Liberty Life Association of Africa Limited v P J de Waal NO and J G Roux NO

On 2 July 1991, the appellant (Liberty Life) issued a life insurance policy for R200,000 to the late C J Roux based on an application form completed by the deceased. After his death, Liberty Life refused to pay the benefit claimed by his estate. The respondents, as executors of the estate, instituted action for payment. Liberty Life's defense was that the deceased had provided materially incorrect information in the application form which induced them to issue the policy. Specifically, the deceased had answered positively to questions about whether he had obtained life insurance after 1 April 1986 for which he had made a full medical declaration, and whether it was an insurance plan without minimum life cover. These answers were incorrect. The previous policy was issued by Old Mutual based on an application form where the deceased answered only three medical questions (not a full medical declaration), and the policy did provide for minimum life cover.

• Whether the misrepresentation by the deceased in the application form was material enough to void the insurance policy under section 63(3) of the Insurance Act 27 of 1943
• What must an insurer prove to establish that a misrepresentation materially affected the assessment of risk
• Whether the incorrect information provided would have influenced a reasonable person's assessment of the risk

The appeal succeeded with costs (excluding costs occasioned by the inclusion of certain pages of the record: pp 38-67, 79-102, 135, 143-184, and pp 1-4 of Volume 4). The order of the trial court dated 6 March 1996 was replaced with: 'The plaintiffs' action is dismissed with costs, but the defendant is ordered to pay the costs occasioned by the second set of questions in preparation for trial, dated 21 January 1997, and the second set of questions in terms of Court Rule 37(4), dated 22 January 1997, on the scale applicable between attorney and own client.'

Under section 63(3) of the Insurance Act 27 of 1943, an insurer seeking to avoid liability based on misrepresentation must prove that the incorrect representation was such that it would likely have materially influenced the calculation of risk at the time of issue. The test is not whether the misrepresentation actually affected the risk, but whether correct information would have influenced the assessment of the risk in the opinion of a reasonable person. This includes considering whether the correct information would have caused the insurer to seek further information before deciding whether to accept the risk. A misrepresentation about whether a full medical declaration was made for a previous insurance policy is material because it affects the insurer's ability to rely on another insurer's risk assessment or to know that it should conduct its own full medical evaluation.

The Court noted it was unnecessary to determine whether the second incorrect answer (regarding minimum life cover) was also material in the required sense. The Court also indicated it was not necessary to choose between the approaches of Kriegler AJA in Qilingele v South African Mutual Life Assurance Society 1993 (1) SA 69 (A) and Schutz JA in Clifford v Commercial Union Insurance Co of SA Ltd 1998 (4) SA 150 (A), as the materiality test was satisfied on either approach. The Court refused the request for costs of two counsel on appeal, finding that the appeal did not justify such costs.

This case clarifies the test for materiality of misrepresentation under section 63(3) of the Insurance Act 27 of 1943. It establishes that the focus is not on whether the misrepresentation actually affected the risk, but whether correct information would have influenced a reasonable person's assessment or evaluation of the risk. The case demonstrates the importance of full and accurate disclosure in insurance applications, particularly regarding previous medical examinations and insurance history. It confirms that insurers are entitled to rely on information about whether an applicant has previously undergone full medical examinations for insurance purposes, as this affects their assessment of whether to accept the risk or conduct their own investigations.