KGA Life Limited v Multisure Corporation (Pty) Ltd and Others

KGA Life Limited (KGA) was a licensed insurer. Multisure Corporation (Pty) Ltd (Multisure) was an independent intermediary marketing funeral policies. On 14 January 2015, KGA and Multisure entered into an Intermediary Agreement (IA) incorporating a Master Policy (MP) creating a group funeral insurance scheme. The majority of Multisure's clients were social grant beneficiaries whose premiums were deducted by SASSA and paid to KGA through Q Link Holdings (Pty) Ltd. The Insurance Act 18 of 2017 (the 2017 Act) came into effect on 1 July 2018, introducing significant changes to group insurance schemes. The new Act required a 'group' to be an autonomous association democratically controlled, an employer, or a fund holding the policy for beneficiaries' benefit. The definition differed substantially from pre-existing regulations. Multisure purported to cancel the IA effective 1 September 2021, intending to appoint African Unity Life Limited (AUL) as the new underwriter. Multisure sought a high court order directing KGA to facilitate the transfer of deduction codes to AUL and to pay over premiums received from 1 September 2021. The high court granted the relief. KGA appealed, arguing inter alia that the 2017 Act rendered the group scheme unlawful and unenforceable as it did not comply with the new definition of 'group', and that no valid contract existed to cancel.

• Whether the Insurance Act 18 of 2017 rendered the pre-existing group funeral insurance scheme unlawful and unenforceable by reason of supervening illegality
• Whether contracts for the performance of insurance business prohibited by statute are void and invalid
• Whether section 5(1) of the 2017 Act prohibiting unlicensed insurance business rendered the group scheme a nullity
• Whether the Policyholder Protection Rules could validate contracts rendered void by statute
• Whether Multisure had the power to unilaterally cancel the scheme and appoint a new underwriter
• Whether the group scheme complied with the definition of 'group' under Schedule 2 of the 2017 Act

1. The application to adduce further evidence on appeal is dismissed with costs. 2. The appeal is upheld. 3. There is no order as to the costs of the appeal. 4. The order of the High Court is set aside and replaced with: '1. The application is dismissed. 2. There is no order as to costs.' 5. The Registrar is directed to refer a copy of this judgment to the Prudential Authority under the Insurance Act 18 of 2017.

Where legislation prohibits the conduct of insurance business without appropriate licensing, and defines 'group' insurance schemes in terms that exclude pre-existing arrangements, contracts for the performance of such prohibited insurance business are rendered void and unenforceable by supervening illegality. The general principle that acts done contrary to statutory prohibition are void applies unless there is clear legislative intention to the contrary. The prohibition in section 5(1) of the Insurance Act 18 of 2017 against conducting insurance business without a license operates to nullify group insurance schemes that do not comply with the Act's requirements. Subordinate rules made under delegated authority cannot validate contracts rendered void by an Act of Parliament. A contract that is void and unenforceable cannot be cancelled, and a party to such a contract has no power to appoint a substitute insurer or direct changes to payment arrangements on behalf of scheme members.

The Court noted that the founding papers ignored the implications of the 2017 Act entirely, addressing it only after KGA raised the issue in its answering affidavit. The Court observed that both KGA and Multisure acted throughout in pursuit of their personal financial interests with scant regard for the funeral insurance interests of the scheme members. The Court declined to make findings on whether KGA had a sound claim to continue receiving premiums or being at risk for the former scheme members, as those questions were not reached in the appeal. The Court commented that the rules of Q Link relied upon by Multisure contemplated transfer of groups of insurance premium deductions and could have no application when individuals seek to cancel deductions with one insurer and establish new ones with another. The Court noted that the changes brought about by the 2017 Act caused consternation in the funeral insurance industry and effectively excluded intermediaries doing business as Multisure had done. Given the consequences of the judgment for the funeral insurance industry, the Court directed that a copy be referred to the Prudential Authority.

This case is significant in South African insurance law as it clarifies the consequences of supervening statutory illegality on pre-existing insurance contracts. It establishes that group funeral insurance schemes operating through intermediaries that do not meet the definition of 'group' under the Insurance Act 18 of 2017 are unlawful and unenforceable from the date the insurer became licensed under the new regime. The judgment reinforces the principle that contracts for the performance of acts prohibited by statute are void, and that subordinate regulations (Policyholder Protection Rules) cannot override statutory prohibitions to validate otherwise void contracts. The case has far-reaching implications for the funeral insurance industry, particularly schemes involving social grant beneficiaries, and emphasizes the need for insurers and intermediaries to ensure compliance with regulatory changes within prescribed transitional periods. It protects policyholders by ensuring the regulatory framework for safe and stable insurance markets is enforced, while providing for remedies under section 67 of the 2017 Act for affected policyholders.