Mutual and Federal Limited v Rumdel Construction (Pty) Limited

Rumdel Construction (Pty) Ltd concluded a construction contract with the Mozambican Directorate of National Roads and Bridges to rehabilitate and open rural gravel roads in Nampula Province, Mozambique. During February 1997, tropical cyclone Lizette caused extensive storm damage to roads that were nearing completion. Rumdel claimed under a contract works insurance policy issued by Mutual and Federal Ltd, which indemnified both contractor and employer against fortuitous physical damage to the works. The insurer repudiated the claim, alleging that Rumdel had no insurable interest because it was not contractually liable to repair the damage, and alternatively that the damage was excluded because it resulted from defective design. The High Court upheld Rumdel’s claim and ordered payment of R2.5 million but did not award interest. Mutual and Federal appealed, and Rumdel cross-appealed on the issue of interest.

The appeal was dismissed with costs. The cross-appeal was upheld, and the High Court order was amended to include interest on R2.5 million at 15.5% per annum from 14 October 1997.

The case clarifies the scope of insurable interest in construction insurance and confirms that contractors may retain an insurable interest where damage is caused by fortuitous events rather than excluded risks such as defective design. It also reinforces principles governing policy exclusions and affirms the entitlement to mora interest on unliquidated damages under the Prescribed Rate of Interest Act.