Unitrans Freight (Pty) Ltd v Santam Limited

Santam insured a motor vehicle owned by JG Olieverspreiders. The policy included an extension clause indemnifying any person driving or using the vehicle with the insured's permission. De Kroon Brandstofverspreiders CC (De Kroon) was using the insured vehicle with permission when its employee, Mr Shai, negligently caused a collision that damaged Unitrans' vehicle. De Kroon became vicariously liable to Unitrans for the loss. De Kroon was subsequently placed under a winding up order. Unitrans sued Santam directly under section 156 of the Insolvency Act to recover its loss. Santam excepted to the particulars of claim on the grounds they disclosed no cause of action. Willis J in the Johannesburg High Court upheld the exception. Unitrans appealed with leave of the Supreme Court of Appeal.

• Whether an extension clause in a motor insurance policy obliges an insurer to indemnify an authorised user as contemplated by section 156 of the Insolvency Act 24 of 1936
• Whether the extension clause constituted a stipulatio alteri (stipulation for the benefit of third parties)
• Whether acceptance of the benefit by the third party (De Kroon) was necessary for the insurer to incur liability
• Whether clause 11 of the policy, which stated that persons other than the insured have no direct rights of claim, precluded the operation of section 156
• The proper interpretation of the phrase 'obliged to indemnify' in section 156 of the Insolvency Act

The appeal was upheld with costs. The order of the court a quo was set aside and substituted with an order that the exception is dismissed with costs.

Section 156 of the Insolvency Act 24 of 1936 does not require a contractual relationship between the plaintiff and the insurer. The section enables a third party to claim directly from an insurer when the person liable to the third party is insolvent, provided the insurer is obliged to indemnify that person against the liability. An insurer can be 'obliged to indemnify' a person for purposes of section 156 even where the insurance policy contains a clause (such as clause 11 in this case) that denies direct enforcement rights to persons other than the insured and requires claims to be made by the insured on behalf of such persons. Such a clause prescribes a procedure for enforcement but does not negate the underlying obligation to indemnify. Where an extension clause in a motor insurance policy indemnifies any person using the vehicle with the insured's permission, the insurer is obliged to indemnify such authorised user against liability to third parties arising from use of the vehicle, and that obligation is enforceable by third parties under section 156 when the authorised user becomes insolvent.

The court noted that it has been suggested in academic writing that an indemnity given in the form of the extension clause in this case (where the insured has no insurable interest in protecting the authorised user) might be void for lack of insurable interest, and that this has been held to be the case in other jurisdictions (citing Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 and Old Mutual Fire & General Insurance Company of Rhodesia (Pvt) Ltd v Springer 1963 (2) SA 324). However, the court expressed surprise at the notion that an insurer who has given an earnest undertaking to indemnify a person in what is clearly a policy of insurance and not a gambling contract would repudiate its obligations on those grounds, noting that the requirement of insurable interest is designed to prevent insurance policies from being used as gambling contracts. The court also observed that even if the particulars of claim are not excipiable, this does not mean Unitrans would necessarily succeed if the facts are established, as a claim might yet be defeated for non-compliance by the insured with conditions of the policy.

This case is significant for clarifying the scope and application of section 156 of the Insolvency Act in the context of motor insurance policies with extension clauses. It establishes that an insurer can be 'obliged to indemnify' a third party for purposes of section 156 even where the policy expressly excludes direct enforcement rights by that third party. The judgment confirms that section 156 is a statutory mechanism that allows third parties to bypass the insolvency of a liable party and claim directly from the insurer, without requiring proof of a contractual relationship with the insurer. The case demonstrates the courts' willingness to give effect to indemnity obligations despite procedural restrictions in insurance policies, and distinguishes between the existence of an obligation to indemnify and the procedure for enforcing that obligation. It has important implications for claims against insurers in circumstances where the insured or an authorised user becomes insolvent.