Breakdown of refrigeration equipment. (Cover may be available from the Engineering
department).
2. Wear and tear or gradual deterioration, unless following an accident.
3. Mechanical/electrical/electronic breakdown, unless following an accident.
4. (a)
(b)
(c)
Cash and documents that can be covered under the money section.
Property outside the territorial limits previously mentioned. Usually insured under a
Marine policy.
Property otherwise insured. If there is other insurance this section will not contribute a
share of the claim, but can be used toward any shortfall in the amount payable. (This is
called a non-contribution clause).
5. Consequential loss, depreciation, or changes brought about by natural causes. The Business
interruption section of the Multimark provides cover for consequential loss following fire and
perils damage to property in transit.
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Specific extensions
Fire extinguishing charges extension
Covers costs incurred in extinguishing, or trying to extinguish a fire, up to the limit of R1 000
shown in the schedule. Provision is made for an increased limit, if required.
Riot and Strike extension
(If stated in the schedule to be included).
This is needed for transits outside RSA and Namibia.
SASRIA/NASRIA
A special form of SASRIA certificate is issued for goods in transit cover. Rates charged vary
according to whether the premium on the underlying policy is fixed, or adjustable.
In terms of a reciprocal agreement with NASRIA, (the Namibian Association), cover extends to
include property in transit from RSA to Namibia, including the return journey if the goods were
only temporarily removed. Cover ceases on delivery to the consignee, or if the interest in the
property passes to any party other than the insured.
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Knowledge Self Assessment – Module 9
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
In the Theft section, explain why the requirement of “forcible and violent entry” is
important.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
The theft section does not cover loss or damage that can be insured under a fire
policy/section. State whether explosion damage is covered.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
Identify the effect of the Alarm Warranty.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
In the Money section, explain what is meant by “major and minor limits”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
Your insured/client makes business trips to Botswana.
additional money cover is needed.
Advise whether any
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 9 - cont
6.
Explain what is meant by a “seasonal increase”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
Distinguish between the two “defined events” in the fidelity section.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Differentiate between the two types of cover available against computer fraud.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
In the Goods in transit section, to which perils does the first amount payable not
apply?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
There is a special exception of theft from unattended vehicles. Give the main
provisions of this exception, and state in what circumstances it will not apply.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 9
1.
In the Theft section, explain why the requirement of “forcible and violent entry” is
important.
The ordinary definition of “theft” is too wide. The policy section is not meant to cover
pilfering, casual theft, or “confidence tricks,” so there must be force (which might be only
nominal) and a degree of violence involved in the entry or exit.
2.
The theft section does not cover loss or damage that can be insured under a fire
policy/section. State whether explosion damage is covered.
Explosion damage is covered if done by thieves in attempting to effect entry to the
premises.
3.
Identify the effect of the Alarm Warranty.
The burglar alarm warranty applies if stated in the schedule. Unless the terms of the
warranty are strictly complied with, there is no cover. There must be an alarm, properly
maintained, and operative whenever the premises are not open for business and no staff
member is present. This would apply even if the entry would not have set off the alarm,
e.g. by making a hole in the wall.
4.
In the Money section, explain what is meant by “major and minor limits”.
The major limit is the maximum cover provided by the section, apart from the separate
additional cover for crossed cheques. This is the maximum amount, other than crossed
cheques, considered likely to be in transit or held on the premises at any one time. A
minor limit of R1 500 is allowed for money on business trips, at the insured’s residence,
out of safe or strong room outside the insured’s business hours, or in an unattended
vehicle.
5.
Your insured/client makes business trips to Botswana. Advise whether any
additional money cover is needed.
Swaziland is included in the territories covered. If the purpose of these visits is to collect
money from customers, a special item for “collectors or roundsmen” is needed.
Otherwise, the minor limit of R1 500 for business trips will apply. SASRIA cover does not
apply to Swaziland, so the insured may also want cover under the riot extension to the
policy.
6.
Explain what is meant by a “seasonal increase”.
Many businesses need higher limits for certain specified periods, e.g. year ends when
staff bonuses and leave pay are due to be paid, or over the holiday season when trade is
exceptionally busy. Provision can be made for a higher amount at a special rate. If such
peaks occur several times a year, e.g. at long weekends, it is better to increase the
normal major limit.
7.
Distinguish between the two “defined events” in the fidelity section.
Defined event 1 is “ loss of money or other property stolen by an employee included in the
cover”. Theft does not mean that there must be financial gain, so it is not necessary to
show that the employee derived any benefit from the act.
Defined event 2 covers direct financial loss as a result of employee fraud or dishonesty,
which results in dishonest personal financial gain for the employee concerned. If the
employee cannot be shown to have gained financially, there is no cover under Defined
event 2.
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Model Answers to Knowledge Self Assessment –
Module 9 - cont
8.
Differentiate between the two types of cover available against computer fraud.
Fraud by employees using non-networked (stand -alone) micro/personal computers is
covered automatically. Part (b) of the first amounts payable is increased from 10% to
20% if the employee’s duties involve managing, supervision, design, creation or alteration
of computer programs. This is further increased to 30% if losses are discovered more
than 12 months after they were committed, and to 35% if discovered more than 24 months
(but not more than 36 months) after they were committed.
Fraud involving the use of mainframe and networked computers is not covered, unless the
policy is specifically extended. A special questionnaire regarding the systems of control
and checking must be submitted to insurers. If this is satisfactory, special exception 3,
dealing with computer fraud, is deleted, together with the special first amounts payable in
respect of computers.
9.
In the Goods in transit section, to which perils does the first amount payable not
apply?
Loss or damage by fire or explosion.
10.
There is a special exception of theft from unattended vehicles. Give the main
provisions of this exception, and state in what circumstances it will not apply.
Theft from unattended vehicles is not covered unless the vehicle is completely enclosed
and securely locked, and there is forcible and violent entry/exit. Alternatively, the vehicle
must be housed in a securely locked building, with forcible and violent entry/exit to or from
the building.
This does not apply to vehicles that are not in the custody or control of the insured or any
principal, partner, director or employee of the insured.
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Module 10: Accounts Receivable, Glass,
Business All Risks, Accidental Damage
Learning Outcomes
By the end of this Module, you will be able to:




Describe the “defined events” under the above sections of the Multimark policy;
Discuss the cover provided;
Explain the purpose and effect of the extensions, specific exceptions and other restrictions
to the cover;
Identify when SASRIA cover is available.
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Introduction
These are the four “accident” sections concerned with the insurance of property on an all risks
basis. Cover is against “loss or damage”, but this is restricted by a list of specific exceptions.
Accounts Receivable Section
Under other sections of the policy, such as Office contents, Fire, or Theft, cover is available for
the cost of material and labour in reinstating business records, but not for any form of
consequential loss. This is also limited to the perils insured. The Accounts receivable section
offers cover on an all risks basis for:


debit balances the insured is unable to collect as a result of the destruction of the records
the cost of reinstating the records, so as to establish the amounts owing, and additional
collection costs made necessary because of the damage.
Defined events
Loss or damage as a result of accident or misfortune




to the insured’s books of account or other business books or records
at the premises or at the residence of any director, partner or employee
or at the premises of any accountant of the insured
in consequence whereof the insured are unable to trace the outstanding debit balances
due to them.
Indemnity is limited to the sums insured stated in the schedule, plus additional costs of collection
reasonably incurred.
If the records are in immediate danger of destruction and are removed to a place of safety, the
cover will also apply at this place and during transit to and from the usual premises. The insured
must notify the insurers in writing within 30 days.
Specific Exceptions
(a)
(i) wear and tear, gradual deterioration, moth or vermin
(ii) detention, seizure or confiscation by any lawful authority
(iii) electrical, electronic or magnetic injury, disturbances or erasure. This will be
covered if the insured maintains duplicate records stored at different premises from
the originals, but there is a R500 excess.
(b)
Loss caused by fraud or dishonesty of any principal, director, partner or employee of the
insured. This would be a fidelity claim.
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Specification
The loss sustained by the insured in respect of debit balances outstanding as a direct result of the
damage, but not exceeding the difference between the outstanding debit balances and the
amounts received or traced.
Example:
Outstanding debit balances
Traced or received
Policy pays
Plus additional collection costs
R 250 000
R 100 000
R 150 000
R 25 000
R 175 000
(as defined)
If the sum insured is less than the outstanding debit balances, average applies.
Declarations and adjustment
Normally, a provisional premium is charged, based on 75% of the sum insured.
Within 60 days of the end of each month, or other agreed period, the insured should submit a
signed declaration of the total amount of customers’ accounts outstanding. (The amount
declared must not exceed the sum insured) At the end of the year, the final premium is
calculated, based on the average amount at risk. The insured pays in the difference, or is
refunded up to 33.3 % of the provisional premium.
For some reason, this requirement is often ignored. Insurers and intermediaries miss the
opportunity of extra premium/commission. This also means that there is no check on whether the
sum insured should be increased during the year.
Definitions – Outstanding debit balances
The total declared in the most recent declaration, adjusted for:
(a) bad debts
(b) accounting entries subsequent to the declaration
(c) any abnormal conditions of trade that affected or could have affected the business.
Example:
Last declaration of amounts outstanding
Less bad debts (uncollectable)
Plus subsequent debits (but before the date of loss)
Less credits
Plus/minus adjustment for abnormal conditions
Outstanding debit balances
R 235 000
R 10 000
R 225 000
R 30 000
R 5 000
Nil
R 250 000
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Other clauses





Optional Riot and Strike extension, for property outside RSA or Namibia.
Accountants clause. Certificates provided by the insured’s auditors or professional
accountants will be accepted as prima facie evidence in the adjustment or verification of a
claim.
Duplicate records (if stated in the schedule). The existence of duplicate records, kept
elsewhere, qualifies for a reduced rate. Electrical or magnetic erasure of records is not
covered unless duplicate records are kept.
Protections warranty (if stated in the schedule). The records must be kept in a fire
resistant safe or strong room outside business hours, unless they are being used or
worked on. More favourable terms might be offered if this warranty is included, but the
warranty must be strictly complied with.
Transit extension (if stated in the schedule). Records may have to be moved around the
different premises covered under the Defined events. This extension gives the necessary
cover whilst in transit. (Remember that automatic cover applies to removal in an
emergency situation).
SASRIA
SASRIA policies do not cover consequential or indirect loss of any kind (other than loss of rent).
The actual accounting records will probably be covered under the Fire or the Office contents
section of the Multimark, and SASRIA can be issued in conjunction with these only.
Glass Section
The wording includes internal and external glass, whether or not coated with a film, as well as
mirrors. There is no minimum thickness, so that even small window panes are covered. In the
past, it was usual to measure each sheet of glass and specify this in a schedule; a time
consuming process. In modern policies, there is a blanket sum insured for each set of premises.
This has led to under-insurance, so the cover is now subject to average, ie. the sum insured
must be enough to cover the replacement value of the glass together with any special treatment
or signwriting.
Some types of glass must be specified in order to be covered:

Coloured, patterned or wired glass (anything other than plain plate or float glass).

Glass that is more than 6 mm thick.

Laminated or safety glass more than 6,5 mm thick. (Safety glass has two layers of glass,
fused together by a plastic sheet).
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Defined events
Loss or damage to internal and external glass (including mirrors), sign writing and treatment
thereon at the insured’s premises, the property of the insured or for which they are responsible.
The insurer’s maximum liability for replacement is the sum insured stated in the schedule for the
particular premises.
Following loss of or damage to the glass the policy will also pay:
1. the cost of boarding up
2. damage to frames, widow displays (including fixtures and fittings), and burglar alarm strips,
wires and vibrators.
3. the cost of removal and reinstallation of fixtures and fittings.
4. the cost of employing a watchman prior to replacement of the glass or boarding up or repair
of the alarm, unless payable under any other insurance.
There is an aggregate limit of R 2 000 for any one occurrence.
Specific exceptions
1. Loss or damage that is covered by fire insurance unless the insured is responsible as tenant
and not as owner. However, if the fire cover is insufficient, the glass policy can be used to
make up the difference.
2. Glass forming part of stock in trade.
3. Glass that was already cracked or broken at the start of the cover, unless specially agreed by
the insurers.
4. Defacement or damage other than actual fracture. The policy would not cover scratching, or
vandalism with spray cans.
Extension - Special replacement
(If stated in the schedule to be included).
The National Building Regulations require that glass in an area that is used by the public can be
replaced only by glass of shatterproof quality. The frames might also have to be altered to accept
the heavier glass. This optional extension provides for the increased costs involved. The sum
insured must be sufficient, or average will apply.
Riot and strike
(If stated in the schedule to be included).
Premises outside RSA or Namibia.
SASRIA
Normally, SASRIA cover would be issued in conjunction with the fire insurance on the building
and contents. The Glass section can be used as an underlying policy for SASRIA, but only if Fire
perils are covered, e.g. for glass the tenant is responsible for insuring in terms of the lease
agreement.
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Business All Risks Section
Property is exposed to many risks of loss or damage, at the insured’s remises and away from
them. Normally, it is too expensive to cover all property on an All Risks basis, so this is used
mainly for high value items, especially those that are portable. Contracts of hire or lease often
require All Risks cover to be taken on the equipment.
Examples include:
 Laptop, palmtop and notebook computers
 Cellular phones
 Photographic, video and sound recording equipment
 Car radios and CD players
 Fax machines
 Portable tools and equipment (the section is subject to average, so the sum insured must
be for the full value of all such equipment. Insurance should specify a maximum value for
any one item).
 Property on exhibition. Special short term insurances are also arranged.
Defined events
Loss or damage to the whole or any part of the property described in the schedule while
anywhere in the world by any accident or misfortune not otherwise excluded. There is provision
for a first amount payable; this does not apply to fire lightning or explosion.
Specific exceptions
1. Loss of or damage to property resulting from or caused by
(a) theft from any unattended vehicle, unless the vehicle is completely closed and securely
locked, or is in a securely locked building. There must also be forcible and violent entry or
exit; This exception does not apply to vehicles that are not in the custody or control of the
insured.
(b) its undergoing a process of cleaning, repair, dyeing, bleaching, alteration or restoration;
(c) inherent vice or defect, vermin, insects, damp, mildew or rust;
(d) dishonesty of directors or employees; (insurable under fidelity)
(e) detention, confiscation or retention by the authorities;
2. wear and tear or gradual deterioration, gradual action of light or climatic or atmospheric
conditions, unless following an accident not otherwise excluded;
3. mechanical, electronic or electrical breakdown or derangement unless following an accident
not otherwise excluded;
4. loss or damage to cash, banknotes, etc. - insurable under money.
5. loss or damage to goods consigned under a bill of lading. A bill of lading is evidence that
goods have been accepted for transport by sea. This exception avoids contribution with
marine insurance, where the scope of cover is totally different.
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Specific conditions
Average: This does not apply to property that is individually insured as a separate item. For
example, insurance on a particular camera would not be subject to average, but a general item
on photographic equipment would be. An item covering “workmen’s tools” would have to be
sufficient for all the tools of all the workmen.
Replacement value conditions
If stated in the schedule to be included.
The amount payable is the cost of replacing property of the same kind or type, or repairing it in as
good as new, but not better than new, condition. If, as often happens, the only replacement
available is superior to the insured item when new, the insured will have to contribute to the loss.
This is called “allowance for betterment”.
If the insurance is on replacement value conditions, the basis for average is:
sum insured
x loss
cost of replacement of the whole of the property insured
Specific extensions
Increase in cost of working extension
(If stated in the schedule to be included).
This optional extension is to cover costs reasonably incurred to maintain normal operations,
following a loss payable under the Business all risks section. For example, this could be used to
pay for the hire of a replacement while a damaged office machine was being repaired.
Riot and strike extension
(If stated in the schedule to be included).
For property outside RSA or Namibia.
SASRIA
All risks insurance includes the fire perils, and is a permitted underlying policy for SASRIA cover.
Accidental Damage Section
It is fairly easy to identify the property for which one would need specific cover, such as Business
all risks, Money, or Goods in transit, but other property can be damaged in unexpected ways. An
example is the accidental collapse of shelving or storage racks. Often, bulky and heavy items
needing mechanical handling are stacked on the upper racks, while smaller and lighter manhandled packages are placed within convenient reach on the lower racks. The entire top heavy
structure can collapse, with considerable damage to stock.
Instead of trying to identify, list and value individual items, a single amount is insured on the
insured property defined in the section, at the premises.
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Defined events (i)
Accidental physical loss or damage to the insured property at or about the premises, not


otherwise insured,
or for which insurance is available under any other section (except the Business all risks
section), of the Multimark Policy.
Indemnity limit: The amount payable shall not exceed the sum insured.
Non-contribution clause: If any defined event is more specifically insured, the Accidental
damage insurance will not contribute toward the settlement.
Specific exceptions
The above description includes property of all kinds, and the cover is against All Risks, so
insurers have to be especially careful that this section does not cover even more than it was
meant to do.
The company shall not be liable for:
(a) perils and circumstances specifically excluded from any other insurance available from the
company, nor for any excess applied to any other policy, or shortfall due to the application of
the average condition
(b) more than the individual value of any item. The cover does not allow for the special value an
item may have as part of a set or collection, without which the rest of the set is incomplete.
This is called the ‘Pairs and sets” clause, and is part of many All risks policies.
(c) detention, confiscation (etc).
(d) unexplained disappearance or shortages, errors and omissions. There is no cover against
“trade” risks like stock shortages, or the results of poor administration and control.
(e) loss or damage caused by :
(i) fraud, committed against the insured, or by the insured’s principals or agents
(ii) overheating, implosion (bursting inwards) cracking, fracturing, weld failure, nipple
leakage or other failure of vessels, pipes, tubes or similar apparatus. Mostly these are
matters for engineering insurance.
(iii)
breakdown, electrical, electronic and/or mechanical derangement.
These, too, are engineering insurance risks:
(iv)
(v)
(vii)
(viii)
working on property in any way
inherent faults, and gradually operating causes
denting, chipping, scratching or cracking that does not affect the operation of the item
This is known as cosmetic damage.
termites, moths and other insects, vermin, inherent vice (a characteristic of property or
goods that leads to deterioration), fumes, flaws, latent defect, the action of light,
fluctuations in atmospheric or climatic conditions. (Mostly, these, too, can be classed
as natural or gradually operating causes).
(f) settlement or bedding down, ground heave or cracking of structures, removal or weakening of
support
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(g)
(i)
(ii)
loss of or damage to chemicals, liquids gases or fumes due to leakage from the
container
loss or damage resulting from this leakage
This can be specially insured under Defined events (ii), explained later.
(h) failure, withholding, or lack of supplies of water, steam, gas, electricity, fuel or refrigerant
(i)
collapse of plant and machinery, buildings and structures (other than shelving or
storage platforms)
The schedule to this section makes provision for a first amount payable on claims. This is to give
the insured an extra stake in the continued safety of the property insured, and to save the
administrative cost of handling small claims.
Definition of Insured Property
Any tangible property belonging to the insured or held in trust or commission for which they are
responsible. “Tangible” is “able to be touched”. This means that there is no cover for intangibles,
such as copyright or the insured’s good name.
We do not automatically include all such property in the cover and the sum insured, because:


some property will already be insured on an All risks basis, under other sections of the
Multimark policy, or elsewhere
some kinds of property need special underwriting, or there are other insurances that are
designed for this.
The following are not covered, unless stated in the schedule:
(a)
(b)
(c)
(d)
(e)
money, and the kind of property that would be insured under the money section
furs, jewellery, and similar items of special value
property in transit by air, inland waterway or sea
mechanically or electrically propelled vehicles, mobile plant, caravans or trailers
standing or felled trees, crops, animals, land, roads pavements and driveways, dams,
reservoirs bridges, excavations, tunnels and property below ground, cableways, and
explosives (This is a shortened list, but you will get the general idea).
(f) electronic data processing equipment, data media, and information
(g) property in course of erection or dismantling
(h) fragile or brittle objects like glass or chinaware.
Defined events (ii)
(If stated in the schedule to be covered).
Loss of or damage to chemicals, fluids, gases or fumes and physical damage to insured
property, resulting from discharge or leakage from tanks, pipes or apparatus. This does not cover
loss or damage resulting from wear and tear or other gradually operating causes.
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Clauses and Extensions
Restricted cover clause
The insurance in respect of written documents and records, patterns, models, moulds and
computer system records is limited to the materials and labour for recreating them, and does not
include the value of the information.
Additional costs clause
In respect of buildings, plant and machinery, the sum insured includes:
(a) costs in repair or reinstatement due to having to comply with public authority requirements
(b) fees for the examination of plans
(c) cost of demolition, and removal of debris from the site and area immediately adjacent. There
is no cover for any costs or expenses arising from pollution or contamination of property not
insured by this policy/section
(d) professional fees of architects, quantity surveyors and other consultants and the sum insured
on all insured property includes
(e) fire brigade charges
Mortgagee clause
Insurers accept the interest of a mortgagee if they have been notified of this. The mortgagee’s
interest in the insurance will not be prejudiced by acts or omissions of the mortgagor that took
place without the mortgagee’s knowledge. The mortgagee must notify the insurers as soon as
this comes to his attention and be responsible for any additional premium payable.
Tenants clause
Similarly, the insured will not be prejudiced by the act of any tenant in the premises he owns, or of
the landlord or a co-tenant in premises he occupies. Insurers must be notified as soon as he
becomes aware of such act, and he must then pay any resultant additional premium.
Railway and other
The insured shall not be prejudiced by signing the “Transnet Cartage subrogation clause
(Hazardous Premises) Indemnity” or other special agreements with the Transnet Administration
regarding private sidings or similar agreements with other government bodies. These agreements
involve the waiver of some of the insured’s common law rights, which would then affect insurers’
rights of subrogation. By this clause, insurers accept the position.
Memoranda
(If stated in the schedule to be included.)
Average
If the insurance is on a full value basis, pro rata average applies if there is underinsurance.
Excluded property
The insured might not want this type of insurance on some of the property, so this can be
specially excluded.
Reinstatement
The amount payable following an insured event to buildings, plant and machinery (not stock or
general contents) is the cost of replacement on the same site property of the same kind or type,
but not superior to or more extensive than the insured property when new. If this option is taken
the sum insured on property of this kind must be increased to allow for replacement values, so as
not to be penalised by average.
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First loss average
Instead of insuring for full value, the insured can decide to insure only for the maximum amount
likely, in his/her estimation, to be lost in any one event. In fixing the premium, the insurers will still
want to know the total value of property at risk. In the policy schedule, the Total value, and the
Sum insured, are both shown. If the total value at the time of loss or damage is less than that
shown in the schedule, the amount payable is proportionately reduced.
Total value shown in schedule
Actual value at time of loss
x
first loss sum insured
SASRIA
Although the Accidental Damage section is issued on an All risks basis, it does not cover Fire
perils, and cannot be used as the underlying policy for the issue of SASRIA.
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Knowledge Self Assessment – Module 10
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
State at what places the records are covered.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
Identify the circumstances where duplicate records are required.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
Indicate what types of glass must be specially mentioned if cover is required.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
State which additional costs are covered, and for how much.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
Identify the effect of the National Building Regulations on Glass insurance.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 10 - cont
6.
Identify the perils to which the first amount payable does not apply.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
State which territories are covered.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Give an example of the operation of the extension for increased cost of working.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Explain what is meant by “cosmetic damage”.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
A container at the insured’s premises leaked a corrosive fluid onto a stockpile of
finished goods, making them unfit for sale. Explain whether or not this loss is
covered.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 10
1.
State at what places the records are covered.
At the firm’s premises, or at the residence of any director, partner or employee.
At the premises of the insured’s accountant.
Whilst temporarily removed to a place of safety, because of immediate danger of
destruction, including transit there and back.
 During other transits, but only if the special transit extension has been taken.



2.
Identify the circumstances where duplicate records are required.
Electrical electronic or magnetic erasure of records is not covered unless duplicate
records are kept at separate premises. Duplicate records might also be kept in order to
qualify for a reduced rate for the cover.
3.
Indicate what types of glass must be specially mentioned if cover is required.
 Coloured, patterned or wired glass (anything other plain plate or float glass and
mirrors.);
 Glass more than 6 mm thick;
 Laminated or safety glass more than 6,5 mm thick;
 Glass that is already cracked or broken.
4.
State which additional costs are covered, and for how much.
Cost of boarding up.
 Damage to frames, window displays (including fixtures and fittings), burglar alarm
strips, wires and vibrators;
 Removal and reinstallation of fixtures and fittings;
 Cost of employing a watchman prior to replacement of the glass or boarding up or
repair of the alarm, unless payable under any other insurance.
There is an aggregate limit of R2000 for any one occurrence.
5.
Identify the effect of the National Building Regulations on Glass insurance.
The regulations require that glass in an area used by the public can be replaced only by
glass of shatterproof quality. This glass is more expensive, and the frames might also
need to be altered. A special extension to the policy is needed in order to cover these
extra replacement costs.
6.
Identify the perils to which the first amount payable does not apply.
Fire and lightning.
7.
State which territories are covered.
Normally, the cover is worldwide.
8.
Give an example of the operation of the extension for increased cost of working.
If an office machine is stolen or damaged, it may be necessary to hire another until repairs
are carried out or a replacement can be obtained. The optional increase in cost of
working extension can cover the hire cost.
9.
Explain what is meant by “cosmetic damage”.
Denting, chipping, scratching or cracking that does not affect the operation of the item.
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Model Answers to Knowledge Self Assessment –
Module 10 - cont
10.
A container at the insured’s premises leaked a corrosive fluid onto a stockpile of
finished goods, making them unfit for sale. Explain whether or not this loss is
covered.
Loss or damage resulting from the leakage of chemicals is not covered, unless specially
insured under Defined events (ii).
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Module 11: Group Personal Accident and
Stated Benefits
Learning Outcomes
By the end of this Module, you will be able to:







Distinguish between contracts of indemnity and contracts of compensation;
Explain how insurable interest applies in Personal Accident/Stated Benefits contracts;
Differentiate between Group Personal Accident and Stated Benefits covers;
Describe the Defined Events covered;
Explain the effect of the definitions, provisos, extensions and exceptions;
Identify what is meant by passive war risk, and the reason this cover may be necessary;
Explain why SASRIA cover does not apply to these sections.
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Introduction
Most insurances are contracts of indemnity. The aim is to place the insured in the same financial
position after the loss as before. We cannot put a financial value on life and limb, so Personal
Accident and Stated Benefits policies do not set out to indemnify, but only to pay a sum insured
as stated.
Usually, these are contracts of compensation, not indemnity.
Insurable interest is an essential element, as it is with other forms of insurance. People have an
unlimited insurable interest on their own life, and husbands and wives each have an insurable
interest in the life of the other. In practice, the amount insured depends on the proposer being
able to afford the premium, and the insurer being willing to accept the risk. (You need to be
careful where the amount insured seems high in relation to the person’s income and position in
life. “Accidents” and even murders have been arranged to get the insurance money).
Because the Multimark policy is meant for businesses, it is usually the employer who takes out
the policy for the benefit of the employees, to supplement the benefits available under the
Compensation for Occupational Injuries and Diseases Act.
In terms of the COID Act, all employees are entitled to compensation for occupational accidents
and diseases. Disability benefits under the Act are tax-free, but are based on 75% of earnings).
Sometimes insurance is taken out by someone else altogether. For example, a business might
not be able to continue without a particular employee, and insures for the amount it would cost to
find and train a replacement. This is called key man insurance. It becomes a policy of indemnity,
and the amount they can insure is limited to their financial interest.
Personal Accident and Stated Benefits
The cover is almost the same, but:
Personal accident
 is arranged on actual sums insured, e.g. death or permanent disability R300 000,
temporary disability R2 000 per week, medical expenses R10 000.
 has a rate charged as a percentage of the sums insured under the different sections.
 is useful for self-employed people, and others who do not have a fixed wage.
 benefits are independent of any other existing cover.
Stated benefits
 is directly related to earnings, e.g. Death or permanent disability 3 x annual earnings,
temporary disability 1/52 of the annual earnings, per week. (Medical expenses are
covered for a fixed amount.)
 has a rate charged on the annual salary figure.
 is useful for businesses, especially those with a number of employees. (As the salary
increases, so does the benefit under the policy).
 have any benefit received under the Compensation for Occupational Accidents and
Diseases Act deducted from the amount payable for temporary disability or medical
expenses.
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Either policy can be issued on:



a schedule of names (this is more common on the Personal accident basis)
positions, such as Company secretary or Works manager,
classes of occupation, such as administrative and clerical employees, travellers and
representatives, and factory workers.
All employees can be covered, or only specified categories. Cover can be on a 24 hour basis, or
for occupational accidents only.
In theory, the insured can choose any combination of benefits, but insurers might not be willing to
insure some of these in isolation from the others.
Defined Events



Bodily injury (this includes death)
caused by accidental, violent external and visible means (“accidental” means unintended
or unexpected. Shooting, stabbing, and poisoning, or any injury intentionally inflicted by
another, is accidental, from the victim’s point of view. The degree of violence does not
matter. “External and visible” is the opposite of internal causes, like illnesses and bodily
ailments).
to any principal, partner director or employee of the insured specified in the schedule.
These events must result in the circumstance claimed for (death, permanent or temporary
disability, and/or medical expenses) within 24 calendar months of the injury. The mount of cover
is stated in the schedule to the section.
Insurers will pay to the insured on behalf of such person or his/her estate (the employer is the
insured, and submits the claim, but except in the case of special “key-man” insurance described
above, the employer has no insurable interest, and must pass on the payment to the
employee/estate).
Definitions
Permanent disability (PTD)
There is a scale of benefits, ranging from 100% of the amount insured for the loss by physical
separation of one or more limbs, or the loss of an eye, to 2% for a toe.
Permanent total incapacity from following the insured person’s usual occupation or any other
occupation for which such person is fitted by knowledge or training, is also insured for 100% of
the amount insured.
For example, a surgeon might no longer be able to perform operations, but would not be
permanently disabled if still capable of acting as a consultant. A salesperson who can no longer
drive a car might get a clerical job.
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Memoranda
(i) Where the injury is not specified, insurers will pay such sum as is consistent with the scale.
(ii) Permanent total loss of use of part of the body shall be treated as loss of such part. (This
modifies the reference to “physical separation”).
(iii) 100% shall be the maximum percentage of compensation for permanent disability for any one
accident in respect of any one person. If, in the same accident, someone suffers several of
the injuries listed in the scale, they are entitled to the various benefits, but not to more than
100% in total.
Temporary total disability (TTD)
Means total and absolute incapacity from following usual business or occupation. Usually, the
person would be “booked off work”, but this also refers to being unable to do any work at all in the
current occupation. An ear, nose and throat surgeon who sprained his wrist and was temporarily
unable to operate, was held to be temporarily totally disabled.
The schedule for the Personal Accident and Stated Benefits sections of the Multimark provides
for a time franchise. This means that there is no claim for short periods of disability lasting less
than, say, one or two weeks, but compensation is payable for the entire period if the disability
lasts longer than this.
There is also an upper limit to the disability period, usually 52 or 104 weeks.
Medical expenses
This includes medical, surgical, dental and hospital treatment, aids and prostheses (artificial
limbs) as a result of an accident. There have been great advances in medical science and
technology, with corresponding increases in the cost of treatment. For example, where a severed
finger would once have been trimmed off and the stump stitched over, it may now be possible to
reattach this. Insurers do not allow very high sums insured for medical expenses.
Note that the same accident can result in a claim for permanent disability, temporary total
disability, and medical expenses.
Annual earnings (Applicable to the Stated Benefits cover)
This is the annual rate of wage, salary and cost of living allowance of the injured employee at the
time of the accident. It includes overtime, house rent, food allowance, commission, and any other
considerations of a constant nature. The premium and the death and permanent disability
benefits are based on this figure.
Average weekly earnings (Applicable to the Stated Benefits cover)
This is one fifty-second of the annual figure, and applies to temporary disability.
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Business limitation
If stated in the schedule to be applicable.
Often, this is called the “working hours basis”, but the cover is actually against occupational
accidents only, as compared to twenty-four hour cover. Whether an accident occurred “in the
course of employment in the business” depends on the circumstances, and not necessarily on
whether this was during normal business hours.
Remember that all employees also enjoy cover for occupational accidents under the
Compensation for Occupational Injuries and Diseases Act. If the cover is Stated Benefits,
compensation under the policy is reduced by any amount payable under COID.
Provisos
1. In respect of any one accident involving any one person, the insured can claim for death or
disability, (whichever is the higher amount), but not for both of these. However, they can also
claim for temporary disability and medical expenses.
2. Payment for temporary total disability is limited to the number of weeks stated in the
schedule, and ceases as soon as the injury has healed as far as is reasonably possible.
3. The age limits under the policy are 15 to 70 years. Except in special circumstances, persons
under 15 are not supposed to be working. The upper age limit can be extended at the
underwriter’s discretion, usually on a year to year basis, and subject to satisfactory evidence
of health. Care must be taken that this does not conflict with any reinsurance arrangements.
4. Applicable to Stated Benefits only
Any compensation for temporary total disability or medical expenses shall be reduced by the
compensation payable under any workmen’s compensation enactment, such as COID.
5. The insurer has the right to insist on an independent medical examination at its own expense.
The claimant may not refuse medical treatment. (Claims will be supported by a medical
certificate, but the insurer might want confirmation. The claimant cannot refuse medical
treatment, but according to the legal view, cannot be compelled to undergo surgery).
6. General condition 2 (Other insurance/contribution) and 9 (Automatic reinstatement of cover
after loss), do not apply.
7. The usual exclusion of war, riot and strike does not apply to these sections, and is replaced
by the “War exclusion”. SASRIA cover is not needed, but the policy does not cover death or
injury directly or indirectly related to or in consequence of war or similar circumstances.
Passive War Risks
Notice that death or injury directly or indirectly related to or in consequence of war and similar
hostilities is excluded. For example, when an army officer was walking along a railway line to visit
sentries and was killed by a train, the exclusion applied. People visiting the world’s trouble spots
should apply for additional cover, known as “passive war risk”. This may be available at the
underwriter’s discretion depending on the individual circumstances and the risk involved.
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Extensions
1. Exposure
Bodily injury shall be deemed to include injury caused by starvation, thirst and/or exposure to
the elements, directly or indirectly resulting from mishap. “Mishap” means “an unlucky
accident”. This includes circumstances like shipwreck, or getting lost on a mountain trail.
2. Disappearance
The insurers will pay if they are satisfied that the circumstances indicate injury covered by this
section of the policy, resulting in death. For example, people have fallen overboard from
ships or have been abducted, and the body has never been recovered. (It is not sufficient
that someone has simply “gone missing”). The snag is that if the person subsequently turns
up, alive, the insured must return the money.
3. Burns disfigurement (if stated in the schedule to be included).
Medical treatment for accidental burns is covered under the medical expenses item. Under
the optional burns disfigurement extension to the scale of benefits, insurers also pay
compensation for permanent disfigurement. This is up to 50% of the amount insured
(depending on the percentage area disfigured) if this is on the face or neck, and up to 25% if
this is on the rest of the body.
If there is less than 10% disfigurement, there is no claim under this extension.
Usually, the rate charged for PTD is loaded by 25% to 50%, depending on the risk.
4. Life support machinery
Normally, death must result within 24 calendar months of the defined events, but this might
have been delayed by the use of life support machinery, equipment or apparatus. In
reckoning the 24 month period, any time of not less than three consecutive days on life
support machinery will not be included.
Specific Exceptions
In the Multimark policy, there are as few exceptions as possible, and some of these can be
amended on payment of additional premium.
Exceptions are death, disability or medical expenses:
(a) while travelling by air, except purely as a passenger (not necessarily fare-paying). There is
no restriction on the type of aircraft.
(b) by the person’s suicide, or intentional self injury.
(c) caused solely by an existing physical defect or other infirmity. Individual personal accident
policies usually call for disclosure of any physical defects that might affect the risk, but this is
difficult in the case of an employer. In the Multimark policy, existing physical infirmities are
not grounds for repudiation of a claim, unless they are the sole cause of the accident.
(d) as a result of the influence of alcohol drugs or narcotics, unless administered or prescribed by
a member of the medical profession and taken on doctor’s orders. It is not enough to show
that the person was drunk or drugged; this must be a contributing cause of the accident,
although it need not be the sole cause.
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(e) as a result of participating in any riot or civil commotion. “Participating” means “taking part”.
If the person was merely an innocent bystander, the cover would still operate. Cases such as
a person attempting to mediate, or a security guard trying to protect persons or property, are
probably covered, but depending on the individual circumstances and facts.
(f) in the case of females, directly or indirectly resulting from or accelerated by or attributable to
pregnancy, childbirth, abortion, miscarriage, obstetrical procedures or any disease related to
these.
This wide exclusion may seem harsh, but the problems involved are of a medical nature.
(g) engaging in, or as a result of engaging in,
(i) motor cycling, whether as a driver or a passenger, other than on the business of the
insured. Business use is allowed, because this may be the person’s means of making a
living, but the particular occupation, eg. motor cycle messenger/delivery, should be rated
appropriately. For an additional premium, insurers may be prepared to delete or modify
the exclusion for staff members who use motor cycles for transport to work, and for private
purposes.
(ii) racing of any kind involving the use of any power driven vehicle, vessel, or craft
(iii)
 mountaineering necessitating the use of ropes,
 winter sports involving snow or ice,
 polo on horseback,
 steeplechasing (this is a horse race with obstacles to jump over, but could also be a
cross- country foot race)
 professional football (not only soccer, but Rugby as well).
 hang-gliding.
SASRIA
SASRIA cover is not needed, and there is no SASRIA policy applicable.
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Knowledge Self Assessment – Module 11
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Explain why personal accident insurance is usually described as a contract of
compensation.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
Indicate the relevance of insurable interest to personal accident/stated benefits
insurance.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
Distinguish between the insured, and the person(s) insured.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Identify the main difference in the benefits available under Group Personal Accident
and Stated Benefits covers.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
State whether the sections mentioned in question 4 above would pay a claim in
respect of a person who had been poisoned by someone else, giving reasons for
your answer.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 11 - cont
6.
Explain whether contribution will apply if someone is covered under more than one
Personal Accident / Stated Benefit policy.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
Following a claim, must the sum insured be reinstated? Give the reason for your
answer.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Identify the meaning of “passive war risks cover” and the circumstances in which it
is needed.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Explain why SASRIA cover is not needed in connection with Personal Accident and
Stated Benefits insurance.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
For purposes of the policy cover, distinguish between motorcycling on the
insured’s business, and motorcycle travel to and from work.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 11
1.
Explain why personal accident insurance is usually described as a contract of
compensation.
We cannot put a financial value on life and limb, so it is not possible to place the claimant
in the same financial position after the accident as before. For this reason, personal
accident insurance undertakes to pay compensation, not to indemnify. An exception is
“key-man insurance” where the sum insured is limited to a financial interest in the life
insured.
2.
Indicate the relevance of insurable interest to personal accident/stated benefits
insurance.
Insurable interest is an essential element of an insurance contract. People have an
unlimited insurable interest in their own life, and husbands and wives each have an
insurable interest in the life of the other. When the employer takes out Group Personal
Accident or Stated Benefits insurance, this is done on behalf of the employees. The
employee/estate is entitled to the policy benefit.
3.
Distinguish between the insured, and the person(s) insured.
The insured is the person who takes out the policy, pays the premium, and submits any
claims. The persons insured are the people whose lives are covered by the policy. In
Group PA/SB, the policy benefits are paid to the insured on behalf of the employees.
4.
Identify the main difference in the benefits available under Group Personal Accident
and Stated Benefits covers.
Under Stated Benefits, any compensation for temporary total disability or medical
expenses is reduced by the compensation payable under Workmen’s Compensation/
COID. This does not apply to Group Personal Accident benefits. This is the main
difference between the two covers. You could mention that SB is based on wages and PA
on fixed sums insured, but this does not really affect the policy benefits.
5.
State whether the sections mentioned in question 4 above would pay a claim in
respect of a person who had been poisoned by someone else, giving reasons for
your answer.
Accidental poisoning is covered. Any injury intentionally inflicted by another is accidental,
from the victim’s point of view, so intentional poisoning is also covered. Poison is
administered by visible external means, although the effects might be felt internally.
6.
Explain whether contribution will apply if someone is covered under more than one
Personal Accident / Stated Benefit policy.
General condition 2, other insurance/contribution, does not apply to PA/SB. It is
impossible to place a financial value on life and limb, so the cover under both policies will
apply.
7.
Following a claim, must the sum insured be reinstated? Give the reason for your
answer.
General condition 9, Reinstatement of cover after loss, does not apply to PA/SB. The
policy limits apply to an accident or series of accidents arising from one cause in respect
of any one person.
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Model Answers to Knowledge Self Assessment –
Module 11 - cont
8.
Identify the meaning of “passive war risks cover” and the circumstances in which it
is needed.
In a warlike situation, innocent non-combatants can be killed or injured (passive war risk).
The PA/SB sections do not cover death or injury directly or indirectly caused by, related
to, or in consequence of war and similar circumstances. People visiting areas where there
are open hostilities (whether or not war has actually been declared) need cover against
passive war risk.
9.
Explain why SASRIA cover is not needed in connection with Personal Accident and
Stated Benefits insurance.
The PA/SB sections do not exclude the “SASRIA” perils of riot, strike and public disorder.
Separate SASRIA cover is not needed, so there is no SASRIA policy available for these
benefits.
10.
For purposes of the policy cover, distinguish between motorcycling on the
insured’s business, and motorcycle travel to and from work.
Motorcycling on the insured’s business is automatically covered, because this may form a
necessary part of the occupation. Motorcycle travel for other purposes, such as travel to
and from work, is not covered unless the policy is specially extended.
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Module 12: Electronic Equipment Section
Learning Outcomes
By the end of this Module, you will be able to:





Describe the “defined events” under the above section of the Multimark policy;
Discuss the cover afforded;
Indicate how claims for total and partial loss and new and older equipment are
indemnified;
Explain the purpose and effect of the exceptions, clauses, extensions, and general
memoranda;
State whether SASRIA cover is available in terms of this section.
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Introduction
Most businesses use electronic equipment such as personal computers and fax machines. To
provide for this, a special kind of All Risks section, with provision for material damage and some
forms of consequential loss, is included in the Multimark wording. The more expensive and
complicated kinds of machine need to be separately considered, and are usually insured in the
Engineering department.
Sub-section A: Material Damage
Defined events
Physical loss of or damage to the property insured described in the schedule from any cause not
hereinafter excluded whilst
(a) at work or at rest anywhere within the insured’s premises as specified
(b) in transit including loading and unloading or whilst temporarily stored at any premises en
route
(c) temporarily removed from the insured’s premises to any other location.
There are special requirements and restrictions, mentioned later, for theft cover.
Exceptions to Sub-section A
1. First amount(s) payable. Each item on the schedule has its own first amount payable. If
more than one item is lost or damaged in the same occurrence, the excesses are not
cumulative - only the highest single first amount payable applies.
2. Derangement, unless accompanied by physical damage covered by this section.
3. Loss or damage, if it is recoverable in terms of any maintenance or leasing agreement in
force.
4. Faults or defects known to the insured when the insurance was arranged, or not disclosed
during the currency of the insurance.
5. Normal wear and tear, and cosmetic damage to painted or polished surfaces.
6. Some exchangeable parts, such as bulbs and fuses, have a limited life. If they are damaged
as provided for in this sub-section, insurers will pay only the residual value prior to the loss.
7. The cost of reproducing data. This can be insured under sub-section B.
8. Consequential loss. Partly, this can be insured under sub-section B
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9.
(a)
Theft or disappearance is not covered unless accompanied by forcible and violent
entry or exit.
(b)
Loss in transit or whilst temporarily removed must be as a result of a specific incident,
immediately reported to insurers and the police.
Theft of property from vehicles is not covered unless:
(a) if left there overnight, the vehicle is in a securely locked building and there is
forcible and violent entry or exit to the building.
(b) in a compartment of the vehicle, and not visible to passers-by.
(a) and (b) above do not apply if the vehicle
(i) has been hijacked, or
(ii) has been involved in an accident or has a breakdown, and is unavoidably
left unprotected.
Basis of Indemnification
Subject to the sums insured, this includes cost of dismantling, re-erection, transportation, removal
of damaged property, import duties and VAT.
1. Partial loss (the damage is economically repairable)
The cost of restoring the damaged property to working order, provided that:
(a)
(b)
(c)
(d)
the value of damaged parts which can be used will be deducted.
the costs of alterations, additions, improvements or overhaul are not recoverable.
insurers will pay the cost of temporary repairs in the interests of safety or to minimise
loss, but the insured must pay if these cause additional damage or make things worse.
if the damage is to part only of the item insured, insurers will not pay more than the
value of that part.
2. Total loss
(A) Property bought no more than seven years before the loss, and totally lost or destroyed,
is subject to reinstatement conditions.
The cost of replacing or reinstating with new property of equal, or the nearest equivalent,
performance and/or capacity, on the same site (or another, if this does not increase the
cost to the insurer), provided that:
(i)
this must be carried out promptly, otherwise payment is limited to the market value
(see definition below), immediately before the damage.
(ii) the insured has incurred expenditure in replacing or reinstating the property.
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(iii) the insured has six months from the date of the damage, to advise insurers of this
decision, and is not unable or unwilling to reinstate.
(iv) at the option of the insurers, the period of seven years can be extended annually
by a memorandum on the policy.
(B) Property other than in (A) above, i.e.
 older than seven years, and/or
 not totally lost or destroyed, but not economically repairable, or
 where the insured does not wish to reinstate.
Indemnity is based on market value.
Definition of Market Value
The cost of second hand/used equipment of equal performance and/or capacity and in similar
condition. or, if no similar property is available, the new replacement cost of the nearest
equivalent, less
(i) 20% for the first year after the date of purchase, and
(ii) 10% per year for each year thereafter, but (subject to the sum insured being adequate)
settlement will never be less than 40% of the new replacement cost.
Average
Cost of repair, replacement or reinstatement of the whole of the property x loss
Sum insured
Limit of Liability
The sum insured is the limit of liability, but in addition insurers will pay:
(a) Architects and other professional fees (but not claims preparation costs), up to 15% of the
total amount of the claim.
(b) Cost of demolition and clearing, up to 15% of the total amount of the claim.
(c) Necessary and reasonable express delivery, airfreight, and overtime wages for effecting
repairs approved by insurers, up to an extra 50% of what the claim would otherwise have
cost, if these additional charges had not been incurred.
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Clauses and Extensions
Power surge and lightning strikes
Electronic equipment is easily damaged by these. (A direct lightning strike is not needed. Cloudto-cloud lightning or strikes up to a kilometre away can cause damage, also power surges are
carried along power lines and telephone cables).
There is an additional excess of 10% of the claim, with a minimum of R 1 000 and a maximum of
R 2 000. This excess is waived if the property is adequately protected against fluctuations in the
electrical supply.
Fire brigade charges
Public authority charges in dealing with the consequences of any insured peril (e.g. pumping out
flood water), are payable in addition to the sum insured.
Tenants
The insurance will not be invalidated by the actions or neglect of a tenant or co-tenant, but the
insured must notify insurers as soon as this comes to his notice.
Hire purchase/ finance agreements
Insurers are entitled to pay directly to the finance company.
Sub-section B: Consequential Data/Programmes
The cover is limited to increased cost of working and the cost of reinstating data, limited to the
amounts shown in the schedule. If a claim is paid under sub-section B, the sum insured is
automatically reinstated, and a pro-rata additional premium will be charged. (Note that average
does not apply to sub-section B.)
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Defined Events
(i) Increased cost of working





Additional expenditure, necessarily and reasonably incurred by the insured
during the indemnity period (the definition and schedule provide for a time exclusion
before the indemnity period commences)
in consequence of the accident (this is defined later)
for the sole purpose of avoiding or diminishing the interruption or interference with the
insured’s normal business (e.g. hiring replacement equipment or temporary staff)
less any savings from charges or expenses that cease or reduce in consequence of the
accident.
(ii) Reinstatement of data / programmes
The reasonable cost of recovering or recompiling data and/or programmes stored in data carrying
media, lost as a result of:



accidental erasure
theft
wilful or wanton cancellation or corruption, (not viruses, trojans or worms).
provided that:
this does not cover data lost through programming errors, or operator errors such as incorrect
entries and inadvertent cancellation or corruption of data and/or programmes.
A list of software programmes must be lodged with the insurers, if insurance is required.
Definitions
Indemnity period (Applicable to increased cost of working only)
The period (stated in the schedule) during which the results of the business are affected as a
result of the accident.
The insurance is not meant to cover minor stoppages, so the schedule provides for an initial time
exclusion, which might be hours or days, before the indemnity period is considered to commence.
This time exclusion does not apply to loss or damage caused by fire, storm (excluding lightning),
subsidence, wind, or the collapse of buildings.
Accident
1. (Applicable to increased cost of working only)
Physical loss of or damage to the property described in the schedule by any cause provided
for under sub-section A. In order for a claim to be payable under increased cost of working,
there must be insurance for the physical damage. This is a usual requirement under
consequential loss insurances.
2. (Applicable if Failure of electricity supplies is included in the schedule)
Failure of the public supply of electricity at the premises from any accidental cause other
than:
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(a)
(b)
the deliberate act of the insured or any supply authority.
drought or shortage of fuel at the supply company (electricity is generated using steam
or water-driven turbines).
Special conditions applicable to failure of the public supply of electricity:
(a)
(b)
Liability is limited to the sum insured by this sub-section
The indemnity period does not commence until 12 hours after the failure, and ends no
later than 30 days after the failure. There is no cover for short stoppages, and the
maximum indemnity period is effectively reduced to 29 ½ days.
Specific exceptions applicable to sub-section B (unless specifically provided for)


Fines and damages or any penalties whatsoever, for late or non-completion of orders
Loss of profit
Clauses and Extensions
Reinstatement
Insurers will not pay for any worsening of the interruption due to:
(a) the insured being unwilling or unable to replace or reinstate damaged property, or causing
unreasonable delay.
(b) the repair period being lengthened by any addition, alteration or improvements carried out.
Telkom Access Lines (If stated in the schedule to be included).
Covers increased cost of working and reinstatement of data/programmes as a consequence of
accidental failure of Telkom lines.
Special conditions applicable to Telkom access lines:
(a) Liability is limited to the sum insured by this sub-section
(b) There is a 12 hour initial time excess, and cover ends not later than 30 days after the failure.
(c) This does not include loss by the deliberate act of any Telkom employee, or Telkom
withholding or restricting access to its lines.
General Memoranda
1. Capital additions and currency fluctuations
The indemnity by this section includes:
(a) the purchase of additional equipment of a similar nature to that specified, but insurance
against loss or damage due to electrical or mechanical breakdown or explosion will
commence only after satisfactory installation/commissioning/ testing.
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(b) currency fluctuations and other inflation that increases the replacement value of the property.
This increase is limited to 25% of the total sum insured under sub-section A. The insured must
advise insurers of the alterations on expiry of the period of insurance, and pay the appropriate
premium, not exceeding 50% of the difference.
2. Prevention of access
If there is damage by fire, lightning, explosion, storm, flood, earthquake, or impact by vehicles, to
property within a 10 km radius of the insured’s premises, preventing access to the property
insured and interfering with the insured’s business, insurers will indemnify the insured for losses
of the kind covered by this section.
Provided that:
(i)
(ii)
the insured is not entitled to indemnity under any other policy or section of the policy.
this section shall not be brought into contribution with any other policy or section.
Special Exception (Sub-sections A and B)
Loss or damage of whatsoever nature arising directly or indirectly out of or in connection with the
action of any computer virus, trojan or worm(s) or other destructive media, is excluded.
General Extension – Incompatibility Cover
Incompatibility Cover
(If stated in the schedule to be included).
Following indemnity under sub-section A, the new or replacement equipment might not be
compatible with existing systems. The optional incompatibility cover extends sub-sections A and
B to include the cost of modifications or alterations to other equipment, replacing or upgrading
programmes and restoring previously captured data.
These costs must be:



necessary and reasonable to maintain normal working
a direct consequence of an indemnifiable loss under Sub-section A or B (ii)
not otherwise covered by this Electronic section
For any one event, the aggregate indemnity by this extension is limited to 20% of the total sum
insured under Sub-section A and B(ii), or R25 000, whichever is the lesser.
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SASRIA
Electronic equipment insurance is an underlying policy for SASRIA purposes. Costs for
reconstitution of computer data can also be included, if the underlying insurance provides this
cover.
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Knowledge Self Assessment – Module 12
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Name the two sub-sections of the Electronic equipment section.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
State under what circumstances the settlement can be based on reinstatement
conditions.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
State under what circumstance settlement is based on market value.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4
List the kind of losses that will be paid in addition to the schedule sums insured
under sub-section A.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
5.
State what the insured must do if the excess for power surge and lightning strikes
is to be waived.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 12 - cont
6.
In connection with the indemnity period, describe the purpose of the time
exclusion.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
List the types of loss or damage to which the above time exclusion does not apply.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
8.
Sub-section B (ii) covers the cost of recovering data lost as a result of accidental
erasure, but there are certain exceptions. List these exclusions.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Following a claim settlement under sub-section A, the new equipment may not be
compatible with existing systems. Explain how this can be provided for.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
Your client’s database was destroyed by a computer virus. State whether there is
cover, giving the reason for your statement.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 12
1.
Name the two sub-sections of the Electronic equipment section.
Sub-section A Material damage, sub-section B Consequential loss.
2.
State under what circumstances the settlement can be based on reinstatement
conditions.
 Property bought not more than seven years before the loss (at the option of the
insurers, this can be extended annually by a memorandum on the policy).
 Property totally lost or destroyed.
 Insured is able and willing to reinstate (they have six months to advise insurers of
their decision).
 Insured has incurred expenditure in reinstating the property.
3.
State under what circumstance settlement is based on market value.
 Property older than the above;
 Not totally destroyed, but not economically repairable;
 If the insured does not wish to reinstate.
4
List the kind of losses that will be paid in addition to the schedule sums insured
under sub-section A.
 Architects and other professional fees up to 15% of the total amount of the claim;
 Cost of demolition and clearing, up to 15% of the amount of the claim;
 Necessary and reasonable express delivery, airfreight, and overtime wages for
making repairs approved by the insurers, up to an extra 50% of what the claim would
otherwise have cost;
 Public authority charges in dealing with the consequences of an insured peril.
(Increase in values as a result of purchase of additional equipment or currency
fluctuations is included in the indemnity, but the insured pay the appropriate additional
premium for these)
5.
State what the insured must do if the excess for power surge and lightning strikes
is to be waived.
The property must be adequately protected against fluctuations in the power supply.
6.
In connection with the indemnity period, describe the purpose of the time
exclusion.
The purpose of the time exclusion is to exclude claims for minor stoppages. The
indemnity period commences only after the initial period stipulated has expired.
7.
List the types of loss or damage to which the above time exclusion does not apply.
Fire, storm (but not lightning), subsidence, wind, or the collapse of buildings.
8.
Sub-section B (ii) covers the cost of recovering data lost as a result of accidental
erasure, but there are certain exceptions. List these exclusions.
Data lost through programming errors and operator errors such as incorrect entries and
inadvertent cancellation or corruption of data and programmes. There is also a special
exception relating to computer viruses, trojans, or worms.
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Model Answers to Knowledge Self Assessment –
Module 12 - cont
9.
Following a claim settlement under sub-section A, the new equipment may not be
compatible with existing systems. Explain how this can be provided for.
There is an optional extension covering incompatibility, under which Sub-sections A and B
are extended to include the cost of modifications or alterations to other equipment,
replacing or upgrading programmes, and restoring previously captured data. The
aggregate liability by this extension is limited to 20% of the sums insured under subsection A and B (ii), or R25 000, whichever is the lesser.
10.
Your client’s database was destroyed by a computer virus. State whether there is
cover, giving the reason for your statement.
Loss or damage of any nature arising from the action of a computer virus is excluded.
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Module 13: Other Classes of Insurance
Learning Outcomes
By the end of this Module, you will be able to:




Briefly explain the purpose of each of the insurances listed;
Outline the cover given;
Identify how these insurances are used;
Describe different types of proportional and non-proportional reinsurance.
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Introduction
In everyday commercial insurance, most risks are provided for in the Multimark wording. There
are other classes of business you should know of, and a brief description of these is given in this
chapter.
Advance Profits
When a new enterprise is planned or a major expansion to an existing business is decided upon,
there is usually a stage when damage or delay affecting the works, key plant and equipment at
the premises of the insured or his suppliers, or even in transit, could cause serious financial loss.
The protection of this risk is called advance profits. Payment of any claim does not take place
until the date the business would have started, were it not for the damage.
The risks involved might be fire and perils, engineering (accidental damage to plant, including
installation and testing risks) and marine and transit. Usually, an overall premium is assessed by
the various underwriters concerned, and this is then apportioned in some way between the
departments concerned.
Assets All Risks
Large business corporations find it almost impossible to keep track of schedules of property
insured, and are also able to absorb quite large portions of the loss themselves, rather than
insure it. They do not take out separate insurance against fire, accidental damage, and so on,
but a special policy wording is drawn up.
The cover is based on their overall assets values and includes a wide range of circumstances,
with special provisions for certain kinds of assets. The deductibles (first amounts payable) are
very large, and might vary between the different divisions of the corporation’s business.
The values at risk will run into many millions of Rands, and the business will be shared among a
number of insurers.
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Aviation
This is a specialist department in a market constantly undergoing change. Aircraft range from
huge commercial airliners to microlights. Risks covered in the aviation market include:



the aircraft itself (hull insurance), where there is always a chance of total loss claims, and
the ground equipment,
liability risks - death or injury to passengers and persons and property on the ground, also
involving exposure to large losses,
personal accident insurance - pilots and aircrew need special cover, passengers take out
coupon insurance at airport vending machines, and passenger accident insurance can be
arranged on an automatic (seating) basis. (Ordinary personal accident policies include
flying as a passenger, but sometimes this is restricted to flying by scheduled airlines).
Remember also that ordinary liability covers, including the public liability section of Multimark,
exclude liabilities in connection with:
(i)
(ii)
(iii)
(iv)
the re-fuelling of aircraft
the ownership, possession, maintenance, operation and use of aircraft
the ownership, hire or leasing of any airport, airstrip or helicopter pad.
defective workmanship or products liability involving aircraft or aircraft parts and equipment.
Cover against these risks falls under the aviation market.
Cancellation and Abandonment
Pluvius Insurance
The success or failure of outdoor events is heavily dependent upon the weather. This can involve
heavy losses (expense outlay and anticipated profit), where major events are concerned.
Abandonment policies provide cover should the event be cancelled altogether. The reasons for
this might include rainfall before the event (leaving the ground flooded), drought (affecting fishing
and water sports), high wind (skydiving, balloon races), or no wind (yachting).
Agreed value policies cover rainfall only. (Sometimes this is called Pluvius insurance, in honour
of the Roman god of rain, Jupiter Pluvius). An agreed value policy allows the insured to choose
the periods during which rain will have the greatest effect, and how much is to be paid, depending
on the rainfall. Usually this means that accurate measurement in a rain gauge is needed by an
appointed official, and there must be no tampering with the results.
Sometimes cover is requested against possible cancellation or curtailment for other reasons,
such as the non-appearance of a performer or key speaker. The market for this is very limited.
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Credit Insurance
Credit is a system of buying goods or services without immediate payment. The purchaser
promises to make payment on or before a specified date, or perhaps “on demand”.
The above class of insurance is not concerned with hire purchase and similar business handled
by banks, or with the comparatively small amounts of credit extended on a short-term basis by
trades people such as a pharmacy or clothing store.
It is an aid to large scale trade and finance, and is especially important where medium and longterm credit (e.g. anything up to 10 years after delivery) has to be granted with the export of capital
goods and services. The seller cannot always afford to wait this long, so the Industrial
Development Corporation of South Africa has a scheme for financing such credits, provided a
suitable credit insurance policy can be obtained.
In South Africa, Credit Guarantee Corporation of Africa Limited has been established by the
major insurance companies, banks and financial institutions to act as a specialist insurer offering
credit insurance only.
The Credit Guarantee Corporation:


conducts the South African Export Credit insurance scheme (with the assistance of
Government, who act as reinsurers for the political risks).
issues policies covering South African firms selling on credit to buyers in South Africa.
The first scheme, the export policy, covers non-payment of a debt due to the insolvency or
protracted default of the buyer or as a consequence of events (usually political), outside the
control of the buyer or seller and which prevent the delivery of the goods or the receipt of
payment in South Africa.
The domestic policies cover only the insolvency or protracted default of the buyer.
Except for the smaller accounts, the cover is subject to the insuring company having first
investigated the credit worthiness of the buyer. Thereafter, a credit limit is set for each buyer,
which becomes the limit of the insurer’s liability for that particular buyer.
Engineering Insurance
Often, engineering risks are met with together with other forms of commercial insurance. For
example, Goods in transit does not cover breakdown of refrigeration equipment; this cover must
be obtained from the engineering department.
The specialised knowledge and advice of the engineering department can be valuable when
considering some all risks, products liability and defective workmanship covers, and there is a
special policy to cover accidental damage to machinery and plant being moved from one situation
to another.
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Several Kinds of Policy are Available

Machinery Breakdown
Accidental and unforeseen physical loss of or damage to machinery and plant, arising
from mechanical or electrical breakdown.

Business Interruption
Loss of gross profit and increased cost of working following loss or damage covered by
the breakdown policy.

Deterioration of Stock
Spoilage of perishable commodities due to temperature or humidity variation following
breakdown of plant covered as above. The policy can be extended to include
contamination by escaping gas or refrigerant, the contents of refrigerated trucks, all risks
cover for failure of public electricity supply, and the disposal cost of deteriorated goods.

Contract Works
In the case of large projects, this type of insurance can involve both the Engineering and
Marine departments. Basically the insurance is on civil and engineering works in the
course of construction or erection at the contract site, for the full period of the contract.
On completion of construction and erection, there is usually a testing and a maintenance
or guarantee period.
In addition to the contract site itself, there may be suppliers premises and other sites
(even overseas) where work forming part of the project is being done and certain
extensions of the cover to these situations are necessary.

Plant All Risks
This is intended for construction plant used outside insured’s own premises. Although
basically all risks, this excludes mechanical or electrical breakdown, and explosion.

Transit Dismantling and Erection
Accidental loss or damage to machinery and plant being moved from one situation to
another. Cover includes dismantling, loading, transit, storage, off-loading, repositioning
and re-erection, and public liability risks, or any required combination of these. For new
machinery, there will be a testing, and possibly guarantee, period.

Works Damage
A restricted form of insurance against impact damage to Insured’s own plant and
machinery or goods being manufactured and/or in his custody and control. Losses falling
more specifically under the special perils (impact) section of the fire policy, will be dealt
with by that section.

Computer and Electronic All Risks
Insurance of electronic equipment, especially major items.
Financial Guarantees / Contracts of Surety
These form a special class of business, more like a financial transaction than the usual “transfer
of risk”.
Some insurers do not handle ”bond” business at all, while others do so under strict management
control, usually at a senior level.
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It is important to understand the difference between an insurance policy and a financial
guarantee.
An insurance policy is evidence in writing of a contract between two parties; insurer and insured.
The insurer agrees to pay or indemnify the insured if certain events happen. The policy is signed
by an authorised official of the insurance company.
A surety contract, or guarantee, is quite different.
Party A is bound to Party B for a certain sum of money, not payable if certain duties are properly
performed.
B, in turn, might want to be certain of actually getting the money if things go wrong, so asks A to
provide surety, usually from a financial institution such as an insurer, C, that they will be
responsible for payment of the debt. C makes a charge for doing this.
This is called acting as security, or as guarantor. The document is signed by C, the “surety” or
“guarantor”, and by A, the “principal”, who is the person or firm guaranteed. Usually each
signature is witnessed by two persons.
A is still responsible for performance, and if C has to pay it is entitled to recover its payment from
A.
This is no use if A has no money left, so insurers and others are careful about issuing
guarantees.
There are other important differences.
Insurance policy
Surety or Guarantee
Proposal form
Forms the basis of the contract
Forms no part of the contract
Terms and conditions
(cancellation, contribution, etc)
Standard in most policies
No such conditions (only certain
kinds of guarantees can be
cancelled).
Scope of cover
Limited by the policy. Usually
does not include insured’s
negligence or dishonesty.
Much wider, and negligence and
dishonesty are included.
The following are some of the guarantees you might come across. (The wording for these is laid
down by the authority that requires them).
Court Bonds
Trustees, liquidators, and people involved in the administration of the estates of deceased
persons, minors, insolvents, and people absent from the Republic, might have to give a
guarantee to the “Master” (the court official in charge of these matters) that their duties will be
properly carried out. Claims can arise through negligence or dishonesty. Court bonds are
irrevocable, and sometimes the estate takes many years to finalise. There is a set scale of rates,
amended from time to time by official proclamation.
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Government Departments
Many of these require guarantees from persons or firms that deal with them. Claims can arise
through dishonesty, negligence, and non-observance of various regulations, but the main risk to
sureties is that the party guaranteed becomes insolvent. For this reason, Government bonds and
others of a similar type are called “solvency guarantees”.
Sureties check the annual accounts of the firms they guarantee, and usually require counter
indemnities from the principals of the firm in their private capacity.
Unlike Court bonds, the surety can cancel by giving one month’s notice to the department
concerned.
Customs and Excise Bonds
These are types of government bond. Imported goods are removed “in bond” from the ship or
aircraft, and transported to some inland destination, where they are held until cleared by customs.
Some shipping agents have established bonded warehouses at centres throughout the country,
approved by Customs and kept under close supervision. Goods are kept “in bond” on behalf of
clients. The owners of the goods pay the duty to Customs, who provide them with a release
warrant. They must produce this before the goods can be handed over to them.
In both cases, Customs require a guarantee, the amount of which depends on the turnover.
There are severe penalties for breach of the regulations, and the surety is liable for these in
addition to the Customs duty.
Landing, Shipping, and Forwarding Agents’ Bonds
These are solely to guarantee due observance of Customs regulations by the agents. Provided
the principal is experienced and reputable, there is not much risk to the surety.
Commercial Performance Guarantees
Guarantees may be required in terms of a contract. For example, a contractor engages to carry
out certain work. The guarantee is for the due fulfilment of the conditions of the contract, and is
usually for 10% (sometimes 5%) of the contract price, and cannot be cancelled by the surety.
The competence of the contractor is important, but the biggest risk of claims is that the contractor
becomes insolvent before the contract is finished.
Few insurers are prepared to sign these guarantees, and only for contractors who are regarded
as first class, concerning competence and financial stability.
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Financial Guarantees
Other bonds and guarantees may be of a purely financial kind, e.g.
Railway ledger account guarantees
Many businesses depend on Transnet for transport of their goods, and pay substantial amounts
annually. Unless credit has been arranged, the transporters insist on cash on delivery. Transnet
grants daily, weekly or monthly credit accounts if acceptable security, such as an insurance
guarantee, has been provided.
For a daily account, this must be enough to cover an estimated three days’ traffic, for a weekly
account two weeks, and for monthly accounts six or even eight weeks, so that the amounts
involved can be substantial.
The guarantee is issued for an indefinite period, but Transnet advises the surety as soon as the
account is in arrear, and the guarantee may be cancelled on one month’s notice for monthly and
weekly accounts, or seven days for daily accounts.
Insurers may be prepared to issue these where a business connection is involved and they are
satisfied of the client’s financial standing.
Electric power supply bonds
These are required by Eskom, or by local authorities, to guarantee the payment of monthly
accounts for electricity consumption. They are subject to one month’s notice of cancellation.
Intermediaries Guarantee Facilities Ltd
In terms of the Short-term insurance Act, intermediaries who collect or handle premiums on
behalf of insurers must be able to guarantee payment. The amount of the guarantee is 30% of
annual premiums handled. The above is a separate company registered for this purpose.
Hole-in-one Insurance
Personal lines policies usually include a small amount payable if an amateur golfer scores a holein-one on a recognised golf course. This is to help meet the cost of the customary round of drinks
in the clubhouse afterward.
In commercial insurance, there is a different kind of “hole-in-one” cover. To help attract entrants,
the organisers of fund-raising golf days sometimes offer a substantial prize for a hole-in-one off a
particular tee. They then ask for insurance cover against the chance that this may happen.
Many underwriters will not quote for this cover, on the grounds that it is a speculative risk or
gamble, but sometimes it is insured as accommodation business. (Normally unacceptable
business taken as a favour to a valued connection, in the hope that further, better business, will
follow).
Kidnap and Ransom Insurance
This is to cover the ransom demanded by kidnappers. Insurance may be purchased by
individuals to cover the risk of their own kidnapping or that of a family member, or by business
enterprises to cover the kidnapping of key executives and other employees, at home or away.
Cover might also include household guests, or customers while on the insured’s premises.
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The sum insured should not be more than the individual or firm would be expected to be able to
pay, if uninsured.
Marine Insurance
Hull insurance:
This is for the ship or boat itself, together with the liability risk. The property insured could be
anything from small pleasure craft (sometimes insured in the personal lines department), to
“tailor-made” policies for super tankers. This aspect is unlikely to concern the ordinary
commercial underwriter, but brokers’ offices sometimes get enquiries for insurance of sea-going
yachts and special craft.
Cargo insurance:
If you live a long way from the sea, you may think that marine insurance does not affect you, but
this is not so. Most of the imported goods you see in the shops were covered by marine cargo
insurance, as are our exports to other countries. Often, this involves not only the actual voyage,
but “Warehouse to Warehouse” transit, right up to the importer or distributor’s store, and
involving long inland “hauls”. Some insurers handle all their “transit” business in the marine
department, rather than under the Goods in transit.
Fire, All risks, and Goods in transit covers are specially worded to avoid overlap or contribution
with marine insurance, especially as the conditions and scope of cover are so different.
When taking over cover after a marine transit, as when imported goods are transferred to your
client’s premises, it is important that someone first check the consignment for damage or
shortages that may have occurred on the voyage.
Reinsurance
Introduction
A basic principle of insurance is that the risks underwritten are spread or shared. Reinsurance
works in the same way. An insurer who has accepted a risk can reinsure all or part of it. The
insurer has no insurable interest in the original subject matter, but has an interest in respect of the
insurance contract entered into.
By using reinsurance, an insurer can accept larger risks than would otherwise be the case.
The company that reinsures is called the ceding company; it cedes part of its liability to the
reinsurer.
There are two separate contracts involved:
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Contract “A”
This is the original policy issued by the insurer to the insured. The reinsurer has no direct
connection at all, with this contract.
Contract “B”
This is the contract between the ceding company and the reinsurer. The original insured has no
connection with this contract, and does not even know about it.
Because of the separate contracts,
(a) The original policyholder has no rights against the reinsurer, whatever the
circumstances.
(b) If the reinsurer becomes insolvent, the ceding company is still liable to the insured for the
full amount of the policy.
(c) If the ceding company becomes insolvent, the reinsurer is still liable under the
reinsurance contract. The original policyholder has no special claim; any amounts
recovered from the reinsurer become part of the ceding company’s general assets.
(d) The reinsurer has no contractual rights against any wrong-doing of the original
policyholder.
There are two main systems of reinsurance: Facultative and Treaty.
Facultative Reinsurance
Each risk is dealt with individually. The ceding company may offer the risk, or any part of it, to
any reinsurer, and the reinsurer is free to accept the risk, or not.
This is time consuming, so facultative reinsurance is used mainly for very large or unusual risks.
Treaty Reinsurance
Risks are not dealt with on an individual basis. The terms and conditions of the treaty
are set in advance. Subject to these, cessions and acceptances are obligatory, the ceding
company is bound to cede and the reinsurer is bound to accept.
There are two main kinds of treaty: Proportional and Non-proportional.
Proportional Treaties
Surplus Treaties
This is the more common type. The ceding company decides upon its standard retention for the
various classes of risk dealt with under the treaty. (For example, it would be prepared to hold a
larger fire sum insured on an office risk than on a warehouse, and less still on a plastics fabricator
or a woodworker). The amount retained by the ceding company is called its line or net
retention.
The reinsurers’ sharing in the treaty each agree to accept a set number of lines, until the desired
treaty capacity is made up. For example, a ten line treaty enables the ceding company to accept
a maximum of its own line, plus a further ten times that amount.
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Example 1:
Insurer’s retention (one line)
Treaties (ten lines)
Total capacity
R 100 000
R 1 000 000
R 1 100 000
Note that there are not always ten lines. The number depends on the capacity the ceding
company wants, and the reinsurance market is prepared to provide.
Further capacity might be provided by additional treaties (second and third surplus, that come into
effect only when the first surplus is “full”).
The ceding company is bound to pass any surplus to the treaties, but it uses only as much of the
treaty capacity as it needs.
Example 2:
Suppose that the ceding company’s retention for a particular risk is R 80 000, and the sum
insured is R 4 000 000.
The ceding company keeps its
It cedes the rest to the treaties
R 80 000
R320 000
Premium and any claims are shared in proportion to the sums insured. In this example, the
ceding company keeps 1/5th of the premium, and the treaties get 4/5ths. (In practice, the
reinsurers will allow commission on their share of the premium).
Quota Share Treaties
This kind of treaty is less common. Premiums and claims are still shared on a proportionate
basis, but the reinsurer’s proportions are fixed. These are on a percentage basis, and apply, for
example, to every risk written in the fire account. With a 50% quota share treaty, the ceding
company must cede 50% of every risk, and will recover 50% of all claims.
This arrangement is more favourable to reinsurers, because the ceding company cannot keep
more of the better risks, so commission will usually be at a higher rate than for a surplus treaty. It
might be used especially


for a newly formed insurance company that needs extensive reinsurance protection in its
early stages
where the results under the ceding company’s surplus treaty have been consistently poor,
and reinsurers insist on a different basis.
Non-proportional Treaties
Risks and premium are not shared proportionately. The reinsurer charges a specific rate and
provides cover against losses over and above an agreed figure in a particular class of business.
Once the treaties have been arranged, the actual administration is easy, so that the
administration costs are less than for other kinds of treaty.
The three most basic and commonly used methods are:
(a) Catastrophe excess of loss
This protects the insurer’s net account against a loss or series of losses arising out of one
event, principally disasters like flood, earthquake, windstorm and conflagration. (Sometimes
it can be effected on the insurer’s treaty, as well as net, retention).
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The excess point and extent of the cover vary according to the size of the insurer. The aim is
to limit the insurer’s loss to a figure it feels it could afford to lose without threatening its
solvency margin, or perhaps ruining the results of a particular underwriting account.
(b) Underwriting, or working excess of loss
The reinsurer provides cover against losses on a per risk basis. The excess is much lower
than for catastrophe excess of loss, so the cost of the reinsurance is higher. Claims are also
more frequent - the cover is designed to be “worked”, as compared to being meant only for
unusual circumstances. Sometimes, this form of cover can be used instead of proportional
reinsurance.
(c) Excess loss ratio, or stoploss
There is no specific loss event or risk. Cover is against unusual or wide fluctuations in the
underwriting account, due to losses over a period of at least a year.
The reinsurer agrees to pay all losses over an agreed percentage of the ceding insurer’s
retained account, up to a certain percentage limit. For example, the reinsurer might agree to
pay the amount of losses exceeding the ratio of 70%, up to a maximum of 120% of the
retained account. The ceding company is liable for further losses above 120%, unless it has
arranged a further or second layer “stop loss” cover.
Note that it is not intended to guarantee a profit to the ceding company in the year of account,
only to protect against wide fluctuations in the underwriting results.
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Knowledge Self Assessment – Module 13
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Explain why Advance Profits insurance may be needed.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
2.
Identify when Assets All Risks insurance is used, instead of Business All Risks, or
Accidental Damage cover.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
3.
Your clients have installed a helicopter landing pad.
liability cover is needed, and if so, why.
State whether any special
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
4.
Under Cancellation and abandonment / Pluvius insurance, distinguish between
abandonment policies, and agreed value policies.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
5.
Outline the cover under the two main types of policy offered by the Credit Guarantee
Corporation.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Knowledge Self Assessment – Module 13 - cont
6.
List and briefly explain four types of engineering policy.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
7.
Give two of the ways in which guarantees are different from insurance policies.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
8.
List four common types of guarantee.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
9.
State the purpose of Intermediaries Guarantee Facilities Ltd.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
10.
Identify the importance of Marine insurance.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 13
1.
Explain why Advance Profits insurance may be needed.
In planning new enterprises or major expansion, there is usually a stage when damage or
delay affecting the works, key plant and equipment at the insured’s premises or those of
his suppliers or whilst in transit, could cause serious financial loss. Cover is needed
against fire, explosion and fire perils, engineering risks, including installation and testing,
and marine/transit.
2.
Identify when Assets All Risks insurance is used, instead of Business All Risks, or
Accidental Damage cover.
Large business corporations have difficulty in maintaining detailed schedules of property
insured, and are also able to absorb large excesses. Assets All Risks insurance can cover
their overall assets against a wide range of circumstances, with special provisions for
certain kinds of assets, and different deductibles for different divisions of the corporation’s
business.
3.
Your clients have installed a helicopter landing pad. State whether any special
liability cover is needed, and if so, why.
Ordinary policies exclude liability arising from the operation of aircraft and the ownership of
any airport, airstrip or helicopter landing pad. Special cover is needed from the aviation
market.
4.
Under Cancellation and abandonment / Pluvius insurance, distinguish between
abandonment policies, and agreed value policies.
Abandonment policies provide cover should the event be cancelled altogether, as a result
of a variety of weather conditions.
Agreed value policies are against the risk of rain only. The insured can choose the periods
during which rain would have the most effect, and the compensation to be paid, depending
on the amount of rain recorded.
5.
Outline the cover under the two main types of policy offered by the Credit Guarantee
Corporation.
The export policy, which covers non payment of the debt due to the insolvency or
protracted default of the buyer, or as a result of events outside the control of the buyer or
seller and which prevent delivery of the goods or prevent payment in South Africa.
The domestic policy, which covers only the insolvency or protracted default of the buyer.
6.
List and briefly explain four types of engineering policy.
Any four of those listed in the chapter.
7.
Give two of the ways in which guarantees are different from insurance policies.
Any two of:




Insurance policies are signed by the insurer only, sureties by the guarantor and the
person guaranteed.
A proposal form might be used for guarantees, but unlike insurance this does not form
the basis of the contract.
Terms and conditions of insurance policies are not part of guarantees. Only certain
guarantees can be cancelled.
Scope of cover under guarantees is wider. Negligence and dishonesty are not
excluded.
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Model Answers to Knowledge Self Assessment –
Module 13 - cont
8.
List four common types of guarantee.
Any four of those listed in the chapter.
9.
State the purpose of Intermediaries Guarantee Facilities Ltd.
Intermediaries who deal with premiums on behalf of insurers are required to furnish
security in the amount of 30% of the annual premium handled. The IGF is a separate
company established for the purpose of issuing these guarantees.
10.
Identify the importance of Marine insurance.
Imports and exports are covered by Marine insurance. Some insurers transact all their
transit business in the Marine department.
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Module 14: Claims
Learning Outcomes
By the end of this Module, you will be able to:



Discuss the adjustment of the main classes of commercial claim;
Indicate some of the problems involved;
Identify the relationship between the COID Act and Stated Benefits insurance.
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Introduction
In order to handle claims, you need a fair knowledge of the different types of cover. It is important
to open the claim under the correct policy section. If an outside adjuster is employed, he or she
must be given correct and complete information. For example, when dealing with a theft claim,
details of office contents insurance and of any items on All Risks may also be needed.
Adjusters should be aware of standard policy wordings, but must be told of any special
warranties, extensions or first amounts payable that apply.
If the loss is clearly not covered, the insured should be advised of this at an early stage,
otherwise insurers may be estopped from denying liability. Sometimes it is a simple matter of the
insured claiming against the wrong insurer, or there is no policy or item that covers the loss. On
the other hand, formal repudiation letters, e.g. on the grounds of non-compliance with policy
conditions, should be signed by a relatively senior person.
Usually, there will be a roster or panel of approved loss adjusters, ranked according to the
probable size of the claim, and the type of loss. Insurers may also have their own “in-house”
claims inspectors or engineers. Smaller claims might be settled directly with the insured on
submission of suitable documentary proof.
The claims department is often called the show window of insurance, and prompt and efficient
claims handling is vital to the reputation of the company and intermediary.
Fire and Business Interruption
The adjustment of a major fire loss, and minimising the period of interruption requires many
professional skills. This can involve forensic experts, civil and mechanical engineers, quantity
surveyors, and contractors, among others. Business interruption claims require a good
knowledge of accountancy. Adjusters will have suitable people on their staff, or be able to call
upon them as needed.
Fire policies used to have a clause requiring that business books and records be kept in a fireproof safe. This no longer applies, but the insured is expected to prove the amount of the claim.
The adjuster will want to check the purchases and sales to ensure that the amount is reasonable,
so it is in the insured’s interest to make some kind of arrangement to safeguard these records.
Remember that any loss resulting from a bona fide and necessary effort to put out the fire or limit
the amount of the damage is included as fire damage. Examples are goods and property
damaged by water used in extinguishing the fire, throwing articles out of the window, even tearing
down adjoining property to stop the fire from spreading.
Many fires are started deliberately, but unless the insured can be proved to be involved, the loss
is still “fortuitous” or accidental as far as he or she is concerned. Initial investigation will be by the
police and fire service, but the adjuster will follow up on this.
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Tenants
South African law places a heavy onus on the tenant of a building for fire or explosion damage in
the premises occupied.
Most local insurers subscribe to an agreement whereby the lessee of the whole or part of any
building shall not be liable to indemnify the lessor in respect of damage caused by fire or
explosion unless
(a) caused by the wilful act or negligence of the lessee or his servants acting within the scope of
their employment, or
(b) by written agreement between the lessor and lessee, the lessee has specifically accepted
responsibility for insuring the building against fire or explosion.
This does not affect the rights of tenants, e.g. when damage is caused to their property by the
negligence of a co-tenant, but in these cases you would need to check the terms of the lease.
Accident Classes
For theft claims, the business records need to be checked in the same way as for fire claims.
The investigation includes comment on the means of entry, and perhaps suggestions on
improving security.
Consequential loss, such as by thieves making long-distance telephone calls or leaving water
flowing down the drain, is not covered.
Most of the accident classes cover “loss or damage”, then limit the types of loss or damage in
some way.
“Loss” can mean more than we think it does. For example, temporary deprivation does not
constitute a loss, but if recovery is unlikely, or at least uncertain, the article is considered lost. If it
turns up after the claim has been agreed, it must be treated as salvage.
Sometimes people are tricked into parting with their valuables. Like the “prevention of loss”
condition, the test is whether this would have seemed reasonable at the time, to a person in the
insured’s position.
Previously, the courts took the view that where, for example, a car is voluntarily handed over in
exchange for a “dud” cheque, the insured has not lost the car, but the proceeds of the sale.
According to more recent opinion, payment is a condition of the sale. No payment, no sale, so
the car has been stolen.
Some policies now specifically exclude loss resulting from fraudulent schemes or tricks practised
on the insured.
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Personal Accident
In The South African Law of Insurance, Gordon and Getz quote the following examples of
“accidents” established over the years in legal actions.

The insured died from a disease caused by the bite of a poisonous insect.

The insured was struck on the head by a hammer. He later died of meningitis, because
his resistance to infection was reduced by the wound.

A signalman tried to prevent a railway accident by signalling to the driver. The fright
produced a nervous shock, which incapacitated him from employment.

The insured wounded his leg by scratching it with his thumbnail.

The insured died of sunstroke.

A well known example is the insured who fell and dislocated his shoulder. He was
confined to his room, weakened, caught a cold, and developed pneumonia, of which he
died a month later. It was held that his death was due to “the effects of injury caused by
accident”.

If the insured is injured by the combined effects of a pre-existing disease and an accident,
cover will depend on which is the proximate cause.

As an example of proximate cause, if a barman strains his back while ejecting a drunk,
this could be classed as an occupational injury, but is not an “accident” for insurance
purposes. It is the unintended result of an intended act. If the drunk throws a punch,
breaking the barman’s jaw, this is an intervening fortuitous cause, and the injury to the jaw
is accidental.
Disability claims are supported by a medical certificate, and the usual claim form provides for this.
Remember that the policy excludes intentional self-injury.
Proof of death, and the cause of death, is needed for the admission of a death claim. Death
certificates do not always show the cause of death, and medical evidence such as the findings in
a post mortem examination will be relevant. It is important that none of the policy exclusions
apply.
Under the usual form of commercial policy, we pay the insured, or on behalf of the insured
person, or his estate, so the policy holder must account to the heirs and executors. If it is asked
that payment be made to someone else, e.g. the surviving spouse, some form of legal
confirmation should first be obtained. There is a risk, however slight, of paying the wrong person.
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Accidents in the Course of Employment
In terms of the Stated Benefits section, compensation for temporary total disability or for medical
expenses is reduced by the amount received or receivable under any workmen’s compensation
enactment.
In South Africa, the Workmen’s Compensation Act has been replaced by the Compensation for
Occupational Injuries and Diseases Act (1993), and most employees now fall under this Act.
Exceptions are:
(i) a person, not a member of the Permanent Force, performing military service or undergoing
military training,
(ii) a member of the Permanent Force, while on “service in defence of the Republic”, as defined
in the Defence Act,
(iii) a member of the South African Police Force on “service in defence of the republic”, as above,
(iv) an independent contractor, who engages other persons to perform the work,
(iv) a domestic employee in a private household.
The employee is entitled to a scale of compensation for occupational injury or sickness, unless as
a result of his/her “serious and wilful misconduct” (being under the influence of liquor or narcotics,
or in wilful disregard of safety laws). Dependants are entitled to compensation for death,
notwithstanding the employee’s misconduct.
An assault by an employer on a workman has been held to be due to wrongful intentional and
unlawful action by the employer, and not by reason of the contract of employment.
The Group Personal Accident and Stated Benefits sections have an optional Business limitation.
Like the COID cover, this does not mean that the accident has to occur during normal business
hours, or even at the insured’s premises, but it must arise from and in the course of employment
in the business.
An employee fell and injured herself on the employer’s premises, after the day’s work and while
on her way home. This was held to be in the course of her employment. It would have been
different if this had occurred in the street.
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Liabilities
The insured is required to give insurers notice of any event that may give rise to a claim. Often
an immediate investigation of the circumstances is necessary, before details are forgotten and
evidence destroyed.
It must be made clear that these investigations, together with any correspondence entered into,
are without admission of liability. Similarly, any formal denial of liability must be carefully worded
so that it does not affect legal defences that would otherwise be available to insurers. If further
action ensues, the matter will probably be handed to insurer’s legal advisers for the appropriate
response. On no account may the insured attempt to deal with the matter himself, as this might
seriously prejudice the insurer’s position.
Often, claimants wait until almost the end of the legal prescription period, and then issue
summons. This is meant to provoke the client and insurers into panic action, or gain a default
judgement should they omit to enter an “appearance to defend”.
In many cases, an out of court settlement is preferable to the very considerable costs of a court
action, obtaining expert testimony, and so forth, but this must be decided at management level.
Fidelity
Adjustment of these claims needs accounting knowledge, and is usually left to adjusters who
specialize in this field.
There is a problem when losses are known to be taking place, but the crime cannot be brought
home to the particular employee or group of employees concerned, or it cannot be proved that
this resulted in financial gain to any of them. If there is good reason to suspect an employee, he
or she should not be given the opportunity to continue with the fraud, for further losses will not be
covered by the insurance. He or she cannot be dismissed without proof, so the answer might be
temporary suspension on full pay, pending the outcome of investigations, or temporary removal to
a job where the opportunity for fraud does not exist.
Sometimes an employee, confronted with the facts, will admit guilt and offer restitution. For this
reason, insurers do not always insist that the matter be reported to the police for further action.
On the other hand, if the guilty party has already resigned from service, the chances of recovery
are slim. Fraud investigations can be lengthy, and are often inconclusive.
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Motor
The assessment of motor damage is carried out by people with the appropriate mechanical
knowledge and trade skills. The high cost of parts and labour often result in the vehicle being a
“write off” (not economically repairable), even though there is little or no mechanical damage.
This can cause hardship to the insured, because the utility value of the vehicle as basic transport
is often greater than the market value that the insurers are able to pay. A compromise can
sometimes be reached, but there may be difficulties with contractors who have undertaken to
take over the insurer’s written off vehicles. If a cash-in-lieu settlement is made, and the vehicle is
subsequently privately repaired, insurers need to know that it is roadworthy, and that the repairs
are properly done, before granting further cover on the vehicle.
Extensive repairs, such as might be done to a high value vehicle, can also cause trouble. In this
case, the insured might not want the vehicle repaired, and will detect all kinds of real or imagined
faults afterward.
Recoveries from third parties must be followed up without delay. Get in touch with possible
witnesses and obtain their statement before they forget the details of the accident, or change their
address. If the police attended the scene of the accident and took measurements, a copy of their
report must be obtained.
In many collisions, both drivers are partly to blame. If there is no knock-for knock agreement,
whereby insurers have each previously agreed to meet their own damages, it may be possible to
apportion the damages.
Claims for passenger liability need especially careful handling. Sometimes these claims are
made long after the accident, when it is no longer possible to check some of the details. For
example, the passenger’s failure to wear a seat belt can constitute contributory negligence, and
reduce the damages against your insured. Remember that passenger liability is partly covered
under the Road Accident Fund Act.
Court Bonds
Claims under court bonds are rare, but may occur many years after the bond has been issued,
e.g. missing beneficiaries may come to light. This possibility shows the importance of advertising
and taking any special steps which may be necessary to trace beneficiaries when it appears that
some are missing.
In any given instance, the Court needs to be satisfied that the executor took all reasonable steps,
but the terms of the bond are very wide.
Thus, claims under Court bonds can arise not only through dishonesty, but also through the
incompetence or neglect of the administrator. Claims due to dishonesty need no explanation, but
the following are examples of claims caused by incompetence or neglect:
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
If some of the assets in an estate consist of shares, the executor must realise them at
once, unless he can give the Master sound reasons why this should not be done. There
have been cases where an executor, acting in perfectly good faith, has held on to shares
in the expectation of a rise in their price, but the price has fallen, so that the sureties have
been called upon to pay the difference. It is thus advisable, in estates where shares are
not disposed of immediately, to have these lodged in a bank in the joint names of the
executor and the sureties, so that the latter can exercise control over them.

Where a person has dies intestate, there is an additional burden on a executor in that he
must satisfy himself that the estate is distributed among the legal heirs. He must bear in
mind the rights of the surviving spouse (if any). The executor must also remember that
illegitimate children, if they can prove their parentage, can inherit on an equal footing with
legitimate children. Knowledge of the law of intestate succession is therefore all important
to an executor, for a mistake, however genuine, on the part of the executor, can result in a
claim against the sureties.

If an executor or administrator etc. neglects to insure a property against fire, and it is burnt
down, a claim can be made under the court bond, so that sureties must see to it that all
such property is adequately insured.
The above are only three examples where incompetence or neglect can result in a claim. They
can be multiplied many times, since estates can be very complicated, ranging from cash and
shares to valuable immovable property which will have to be disposed of to the best advantage
and even to business whose continued operation may, or may not, be necessary.
When claims arise, these are best handled by the insurer’s attorneys, often in conjunction with a
professional accountant. The Master of the Supreme Court will always give the sureties every
assistance in dealing with claims under Court bonds and in effecting recovery from the
administrator. On receiving notice of a claim it is necessary to take all possible steps to tie up
assets available so that the administrator cannot deal with them. It may be required, for instance,
that cash shall be deposited to the joint order of the administrator and the surety.
The procedure in regard to claims under bonds issued in terms of the Insolvency or the
Companies’ Acts is similar to that in respect of bonds given in terms of the Estate Act. Here
again, negligence as well as dishonesty can result in claims against the sureties. The sureties,
however, may have the defaulter removed from office and a fit person appointed in his place on
making application to the Supreme Court.
Government Bonds
All Government bonds provide for the payment on demand of the amount claimed under the
bond. In practice relevant authorities usually notify the sureties that the principal has defaulted
and that a claim will be lodged. The sureties therefore have an opportunity of taking steps to
minimise their loss. For Railways Ledger Accounts guarantees and customs bonds, for instance,
the sureties can ask for all credit facilities to be stopped.
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Commercial Guarantees
If a contractor defaults, the sureties can arrange to have the contract completed by some other
person or firm. Where purely financial aspects are concerned, the sureties will have taken steps
to secure their position by obtaining counter indemnities or collateral. Even under the most
straightforward bonds, points of law are involved: the practice of insurers is to deal with claims in
close consultation with their attorneys. There is also a right of recovery against the defaulter at
common law and the surety will naturally exercise these rights.
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Knowledge Self Assessment – Module 14
Instructions
The knowledge self assessment consists of longer written questions. Answer all of the questions
to assess whether you have mastered the knowledge component. Model answers have been
provided which you can use to assess your answers.
1.
Explain why business records should be safeguarded against destruction by fire,
even though the fire policy does not specifically require this.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
2.
State whether fire insurance includes damage by arson, giving your reasons.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
3.
In terms of the local insurers’ agreement, indicate under what circumstances the
tenant may be held liable for fire or explosion damage.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
4.
Company A insured its fax machine under Business All Risks. Their receptionist
handed over the machine for service to a bogus technician. Despite enquiries,
neither the machine, nor the “serviceman” were ever seen again. Discuss whether
the loss is covered.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 14 - cont
5.
Personal Accident/Stated Benefits covers “bodily injury caused by accidental,
violent, external and visible means”. Briefly indicate how the cover applies if the
insured person is injured by effect of a pre-existing disease combined with an
accident.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
6.
If the above policies are subject to the “business limitation”, state whether the
accident must occur:
6.1 During normal business hours
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
6.2 At the insured’s premises or contract site.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
7.
An elderly lady slipped and fell on the patio outside George’s restaurant. She
limped away, muttering angrily, but did not make a formal complaint. In terms of
George’s liability insurance, describe what he must do, and the reasons for this.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Knowledge Self Assessment – Module 14 - cont
8.
Company X suspects that its storeman is cheating with the orders, but there is no
proof of this. They allow him to continue, in the hope that they can obtain proof.
Briefly discuss how this affects their fidelity insurance.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Explain why insurers might not always insist that a fidelity loss be reported to the
police.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
Describe why a cash-in-lieu settlement of a motor claim might be allowed, and
outline the possible problems.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 14
1.
Explain why business records should be safeguarded against destruction by fire,
even though the fire policy does not specifically require this.
The insured is expected to prove the amount of the claim. The adjuster should be able to
check records of purchases and sales, to ensure that the amount claimed as lost is
reasonable.
2.
State whether fire insurance includes damage by arson, giving your reasons.
Unless the insured can be proved to be involved (by setting the fire, or arranging to have it
set), the loss is fortuitous as far as the insured is concerned, and the policy must pay.
3.
In terms of the local insurers’ agreement, indicate under what circumstances the
tenant may be held liable for fire or explosion damage.
If this was caused by the wilful act or negligence of the lessee or his servants acting within
the scope of their employment, or if by written agreement between lessor and lessee, the
lessee has specifically accepted responsibility for insuring the building against fire and
explosion.
4.
Company A insured its fax machine under Business All Risks. Their receptionist
handed over the machine for service to a bogus technician. Despite enquiries,
neither the machine, nor the “serviceman” were ever seen again. Discuss whether
the loss is covered.
Recovery of the machine is unlikely, and it must be regarded as lost. The BAR section
has no exclusion of loss by fraudulent scheme or trick.(In these cases, the trickster usually
produces a false delivery note or authorisation). If there was a genuine mistake by the
receptionist, i.e. he or she is not suspected of collusion, the loss is covered.
5.
Personal Accident/Stated Benefits covers “bodily injury caused by accidental,
violent, external and visible means”. Briefly indicate how the cover applies if the
insured person is injured by effect of a pre-existing disease combined with an
accident.
If the insured is killed or injured by the combined effects of a pre-existing disease and an
accident, cover depends on which is the proximate cause.
6.
If the above policies are subject to the “business limitation”, state whether the
accident must occur:
6.1 During normal business hours
6.2 At the insured’s premises or contract site.
The accident must arise from and in the course of employment in the business, not
necessarily:
6.1 during normal business hours
6.2 at the insured’s premises or contract sites.
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Model Answers to Knowledge Self Assessment –
Module 14 - cont
7.
An elderly lady slipped and fell on the patio outside George’s restaurant. She
limped away, muttering angrily, but did not make a formal complaint. In terms of
George’s liability insurance, describe what he must do, and the reasons for this.
In terms of general condition 6, George must give insurers notice of any event which may
result in a claim. This is so that important details can be recorded. (Is the patio part of
George’s premises, was it wet or slippery at the time and, if so, was any warning
displayed or given, did anyone else slip or fall before or afterward?) An actual claim might
still be made at some future time, and if so all correspondence must be forwarded to
insurers to deal with.
Insurers might also require some action to avoid similar accidents in future.
8.
Company X suspects that its storeman is cheating with the orders, but there is no
proof of this. They allow him to continue, in the hope that they can obtain proof.
Briefly discuss how this affects their fidelity insurance.
Company X must give insurers immediate notice of the circumstances, because these are
likely to result in a claim. If they fail to do so, the losses will not be covered. The
storeman should be suspended from duty pending the outcome of investigations, or at
least be asked to accept a temporary transfer to another line of work.
9.
Explain why insurers might not always insist that a fidelity loss be reported to the
police.
Sometimes an employee, confronted with the facts, will admit guilt and offer to repay the
amount stolen. On the other hand, fraud investigations by the police take time, and might
prove inconclusive. There is then little chance of a recovery being made.
10.
Describe why a cash-in-lieu settlement of a motor claim might be allowed, and
outline the possible problems.
An older vehicle, although only superficially damaged, might be uneconomical to repair
professionally, owing to the high cost of spares and labour. This can cause hardship to
the insured, because the economic benefit of the vehicle is greater than the market value
insurers will pay as a “write-off”. Possible disadvantages to a cash-in-lieu settlement
include:
A salvage contractor may have undertaken to take over all the insurer’s “wrecks”, and feel
that insurers should not be allowed to choose which vehicles are offered, and which are
not. Before granting further cover on the vehicle, insurers will want to know that repairs
have been properly done (so that they do not end up paying twice for the same repairs)
and that the vehicle is in a roadworthy condition.
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Module 15: South African Special Risks
Insurance Association (SASRIA)
Learning Outcomes
By the end of this Module, you will be able to:





List the type of SASRIA coupons available;
Explain which SASRIA covers require an underlying policy;
Explain which SASRIA covers do not require an underlying policy;
Describe when SASRIA cover may be issued and take effect;
Briefly explain the operation of NASRIA.
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Background
SASRIA was formed after the 1976 Soweto Riots. Insurers realised that they could no longer
underwrite the losses arising from the political riots of the time, as it was almost equal to giving
cover for civil war risks.
The aim of the rioting was to change social and political conditions and this was therefore a
fundamental type of risk, which affected everyone in the country.
As a result, SASRIA was formed. It opened its doors for business on 1 April 1979.
Types of Cover
Originally only political riot was covered, but today non political riot and strike is also covered as
reinsurers withdrew their support for the non-political covers in 1987. War risks are still excluded.
SASRIA is for risks in South Africa. A similar arrangement (NASRIA) applies in Namibia. In other
territories, normal insurers can issue riot cover if they are prepared to do so.
The government does not underwrite SASRIA, but a board of directors controls the company.
Functioning of SASRIA Business
SASRIA functions very similarly to other classes of insurance as far as the insured is concerned.
There are two ways in which it differs in administrative procedures and these are:


the issuing of the coupon;
the settling of claims.
The direct insurance companies issue the documentation or coupons providing SASRIA cover as
agents for SASRIA. (SASRIA cover is limited to RSA). There is a similar arrangement, called
NASRIA, for Namibia.
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Types of Coupons
There are four types of SASRIA cover available. Cover is issued and the insured is provided with
the appropriate coupon to prove that cover exists.
SASRIA documentation comprises a certificate and a policy wording. It is normal in the insurance
industry to refer to them as coupons.
The types of cover are as follows:
Type of Cover
Risk Covered
Material Damage
This is the coupon used to cover all risks other
than those listed below.
Contract Works and / or Construction
Plant
This covers some of the engineering type risks.
Consequential Loss
This is for the Business Interruption Section.
Motor Policy
This is for all types of motor vehicles.
Marine and Inland Transit
There are special arrangements for SASRIA
cover for this type of risk as marine insurance
normally covers strike, riot and civil commotion.
Marine/Goods in Transit are mentioned separately only because a special scale of rates applies
to these.
Underlying Policy
In the case of all the covers - except motor - there must be an underlying policy, issued through
an insurer.
The insurer who issues the underlying policy must also issue the SASRIA coupon.
Premium Accounting
Premiums must be paid over by insurers within 45 days of the month in which cover begins.
Penalties are charged where the member fails to observe this requirement.
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Accounting Returns to SASRIA
Returns must be submitted to SASRIA twice yearly. The member’s auditors must verify them. The
periods are from 1st January to 30th June and 1st July to 31st December. The purpose is to
certify that the premiums due to SASRIA have been paid.
Certificates must be submitted no later than 45 days after the end of each period. Penalties are
imposed if the conditions are not met. All spoilt certificates - as they are numbered sequentially must also be kept and accounted for.
Value Added Tax (VAT)
All premiums and sums insured are inclusive of VAT. Commissions payable to members and their
intermediaries are also inclusive of VAT. The coupons and policies issued serve as VAT invoices.
Monthly Premiums
SASRIA premiums are normally annual premiums; however because of the volume of monthly
policies today, there is a facility for a monthly SASRIA policy.


This is available to clearly identifiable group schemes, or a clearly identifiable group of
individual policies.
It is only available for true monthly policies and not for annual policies paid monthly.
A coupon is issued at the end of each month, providing details of the aggregate sum insured
and/or the total number of vehicles listed. Records of individual underlying policies will only be
required by SASRIA in the event of a claim.
Pro Rata Premiums
Pro rata premium applies the first time the insured takes out SASRIA cover. At every subsequent
issue - for instance at renewal of the underlying policy - the full annual premium is payable.
A pro-rata premium may also be charged to enable the period of insurance to be adjusted, so that
the renewal date of both the underlying policy and SASRIA policy, falls in line with the insured’s
financial year.
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Cancellation of SASRIA
SASRIA coupons may be cancelled for a variety of reasons, but premium may only be refunded
under certain circumstances. These are:





when the interest of the insured in the property ceases, because of the sale of the
property, insolvency or any other reason;
where the member cancels the underlying policy due to adverse claims;
where the member re-issues the underlying policy;
in terms of a final transfer in terms of a take over certificate or similar legal transfer of risk,
then the premium adjustment provisions of the underlying policy will apply;
if the insurer changes mid-term.
SASRIA is not renewable, but members may send out expiry notices to remind clients to request
the cover for the new period of insurance.
Claims
Insurance companies also handle SASRIA claims on behalf of SASRIA. Direct insurers do have
limited authority to settle claims. They may settle motor claims up to an amount of R5 000.
All other claims are therefore sent to SASRIA. The procedure for this is that they are channelled
through the head office of the member, unless prior arrangement has been made.
Claims Procedures






The insurer must treat all SASRIA claims as if they were their own.
Before submitting a claim the insurer must check to see whether it is excluded in terms of
any other policy in force at the time of the loss.
All information must be treated as strictly confidential. If a loss adjuster is appointed it
must be emphasised that no details can be released to the insured, or the intermediary
without prior consent.
Claims must be reported to SASRIA as soon as reasonably possible.
Sufficient documentation and information to enable SASRIA to open a file must
accompany potential claims.
Only a Motor Accident claim form or a General Claim form is acceptable.
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Claim Documentation
Only original documentation should be forwarded to SASRIA. The following are essential when
submitting a SASRIA claim:




A preliminary claims advice form. This must be attached with a covering letter from the
insurer;
A copy of the SASRIA coupon/policy. Where the claim is in the name of a subsidiary
company the name of the subsidiary must follow the name of the holding company on the
claim form;
The basis of rating the policy/coupon must be detailed;
A claims estimate must be submitted to enable SASRIA to raise the correct estimate.
Adjusters Loss
For claims in excess of R1 500 a loss adjuster must be appointed. The intermediary is not
allowed to appoint the loss adjuster.
Claim forms must be submitted as normal.
Prescription Period
The prescription period in terms of SASRIA claims follows that of the underlying policy and
insurers are expected to adhere strictly to it.
In the case of motor, where there is no need for an underlying policy, the prescription period is
twelve months.
VAT: Claims
When the chosen method of settlement is cash SASRIA include the VAT component irrespective
of whether the insured is a vendor or non-vendor.
When the article is repaired or replaced then SASRIA will settle the account with the
repairer/supplier, including VAT.
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Namibian Special Risks Insurance Association (NASRIA)
SASRIA operates only in respect of risks within the Republic of South Africa and its territorial
waters. A similar arrangement, called NASRIA (Namibian Special Risk Insurance Association)
operates in Namibia. To make things easier for holiday makers and others:



Vehicles registered in the Republic of South Africa, and insured with SASRIA, may travel
in Namibia without the need for separate cover;
Property in transit from South Africa to Namibia remains covered including the return
journey, but cover ceases if it is permanently handed over to anyone in Namibia;
Cover for South African goods imported or exported through Namibia may be issued
through SASRIA.
This is so that one does not need to take out two coupons, SASRIA and NASRIA, to cover the
same journey. Similar arrangements apply to vehicles and property insured with NASRIA, and
passing through South Africa.
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Knowledge Self Assessment – Module 15
Instructions
The knowledge self assessment consists of multiple choice questions as well as one longer
written question. Answer all of the questions to assess whether you have mastered the
knowledge component. Model answers have been provided which you can use to assess your
answers.
1. SASRIA policies:
True
False
True
False
A are issued on an annual basis only
B cover both political and non-political riot and strike
C all have a prescription period of 12 months, during which claims must
be submitted
D include a VAT component
E may be cancelled, but no premium is refundable
2. Audited accounting returns for SASRIA must be submitted
A within 30 days of the month in which cover incepted
B within 60 days of the end of the month in which cover began
C twice yearly
D annually
3. Briefly discuss the procedure for dealing with SASRIA claims. Including the
supporting documentation required.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 15
1. SASRIA policies:
True
A are issued on an annual basis only
False
X
B cover both political and non-political riot and strike
X
C all have a prescription period of 12 months, during which claims must
be submitted
D include a VAT component
X
X
E may be cancelled, but no premium is refundable
2. Audited accounting returns for SASRIA must be submitted
X
True
False
A within 30 days of the month in which cover incepted
X
B within 60 days of the end of the month in which cover began
X
C twice yearly
X
D annually
X
3. Briefly discuss the procedure for dealing with SASRIA claims. Including the
supporting documentation required.
 The insurer must treat all SASRIA claims as if they were their own;
 Before submitting a claim the insurer must check to see whether it is excluded in terms of
any other policy in force at the time of the loss;
 All information must be treated as strictly confidential. If a loss adjuster is appointed it
must be emphasised that no details can be released to the insured, or the intermediary
without prior consent;
 Claims must be reported to SASRIA as soon as reasonably possible;
 Sufficient documentation and information to enable SASRIA to open a file must
accompany potential claims.
Only original documentation should be forwarded to SASRIA. The following are essential
when submitting a SASRIA claim:
 A preliminary claims advice form. This must be attached with a covering letter from the
insurer;
 A copy of the SASRIA coupon/policy. Where the claim is in the name of a subsidiary
company the name of the subsidiary must follow the name of the holding company on the
claim form;
 The basis of rating the policy/coupon must be detailed by the member;
 A claims estimate must be submitted to enable SASRIA to raise the correct estimate and
to realise the full potential of their liability.
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Module 16: Compensation for Occupational
Injuries and Diseases Act (COIDA)
Learning Outcomes
By the end of this Module, you will be able to:










Briefly outline the reasons for the Act;
Describe the events that are covered under COIDA;
List the classes of benefits under COIDA;
Describe the limitations of benefit;
Outline the obligations and rights of the employer under COIDA;
Outline the assessment of employers under COIDA;
List the risks that are covered under COIDA;
Discuss injury related benefits under COIDA;
Discuss death benefits under COIDA;
Discuss occupational diseases under COIDA.
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Reasons for the Act
The Compensation for Occupational Injuries and Diseases Act, 130 (COIDA) was signed into
South African law effective from 1 March 1994, to provide compulsory compensation for all
employees under contract of employment (with a few exceptions) for death or personal injury
suffered in the course of their employment. It replaced the Workmen’s Compensation Act 1941
(No 30 of 1941). The Act is designed to offer protection for all workers under a contract of
employment, and provides for the payment of benefits to the worker or his dependants if he is
injured or dies in the course of his duties. The injury or illness or death must arise from an
accident.
Initially, the need for such an Act arose from technological developments and the use of labour to
perform work on behalf of employers. A hundred years ago there was very little support available
to workers who were injured or killed on duty, or who contracted diseases in the course of their
employment directly related to the work they did. Often employees who were unable to continue
to work as a result of an accident were discarded from the labour market, and found themselves
unable to earn a living through ill-health or just through lack of suitable work opportunities. Some
employers did little to help employees, but the position was especially bleak for underprivileged
dependants of injured or ill workers, such as orphans, widows and the elderly.
In Europe, as a direct result of the Industrial Revolution, by which many changes to methods of
work were made by the introduction of machinery in place of human labour, the need for
compensation for workers became more apparent. Soon, changes throughout the world resulted
in many countries following the same path.
In South Africa, prior to the Second World War, and as a result of the effects of the Great
Depression, the State looked very closely at the need for implementing a State-controlled
protection for workers in the form of financial assistance for losses arising from accidents to the
workers. A fuller duty was placed on employers to provide funding for these benefits.
As the Depression drew to a close and industry and commerce started to develop again, more
and more workers were drawn into the employment net, and the State found a need existed for
these workers to be protected. In the previous two centuries the United Kingdom had commenced
a legislative process to provide benefits for ‘ordinary’ workers who had long been exploited by
employers. This exploitation arose in the form of workhouses, the use of child labour in difficult
working conditions, and the threat of debtor’s prison for those unable to pay their way in life. In
1911 the National Insurance Act was passed in Britain, and this Act was used as a broad
foundation for the introduction in 1941 of the Workmen’s Compensation Act 1941. At its first
introduction, the Act did not make provision for all workers in all industries.
At common law any individual has the right to sue another for losses arising to himself and
caused by any wrongful act committed by the other party that causes such loss. Prior to the
implementation of the Workmen’s Compensation Act of 1941, legal options available to those
who suffered loss (in the form of occupational injury, death or the contracting of a disease) were
limited in terms of individual expense and the amounts of awards, if any.
Under the terms of the Workmen’s Compensation Act, 1941, there had also been specific
maxima applied to compensation benefits received by employees who suffered an accident in the
workplace. This meant that only those whose annual earnings were lower than the prescribed
maximum were covered for accidents in terms of the Act. Those employees earning more than
the prescribed limit were then not classified as workmen, and could receive no compensation for
accidents.
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These employees had to rely on restitution under common law, which means that they had to rely
on the courts to receive compensation for accidents caused by the negligence of the employer, or
to provide their own personal accident cover for accidents occurring without this negligence.
Whether the employer provided this cover or not, basic protection for employees against
accidents arising in the workplace were expensive, and often cover provided was insufficient. The
implementation of COIDA did away with this split definition of workmen, to broaden the base of
compensation, both in terms of benefits and assessment contributions. Under the Workmen’s
Compensation act 1941, and COIDA, the rights of all employees at common law to pursue
recoveries for accidents against their employer were withdrawn.
From time to time COIDA may be amended by parliament to cater for changes to the work
environment that may impact on benefits needed for employees or on assessment rates for
employers.
The State sought, via the implementation of appropriate legislation, to redress this untenable
situation, and made employers responsible for providing benefits to be payable to workers, in the
event of an accident that impacted on the worker’s ability to perform his tasks. The State required
employers to contribute to an accident fund by way of assessments levied on them. These
assessments levied were related to the type of industry in which the employer operated. The
legislation then removed the right of individuals to seek legal redress for losses suffered, other
than via means of benefits available to workers under the Act. The State through the Workmen’s
Compensation Commissioner then dealt with the payment of compensation to workers for losses
suffered, effectively taking responsibility for this provision of compensation, funded by employers.
There exists a three-way involvement in the process of compensation for accidental illness, injury
or death of workers: The State, as overseer and administrator of assessments and compensation;
The Employer as contributor, by way of assessments levied at prescribed rates (depending on
class of occupation and loss history) of funding for the compensation, and the Employee as
beneficiary of the cover.
Initially, owing to the diversity of industrial and commercial operations in South Africa, the term
workmen was not easily definable. The State then prescribed a certain income limit, below which
any person, irrespective of his occupation, was classified as a workman, and so qualified for
compensation benefits under the fund.
In 1983, the Machinery and Occupational Safety Act which also focuses on the scope of
workmen’s compensation, made provision for the health and safety of virtually every classification
of workmen, but still subject to an earnings limit. Workers whose earnings were above the limit,
and therefore ineligible for compensation benefits under the Act, retained the right to sue their
employer for losses suffered as a result of accidents in the workplace.
The Compensation for Occupational Injuries and Diseases Act of 1994, (Act 130 of 1993)
(COIDA) commencing 1st March 1994, repealed the Workmen’s Compensation Act, and provided
benefits to all workmen, (with a few exceptions.) In essence, the Acts are very similar, and the
process of providing funding for and compensation from the accident fund remains the same.
The following processes and regulations apply to the application of COIDA:




COIDA is administered by the State
The rates of contributions and benefits are determined, and may be altered, by the State
Effectively, as the fund is controlled by the State, the solvency of the fund is guaranteed.
It is compulsory that all employers and employees join the scheme, subject to certain
exceptions
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
The rates of contributions vary, but are standard between minima and maxima within the
same occupational class or industry

There is minimal individual underwriting of risks, except in the case where a particular
employer or occupational classification requires rating adjustments.

Disputes are handled in the first instance by the Commissioner, and not by the courts,
although cases may be referred.
COIDA is under the control of the Director-General, who delegates many of his functions to a
Commissioner for compensation, whose duties include:






To receive notices of accidents and occupational diseases and claims for compensation

To decide whether a person is a dependant of an employee and, if so, the extent of
dependency upon the employee, and, in the case where there is more than one
dependant, which shall receive compensation

To decide upon the need for, and the nature and sufficiency of, medical aid; the
reasonableness of the cost of medical aid, and the amount and manner of payment of
such cost

To decide upon the liability for assessment, tariffs of assessment, the amounts of
assessments, the manner of payment of assessments and related matters



To decide upon any other question falling within his functions

After the conclusion of each financial year to submit a report to the Minister regarding the
administration during the year

To record statistics and information regarding the occurrence and causes of accidents and
occupational diseases, and the award of benefits

To institute such inquiries and perform such other functions as may be prescribed, or as
he may deem necessary
To inquire into accidents and occupational diseases
To adjudicate on claims
To issue an order for the payment of compensation in respect of an award made by him
To decide whether a person is an employee, an employer, a mandator or a contractor
To decide any question relating to a right to compensation; the submission, consideration
and adjudication of claims for compensation; the calculation of earnings; the degree of
disablement of any employee; the amount and manner of payment of compensation; the
award, withholding, review, discontinuance, suspension, increase or reduction of
compensation; the liability for payment of compensation
To administer the compensation fund and the reserve fund
To recover amounts due to the compensation fund, including amounts which should not
have been paid out or write off such amounts if, in his opinion, they cannot be recovered
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Events Covered Under COIDA
Employees and their dependants are entitled to compensation under COIDA for accidents out of
and in the course of their employment, which cause:





The death of the employee
The temporary total or temporary partial disablement of the employee
The employee to be permanently disabled
The employee to require medical aid
The employee to contract an occupational disease
A notice of an accident must be submitted by the employee to the employer as soon as possible
after the accident occurs. Hereafter the employer must, within, 7 days of receiving a notice of an
accident, or having learned in some other way that an employee has met with an accident, report
the accident to the Director-General or mutual association in the prescribed manner. Within a
further 7 days, (i.e. within 14 days of receiving advice of an accident) the employer must provide
full details of the accident to the commissioner. On receipt of all information relating to a claim for
compensation, the Director-General may make an enquiry into the accident to determine the
cover under COIDA. He may require the employee to submit to a medical examination.
To become entitled to benefits under COIDA, the employer’s assessment contribution must have
been made, and there must be no doubt that the accident arose out of and in the course of
employment and that the employee was not wilfully negligent in causing the accident. In any
event, all claims must be submitted within a period of 12 months of the date of accident. If not, the
right to benefits under the Act will lapse.
Classes of benefits under COIDA
Compensation benefits, based on the earnings of the employee at the time of the accident are
payable under COIDA in respect of:
Death of the Employee
In respect of a fatal accident to an employee, compensation is payable from the compensation
fund as a lump sum to the employee’s dependants the amount payable is determined based on
the level of compensation payable had the employee been rendered totally disabled. In addition,
monthly pensions are payable to widows and widowers of the employee and to his children. Other
members of the employee’s family who are dependent on the employee’s earnings are also
entitled to compensation depending on their degree of dependency on the employee.
Compensation in respect of funeral expenses is also recoverable from the fund, subject to limits.
Permanent Disablement resulting in the employee being rendered unable to perform his usual
duties in the workplace under all circumstances. An example of permanent disability would be the
loss of a limb, the eyes or hearing. In terms of COIDA disablement is graded in terms of the injury
suffered by the employee.
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The loss of a limb is graded at a higher percentage of disablement than is the loss of a toe or
finger. Loss of total sight is graded higher as a percentage disablement than is the loss of sight of
one eye.
Temporary Disablement
Where an employee is prevented by injury or illness from performing his regular duties for a time,
and where there is an expectation that he will recover fully in time, he will be entitled to receive
compensation for the time he is temporarily disabled. Temporary disablement can be either total
or partial. An example of total temporary disablement would be a state of unconsciousness or
coma, whereas broken limbs or a period of convalescence would be partial disablement of a
temporary nature
Medical Aid
Employees are entitled to receive benefits in respect of medical aid arising from an accident.
The period of compensation is for not longer than two years from the date of an accident or the
commencement of a disease, and compensation will be for reasonable cost of medical aid
necessitated by such accident or disease. If further medical aid could reduce the disablement of
the employee, the Director-General may pay the additional medical costs.
Occupational Disease
Under this benefit class, employees are entitled to receive compensation for contracting and
occupational disease, or a disease other than an occupational disease if such disease has arisen
in the course of his employment. Benefits are calculated based on the outcome of the disease,
whether this is death, permanent disablement or temporary disablement. The commencement of
a disease will be the date on which a medical practitioner diagnosed that disease for the first
time.
The Employee
Cover for compensation benefits for the employee are automatic and guaranteed by COIDA,
subject to certain limitations. If an employee meets with an accident resulting in his disablement
or death the employee or his dependants are entitled to the benefits provided for and prescribed
in COIDA. The accident must arise out of the employee’s employment, which includes travelling
to and from work on transportation provided free by his employer.
Limitations are provided for as follows:
If an accident is attributable to the serious and wilful misconduct of the employee, no
compensation benefits are payable, unless the accident results in serious disablement, or the
employee dies leaving a dependant or dependants financially dependent upon him. Even so, the
employee may still be entitled to compensation benefits under medical aid.
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If the accident does not arise out of the course of the employee’s employment contract. COIDA
defines the course of employment if it is in the normal functions of his employment. If the
employee was acting contrary to the rules of his employment or he was acting without any order
of his employer, but the Director-General deems the employee was acting in connection with the
business of his employer, compensation benefits will be payable.
Upon commencing employment, the employee must disclose information regarding his current
state of health, injuries suffered from at the time or previously and if he undergoing treatment for
any illness. In terms of an accident arising, the employee must advise his employer as soon as
possible after the occurrence of the incident. He must also submit himself to a medical
examination to determine the extent of any injuries.
Compensation benefits may be withheld if it was determined that the employee was responsible
for the accident, as result of being under the influence of alcohol or drugs, or that he acted
recklessly and wilfully.
Employees also have compensation rights while attending training programmes on behalf of his
employer.
There is a duty of the employee to offer full information about his state of health and mobility at
the time of commencing employment, or during any course of his employment contract. COIDA
may withhold payment of compensation benefits if the employee at any time represented to his
knowing the information to be false, that he was not then suffering from or had not previously
suffered from a serious injury or occupational disease or any other serious disease. If, in the
opinion of the Director-General, the death or disablement was caused, prolonged or aggravated,
by the unreasonable refusal or wilful neglect of the employee to submit to medical aid in respect
of any injury or disease, whether caused by the accident or existing before the accident.
No benefits are payable if any injury or illness is deliberately caused by the employee, or if any
claim is in any way fraudulent.
The Employer
The employer has a right to:



Be fairly assessed for contributions to the fund

Provide accident and illness cover (and attendant benefits) to his employees under an
insurance policy, for limits of compensation under COIDA, rather than registering under
COIDA.
Have his work force fully compensated for accidents arising to them in the workplace
Receive benefits in the form of reduced assessments where he has taken steps to ensure
a high level of safety in the workplace, and where is claims ratio has been exemplary. If in
the opinion of the Director-General the business of an employer is designed, equipped,
organised or conducted in a manner which is calculated to prevent accidents and the
number of accidents are less than those usually occurring in comparable businesses, the
Director-General may assess that employer at a lower tariff.
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As all the initial funding for the compensation fund is derived from contributions by way of
assessments from the employer, his participation in COIDA is subject to strict obligations:

An employer carrying on business in the Republic must register with the Director-General,
and advise the Director-General of the details of his business. These particulars include
details of type of operations and risks attendant, staff numbers and categories, and the
total amount of earnings for all staff, including trainees and apprentices.

The employer must provide information separately in respect of each type business
involved. If an employer is operative in mining, construction and the motor industry, for
example, he must provide details for all three categories individually.

Details of any changes to the information provided must be forwarded to the DirectorGeneral within 7 days of these changes taking place.

Foreign companies operating in South Africa must provide to the Director-General the
address of its head office, and the name and address of its chief officer in the South
Africa.

Employers are required to keep a register of wages, time worked, payment for piecework
and overtime for each employee. These records have to be retained by the employer for a
period of not less than four years after the date of the last entry in the register. An
example would be that records for wages paid to and time worked by each employee for
the year 1998 must be available for inspection until the end of 2002.

Employers must declare to the commissioner on the 31st March each year information
regarding the amount of earnings paid by him to his employees during the period
with
effect from the first day of March of the previous up to the last day of February of the
current year.

If an employer carries on business at more than one place or if he carries on more than
one class of business, he must provide separate information for each place or class.

If the employer fails to comply with these regulations, he will be guilty of an offence, and
may be liable to a fine or penalty imposed by the Director-General.

If an employer fails to furnish a return or if the estimate of the earnings which an employer
expects to pay during a particular period is in the opinion of the Director-General too low,
the Director-General may estimate the earnings, and assess the employer accordingly.
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Assessments of Employers
An employer is assessed by the Director-General according to the tariffs of assessment for any
class of occupation and taking into account the loss ratio of that industry or of the individual
employer. The assessment contribution is based on a percentage of total earnings paid by the
employer in the year 1st March to February of the immediately preceding year. The DirectorGeneral may also levy a minimum assessment in respect of a particular employer or category of
employers.
Certain employers are exempt from assessment. All employers other than those listed below are
compelled to provide funding via assessment contributions. No contributions need be made in
respect of employees of:



the State, including Parliament and the provincial authorities.
a local authority which has obtained a certificate of exemption from COIDA
An employer who has taken out an insurance policy for the full extent of his potential
liability to all employees. This policy would be in the form of a group personal accident and
illness policy underwritten by a mutual association
The employer must pay assessments to the Director-General within 30 days after the date of the
assessment. The Director-General may allow the employer to pay assessments in instalments. If
an employer fails to pay assessments, the Director-General may impose a fine on him. If an
employer fails to register with the Director-General and furnish him of particulars of his business,
and an employee in his employ suffers a loss as a result of an accident in the workplace, the
Director-General may, in addition to any other penalty to which such employer may be liable,
impose a fine equal to the full amount of the compensation payable in respect of such accident.
However, if the Director-General believes that the failure to comply by the employee was due to a
cause beyond the employer’s control, or that payment of the full amount of the capitalised value
of a pension payable as compensation to the employee would probably lead to the insolvency of
that employer the Director-General may waive any fine imposed by him, in whole or in part. The
Director-General may also allow the employer to pay the penalty in instalments.
In respect of employers who default in paying any amount due to the Director-General, whether in
terms of not registering for assessments or of not paying assessments or fines imposed by the
Director-General, the Director-General is allowed under COIDA to pursue the matter in the courts.
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Risks under COIDA
The risks covered under COIDA arise from a number of issues surrounding the workplace
activities of employers. These risks arise from:

the actual occupation of individual employers. These may take the form of particularly
hazardous occupations such as asphalt factories, oil and gas drilling, explosives and
matches, fireworks factories, oil refineries, petrochemical works, paper and plastics; to
benign occupations such accountants, banks and other chiefly administrative activities.

The occupation of groupings of employees, such a deep sea divers, miners, smelters, and
others down to clerical and office workers.

The size of the organisation in terms of staff numbers. The greater the staff numbers in
any categories, particularly in hazardous occupations, the greater the risk to be covered.

The amount of wages paid. The higher the earnings paid, the greater will be benefits
payable to employees from accidents.

Risks to the workplace vary as well from different perils. Risks of explosion, fire, inhalation
of fumes, collapse, suffocation and asphyxiation, and road accidents among others
determine the potential extent of loss.

The employer’s focus on safety measures to combat risk also affects the potential for loss.
Injury Related Benefits
The purpose of COIDA is to provide for employees who are injured, killed or in the course of their
employment, to compensate them for loss of earnings, the need for medical assistance, or to
assist their dependants to with ongoing care or living expenses.
Although it is not possible to compensate fully anyone who has suffered a disabling injury or
illness, the payment of money for determined injury or illness is an attempt to offer some form of
indemnification in respect of losses suffered. In terms of COIDA compensation limits and grades
are pre-determined, and benefits are matched to these limits and grades.
Any employee who is injured or contracts an illness in the course of his workplace duties is
entitled to be compensated for these injuries or illness from the compensation fund. In the event
of his death, his dependants are entitled to receive compensation as a result of his accidental
death while performing his occupational tasks.
It is important to note that this compensation is automatically provided for in terms of COIDA,
subject to certain restrictions. Limits of compensation, depending on the nature of the injury or
illness are prescribed within COIDA and may not be reduced or exceeded.
Compensation is payable to employees or their dependants for:


Death of the employee
Permanent Disablement which is the permanent inability of an employee to perform any
work or as a result of and accident or occupational disease. An example of permanent
disability would be the loss of a limb, the eyes or hearing.
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
Temporary Disablement. Where an employee is prevented by injury or illness from
performing his regular duties for a time, and where there is an expectation that he will
recover fully in time, he will be entitled to receive compensation for the time he is
temporarily disabled. Temporary Disablement is further categorised as either total
disablement (for example being comatose) or partial (losing the use of an arm for a time).

Funeral expenses are paid up to the actual amount of the costs, or to the maximum
amount in place at the time, whichever is the lesser.
All compensation is based on the earnings of the employee at the time of the accident giving rise
to the claim for compensation. Earnings include the value of any food and lodging provided by
the employer, as well as the amounts paid to the employee for regular overtime work performed
by him. Earnings do not include any intermittent overtime worked, or any payments received for
occasional and non-recurrent services performed, or any ex-gratia payments made by the
employer or any other person.
The duties of employees in reporting accidents to their employer are that the employer must be
advised of any claim for compensation as soon as possible after the accident occurs. This
determination of the reporting procedure on the part of the employee allows for the fact that the
injury or illness of the employee may make it impossible to report any incidents immediately. In
any event, the employee must report the occurrence of an incident resulting in a claim for
compensation within 12 months of the incident arising, or the benefits payable will lapse. No
claims will be considered if they are not reported within 12 months after the occurrence. After 12
months claims not reported will lapse.
Within 7 days after receiving notice of an accident to an employee, his employer must submit a
claim to the Commissioner for compensation. Within a further period of 7 days, (i.e. within 14
days of the incident) full and appropriate details of the incident must also be provided by the
employer. Failure to do this may make the employee liable to a fine or other penalty.
The benefits payable as compensation are detailed in Schedule 4 of COIDA.
Temporary Total Disablement (TTD)
The Act defines Temporary Total Disablement as follows:
Temporary total disablement, in relation to an employee, means the temporary total inability
of such employee as a result of an accident or occupational disease for which compensation
is payable to perform the work at which he was employed at the time of such accident or
occupational disease or work similar thereto.
Temporary Total Disablement is therefore the inability of an employee to perform any part of his
work as result of an accident. An example would be where an employee is in a comatose
condition after an accident. He is immobile and cannot work. As long as he is unable to perform
his work fully he is temporarily totally disabled.
TTD is payable for a period of 12 months after the accident. TTD lasting less than three days is
not claimable. For TTD lasting loner than 24 months, the Director-General may determine that a
permanent disability exists and pay compensation accordingly.
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Compensation for TTD is payable at 75% of the employee’s earnings at the time of the accident
for as long as the condition exists, but subject to the time limitations as described.
Example:
Geoffrey suffered an injury to his legs, when he was injured in a collapse of a bridge he was
working on. He was hospitalised for two months, undergoing numerous operations. He was
unable to walk for a further month after being discharged. His earnings at the time of the accident
were R4 100 per month plus R 400 per month food allowance.
In terms of COIDA he was entitled to a benefit payment of R10 125
R4 100 + R 400 X 3 months X 75% = R10 125
Temporary Partial Disablement: (TPD)
The Act (Section 1) defines Temporary Partial Disablement as follows:
Temporary partial disablement in relation to an employee, means the temporary partial
inability of such employee as a result of an accident or occupational disease for which
compensation is payable to perform the whole of the work at which he was employed at the
time of such accident or occupational disease or to resume work at a rate of earnings not less
than that which he was receiving at the time of such accident or occupational disease.
(Section 1(A) of Act 61 of 1997)
Temporary Partial Disablement differs from Temporary Total Disablement in that the employee is
not prevented from performing his work in full as a result of injury. No benefits are payable for
temporary partial disablement that lasts less than 3 days. In terms of Section 47 of COIDA, the
employer is required to make TTD and TPD payments to the employee for the first three months
of such TPD occurring. Thereafter he will be refunded by the compensation fund. Payments for
temporary total or partial disablement will cease to be payable on the termination of such
disablement or if the employee resumes the work upon which he was employed at the time of the
accident or resumes any other work at the same or greater earnings or if the employee is
awarded compensation for permanent disablement.
Permanent Disablement (PD)
Permanent Disablement is a condition where an employee has lost permanent use of a physical
facility, such as use of the limbs, the visual or aural senses, or any permanent loss of mobility, for
example. In terms of COIDA, permanent disabilities are graded in terms of severity, and are
detailed in Schedule 2 to the Act.
Compensation is paid depending on the degree of disablement, in four categories.
These are:

Permanent disablement of 30% (Section 49(1)):
o In the case of permanent disability of 30%, the compensation is required by item 2
of Schedule 4 which prescribes the nature of the benefit as a lump sum equal to
15 times the monthly earnings of the employee at the time of the accident, subject
to a minimum and maximum compensation of R104 445 and R20 385 respectively.
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
Permanent disablement of less than 30% (Section 49(1));
o In the case of permanent disablement of less than 30%, the compensation is
governed by item 3 of Schedule 4. The nature of the benefit is a lump sum, the
amount of which bears to a lump sum calculated under item 2 (above), the same
proportion as the degree of permanent disablement to 30%.


Permanent disablement of 100% (Section 49(1));
Permanent disablement of less than 100%, but more than 30%.
Example:
Jasper suffered the loss of all of the toes on his right foot when a coal truck drove over his foot at
his workplace. His earnings at the time of the accident were R2 950 per month. Firstly, his
degree of disablement must be established. Since he has lost limbs, his disablement is
permanent. The extent of his disablement is determined from Schedule 2. The loss of the big
toe, both phalanges is 7%, and the loss of four other toes is a further 7%, giving a total of 14%. A
30% disablement will result in a lump sum of 15 times the monthly earnings, or an amount of:
15 x R2 950 = R44 250 (item 2)
However, since the employee suffered a permanent disablement of 14%, and not 30%, this lump
sum must be adjusted as required by item 3:
Lump sum payment
14
x R44 250 = R20 650
30
=
Death
Death benefits are payable in the following manner (items 5, 6, 7, 8, 9, 10):

a lump sum equal to twice the amount payable for 100% disability ((item 6) Schedule 4);
plus

40% of last monthly salary per month as a widow’s/widower’s pension ((item 7)
Schedule 4);


20% of last monthly salary per month to each dependant child ((item 8) Schedule 4);
Funeral costs (item 10).
Example:
Bert was killed at work. He was married, with no children. His salary at the time of his death was
R3 450. Compensation in Bert’s case is governed by Section 54(1)(A) of the Act. The
compensation consists of:
 A lump sum set out in item 6, Schedule 4. In terms of this item, an amount equal to twice
x 75% x monthly salary or
= 2 x 0.75 x R3 450
= R5 310
 His widow is entitled to a pension equal to (item 7) 40% of 75% of his salary:
= 40 x 0.75 x R3 450
= R1 035 per month
 Funeral costs to a maximum of R7 395.
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Employee requiring constant help
If the injury in respect of which compensation is payable causes disablement of such a nature
that the employee is unable to perform the essential actions of life without the constant help of
another person, the Director-General may, in addition to any other benefits payable, also grant an
allowance towards the cost of such help.
Benefits to Dependants
Dependants of an employee are described in terms of COIDA as:

a widow or widower who at the time of the employee’s death was married to the employee
according to civil law

a widow or widower who, at the time of the employee’s death was a party to a marriage
according to indigenous law and custom, if neither the husband nor the wife was a party to
a subsisting civil marriage

if there is no widow or widower, a woman or man with whom the employee was at the time
of the employee’s death living as husband or wife (common law wife or husband)

A child under the age of 18 years of the employee or of his or her spouse. This includes a
posthumous child, a step-child, an adopted child and child born out of wedlock

a child over the age of 18 years of the employee or of his or her spouse, and a parent, a
brother, a sister, a half-brother or half-sister, a grandparent or a grandchild of the
employee

Any person who was acting in the place of the parent and who was financially dependent
upon the employee.
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
All of the above dependants must be partly or wholly financially dependant upon the
employee

If an employee dies as a result of an injury caused by an accident, and he leaves
dependants, they are entitled to compensation as follows:

If the dependant is the widow or widower and there are no children benefits are payable
as a lump sum of 15 times the employees monthly earnings plus the value of 75% of the
amount payable had the employee been rendered 100% disabled. In addition, the
dependant in this instance would be entitled to a monthly pension of 40% of the
employee’s earnings at the time of the accident, subject to a maximum amount prescribed
by the Minister by notice in the Government Gazette from time to time. A pension payable
to a widow or widower ends on the last day of the month in which she or he dies.

If the employee leaves a widow or widower and a child or children who is unable to earn
an income owing to a physical or mental disability, a pension of 20% of the employee’s
final earnings is payable to each child.

If the employee does not leave a widow or widower or where such a widow or widower
later dies, but there are children as described above, the aggregate amount of the
pensions payable to dependants may be increased. The total amounts of pension payable
may not exceed the amount that would have been payable to the employee in the case of
100 per cent permanent disablement

The pension payable to child dependants will cease at the end of the month in which the
child reaches 18, or dies or marries before reaching 18.

In the case of children who are unable to earn an income owing to a physical or mental
disability, the pension payable will cease on a date decided by the Director-General when
it may reasonably have been expected that the employee would no longer have
contributed towards the maintenance of that child

if the employee leaves no dependants other than a parent, brother, sister etc, as referred
to above, a monthly pension based on 40 % of the pension which would have been
payable to the employee for 100 per cent permanent disablement will be paid to the
dependant

If the employee leaves only a dependant who was acting as a parent, this dependant will
receive a percentage of the maximum lump sum determined from time to time, and
depending on the degree of dependency.


Dependants will receive compensation benefits for the funeral costs of an employee

On the death of the employee or a dependant of an employee the unpaid balance of any
compensation awarded shall not form part of his estate and will then be paid to other such
dependants as the Director-General may designate.
The Director-General also retains control over payments to dependants, and may order
that compensation be paid to the dependants in instalments.
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Fatal Accidents
A fatal accident is one that results in the death of an employee. If the end result of an accident
results in the death of an employee, within 12 months of the occurrence, then it is deemed to be a
fatal accident. In any one incident, a single employee could be affected by temporary total
disablement which could continue into a permanent disability and then to death. An example
would be an employee who is rendered comatose by an accident. He could then be discovered to
have permanently lost the use of some of his functions. If he later dies from his injury, the basis of
compensation will be for death from a fatal accident.
Death Benefits under COIDA
If an employee dies as a result of an injury caused by an accident, compensation is payable as
follows:

If the employee leaves a widow or widower and there are no children, a lump sum
calculated at twice the amount payable for 100% disablement (being 15 times the
employee’s last monthly earnings) will be payable as a lump sum to the widow or
widower. In addition, a monthly pension equal to 40% of the employee’s last monthly
earnings.

If the employee leaves a widow or widower and a child or children then in addition to the
amounts described above the children will each receive 20% of the employee’s final
monthly earnings as pension. The total amount payable as pensions may not however
exceed 100% of the amount that would have been payable had the employee suffered a
permanent disability of 100%.

If dependants are members of the family, but not widows, widowers or children, then the
benefits are payable as for disablement claims.

If there is no widow or widower or if there is a widow or widower who later dies, the total
amount of the pensions payable to the children may be increased, at the discretion of the
Director-General.

Pensions payable to children will cease if the child reaches the age of 18, or if the child
dies or marries before the age of 18.

If there are no dependants, other than those described above, when an employee dies,
then compensation benefits will be paid into the deceased employee’s estate.

In addition to lump sum and pension payments payable to dependants of a deceased
employee, compensation in respect of funeral expenses is also made. The actual amount
of the funeral costs, or the limit applicable to funeral costs under COIDA at the time of the
accident, whichever is the lower, will apply.

Increased compensation due to negligence of employer:
o Employees who die or are injured, or who contract an occupational disease as a
result of an accident arising out of the negligence of
o the employer
o an employee in a management position for the employer
o an employee who hires or dismisses employees, (for example Human Resources
managers)
o engineers and assistants in charge of machinery
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o
o
o
any person in charge of machinery in terms of the Occupational Health and Safety
Act, 1993 (Act 85 of 1993)
The term negligence applies to any act or omission on behalf of the employer or
his representatives as described above and including:
a patent defect in the place of employment, equipment, material or machinery
used in the business.
Employees or their dependants are required to submit claims for increased compensation within
24 months of the accident. This period may be extended by a further 12 months.
Increase of monthly pensions
From time to time, the Minister may increase the amounts of pensions paid to dependants of
employees who have died as a result of an accident in the workplace. Notice of increases will be
published in the Government Gazette 60 days before the increases take effect.
Advances on compensation
If the Director-General decides that the interests of pressing needs of dependants of an employee
warrant special, he may make an advance payment of such compensation to them. He will only
make advance payments if compensation is payable in any event.
Pensions outside South Africa
An employee, or dependant of an employee who is entitled to a pension following the death of the
employee, and who lives out of South Africa, or who leaves South Africa for more than 6 months
will receive a lump sum in lieu of such pension. Once such a lump sum payment has been made
no further payments as pension will be made.
Calculation of Earnings
As all benefits payable arising from the death of the employee are based on the final monthly
earnings of the employee (the monthly earnings at the time of the accident) COIDA prescribes the
method of determining earnings.
Earnings include:



the monthly earnings paid by the employer
food or quarters supplied by the employer
Overtime payments for regular work ordinarily performed.
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Earnings exclude:




payment for intermittent overtime
payment for non-recurrent occasional services
amounts paid by an employer to an employee to cover any special expenses
Ex gratia payments whether by the employer or any other person.
If an employee was employed my more than one employer his earnings are calculated as if he
was paid in full by the employer for whom he was working at the time of the accident.
Occupational Diseases
In terms of COIDA, compensation benefits are payable for disease contracted by an employee
which is directly attributable to his employment. In addition, if the employee contracts a disease
which is not related to his work activities, but is proved to have arisen in the course of his
employment, he will be entitled to compensation under COIDA. The Act itself describes the
process as follows:
An employee shall be entitled to the compensation provided for and prescribed in this Act if it is
proved to the satisfaction of the commissioner:
(a) that an employee has contracted a disease set out in Schedule 3 and such disease has
arisen out of and in the course of his employment; or
(b) that an employee has contracted a disease other than a disease set out in Schedule 3 and
such disease has arisen out of and in the course of his employment.
There is further cover under the benefits payable for occupational diseases. This further cover
may include treatment for other diseases that are not classified as occupational diseases, where
the employee suffers from two diseases at the same time. If one of the diseases, not
occupational, is delaying the employee's recovery from an occupational disease, the DirectorGeneral may authorise the payment for treatment of both diseases. These additional benefits are
payable in respect of a general recovery from the disease or in respect of temporary total
disablement prolonged by the non-occupational disease.
This is a very important benefit as it presumes cover in respect of HIV/AIDS, and other diseases
not covered by the schedule of occupational diseases described in Schedule 3 set out hereunder.
As an example, an employee who was infected by the HIV virus at his workplace, by any
accidental means (not by wilful exposure such as sexual contact or drug use) would be entitled to
receive benefits under this section. If he was infected by blood samples, employed as a health
care worker in a medical facility offered free by his employer, the contracting of HIV would be
deemed to have arisen out of the course of his employment. Equally, if he suffers say from
asbestosis contracted at his workplace and is also infected with HIV and his infection by the HIV
virus is retarding his treatment for asbestosis, he may be eligible for treatment of HIV as well.
Again, the benefits would be payable in respect of medical costs and temporary total
disablement.
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This also includes permanent disablement in the following form as described by COIDA:
If an employee has contracted an occupational disease resulting in permanent disablement and
some other disease aggravates that disease, the Director-General may in determining the degree
of permanent disablement have regard to the effect of such other disease.
The employee must bring the disease to the attention of his employer, the Director-General or the
mutual association within 12 months from the commencement of the disease. The
commencement date of the disease is the date on which a medical practitioner first diagnoses the
disease, or an earlier date determined by the Director-General if more favourable to the
employee.
If an employee who has contracted an occupational disease was employed in any work
mentioned in Schedule 3 in respect of that disease COIDA creates a rebuttal presumption that
such disease arose out of and in the course of his employment.
Compensation for occupational diseases is calculated on the basis of the earnings of the
employee at the time of contracting or diagnosis of the disease. If an employee is no longer in
employment at the time of the commencement of the disease, his earnings are calculated on the
basis of the earnings that he would probably have been earning had he still been working.
The employee must give notice on any disease contracted in the workplace to his employer as
soon as possible after the commencement of the disease. The employer must report to the
Director-General in the prescribed manner within 14 days of receiving notification from the
employee, whether or not he believes the disease to have risen out of the employee’s
employment. The employee may also give notice to a previous employer, if the disease was
contracted during such previous employment. The previous employer must then report in the
same way.
The Course of Employment
The employee is considered to be in the course of his employment when he is actually performing
the tasks for which he was employed. In addition, any associated or related functions are deemed
to be in the course of his employment. There may sometimes be circumstances under which the
employee is not actually attending to specific work functions at his workplace on behalf of his
employer. Accidents occurring in these situations are catered for under COIDA in the following
ways:
A claim for compensation benefits as a result of personal disablement may be submitted if at the
time of the accident the employee:


was an apprentice or in the process of being trained in any trade, occupation or profession
was under the age of 26 years
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In determining the amount of the benefit payable as compensation to an employee in training the
Director-General will pay for earnings calculated:


on the basis of the earnings to which a recently qualified person
or a person in the same occupation, trade or profession with five years more experience
than the employee would have been entitled at the time of the accident
Payment will be made to apply whichever benefit is more favourable to the employee.
In the case of an employee younger than 26, compensation will be based on

the earnings to which a person of 26 years of age would normally have been entitled if at
the time of the accident he had been performing the same work as the employee

the earnings of a person in the same occupation, trade or profession with five years more
experience than the employee
The compensation will be made on whichever of the above bases is more favourable to the
employee.
In addition to the above, the following circumstances are also deemed by COIDA to constitute
functions within the course of an employee’s employment. The Act determines that the employee
was acting in the scope of employment, if the employee was at the time of the accident:



acting contrary to any law applicable to his employment
acting contrary to an order by his employer
acting without any order by his employer
The yardstick here is that the Director-General will deem the above to be within the scope of
employment only if he is satisfied that the employee was still acting within the scope of the
business of the employer, even though he was ignoring regulations, or that he had received or
ignored an instruction from his employer.
In this regard, COIDA states:
For the purposes of this Act an accident shall be deemed to have arisen out of and in the
course of the employment of an employee notwithstanding that the employee was at the time
of the accident acting contrary to any law applicable to his employment or to any order by or
on behalf of his employer, or that he was acting without any order of his employer, if the
employee was, in the opinion of the Director-General, so acting for the purposes of or in the
interests of or in connection with the business of his employer.
The employee is also deemed to be in the course of his employment while he is travelling in any
vehicle provided free by the employer to transport employees to work and back. An example
would be an employer that provides a truck to collect employees from home and then transports
them home again after work; he does not charge employees for this service.
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Additional training activities
If an employee meets with an accident while, with the consent of his employer he is being trained
in organised first aid, ambulance or rescue work, fire-fighting or any other emergency service, he
is deemed to be in the course of his employment. In addition, while he is on the premises on a
mine, works or premises and undergoing training or practising in organised first aid, ambulance or
rescue work, fire-fighting or any other emergency service, he is still acting within the course of his
employment. While the employee is actively engaged in any of the above activities, he is also
acting within the scope of his employment, and is entitled to compensation for accidents suffered.
Underwriting Criteria
Assessments of contributions by employers are based on a variety of underwriting criteria:



The class of business under which the employer performs


The actual loss ratio for the employer
The general loss ratio for this grouping of occupations
The earnings paid to all employees in a company, described within the manpower and
earnings budget of the employer, as submitted to the Director-General
The specific actions taken by the employer to manage risks to the employees of his
business
The employer is assessed calculated on the basis of the annual earnings of his employees.
The Director-General will levy a minimum assessment in respect of a particular employer or
category of employers. In determining the tariff of assessment the commissioner shall provide for
the capitalised value of pensions.
Variation of tariff of assessment
If the Director-General determines that the business of an employer is conducted in a manner
which is calculated to prevent accidents and the number and costs of accidents are less than
those usually occurring in comparable businesses, the Director-General will assess that employer
at a lower tariff of assessment.
Also, if the accident record of an employer during a particular period is worse than those of
employers in comparable businesses the Director-General will assess the employer at a higher
tariff of assessment. Similarly, employers with good loss and accident records will receive
assessments at a lower tariff than those in the same business with poor records.
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Claims Ratios
Tariffs or premiums are determined by a number of factors, as we have seen. In addition to those
stated above, one factor having a distinct effect on the levels of premiums is that of claims loss
ratios. In accordance with general insurance principles, abnormally large, or catastrophe losses
are met from the general pool. Premium rates are calculated per individual member within each
occupational group. These occupational classes are grouped by working environment and risk
profile.
Claims forecasts are based on historical experience over the previous three years, and the
premium rates are based on the three years average claims cost. No one occupational class
should subsidise the claims for another.
A favourable claims experience may result in a reward for the employer by way of a rate
reduction, and those with an unfavourable experience may be required to contribute a higher
amount.
Claims loss ratios are determined by the formula:
Total claims paid
X 100
Total premiums paid
1
An example would be a claims amount of R 197 558 related to premiums of R23 450. The loss
ratio is 842,46%, indicating a serious state of affairs for this employer. Tariffs or premiums are
based on statistical data collected for employers, classes of business and the incidence and
severity of claims. Premiums are determined to produce loss ratios that are consistent with
previous losses in certain industries or for certain employers (in other words, to cater for claims
that can be reasonably expected to occur based on past loss experience.) Where these
expected ratios are exceeded, or are reduced as a result of superior risk management by the
employer, the Director-General may increase or reduce the assessment tariffs, as he sees fit.
Insurance benefits
COIDA effectively provides cover across five classes of insurance:

Death benefits in respect of deceased employees. These may take the form of lump sum
payments, or as pension payments. In the insurance industry, these risks are written in
the long-term sector (life and pensions), or in the short-term industry under personal
accident and stated benefits policies

Benefits for Temporary Partial, Temporary Total and Permanent Disablement. These are
short-term insurance risks, (stated benefits and personal accident). They are also offered
in the long term market as income protection covers, or permanent health covers

Medical Expenses are written either in the short-term market as an adjunct to stated
benefits and personal accident cover, or in the healthcare sector as medical aids

Occupational Disease cover is written in the short-term market following stated benefits or
personal accident, or in the long-term market as dread disease and life cover and as
permanent health cover

Funeral cover is offered in the long term market, as a separately written class of business
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COIDA and common law
In terms of COIDA, all benefits under the Act are automatic and cannot be withdrawn or refused
by any employer. These benefits may also not be:



alienated or reduced



subject to income tax
ceded or pledged
capable of attachment or any form of execution under a judgement or order of a court of
law
Set off against any debt of the person entitled to the compensation.
Part of his estate.
As a result of the implementation of the Act, general rights to employees under common law to
sue their employers for losses suffered in the course of their employment have been removed.
The Act is very clear on this and contains the following section, which states that these rights
have been removed, and that the only recourse in respect of these losses is by means of COIDA.
The Act states:
No action shall lie by an employee or any dependant of an employee for the recovery of
damages in respect of any occupational injury or disease resulting in the disablement or
death of such employee against such employee's employer, and no liability for compensation
on the part of such employer shall arise save under the provisions of this Act in respect of
such disablement or death.
Negligence of the Employer
Compensation benefits are payable to employees as a result of accidents arising in the
workplace, and causing death, disablement or disease. The Act provides for these benefits in
ordinary circumstances, where the accident was unforeseen, and sudden, and whether or not
negligence could be determined on the part of the employer. The Act also provides guidelines
and rules for dealing with increased compensation where the Director-General decides that the
accident was caused by negligence on the part of the employer. It is not only the direct employer
who may be deemed to have committed an act of negligence, but also:

An employee authorised by the employer to manage or control the business or any branch
or department. This means that all directors, managers, superintendents, supervisors and
team leaders are deemed to be the employer, should they commit an act of negligence or
omission that causes the death or disablement of an employee or causes them to contract
a disease.

An employee who is responsible for hiring or discharging employees on behalf of the
employer, such as personnel involved in Human Resources Management.

An engineer appointed to be in general charge of machinery, or of a person appointed to
assist such engineer.

A person appointed to be in charge of machinery.
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In the event that such accident is caused by the negligence of any of the above persons, the
employee may apply to the commissioner for increased compensation in addition to the
compensation normally payable in terms of the Act.
Determination of Negligence
The Act states that an accident or occupational disease shall be deemed to be due to the
negligence of the employer if it was caused by a obvious defect in the condition of the premises,
place of employment, equipment, material or machinery used in the business concerned, and
which the employer, (or other persons described above) knowing of the defect has failed to
remedy or caused to be remedied. These defects could range from the seemingly innocuous
loose tile in a toilet, to the unsafe condition of cutting machinery. Other defects may arise in
storage practices or risk management activities, unroadworthiness of vehicles or fire protection
equipment.
Misconduct on the part of the Employee
The Act refers to the matter of dealing with serious and wilful misconduct on the part of the
employee as follows:
Serious and wilful misconduct means -


being under the influence of intoxicating liquor or a drug having a narcotic effect

any other act or omission which the commissioner having regard to all the circumstances
considers to be serious and wilful misconduct.
a contravention of any law for the protection or the health of employees or for the
prevention of accidents, if such contravention was committed wilfully or with a reckless
disregard of the provisions of such law
In the event that the Director-General decides that any accident in the workplace arose out
serious and wilful conduct on the part of the employee, no payment of compensation benefits will
be made, in most instances.
There are however, certain circumstances in which the Director-General may consider payments,
even though the accident arose from wilful misconduct of the employee.
If an accident is attributable to the serious and wilful misconduct of the employee, no
compensation is generally payable, unless:


the accident results in serious disablement
the employee dies and leaves dependants who are totally financially dependent upon him.
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The Director-General may also order the employer to pay the employee the cost of medical aid in
respect of injuries suffered by him.
Other actions of wilful intent on the part of the employee include:

if the employee, knowingly submitted false information that he was not then suffering from
or had not previously suffered from a serious injury or occupational disease or any other
serious disease. If he suffered an accident or contracted a disease, and such an accident
or death resulted from or such injury or disease, the commissioner may refuse to award
compensation to him or his dependants.

if death or disablement was caused or aggravated by the wilful neglect of the employee to
submit to medical aid in respect of any injury or disease, whether caused by the accident
or existing before the accident, an award for compensation may be denied..
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Knowledge Self Assessment – Module 16
Instructions
The knowledge self assessment consists of multiple choice questions, multiple true and false
questions, as well as longer written questions. Answer all of the questions to assess whether you
have mastered the knowledge component. Model answers have been provided which you can
use to assess your answers.
1. The contribution rates for COID
True
False
True
False
True
False
True
False
A are set as a flat rate per insured person and do not vary
B are individually set according to the specifics of the insured
C vary between minima and maxima within occupational classes or
industry
D vary according to the insured’s income (salary) category
2. Claims under COIDA must be submitted within
A one month
B six months
C twelve months
D twenty four months
3. Compensation under COID for temporary total disability is paid
for 12 months at the rate of
A 0% of earnings
B 25% of earnings
C 75% of earnings
D 100% of earnings
4. Which one of the following correctly defines the formula used to
determine a business’ claims ratio under COIDA?
A Total claims paid in the year/total premiums paid x 100
B Total premiums paid in the year/total claims paid x 100
C Total claims paid in the year/total claims paid in the previous year
D Total claims paid in the year/number of employees insured under the
scheme
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Knowledge Self Assessment – Module 16 - cont
5. Arnold suffered the loss of three of the toes on his right foot
when a piece of heavy machinery fell on his foot at work. Which
one of the following best describes the claim for benefits under
COID?
True
False
True
False
True
False
A He will not be paid a benefit as this would not significantly affect his
ability to work
B He will be paid a monthly amount based on his earnings for up to 12
months
C He will be paid a monthly pension for life based on the degree of
disability deemed to exist
D He will be paid a lump sum benefit based on the degree of disability
deemed to exist
Multiple True / False Questions
6. The compensation benefits under COIDA are based on the
insured’s income at the time of the accident/illness taking place.
The calculation of income includes
A earnings from a second (part time) evening job held by the insured at
the time
B payments for occasional overtime in the 12 months prior to the
accident/illness
C payment for regular overtime worked by the insured prior to the
accident/illness
D the value of food and accommodation provided to the insured by
his/her employer
7. Under COIDA, the duties of the Commissioner for compensation
delegated by the Director-General include
A adjudicating on claims
B setting the levels of contribution
C inquiring into occupational accidents
D administering the compensation fund
E underwriting the risk
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Knowledge Self Assessment – Module 16 - cont
8.
Describe the different types of information that an employer must provide to the
Commissioner for compensation each year under COIDA.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
9.
Titus, an employee at the Rand Manufacturing Company, arrived at work one day
under the influence of alcohol. He was ordered to go home and to appear before a
disciplinary enquiry into his behaviour the next day. However, Titus decided
instead to go upstairs to confront his line manager about an incident that had
occurred the day before. He slipped on the stairs and fell, causing an injury to his
back. Comment on this incident as it relates to the COIDA.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
10.
Although the COID benefits for occupational diseases are restricted to diseases
caused by the insured’s work situation, there is an exception where the DirectorGeneral may approve benefit payments for an illness which is not work related.
Describe this exception and give a practical (realistic) example of where it may
apply.
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Model Answers to Knowledge Self Assessment –
Module 16
1. The contribution rates for COID
True
False
A are set as a flat rate per insured person and do not vary
X
B are individually set according to the specifics of the insured
X
C vary between minima and maxima within occupational classes or
industry
X
D vary according to the insured’s income (salary) category
2. Claims under COIDA must be submitted within
X
True
False
A one month
X
B six months
X
C twelve months
X
D twenty four months
X
3. Compensation under COID for temporary total disability is paid
for 12 months at the rate of
True
False
A 0% of earnings
X
B 25% of earnings
X
C 75% of earnings
X
D 100% of earnings
X
4. Which one of the following correctly defines the formula used to
determine a business’ claims ratio under COIDA?
A Total claims paid in the year/total premiums paid x 100
True
False
X
B Total premiums paid in the year/total claims paid x 100
X
C Total claims paid in the year/total claims paid in the previous year
X
D Total claims paid in the year/number of employees insured under the
scheme
X
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Model Answers to Knowledge Self Assessment –
Module 16 - cont
5. Arnold suffered the loss of three of the toes on his right foot
when a piece of heavy machinery fell on his foot at work. Which
one of the following best describes the claim for benefits under
COID?
True
False
A He will not be paid a benefit as this would not significantly affect his
ability to work
X
B He will be paid a monthly amount based on his earnings for up to 12
months
X
C He will be paid a monthly pension for life based on the degree of
disability deemed to exist
X
D He will be paid a lump sum benefit based on the degree of disability
deemed to exist
X
6. The compensation benefits under COIDA are based on the
insured’s income at the time of the accident/illness taking place.
The calculation of income includes
True
False
A earnings from a second (part time) evening job held by the insured at
the time
X
B payments for occasional overtime in the 12 months prior to the
accident/illness
X
C payment for regular overtime worked by the insured prior to the
accident/illness
X
D the value of food and accommodation provided to the insured by
his/her employer
X
7. Under COIDA, the duties of the Commissioner for compensation
delegated by the Director-General include
A adjudicating on claims
True
False
X
B setting the levels of contribution
X
C inquiring into occupational accidents
X
D administering the compensation fund
X
E underwriting the risk
X
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Model Answers to Knowledge Self Assessment –
Module 16 - cont
8.
Describe the different types of information that an employer must provide to the
Commissioner for compensation each year under COIDA.
Employers must submit details of earnings paid to employees during the year (to 31
March). Where the employer carries on more than one class of business, or carries on
business in more than one location, this information must be split accordingly.
(Employers must also provide details of changes to the initial information given at the time
of registration with the Director-General within 7 days of the change but this is not part of
the regular annual returns to the Commissioner.)
9.
Titus, an employee at the Rand Manufacturing Company, arrived at work one day
under the influence of alcohol. He was ordered to go home and to appear before a
disciplinary enquiry into his behaviour the next day. However, Titus decided
instead to go upstairs to confront his line manager about an incident that had
occurred the day before. He slipped on the stairs and fell, causing an injury to his
back. Comment on this incident as it relates to the COIDA.
Compensation benefits may be withheld if the injured person was under the influence of
alcohol at the time of the accident. However, since there is no concrete proof of this in this
case, it is doubtful that this will hold. However, Titus’ action would be deemed to be “willful
and reckless” or acting against an order of his employer and the benefits would be
withheld anyway.
10.
Although the COID benefits for occupational diseases are restricted to diseases
caused by the insured’s work situation, there is an exception where the DirectorGeneral may approve benefit payments for an illness which is not work related.
Describe this exception and give a practical (realistic) example of where it may
apply.
Where an employee is suffering from two illnesses at the same time and where the cause
of one of them is directly related to the workplace but the other is not but is affecting the
condition of the insured by preventing or retarding the treatment of the condition arising
directly from the work situation, the treatment of the non-work related condition may also
be covered. An example of this may be where a person is HIV positive and where this
condition is affecting the efficiency of the treatment for a malignancy of the lung caused by
asphalt or bitumen in a road worker.
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A
Abandonment
the giving up by an insured to the insurer of damaged property
when a total loss is claimed.
Acceptance
an absolute and unqualified agreement to the terms of an offer, so
creating a contract.
Accident
an unforeseen and unintended event or occurrence.
Accommodation Business normally unacceptable business taken by an insurer as a goodwill
gesture in the hope that further business will materialise.
Act of God
an event that is the result of natural forces and which arises without
human intervention.
Adjustable Policy
a policy where the exact extent of the value at risk cannot be
known in advance (e.g. goods in transit insurance). A provisional
premium is charged and adjusted at the end of each period of
insurance.
Adjuster/Assessor
see LOSS ADJUSTER/ASSESSOR.
Agent
a person who acts on behalf of another and in the case of
insurance is the intermediary between the proposer and the
insurer.
Agreed Value
the sum to be paid in the event of a total loss under a valued policy.
Arbitration
a means of settling disputes legally without going to court where
the issue concerns the amount of a claim and not liability. A
qualified person or persons whose appointment has been agreed to
by the parties involved, will hear the case and give a decision.
Asset
a property or financial commodity which can, if necessary, be
converted into cash.
Assurance
a term interchangeable with insurance, which is often used in the
case of Life and Marine business.
Attestation
the signing clause in a contract of insurance.
Average
in general insurance, this is a policy provision that has the effect of
reducing a claim payment where under-insurance is discovered.
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B
Balance of Third Party
the terms used in South Africa for the form of motor insurance
which covers the insured’s liability for:
i)
injury to passengers not covered in terms of the Road Accident
Act 1996; and
ii)
damage to the property of third parties caused by the
vehicle.
Betterment
the value of the improvement in an insured property when it has
been repaired or rebuilt following loss or damage.
Blanket Policy
a policy covering several items under one sum insured.
Bordereaux
the sheets of information prepared by an insurer detailing cessions
under reinsurance treaties.
Broker
a professional full-time independent agent or intermediary.
Brokerage
the commission or fee paid to the brokers by the insurers for
placing business with them.
Burning Costs
method of calculating the insurance premium (especially in
reinsurance) taking account of previous claims.
Business Interruption
Insurance
the class of insurance which provides cover for consequential loss
arising directly from another loss (e.g. loss of profits following fire
damage).
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C
Cancellation Clause
the class of insurance which provides cover for consequential loss
arising directly from another loss (for example, loss of profits following
fire damage).
Captive Insurance
Company
an insurance company set up by a parent company in order
to receive that parent’s insurance business.
Catastrophe Cover
a form of excess of loss insurance which protects the insurer
against losses arising from major catastrophes.
Certificate of Insurance
a document issues by an insurer which is used mainly in the marine
market to certify that cover is in force.
Cession
that part of an insurance transferred to a reinsurer, the transfer of
rights, title and interest under a contract.
Chance
the probability or likelihood that an event will occur.
Claim
a demand made by the insured for payment after the occurrence of
loss or damage covered by the policy.
Claim Form
a form supplied by an insurer to enable an ensured to lodge a claim
in terms of the policy.
Claim Free Group
the term used in motor insurance to indicate into which of the rating
groups a policy holder will fall, according to his or her claims
record.
Claims Ration
see LOSS RATIO.
Co-Insurance
the division of a risk between two or more insurers, where each is
individually liable to the insured for their proportion of claims.
Co-Insurer
an insurer who shares with others in co-insurance.
Collective Policy
policy issued by the leading insurer on behalf of all the insurers
who share a risk by way of co-insurance.
Commission
the payment made to intermediaries by insurers for placing
business with them.
Common Law
the part of the country’s legislation built up from customs and
usages that have been recognised by its courts and thereby given
the force of law.
Composite Insurance
Company
an insurer undertaking both life and non-life business.
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Comprehensive Policy
a policy covering a wide variety of perils; part of a contract that
must be complied with by one party or another.
Consequential Loss
a loss directly arising from another loss. The term is used to
describe the class of business also known as LOSS OF PROFITS
or BUSINESS INTERRUPTION INSURANCE.
Consideration
the payment or promise of payment for goods or services, this
being the premium in the case of insurance.
Contingency
an unforeseen occurrence.
Contingency Fund
monies put aside by a company in order to pay for unexpected
losses.
Contract
an agreement made by two or more parties with the intention of
creating a legal obligation between them.
Contract of Insurance
an agreement between insurer and insured whereby, in return for
the payment of a premium, the insurer undertakes to indemnify the
insured upon the happening of a specified event.
Contra Proferentum
Rule
any ambiguity in contract wordings is construed against the
drafter of those wordings.
Contribution
the principle whereby two or more insurers covering the same risk
contribute proportionately to any losses.
Cover
the protection provided by insurance.
Cover Note
temporary evidence of the granting of insurance.
D
Damages
an amount of money claimed by or awarded to a third party as
compensation for injury or loss.
Declaration
the statement on a proposal form signed by the proposer certifying
the truthfulness and accuracy of the information supplied.
Declaration Policy
a policy requiring the insured to declare periodically the value of
fluctuating items, such as stocks or goods-in-transit, to enable the
insurer to adjust the premium accordingly.
Deductible
an American term, similar in meaning to excess and being the first
portion of a loss payable by the insured.
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Delegated Authority
the authority given to an agent of an insurer to act on his or her
behalf in accepting risks within agreed guidelines.
Deposit Premium
an advance payment made by the insured before the actual
premium has been decided.
Depreciation
the extent to which (insured) property has diminished in value due
to factors such as wear and tear.
Direct Insurance
an original insurance contract between insurance and insured.
Direct Insurer
an insurer in contact with insuring members of the public or
corporations.
Disclosure
the duty of the parties to a contract of insurance to reveal all
material facts to each other before it is concluded and prior to each
renewal.
E
Earned Premium
that part of a premium relating to a completed or expired period of
risk; the actual premium chargeable under an adjustable policy.
Endorsement
documentary evidence of some alteration to a policy of insurance.
Escalator Clause
the clause in a policy that allows the sum insured on the property to
rise throughout the period of insurance in step with the assumed
rate of inflation.
Ex Gratia Payment
a payment made to an insured where there is no liability under the
policy.
Exception
a peril specifically excluded from the insurance.
Excess
that part of a loss for which the insured is liable.
Excess of Loss
Reinsurance
a form of insurance where the reinsurer agrees to pay the
balance of any losses exceeding a stated monetary amount.
Executor
the person named in a will who has agreed to carry out its terms.
Expense Loading
that part of the premium that meets the policy holder’s share of the
insurer’s administrative costs.
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F
Fire
the accidental or fortuitous ignition of something that should not be
on fire.
First Amount Payable
the amount payable by an insured in the event of a claim.
First Loss Policy
an insurance policy where the insurer pays all losses up to a given
limit.
Fleet Insurance
a motor policy covering a group of vehicles with the premiums
calculated on an experience basis.
Franchise
the amount of a loss at or below which no claim is payable by the
insurer. Above that amount, the loss will be met in full.
Fund
the common pool into which premiums for each class of insurance
are paid, and from which losses are met.
G
General Insurance
insurance that is not long-term business.
Good Faith
see under UBERRIMA FIDES.
H
Hazard
a physical or moral feature that affects the likelihood of a loss
occurring or has an influence on the size of the loss.
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I
Incurred but not
Reported (IBNR)
Claims
claims that have occurred, but are not yet reported to
the insurers. Many governments require that
insurers establish reserves to cover such losses.
Indemnity
the placing of the insured in the same financial position after
a loss as he or she was in immediately prior to the
occurrence.
Indexing
a method of adjusting sums insured to provide for
inflationary increases in values.
Inspector
an official of an insurance company whose duties involve
the selling and servicing of its policies, either directly to the
public, or through intermediaries.
Insurable Interest
the principle that requires a person effecting insurance to
have a legally recognised relationship to the subject matter
of the insurance.
Insurance
a risk transfer agreement whereby the responsibility for
meeting losses passes from one party (the insured) to
another (the insurer) on payment of a premium.
Insurance Policy
a document that is evidence of a contract of insurance.
Insured
a person or organisation purchasing insurance.
Insurer
a company or society transacting insurance business.
Intermediary
a person who arranges insurance on behalf of another.
K
Knock for Knock Agreement
an agreement between motor insurers whereby following a
collision, each pays the cost of repairs to its own policy
holder’s vehicle, regardless of fault, provided that the
vehicles involved are all insured for accidental damage.
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L
Lapse
the termination of an insurance contract through the non-payment
of the premium, or by the insurer’s decision not to invite renewal.
Law
the rules enacted or customary in a country ordering or prohibiting
certain actions.
Leading Case
a legal case where the decision has been widely followed.
Leading Insurer
the insurer who accepts a share of risk on a co-insurance
agreement – often the one who first signs a broker’s slip.
Letter of Acceptance
a letter from an insurer to a proposer indicating that his application
for cover has been accepted.
Liability
a claim upon one’s assets by another person.
Limit of Liability
the maximum amount that an insurer will pay for one loss in terms
of a liability policy.
Line
a share of an insurance that is divided among two or more insurers.
Lloyd’s
the corporation that organises the market of individual underwriters
in London (but accepts business introduced by brokers from all
parts of the world) and provides a full range of ancillary services.
Loading
those elements added to a premium to allow for insurer’s
expenses.
Loss Adjuster / Assessor
an independent, qualified person who assesses the size or value of
a loss on behalf of an insurer, but who may also be employed by an
insured to look after his interests in a loss settlement.
Loss of Profits Insurance
see BUSINESS INTERRUPTION INSURANCE.
Loss Prevention
activities undertaken to prevent losses from occurring.
Loss Ratio
the ratio of claims to premiums.
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M
Market Value
the price at which an investment can be sold or bought at any
specific time.
Material Damage
Warranty
before interruption insurance is effective, a material
damage claim under other property insurances must have been
admitted.
Material Fact
anything that would affect the judgment of a prudent underwriter in
accepting or deciding terms for a risk.
Misdescription
a false description of a material fact.
Misrepresentation
a false statement of a material fact that can be innocent or
fraudulent.
Mortgage Bond
a loan made for the purpose of purchasing, adding to or improving
property.
Mutual Insurance
Company
an insurance company owned by its policy holders, that is
it has no shareholders.
N
Name
an underwriting member of Lloyd’s.
Negligence
failing to act in what the law considers to be a reasonable manner.
Net Claim
the insurer’s own share of claim payments after deduction of the
amount payable by the reinsurers.
New for Old
insurance where the replacement value of the property that has
been lost or damaged is payable without deduction for
depreciation.
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O
Offer
the communication of the proposed terms of a contract by one
party to another.
Operative Clause
the clause in a policy that sets out the circumstances in which the
insurers will make claim payments.
Outstanding Claims
Reserves
the funds put aside by insurers to cover claims that have been
incurred, but not yet paid.
Outstanding Losses
claims not yet paid, where estimated figures are used in the
insurer’s accounts.
P
Package Policy
a policy into which several different types of insurance have been
combined.
Peril
a contingency or fortuitous happening that could cause losses.
Policy
written evidence of the terms of an insurance contract.
Policy Holder
the insured person.
Pooling
the basis of insurance whereby premium contributions are funded
and used to pay losses.
Preamble Clause
the clause in a policy that sets out the essential elements of the
contract.
Premium
the money paid by the insured to the insurer for cover as provided
in the policy.
Premium Rate
the price per unit of insurance.
Principal
a person instructing an agent to act on his behalf.
Pro Rata Premium
the premium based on the length of time for which the insurer was
actually on risk.
Probability
the chance of an event occurring.
Professional Reinsurer
a reinsurance company not transacting any direct insurance
business.
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Proportional
Reinsurance
reinsurance where reinsurers take a given proportion of
the direct insurer’s premiums and losses.
Proposal Form
an application for insurance that seeks to obtain from the proposer
all the information relating to the risk.
Proposer
the individual or organisation seeking insurance.
Proprietary Company
a company owned by its shareholders.
Proviso
a policy condition whose observance is essential for the
enforcement of the contract.
Proximate Cause
the direct cause of a loss uninterrupted by any other event.
Q
Quota Share
proportional reinsurance where the reinsurer accepts a fixed
percentage of every risk written by the ceding company.
R
Rate
the sum charged per unit of exposure by which the premium is
calculated.
Rated Up
the term applied to insurance, where the premium is higher than
usual.
Reinstatement
the making good of damaged property; the restoration of the sum
insured after settlement of a loss on payment of an additional
premium.
Reinstatement of Sum
Insured
the restoration of the sum insured after it has been reduced
through the payment of a claim.
Reinsured
an insurer who effects and is entitled to be indemnified under a
contract of reinsurance.
Reinsurer
an insurer or reinsurance company that accepts contracts of
reinsurance.
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Renewal
the process for continuing an insurance for a further period after the
first or current period of cover has ended.
Renewal Notice
the notice issued by a short term insurer to remind a policy holder
that his or her contract will shortly terminate.
Replacement Cost
the value of property as indicated by the current purchase price of a
similar article.
Representation
a written or spoken statement made during contract negotiations.
Retention Limit
the maximum liability that an insurer wishes to keep for his own
account in respect of a particular risk.
Risk
a) a situation that cannot be controlled or perfectly foreseen;
b) the subject matter of an insurance contract.
Risk Management
the business discipline applied by large commercial and industrial
organisations to manage those risks that can cause losses.
S
Salvage
whatever is recovered of an insured item, or part thereof, on which
a claim has been made.
Schedule
the list of personal details of the insured and the subject matter of
the insurance in a policy.
Self-Insurance
insurance that a business organisation finances internally by
establishing a fund to meet losses.
Short-Period Rate
the rate of premium applied to insurances in force for periods of
less than twelve months and which is higher proportionately than
the annual rate.
Short Term Insurance
insurance that operates on a year to year basis, and which may be
terminated by the insurer or the insured.
Slip
a form submitted by a broker to underwriters containing particulars
of the risk proposed for insurance.
Solvency Margin
the minimum size of the shareholders’ funds required by the
supervisory authorities.
Special Perils
extra risks added to a policy to give cover not provided in terms of
the basic wording; the term usually applies to storm, water, wind
and impact damage added to a fire policy.
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Specification
the form on which details of large risks are set out and appended to
the policy.
Statute Law
laws promulgated by the government of a country.
Stop Loss Reinsurance
a form of reinsurance used as a means of limiting aggregate net
losses on a particular class of business in any one year of account.
Subrogation
the right of one party to stand in a place of another and take up the
latter’s legal rights against a third party.
Sum Insured
the monetary limit of the insurer’s liability under a policy.
Surplus
that part of the sum insured that the insurer does not retail and
consequently reinsures.
T
Target Risk
the main risk where the client has more than one premises. This is
the risk that if damaged, will affect the insurer the most.
Third Party
a person who is not a party to a contract.
Third Party Insurance
(Motor)
motor insurance cover providing compensation for injury to
third parties and damage to their property.
Third Party Fire and
Theft Insurance (Motor)
third party insurance, plus cover for fire damage to, and the
theft of, the insured’s own vehicle.
Treaty Reinsurance
a contract between an insurer and a reinsuring company under
which the former agrees to give and the reinsurer agrees to accept
reinsurance for risks falling within the terms of the agreement.
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U
Uberrima Fides
the duty of good faith imposed on both parties to an insurance
contract to disclose all material facts.
Under Insurance
insurance for a sum insured less than the value at risk.
Underwriter
an insurer; a person who makes decisions on whether or not to
accept insurance business.
Underwriting
the process of assessing a proposal for insurance to decide on its
acceptability, and if so, on what terms.
Utmost Good Faith
see UBERRIMA FIDES (“Utmost” has been ruled to have no
particular meaning in South Africa).
V
Valuations
a list of property with values allocated to each item as the basis of
insurance.
Valued Policy
a contract in which the insurers agree to pay the sum stated in the
event of total loss, without the usual allowance for depreciation or
appreciation.
Void Contract
a contract that cannot be enforced by either party.
Voidable Contract
a contract that one party can choose not to enforce.
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W
Warranty
a condition that must literally be complied with.
Write (Insurance
Business)
provide insurance cover.
_______________________________________________________________________________________
END
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