Question 1
(a) Briefly distinguish between indemnity and non-indemnity insurance and
explain why it is necessary to distinguish between the two. (5)
The most fundamental distinction between different types of insurance contract is that
between indemnity insurance contracts and non-indemnity insurance contracts. It is
the distinction that is rather troublesome in insurance law, not only for definitional
purposes but also on a theoretical level. The distinction is based on the nature of and
aim with the insurer’s performance.
In indemnity insurance the contract between the parties provides that the insurer will
indemnify the insured for patrimonial loss or damage suffered as the proximate result
of the happening of the event insured against. The insurer indemnifies the insured
either by replacing or repairing the lost or damaged object of risk, or by paying the
insured an ascertainable sum of money.
The difference between indemnity and non-indemnity insurance may also be taken to
lie in the nature of the interest that is the object of the insurance. In indemnity insurance
the interest must of necessity be of a patrimonial nature for otherwise no financial loss
or damage can be caused through its impairment. By contrast, the interest that serves
as the object of a non-indemnity insurance contract must be regarded as non-
patrimonial in substance.1
Thus, the distinction between indemnity and non-indemnity insurance coincides
largely with the distinction between non-personal (property and liability) insurance and
personal (eg, life) insurance, as also with that between short-term and long-term
insurance.
(b) The Constitution of the Republic of South Africa,1996 is an important source
of South African insurance law.
1 MFB Reinecke, JP van Niekerk and PM Nienaber, South African Insurance Law (LexisNexis
2013) 21.
,Comment on the validity of the above statement and explain your answer with
reference to practical examples in current insurance practice. Also refer to any
other relevant legislation that may support your answer. (10)
Contracts of insurance must comply with the Constitution2 otherwise they are invalid.
The rights enshrined in the Bill of Rights and their protection are of particular
importance to the business of insurance and to insurance law and will, in the course
of time, impact on various aspects of it. The equality clause holds that no one can
unfairly discriminate on the grounds of race, sex, gender etc.
In the Promotion of Equality and Prevention of Unfair Discrimination Act:3
a) Unfairly refusing on one or more of the prohibited grounds to provide or make
available an insurance policy for any person
b) b) Unfair discrimination in the provision of benefits or services related to
insurance
c) Unfairly disadvantaging a person based on their HIV status.
Until now, the impact of the Constitution on insurance law has been mainly onits
legislation and on a few insurance contract terms. However, there is no doubt that in
due course insurance practices too will come under scrutiny.
In particular the fundamental practice of differentiating between the risks presented by
different persons for purposes of risk classification and rating will come up against the
right to equality. This right is especially relevant to insurers and insurance law and
practices as the Bill of Rights prohibits any unfair discrimination against anyone on
one or more of the so-called listed grounds, which include race, gender, sex,
pregnancy, marital status, sexual orientation, age, and disability. These grounds are,
often, also the basis upon which, in deciding whether (or not) to insure persons, and,
if so, at what premium rates and on what terms, insurers differentiate between such
persons or groups of persons.
The crucial question is whether such differentiating practices amount to unfair
discrimination. In answering this question, two further factors are relevant. First, it is
possible that fundamental, entrenched rights may be limited in their scope of
2 Constitution of South Africa, 1995.
3 The Promotion of Equality and Prevention of Unfair Discrimination Act, 2000.
, operation. Secondly, discrimination on any of the listed grounds is presumed to be
unfair discrimination unless it is established that the discrimination is fair. 4
In Kitshoff NO v Brink 1997,5 the now repealed Insurance Act6 s 44(1) and (2) was
held unconstitutional and hence invalid as in certain circumstances they deprived
married women of all or some of the benefits of life insurance policies ceded to them
or made in their favour by their husbands, but did not do likewise for married men; the
different treatment of married women and married men, disadvantaging the former but
not the latter, amounted to discrimination based on the grounds of sex and marital
status
In Farr v Mutual and Federal Insurance7 the exclusion of insurer liability as regards
third-party liability cover in a motor-vehicle insurance contract if the third party was a
member of the insured’s “family normally resident with him” to include a partner living
with the insured in a permanent homosexual relationship. In Du Plessis v Road
Accident Fund8 the right of a partner in a same-sex relationship to claim for damages
from a statutory compensation fund for the loss of support due to the death of the
breadwinner partner was deliberated on.
(c) Thabo is a sprint athlete. As part of an advertising campaign, Pulse Insurance
Company provides Thabo and his fellow team members with free life insurance
cover, including accident insurance cover, in the amount of R500 000 for the
duration of their Olympics tour in Tokyo, Japan. Thabo is hit by a bus in Tokyo
and dies as a result of his injuries.
Advise Thabo’s heir, Thembi on the following two issues. Firstly, whether a true
contract of insurance existed between Thabo and Pulse Insurance Company.
Secondly, whether there is any legal obligation on Pulse Insurance Company to
pay the R500 000 to Thabo’s deceased estate. (5)
4 Reinecke, van Niekerk and Nienaber, Insurance Law 87.
5 Kitshoff NO v Brink 1997 (4) SA 117 (T).
6 Insurance Act 27 of 1943.
7 Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C).
8 Du Plessis v Road Accident Fund 2004 (1) SA 359 (SCA).
(a) Briefly distinguish between indemnity and non-indemnity insurance and
explain why it is necessary to distinguish between the two. (5)
The most fundamental distinction between different types of insurance contract is that
between indemnity insurance contracts and non-indemnity insurance contracts. It is
the distinction that is rather troublesome in insurance law, not only for definitional
purposes but also on a theoretical level. The distinction is based on the nature of and
aim with the insurer’s performance.
In indemnity insurance the contract between the parties provides that the insurer will
indemnify the insured for patrimonial loss or damage suffered as the proximate result
of the happening of the event insured against. The insurer indemnifies the insured
either by replacing or repairing the lost or damaged object of risk, or by paying the
insured an ascertainable sum of money.
The difference between indemnity and non-indemnity insurance may also be taken to
lie in the nature of the interest that is the object of the insurance. In indemnity insurance
the interest must of necessity be of a patrimonial nature for otherwise no financial loss
or damage can be caused through its impairment. By contrast, the interest that serves
as the object of a non-indemnity insurance contract must be regarded as non-
patrimonial in substance.1
Thus, the distinction between indemnity and non-indemnity insurance coincides
largely with the distinction between non-personal (property and liability) insurance and
personal (eg, life) insurance, as also with that between short-term and long-term
insurance.
(b) The Constitution of the Republic of South Africa,1996 is an important source
of South African insurance law.
1 MFB Reinecke, JP van Niekerk and PM Nienaber, South African Insurance Law (LexisNexis
2013) 21.
,Comment on the validity of the above statement and explain your answer with
reference to practical examples in current insurance practice. Also refer to any
other relevant legislation that may support your answer. (10)
Contracts of insurance must comply with the Constitution2 otherwise they are invalid.
The rights enshrined in the Bill of Rights and their protection are of particular
importance to the business of insurance and to insurance law and will, in the course
of time, impact on various aspects of it. The equality clause holds that no one can
unfairly discriminate on the grounds of race, sex, gender etc.
In the Promotion of Equality and Prevention of Unfair Discrimination Act:3
a) Unfairly refusing on one or more of the prohibited grounds to provide or make
available an insurance policy for any person
b) b) Unfair discrimination in the provision of benefits or services related to
insurance
c) Unfairly disadvantaging a person based on their HIV status.
Until now, the impact of the Constitution on insurance law has been mainly onits
legislation and on a few insurance contract terms. However, there is no doubt that in
due course insurance practices too will come under scrutiny.
In particular the fundamental practice of differentiating between the risks presented by
different persons for purposes of risk classification and rating will come up against the
right to equality. This right is especially relevant to insurers and insurance law and
practices as the Bill of Rights prohibits any unfair discrimination against anyone on
one or more of the so-called listed grounds, which include race, gender, sex,
pregnancy, marital status, sexual orientation, age, and disability. These grounds are,
often, also the basis upon which, in deciding whether (or not) to insure persons, and,
if so, at what premium rates and on what terms, insurers differentiate between such
persons or groups of persons.
The crucial question is whether such differentiating practices amount to unfair
discrimination. In answering this question, two further factors are relevant. First, it is
possible that fundamental, entrenched rights may be limited in their scope of
2 Constitution of South Africa, 1995.
3 The Promotion of Equality and Prevention of Unfair Discrimination Act, 2000.
, operation. Secondly, discrimination on any of the listed grounds is presumed to be
unfair discrimination unless it is established that the discrimination is fair. 4
In Kitshoff NO v Brink 1997,5 the now repealed Insurance Act6 s 44(1) and (2) was
held unconstitutional and hence invalid as in certain circumstances they deprived
married women of all or some of the benefits of life insurance policies ceded to them
or made in their favour by their husbands, but did not do likewise for married men; the
different treatment of married women and married men, disadvantaging the former but
not the latter, amounted to discrimination based on the grounds of sex and marital
status
In Farr v Mutual and Federal Insurance7 the exclusion of insurer liability as regards
third-party liability cover in a motor-vehicle insurance contract if the third party was a
member of the insured’s “family normally resident with him” to include a partner living
with the insured in a permanent homosexual relationship. In Du Plessis v Road
Accident Fund8 the right of a partner in a same-sex relationship to claim for damages
from a statutory compensation fund for the loss of support due to the death of the
breadwinner partner was deliberated on.
(c) Thabo is a sprint athlete. As part of an advertising campaign, Pulse Insurance
Company provides Thabo and his fellow team members with free life insurance
cover, including accident insurance cover, in the amount of R500 000 for the
duration of their Olympics tour in Tokyo, Japan. Thabo is hit by a bus in Tokyo
and dies as a result of his injuries.
Advise Thabo’s heir, Thembi on the following two issues. Firstly, whether a true
contract of insurance existed between Thabo and Pulse Insurance Company.
Secondly, whether there is any legal obligation on Pulse Insurance Company to
pay the R500 000 to Thabo’s deceased estate. (5)
4 Reinecke, van Niekerk and Nienaber, Insurance Law 87.
5 Kitshoff NO v Brink 1997 (4) SA 117 (T).
6 Insurance Act 27 of 1943.
7 Farr v Mutual and Federal Insurance Co Ltd 2000 (3) SA 684 (C).
8 Du Plessis v Road Accident Fund 2004 (1) SA 359 (SCA).
