playing with fire: repudiation and the insured's duty to prevent loss

A common clause in insurance agreements stipulates that the insured is obliged "to take all reasonable precautions to prevent or minimise loss or damage, bodily injury, death, liability and accidents". In view of an interesting factual scenario which has presented itself to us, let us examine the implications of such a 'reasonable precautions' clause, and whether a court will be inclined to rule in favour of an insurer in the case of a repudiation based on such a policy condition.

We represent an insurer in a claim wherein a motor vehicle accident occurred in which the insured's representative (who was the driver at the time) drove at more than 100km/h above the speed limit of 120km/h and lost control of the luxury vehicle.

The vehicle left the road and rolled, resulting in the vehicle being written off (yes, the wheels literally fell off) and one of the passengers in the vehicle was killed.

The insurer repudiated the claim in respect of the vehicle relying on the policy's 'reasonable precautions' clause, and the insured subsequently laid a complaint with the Ombudsman for Short-Term Insurance (OSTI).

After investigation into the factual matrix, the OSTI ruled in favour of the insurer and the insured has since instituted an action for damages against its insurer.

The South African legal position

Despite conflicting historic decisions, the most recent jurisprudence demonstrates that it would undermine the very purpose of a policy of insurance to interpret the policy condition of 'reasonable precautions' as an exclusion of liability for the insured's negligence. As such, our courts favour a restrictive interpretation of 'reasonable precautions' clauses (including use of the contra proferentem rule). An insurer must show that an insured acted recklessly – and not merely negligently – to be justified in its repudiation of a claim arising from damages caused by the insured's own actions.

Importantly, as regards the scope and interpretation of 'reasonable precautions' clauses, the evidentiary burden lies with the insurer, 'to make clear what particular risks it wished to exclude' in a contract of insurance. This is a difficult onus to discharge and the wording of the particular exclusion against the backdrop of the contract of insurance as a whole will be decisive. Insurers should therefore err on the side of caution and take care to be specific in detailing the possible exclusions of liability for loss under a policy of insurance, rather than simply relying on a general condition for the right to repudiate in circumstances where it may be shown that an insured acted recklessly.

Distinctions between negligence and recklessness

In the 1999 case of Santam Ltd v CC Designing CC in the Cape High Court, Judge Comrie addressed the impact and scope of a 'reasonable precautions' clause in detail, together with the question of the interplay between negligence and recklessness.

The learned judge's exposition of this topic took into consideration previous decisions of our courts as well as reasoning and precedents from English decisions on the subject. The judgement was given by a full bench and has widely been accepted as correct.

So what is the difference between 'negligent' and 'reckless' conduct, and what must an insured do to render his insurer able to repudiate a claim on the basis that he indeed played with fire (so to speak) and courted danger deliberately?

It is interesting to note that our courts frequently equate 'reckless conduct' with 'grossly negligent conduct'.

However, these concepts are noted as differing (albeit by very little) in Neethling, Potgieter & Visser's Law of Delict 6th ed. at 127 (see also 134). Here, recklessness is referred to as a 'serious degree of negligence', for which the question is whether the wrongdoer actually subjectively foresaw the possibility of consequences and either did not care what the result might be or was indifferent to the possible result and nevertheless persisted in his conduct.

In contrast, gross negligence, whilst falling short of dolus eventualis, involves "a departure from the standard of the reasonable person to such an extent that it may properly be categorised as extreme; it must demonstrate, where there is found to be a conscious risk-taking, a complete obtuseness of mind…"

There may, however, be an overlap between 'grossly negligent' and 'reckless' conduct in respect of the actions of an insured. This of course complicates matters further, creating difficulty for classification of conduct as being either 'negligent' or 'reckless'.

Whether an insured's conduct has 'crossed the line' into recklessness will obviously have to be determined with reference to the particular circumstances of the claim and to the specific policy (and wording thereof) in question. On the one hand, continuing to drive a vehicle which has been in an accident and which the driver knew had experienced radiator damage was considered by the OSTI in 2011 to have rendered the insured deliberately courting danger, and the insured was declared to be responsible for all serious engine damage suffered as a result of such conduct. What, on the other hand, of an insured driving well over the speed limit?

From the description of 'recklessness' above it is clear that subjective factors play a large role in determining the recklessness of an insured. Such subjective factors may be inferred from the facts and surrounding circumstances of the claim. In fact, Judge Comrie noted in his judgment in CC Designing that "the question [of recklessness] is predominantly one of fact". Considerations in regard to recklessness of an insured's conduct include previous deliberation and preparation coupled with failure to render assistance, absence of surprise at the outcome of an action or omission, regret or sympathy and, most importantly, the grave consequences which have flown or may still flow from such conduct.

It remains to be seen whether our courts will deem driving in excess of 100km/h above the speed limit of 120km/h to be 'reckless' in view of the prevailing case law and to reverse the OSTI's decision in favour of the insurer.

Watch this space for more developments as the case unfolds in regard to this pertinent question of SA insurance law.