Justice Leburu throws out Alpha Direct case

 

The High Court has dismissed with costs a case in which Alpha Direct Insurance Company (Pty) Ltd was challenging decisions by Non-Bank Financial Institutions Regulatory Authority (NBFIRA) instructing the company to pay two of its clients who had submitted claims.

Alpha Direct Insurance Company (Pty) Ltd, a company incorporated in accordance with the laws of Botswana and carrying out business of an insurer as a short-term insurer under the Insurance Industry Act took NBFIRA to court praying for the decisions to be set aside. Tumelo Issacs Motlhala and Arsh Investments (Pty) Ltd had taken Alpha Direct Insurance Company to NBFIRA for refusing to honour their legitimate claims. According to the history of the case on or about April 2015, Alpha Direct and Motlhala entered into a written contract of insurance in terms of which Alpha Direct undertook to insure vehicles Land Rover Discovery with registration number B300 AXR and a Mercedes-Benz C 200K with registration number B 209 APL against the risks described in the contract. On or about the 2nd of December 2015, Motlhala submitted a claim to the company in respect of a loss allegedly suffered as a result of the theft of the Land Rover. On the 11th of May 2016, after assessing his claim, Alpha Direct repudiated the claim.

The repudiation was on the basis that Motlhala had failed to comply with the provisions of the policy by failing to ensure that reasonable steps were taken to prevent the loss of the insured vehicle. Dissatisfied with the repudiation, Motlhala thereafter raised a complaint with NBFIRA, which subsequently wrote to Alpha Direct requesting reasons for the repudiation and after assessing the complaint and the reasons advanced by the company, then directed Alpha Direct on 19 August 2016, to pay Motlhala’s claim, on the basis that it was not justified to repudiate his claim.

On the other hand Arsh Investments (Pty) Ltd entered in a contract with Alpha Direct on or about 21st May 2015, in terms of which Alpha Direct undertook to insure the buildings located at the Arsh Investment business address against the risks described in the contract. In March 2016, Arsh Investments (Pty) Ltd submitted a claim in respect of a loss allegedly suffered due to damage to the swimming pool at the insured address. After commissioning assessment of the damages to the swimming pool, Alpha Direct repudiated the claim on the basis of an assessment report, indicating that the cause of the loss may have been a landslide and not due to heavy rainfall and based on an assessor’s report that the insured had not been totally truthful in submitting the claim. Arsh Investment then complained to NBFIRA which later directed Alpha Direct to pay the claim. Alpha Direct argued in court that NBFIRA’s power to issue a Directive under Section 53 of the NBFIRA Act does not empower the institution to determine parties’ rights and obligations under a contract of insurance.

It was further submitted that the said Directives were ultra vires and null and void because none of the jurisdictional facts that trigger into operation Section 53(1) of the Act were present and lastly that by issuing the said Directive to pay, NBFIRA purported to determine the rights and obligations between two contracting parties to an insurance contract, as if it were a court or a statutory adjudicating authority.

Dismissing the case on Wednesday this week, High Court Judge Michael Leburu stated that under insurance law, the insurer is enjoined to honour all legitimate claims from the insured. Such insurance law, Justice Leburu said is Financial Services Law. He explained that if the regulator is satisfied that there has been unlawful repudiation of an insurance claim, which will be a violation of a Financial Services Law, then the regulator, in terms of Section 53, has the jurisdictional competence to join the fray and issue a written direction, in order to protect the interests of the clients of the insurance company.

“The trigger or jurisdictional fact would thus be a violation of financial services law (insurance), as envisaged by Section 53(1) (a).  The other jurisdictional factor, as envisaged by Section 53(1) (c) is when the non-bank financial institution conducts its affairs in an improper way.  The other pertinent factor that may trigger the issuance of a Directive is when it is necessary to protect the clients of the non-bank financial institution, in terms of Section 53(1)(f) of the Act,” the Judge pointed out.He explained that the two written Directives, issued within the present context, came about after the Regulator, determined that Alpha Direct was not conducting its affairs in a proper way, through unlawful and unfair repudiation of legitimate insurance claims by clients of an insurance company. Payment and honouring of legitimate insurance claims by an insurance company is an integral part of its affairs, he said.

Justice Leburu indicated that put differently, it is part of the affairs of an insurance company, that it renders to the insured, a sum of money, on the happening of a specified uncertain event, in which the insured has some insurable interest.  “Insurance companies are enjoined to consider claims fairly and not to unnecessarily repudiate or delay legitimate claims of its customers, and in terms of paragraph 3(b) of the Schedule 2 of the Insurance Industry Regulations, insurance companies are required to do ‘everything to satisfy, as quickly as possible, the legitimate needs of claimants. 

“The legitimate need of claimants is that the lodged valid claims ought to be honoured and not to be repudiated, unlawfully.  NBFIRA is thus entitled to intervene and issue directives, if it considers that such obligation has not been discharged,” said Justice Leburu indicating that Alpha Direct has thus failed to make out a case for judicial review.