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Midlands State University

Faculty of Commerce

Department of Insurance & Risk Management

Module : Liability Insurance IRM 403

Lecturer : S. Masiyiwa

“Good advice is precious”

CHAPTER 1

SOURCES OF LIABILITY

1. IntroductionEvery person has a common law obligation not to harm the property and rights of others (ex-delictu). This duty might arise out of a special agreement between wrongdoer and the victim (ex-contractu. This is illustrated in case of Donoghue v Stevenson (1928). Mrs Donoghue suffered shock and gastric complaint after drinking bottled beer that turned to have contained a dead snail. She did buy the drink herself (her friend paid for it) so she had no contractual obligations with manufacturer, Stevenson. At that time (1928) the manufacturer owed a duty of care only to purchasers, not to consumers. Mrs Donoghue’s lawyer used the case to challenge existing law. After some protracted legal proceedings, the House of Lords (the court of appeal in UK) ruled that a duty of care was also owed to consumers and Mrs Donoghue was entitled to recover damages. The court was subsequently settled out of court. This case led to the development in the concept of products liability as we know it today.From the above it can be deduced that liability arises from contract and delict. These are discussed below:

1.1 ContractA contract is an agreement between two or more people which creates or is intended to create legal obligations between the parties thereto. The parties become legally liable to each other and if any party breaches this legal duty he becomes contractual liable. Under the doctrine of privity, contractual actions can be brought only by the parties to the contract, for example:

(a) Liability under contract is assumed voluntarily(b) From a liability insurer’s point of view, contractual agreements are excluded, unless liability would have attached notwithstanding such agreement. For instance, a lease agreement might make the tenant responsible for loss or damage to the property, its fixtures and firings. The tenant is responsible for any loss or damage at common law.(c) Liability assumed under insurance policies so that insurers cannot afford to ignore contractual conditions entirely.

1.2 DelictA delict is a civil wrong for which damages can be claimed as compensation and for which redress is not usually dependent on a prior contractual undertaking to refrain from causing harm. Every person owes the society the duty not to cause harm to others and their property.

A delictual action can be brought by anyone who has suffered harm through a breach of the general duty not to harm others i.e. in person, to their property or personality.

1.2.1 Special features of delictual action:- There is no need for contractual relationship between the parties- Many claimants can be involved e.g. Bhopal India, 1983.- Delictual duty arises involuntarily

Examples

(a) A surgeon performs a laparotomy on a patient in terms of a contract. If he negligently leaves a swab in the patient’s abdomen, the patient can sue him in contract or in delict.(b) A garage fails to examine a car’s steering mechanism or report the defect to the owner who is then involved in an accident with a third party. Courts have held garages delictually liable on the basis of the garage’s contractual duty to inform the owner of a defect in his vehicle (Blore v Standard General Ins 1972 (2) SA89 (0)).

1.2.2 Elements of a delict

(a)Wrongful conduct

Conduct is defined as a voluntary human act or omission. This also includes acts of juristic person e.g. companies.- For liability to attach, some harm/prejudice must be caused in a legally reprehensible and unreasonable manner.- Without wrongfulness, a defendant may not be held liable- One cannot prove wrongfulness, but can prove facts which the court can use to conclude that the defendant acted wrongfully.- Can be a positive act (intentional) or an omission to act (negligence). The general rule is that the person does not deliberately act unlawfully by merely failing to prevent damage or bodily injury to another. Liability follows only if the failure was lawful – i.e. if under the circumstances, there was a legal duty to act to prevent the damage.

(b)FaultThe loss must be attributed to fault on the part of the defendant and whether this is intentional or negligent.

(c)CausationThere must be a relationship (causal nexus) between the defendant’s act or omission and the harm or injury suffered by plaintiff.

(i) Factual causationThe courts will initially ask whether the harm would have occurred even if the defendant had not acted in the way he did. If the harm would have occurred the defendant’s act is taken as a contributing factor. Causation depends on the facts of the particular matter.

(ii)Legal causation or remoteness of damageOnce the initial enquiry is answered, the courts will consider whether the harm caused is loosely linked with the defendant’s act or whether there causal link is too remote.

(d)Loss / harmThere must be some loss or damage (loss of property or some injury) for which the law makes compensation available. The type of harm suffered determines the natures of the legal action.

1.3 Injury to property (Patrimonial loss)Patrimony is taken to mean everything a person possesses, and is not limited to things that can be seen and includes:- Physical damage to property and reduction to the value of that property- Something that prevents the estate from increasing, e.g. loss of production as a result of the event- Medical expenses- Loss of earningsThe remedy for patrimonial loss is the Aquilian action whose foundation is in Roman law.

1.4 Injury to personality (Defamation, Injuria)For liability to attach it must be shown that personality rights were infringed.

Defamation is the intentional infringement of another person’s right to his/her good name as might happen by publishing falsehoods against him/her. Publishing is not only limited to use of newspapers or periodicals but includes making it known to a third party other than spouse.

Injuria is an intentional infringement of a personality right, e.g. by swearing at someone or calling him/her names.

The remedy is the Actio iniuriarum, which has the object of reparation for lowering the plaintiff’s esteem in the community or causing feelings of injustice, injury and suffering to the plaintiff.

There is no formula for the determination of the monetary award payable to plaintiff. The courts will only consider the degree of intent and use its discretion in placing some monetary value on the harm suffered.

1.5 Physical injuryEvery action which harms another person and satisfies the elements for delictual liability is also a delict. The victim has the option of laying a criminal charge, e.g. assault and/or suing the assailant for damages. Every factual infringement of a person’s physique or psyche violates his/her corpus.

Physical injury may occur with or without violence with or without pain, but must not be of trivial nature. The action for pain and suffering includes:- Disfigurement- Mental injury- Emotional shock- Shortened life expectancy- Loss of amenities of life and health- Physical and mental suffering

Although no amount of money can adequately compensate for pain and suffering, our law accords the victim a monetary award as compensation. It has been argued at the courts that every person is entitled to live free from pain and in enjoyment of those pleasures in life which accrue to the possessor of a health mind and body. If through the wrongful conduct of another, the person loses these advantages, the law affords him/her the comfort which is assumed to flow from being in possession of a sum of money derived from an award of damages given against the wrongdoer,(Hoffa No v SA

Mutual Fire and General Insurance Company Ltd 1956 2 SA (C)).

1.6 Dependant’s actionThe dependant of a person killed in wrongful or culpable manner may claim damages from the wrongdoer for loss support. The killing infringes the dependant’s personal right of support by the breadwinner and his action is not affected by contributory negligence or special agreements by the breadwinner e.g. that the deceased had accepted the risk of being killed or had realised the wrongdoer from liability.

1.7 Strict liabilitySome statutory and common law wrongs impose strict liability. Liability only depends on proof of the act – intent or negligent is not required. Such cases are few and the exception in our law.

(a)Common law examples

Actio de pauperie – liability for animalsIf a domestic animal acts against its nature (i.e. ferociously and not tamely and gently) the owner is liable in delict for the injury or damage caused to third parties.However, this will not apply where:- The plaintiff had no right to be there when s/he was attacked.- S/he or a third party provoked the animal- The harm was as a result of pure accident

Actio de effuses vel dejectis - liability for falling objectsIf a person is killed or injured by something thrown or falling out of a building where the public normally pass, that person or his dependants has an action in damages against the occupier of the building for the harm suffered, irrespective of negligence or intent.

(b)Statutory examplesStatutory liability is imposed for activities that create extraordinary risk of harm to the community. A fixed maximum amount of compensation is sometimes set.

The Aviation ActVictims of objects falling from an aircraft have a claim to the owner of the aircraft, irrespective of fault.

1.8 Vicarious liabilityVicarious liability is strict liability of one person for the delict of another. Liability attaches only when there is a particular relationship, e.g.:- Employer and employee

- Principal and agent- Motor car owner and the driver

(a)Employer and employeeThe employer is liable if:- The relationship of master and servant can be established, and- The servant was acting within the scope of his/her employment and time of the incident. If a forbidden act is connected to the general character of an employee’s work, the employer is still vicariously liable.

Example 1(Viljoen v Smith 1997 (1) SA 309 (AD)).An employee in a vineyard, contrary to a prohibition by his employer, walked 300 meters and relieved himself in the bushes on a neighbouring farm. He tried to light a cigarette and caused a fire there. According to the court, the employee was deemed to have done the act during the course of his employment as the digression was a fairly short distance and a few minutes and employer was liable

Example 2Private work for directorsIf a director or executive of a company engages a company employee to do work such as maintenance at the director’s private house, the employee is then under the personal authority of this official who will be legally responsible for injury or damage caused by the employee.

Example 3Labour Only – SubcontractorsFor insurance purposes self employed persons, labour gangs are taken as direct employees of the main contractor who exercises considerable control over them and is also responsible for the requirements of construction regulations.

(b)Principal and agent A principal/agent relationship must exist at the time of the delict and agent must be working within the scope of his authority e.g. misrepresentation by the agent to a third party.

(c)Motor car owner an driver (other than employee of owner)For liability to attach:- the owner must ask the driver to drive or supervise his driving- the vehicle must be driven in the interests of the owner- the owner must retain a right of control over the manner in which the vehicle is driven

CHAPTER 2

DEFENCES AND REMEDIES

2.0 IntroductionVarious defences and remedies are available to the defendant and plaintiff respectively. These are discussed below:-2.1 Defences(a)Lack of capacity / accountabilityA person’s responsibility for his action depends on his capacity to distinguish between right and wrong and act accordingly. The following may affect one’s ability to distinguish between what is right and wrong:- Children: children under seven years are regarded as lacking capacity. Those over seven years but under the age of fourteen years are presumed to lack capacity, unless proved otherwise.

- Mentally deficiency: a person may be unable to distinguish between right and wrong or be able to distinguish but unable to act accordingly.

- Liquor and drugs: someone may lack capacity by being under the influence of liquor or drugs. However, they are liable because they are responsible for taking these substances in the first place.

- Provocation: a provoked person may become so angry to the extent he will not be able to know what he is doing.- Automatism: the performance of actions, such as sleep walking, without conscious knowledge or control. The defendant may not intentionally create a situation where he acts involuntarily in order to harm another.

2.2 General defences.(a)Private defenceEvery person is entitled to defend himself and members of his family and his property against attack. The following defences are available in delict:

Attack- Must be wrongful- Must have commenced or imminently threatening. He must act with the intention of preventing an existing or imminent attack.- Must not have ceased. At this stage would amount to revenge, not defence.

Defence- Must be directed against the aggressor- Must be necessary to protect the right. It must be the only reasonable alternative to protect threatened interest.

(b)NecessityState exists when defendant is placed in a position such that he is unable to protect his interests (or those of another person) except by violating the interests of an innocent third party.

Examples Mr Chinos breaks down the door of Mr Jabu’s burning house in order to rescue Mr

Madi who is trapped inside. A person defending himself against attack by an animal acts out of necessity, not

self defence as an animal cannot act wrongfully. If a patient has not consented to treatment, such treatment may be administered

out of necessity. The doctor has to prove that treatment was out of necessity and the circumstances were such that he could not obtain the requisite consent.

(c)ProvocationProvocation can provide justification or reduce the amount of damages awarded.

(d)Casus fortuitous (inevitable accident)This is where the accident could not have been avoided by any precautions which a reasonable man could be expected to take e.g. floods and lightning..(b)Vis major ( Act of God)The defence is similar to casus fortuitous. Vis major is a superior force which cannot be resisted or controlled.

(c)ConsentThe courts will not readily accept that a person consented to harm. Requirements of defence under consent are:-- Knowledge:- of the nature and extent of the risk- Appreciation:- understanding what the nature and extent of the harm will be- Consent: - must be legally permissible and not contrary to public interest. There must be no force or compulsion and the person must be able to distinguish between right and wrong.

Examples(i) A farm worker was given the choice between a beating and prosecution. He agreed to beating, but the farmer was afterwards convicted on an assault charge.

Consent to injury or risk of injury is:-- Given by words (express consent) or- Given by actions (tacit consent)- A question of fact, which must be proved

(ii)Disclaimer and ticket casesSome providers of goods and services use disclaimers that are meant to exclude or limit the liability that would otherwise apply to owners of the business. For example: Parking at owner’s risk or luggage carried at owner’s risk or garment cleaned at owner’s risk.

Agreement to these special conditions and warnings is a question of fact that must be proved to the satisfaction of the court. The court will seek to be convinced that that the consumer saw the notice or knew that there were conditions printed on the ticket and that they formed part of the contractual agreement or the party issuing the notice did what was reasonably necessary to draw the consumer’s attention to it..(iii)Volenti Non Fit Injuria ( A willing person is not wronged or he who consents cannot be injured)Under this doctrine the injured person consents to specific harm. For example if a patients consent to excision of an abscess on the right big toe, the surgeon cannot amputate the right foot.

(iv) Consent to risk of harmBy signing a consent form for operation, a patient agrees to the risk of surgery, including possible side effects of anaesthesia, prolonged recovery, etc.

(e)Contributory negligenceThe courts will apportion the damage of each party according to his degree of fault and has the following effect:- The plaintiff, although partly to blame, can still recover part of his damages- Contributory negligence on the part of the plaintiff reduces the damages against the defendant.

ExampleFailure to wear seat belt constitutes contributory negligence on the part of the passengers in an accident where the failure to do so would lead to serious injuries or fatalities.

(f) Negligence of third partyThe defendant can cite negligence or intent of a third party as cause of the damage in his defence. However, negligence of the deceased cannot be imputed to his dependants suing for deprivation of support.

(g)Negotiorum gestorThis occurs when someone acts in the interests of another but without the other’s permission. For example, if you break down a door to extinguish a fire which has broken in a neighbour’s premises in order to save the house and its contents, you will not be liable for the damage to the door but you may claims compensation for reasonable costs incurred.

However, the gestor must be reasonable in the circumstances and perform it in good faith and that the principal would have consented if his permission had been sought.

(h)Mistake

Mistake does not usually constitute a defence but it may show that there was no intent to injure.

(i) ReleaseA person who would otherwise have an action in delict may at any time elect to release the other party. The party cannot claim damages for the same action in future as release constitutes a valid defence. However, release only extinguishes claims by the person electing release but not the claims by his dependants.

(j) PrescriptionMost delicts prescribe and become unenforceable after three years.Important features of prescription:- Does not run if the wrongdoer wilfully prevents the plaintiff from finding out about the delict.- Does not start to run until the plaintiff is aware of the delict or could be reasonably be expected to be aware of it- Three years is a general principle and most short term insurance policies provide for afar shorter prescription period. Insurers should be notified of the occurrence of an event within a short period while the formal claim should be lodged within a certain period, for example, two years. However, in liability claims, the period for submitting the claim may be extended to allow for proper assessment of the extent of loss.

(k)Effect of contract conditionsContract wordings may seek to alter or restrict common law liability or may emphasise or restate the existing common law position.

(l) Indemnity clausesOne party agrees to indemnify another against loss or liability. For example a client hiring mobile plant is responsible for loss or damage to the plant, unless the loss resulted from a pre-existing defect or loss was not caused by the client.

(m) Exemption clausesThese are meant to exclude or restrict (limit) liability of one party in some way. Courts are often reluctant to enforce exemption clauses as the legal principle is that parties cannot contract out intentional wrongful conduct. It most cases negligence is equated with intent and as a result exemption clauses offer no protection.

ExampleA principal may require a contractor to assume responsibility for injury or damage even in circumstances in which he had no control. The contract might either be worded to relieve the contractor of liability in cases where he no effective control or word it in a way that makes him responsible for his negligence, that of his employees and subcontractors.

Exemption clauses must be specifically incorporated in the contract at the time of entering into the agreement. For example, a hotel guest who has already signed the register when booking in, is not bound by a further list of exclusions he later finds pinned behind the door of his room (Olley v Marlburgh Court Ltd 1949)

On the other hand, a disclaimer notice on the ticket office of an amusement park was held to be binding as it was clearly displayed and would be seen by people buying tickets for the rides (Durban’s Water Wonderland (Pty) Ltd v Botha and Another (1999) 1 All SA411 (A))

Where exemption clauses are incorporated in tickets or vouchers, either on the document itself or by reference, e.g. subject to NRZ railway regulations the following tests apply:- Did the person receiving the ticket or document know that there was printing or writing on it- If so, did he know that it contained provisions relating to itIf the answer is “yes” then the provisions apply without further enquiryIf answer to any of the questions is “no” the following question should be asked- Did the person issuing the ticket do what was reasonably sufficient to give the plaintiff notice of the stipulation? If the issuer did, then its provisions are binding even if the person was blind, illiterate or did not see the printing.

(n)Effect of statutesCausing damage by conduct in breach of statutory duty is prima facie (at first sight) wrongful and is an indication of wrongful violation of the plaintiff’s interests. However, in order to succeed in delict he must prove that:- The relevant statute provided him with a private law remedy- He is a person or a member of a group of people the statute was meant to protect- The harm and the manner in which it occurred are as contemplated in the statute- The defendant transgressed the statutory provision- There was causal nexus (connection recognisable by law) between the transgression and the harm suffered.

ExampleMr Nzo who had a shop near a mine compound applied for interdict against Mr Bigot who ran a similar business on claim land at the entrance of the compound. Trading on claim land was prohibited by statute. The court held that infringement of goodwill is unlawful, if caused by conduct prohibited by statute.

(o)RemediesThe objective of a legal suit by plaintiff is to get some relief or compensation through the courts. The most usual and important form of relief is damages which fall into the following categories:-

(i) General damagesThese are damages that flow from the delict or breach of contract and can be claimed for pain and suffering, nervous shock, loss of general health and amenities, reduced earning capacity, future medical expenses, etc.

(ii)Special damagesThese damages do not flow from the commission of delict and the plaintiff will have to prove his loss e.g. loss of earnings. The special damages claimed must be itemised in

the pleadings, for example on bodily injury, losses actually incurred like medical expenses and past loss of earnings is treated as special damage.

(iii) Patrimonial damagesThese are awarded when a wrongful act has caused patrimonial loss.

(iv) Sentimental damagesSentimental damages are awarded as consolation for injured feelings, insult and indignity caused by the wrongful act of another.

(v)Real or ordinary damagesThese are normal damages awarded and are compensatory in nature.

(vi) Nominal damagesThese are very small awards in comparison to the real loss suffered.

(vii) Contemptuous damagesThese are very small losses retained for the plaintiff’s account which he would not naturally bring action against because they are not worth of serious or sensible treatment.

(viii) The once and for all ruleThe rule states that a single wrongful act gives rise to single cause of action for all damage past, present and future. The plaintiff must claim all his damages in one action. The intention is to avoid overloading the courts with numerous claims on one action and also unnecessary harassment of the defendant.

(ix) The de minimus ruleThe court will not interfere in clams for insignificant amounts or where the fault is negligible. De minimus non curat lex – the law is not concerned about minor matters.

(p)InterestDamages claimed may include an element of interest on money. For example, an investor working on the basis of advice received from his financial advisor makes in an investment in a company that is serious financial problems. The investor can claim his money lost together with interest he could have been earned had the money been invested elsewhere.

CHAPTER 3

LIABILITY ARISING FROM PROPERTY, BAILMENT AND VEHICLES

3.0 IntroductionLiability to third parties can also arise from property, contracts of bailment and use of vehicles.

3.1 Immovable propertyDangerous immovable property to which members of the public have access to is the most common source of potential liability. People in charge of such immovable property have a duty to correct the dangerous situation and can be held responsible for any damages if they:- Knew or should have reasonably known the defective or dangerous condition- Knew or should have reasonably foreseen the presence of the other party on his premises, and- Failed to take necessary precautions.The amount of care to be exercised is dependent on the class of person likely to be brought into contact with a possible danger. This means there would be a greater duty of care to children than adults (Ross v Salisbury Gold Mining Company 1910 WLD ad 501)The following groups of persons have a duty to avoid creating a dangerous situation toward any person whose presence in their premises is foreseen.

(i) OwnerThe owner of a building who lets out space to individual occupants is under duty to keep the staircase and passageways to the rooms or any part of the building where he has direct control in safe condition.

Any building or structure used for carrying on some business or use by members of the public must be erected and maintained in a secure manner.

Liability may arise out of negligence on he part of the landlord or his employees for defects that could have been discovered by the exercise of reasonable care or where the landlord has been given due notice of an existing problem and failed to act. The responsibilities of the landlord and tenant governed and protected by the terms of the lease agreement.

The tenant should satisfy himself that the premises are fit for the intended purposes. However, the landlord may still be liable if:

o Where there was an express warranty of fitnesso He was guilty of fraudo Had undertaken to keep the property in a good state of

Examples The landlord was liable for damages to the lessee repair of a flat who was injured

by slipping on polished granite steps (Spencer v Barclays Bank 1947 (3) SA 2300 (T)

A tenant fell from a defective balcony and broke his leg (Amin v Ebrahim 1926 NPD 1)

(ii)Invitees

A person who invites others to his premises must take reasonable care to protect them and ensure that there is no hidden danger.

(iii)RoadwaysThere are many cases of injuries death suffered as a result of stumbling or falling into holes in the ground or sidewalk. The municipalities owe members of the public a duty of care and as result many legal actions have been brought against them.

(iv) TenantsA tenant who is the sole occupant of premises is responsible for fire damages to the property because in terms of standard tenants’ liability agreements on the market:-- He has a contractual duty to return the premises in the same condition as he received them- The circumstances of the fire are normally within the tenant’s knowledge rather than the landlord’s- The res ipsa loquitur principle (facts speak for themselves)

ExampleA temporary manager of a business threw a lighted cigarette behind the counter among some scrap paper. He put his foot on the cigarette but did not make sure it was out.

A fire ensued and the court held that there was positive evidence of negligence, due caution had not been taken and liability was established.

(v)OccupiersThe person in control of the premises at the relevant time is responsible for injury to persons entering the premises.

(vi) Licenses A licensee is a person who enters the premises with the express or implied permission of the occupier for a purpose in which the occupier has no interest e.g. insurance surveyor inspecting the building for the owner’s insurance. The occupier owes the surveyor a duty to warn him of hidden any dangers.

(vii) Other persons and propertyIn addition to liability to visitors, an occupier has a duty to take reasonable care not to cause injury or damage to passers-by. He must therefore keep the premises in good state of repair and safe for members of the public, including trespassers.

A person injured by something falling, thrown or poured from a building where the public commonly pass has a right of action against the occupier. The occupier has a right of recourse against the person responsible for actually causing the damage.

3.2 Moveable propertyLiability of owner ceases when control ceases. However, this may not always be the case where products are delivered to another person and the liability arises from the use or dealing with that product.

Example The railway department at Durban received logs consigned to a certain company. The railway undertook to carry the consignment to a station next to the company’s mine. The logs were loaded by the railway employees in a truck and carried to the station as agreed. The truck was taken over on behalf of the company and taken to the mine by one of the company’s engines.

The logs were kept in place on the truck by chain tightened by swivels but the railway employees had failed to wind up these. In offloading the logs at the time a company employee was fatally injured without negligence on his part.The court held that the railway administration was liable on the grounds of negligence.- A reasonable man would have foreseen the danger to any off loader- The position was not affected by the fact that the truck had passed out of control of the railway administration- The defence of volenti non fit injuria was not available to the railways as the deceased did not have full knowledge and appreciation of the risk involved (Union Government (Minister of Railways and Harbours v. Matthee (1917) AD688)

(a)BailmentBailees or depositories are people entrusted with the charge or temporary possession of other people’s property for the purposes of storage or for some work to be done for a reward.The bailee is liable to compensate for any loss or damage to the property. However, he can avoid liability by proving that he (or his employees) took reasonable care in the circumstances and the loss occurred in spite of this. The claimant is only obliged to show that he is the owner of the goods and that they were in the bailee’s possession.

Where the property is held without reward, the depository is not liable if the property disappears, perishes or deteriorates through causes beyond his control. However, the depository would be liable were lack of care or use of property in breach of conditions of the contract can be established.

3.3 Parking garagesGarages and car parks are a frequent source of liability claims because of the increase in theft of or damages to parked cars. Customers normally try to hold the operator of such facilities responsible for the damage they have suffered. Liability is based on the contract of bailment between owner or driver of the vehicle and the operator. The plaintiff may claim costs necessary to restore the damaged property to its previous position. In the case damage to vehicles, this would include cost of panel beating, repairs and cost of car hire or the value of the vehicle on total loss. However, the operator can avoid liability by proving that he (or his employees) took reasonable care in the circumstances and the loss occurred in spite of this.Usually operators make use of disclaimer notices and conditions printed on the ticket issued.

Example

Mr Wakeling left his car at a parking garage run by King’s Car Hire. The car was stolen by unknown persons and was recovered damaged some weeks later. Wakeling claimed compensation from the garage on the basis that since he had paid a fee there was a contract of bailment.

There was a notice at the entrance to the garage saying that cars were parked at owner’s risk and also on the ticket placed under the wiper blade of the car.

The court found that the garage had done everything reasonably necessary to inform Wakeling that the contract of bailment was subject to owner’s risk and there was no evidence to show that employees of the garage were negligent in any way. It was held that the garage could not be held liable for the damage (Kings Car Hire (Pty) Ltd v.Wakeling (1970).

3.4 Road accidentsThe Road Traffic Act Chapter 13:11 deals, among other things, with:-- Specifications for vehicle lengths, height, steering, lights, breaks and seat belts- Depth of tyres and in the case of busses, minibuses and goods vehicles maximum speed limits and load ratings- Legislation regarding the use of the road.

(a)Liability for negligenceAny person who drives his vehicle without due care will be liable for negligence. Failure to wear a seat belt can constitute contributory negligence in that wearing them may result in whiplash injuries and without them they would be more serious injuries even death. (b)PedestriansPedestrians as users of roads may be negligent in causing accidents, for example, failing to keep watch of approaching vehicles while crossing a street may result in a collision.

Motorists must also have regard to the rights of pedestrians, e.g. at a pedestrian crossing, he must give way to pedestrians.

CHAPTER 4

PRODUCTS LIABILITY AND DEFECTIVE WORKMANSHIP

4.0 IntroductionSellers and suppliers of goods and services e.g. manufacturers, importers, exporters, wholesalers and repairers may incur liability to their customers for injury, illness or damage from the goods which they have supplied or worked on.

As has been already been discussed, liability can arise in contract, or in delict or by virtue of statute, etc.

4.1 Contract

In every contract of sale (unless otherwise agreed) the seller by implication of law warrants that the thing sold is free from any defect which may render it unfit for the purpose for which it is ordinarily used or for which it sold. The seller’s warranty extends to latent defects whether the goods were inspected or not. The buyer cannot complain of patent defects.

There are two major factors governing the seller’s liability, namely:- The degree of seriousness of the defect- The class of the seller and his state of knowledge

Where the latent defect is so serious to the extent that no reasonable man would have purchased the article had he been aware of the defect, the seller should take the article back and refund the price. This is remedy is called actio redhibitoria. Less serious defects involve lesser responsibility and the purchaser will keep the article and get a refund of the appropriate portion of the purchase price. This remedy is called actio quanti minorisNormally, a seller who is ignorant of a latent defect is not liable for damages suffered by the buyer as a result of the defect.

(a)Express conditions and exemption clausesExpress agreement of the parties may seek to modify the liabilities and remedies that would arise by statutory provisions and implied conditions of fitness and merchantability. The parties inter alia, might:-- Attempt to substitute lesser obligations- Set a time limit on claims- Insert an exclusion of the implied warranty against latent defects – “voetstoets” sale.(b)Special classes of sellerThe following classes of sellers have liability for the products sold:-- Manufacturers selling their own goods- Merchants dealing in articles they publicly confess to have skill and expert knowledge. E.g. In the case of Kroonstad Weselike Boere Kooperatiewe Vereniging and another 1964 3 SA 561 AD where due to latent defect, a weed killer sold to control weeds also destroyed the crop it was meant to protect- Sellers who knowingly sell the product without disclosing the defect to the customer.The sellers are not only liable to refund the price but also compensate the buyer for consequential losses suffered as a result of the damage. Insurers in product liability insurance are not concerned with the refund price but with the damage that would result from use of the defective product.

4.2 DelictOnly the direct customer of the seller can bring an action based on breach of contract. However, the seller may be liable in delict to any other consumer or person injured by the goods. Products liability is based on negligence or wrongful action causing harm. Any person who puts goods into circulation and works on the goods or adjusts them must take reasonable care to prevent them causing harm to people likely to come into contact with them. Delictual liability is illustrated in the following leading cases:

(a)The Gibb’s CaseA Gibb & Son (Pty) Limited v Taylor & Mitchell Timber Supply Co. (Pty) Ltd (1975) 2 SA 457Gibb & Son was a contractor erecting a building in Johannesburg. The plastering work was subcontracted, but Gibb & Son agreed to erect the scaffolding. Saligna boards were used because saligna rarely has any knots it. At a certain stage extra scaffolding was required and it was obtained from the defendant. However, one of the boards had a knot in it and it broke under the weight of one of the plasterer’s employees. Gibb & Son paid out the injured employee’s damages and sued the timber merchant for the recovery of 90% of the amount.

It was the plaintiff argument that although the foreman had neglected to check each board, the defendant should have inspected the boards, discovered the faulty one and rejected it.

The court held that the timber merchant liable in delict as he failed to exercise reasonable care to discover the defects. A reasonable timber should have foreseen that builders would carefully examine boards to be used as scaffolding.

(b)The Datsun CaseCombrinck Chiroprakitiese v Datsun Motor Distributors (1972) 4 SA 182Another example relates to the motor trade. Once dispatched by the maker a motor vehicle might be:-- Driven or transported by a deliver to a main distributor- Checked by this distributor- Collected by a local agent- Driven by a prospective buyer before he buys it

If there has been negligence by the manufacturer there could be an accident to any of these parties and the maker owes a duty of care to each of them.

In the Datsun case, the plaintiff leased a new Datsun car from a leasing company. The leasing company had bought the vehicle specifically to lease it to Combrinck clinic. In the lease contract, the leasing company exempted itself from liability for repairs and stipulated that it made no representation or warranties to the lessee. In the lease contract, the lessee also acknowledged that it had inspected the vehicle and was satisfied with its condition.

Later the plaintiff discovered various defects involving expensive repairs and a long period during which they could not use the vehicle and claimed against the manufacturer in delict on the grounds that the defects were due to the manufacturer’s negligence.

The manufacturer argued that he owed no duty of care to the plaintiff as a member of the public who might buy or hire a vehicle. The magistrate court agreed and decided that there was no cause for action. The plaintiff appealed to the High Court, who decided that in principle a manufacturer can be sued in delict for damages caused by his defective products. The judge went to state that negligence can be deduced from the facts according to the doctrine of res ipsa loquitur (facts speak for themselves;

they need no formal proof. The appeal failed because the manufacturer did not act unlawfully.

(c)ConclusionsThe following conclusions can be drawn from the cases:

- Products liability was recognised as Delictual liability and in particular as acquilian liability- Acquilian liability is bases on fault- The plaintiff must prove that the defendant acted negligently- There is a clear indication that the pro

4.3 Defective WorkmanshipWorkmen owe the customer a duty of care on the goods worked on. The legal principle on products liability and defective workmanship is the same:

Example 1A repairman works on a washing machine but neglects to reconnect the earth lead. The machine is delivered to the customer and during use a live wire comes into contact with the metal. The customer is electrocuted.

Example 2New tyres are fitted to a car. There is nothing wrong with the tyres, but the wheel nuts are not properly tightened. A wheel comes off at high speed and the car is wrecked, injuring or killing occupants.In both cases damage occurs after the work had been done and handed over.

ExemptionsThe following exemptions apply:- The cost of rectifying or recalling defective work- Liability arising from inefficacy of such work or because the work did not produce the results anticipated or claimed- Liability arising prior to the handing over of the work- Defective design

4.4 Products liability cover

This is usually issued as an extension to the public section of a combined public liability policy.

(a)Defined eventsThis section defines events covered, e.g. death, injury or sickness to any person or accidental loss or damage to tangible property which occurs in the course of or in connection with the insured’s business.

(b)Specific exceptionsThe following is an example of a specific exemption that concerns products liability:-

The company will not indemnify the insured in respect of liability consequent upon injury or damage caused by or through or in connection with goods or products (including containers and labels) sold or supplied and happening elsewhere than on the premises occupied by the insured other than food or drink supplied incidentally for consumption on the premises.

(c)Products liability extensionThis provides cover elsewhere than on the premises for liability, e.g.- Caused by goods or products (including containers and labels)- Due to wrongful delivery of incorrect goods

(d)Additional specific exceptions (Products liability extension)The extension does not cover liability:-

- For the cost of repair, alteration, recall or replacement of goods, e.g. a chair collapses causing injury. Insurers will pay for the injury and not the cost of replacing the chair.- For the cost of demolition, dismantling, delivery, supply and installation of the goods. For example, an air conditioner supplied by the insured starts a fire. Cover is for damage to surrounding property and not the cost of dismantling the unit from the wall and supplying and installing a new one.- Arising from defective or faulty design, formula or plan or specification- Arising from inefficiency or failure to conform to specification unless due to negligence

(e)LiabilityThe insured is not covered in respect of business carried on at or from premises outside territorial limits. Exports can be made to any country but claims are payable in respect judgements delivered by courts with specified countries, e.g. Zimbabwe, South Africa, Namibia, Zambia.4.5Defective workmanship cover

4.6 Underwriting

(a)Description of businessIn addition to the name and address of the proposer, the most important information is the description of business. This gives an indication of the type of risk being considered, type of product or service and the place occupied in the supply chain i.e. to what extent subrogation rights might be applied by or against the propose.

The following broad classification is often met in practice:- Manufacturing risks, importers, and suppliers of raw materials- Wholesale and distribution trades- RetailersHowever, these broad classifications fall short as they do fully describe the nature of business. For example, the business of a wholesaler may involve only pre-packaged goods and the risk is lighter, e.g. Mohammed Mussa in Harare. When the trade involves storage of perishables or mixing, preparation and packing, the insurer needs to know exactly what is going on, and rate the risk accordingly. Many products are harmless on

their own but can cause extensive loss when incorporated as a component or ingredient.

(b)Rating considerationsMost insurers have broad categories of rates applying to different trades and products and will consider the following:-- Reputation and experience of the proposer including any previous claims- Whether proposer is manufacturer, wholesaler or retailer and the distribution channels used- The nature of goods and the purpose for which they are supplied- Conditions of sale- Turnover divided between different products- Volume of exports an countries exported to- Raw materials, components and their source- Type and source of packaging (often, goods are contaminated by defective packaging material)- Instructions, warnings and advice given on the use of the product, e.g. wearing gloves while handling pesticides.

Premiums for both products liability and defective workmanship are usually on an adjustable basis, perhaps subject to a minimum premium. A rate percent per mille is usually charged based on turnover. Large limits of liability, protected by excess of loss reinsurance, are often required.

4.7 Product guarantee and financial loss coverProduct liability operates only if there has been damage or injury caused by the defective product. There is no cover for replacement of the product itself and there may be further financial consequences.

ExampleA generator installed at a factory is found to be malfunction after commissioning. This was the first of ten generators the supplier would install. The malfunction might cause loss of the contract for the other nine installations, no payment for the existing one, ancillary costs in removing the generator, installing a temporary unit, fines and penalties, etc.

The solution might be a product liability insurance policy with an extension for financial loss cover or even guarantee insurance. There is a specialist market for this cover. However, in Zimbabwe, insurers are reluctant to offer this cover.

CHAPTER 5

THE PUBLIC LIABILITY POLICY

5.1 Personal and family liabilityEvery individual who is legally competent by age and mental capability has a legal responsibility to other members of the public to exercise due care in order to prevent injury or damage to persons and their property.

(a)Property ownersThe owner of a private residence and the land on which it stands has responsibility to maintain it in a condition that will minimise the risk of injury to persons or damage to their property. The most common source of claims is a defect in the residence, such as a loose tile falling from the roof, or a defective veranda railing, resulting in injury to persons or damage to property. The relationship with tenants will be affected by the terms of the lease, but this does not apply to third parties such as visitors.(b)OccupantsThe occupant has responsibility similar to that of the property owners. In addition they are liable for defects which the owner might not be aware of, e.g. slippery polished floors, loose rugs or that a dog bites.(c)TenantsAt common law, and usually in terms of the lease, the tenant has a legal responsibility to the owner for loss of damage to the residence, its fixtures and fittings. The policy will specifically include such things as accidental damage to toilet fittings and fixed glass. (d)EmployersDomestic servants are not covered by the Workman Compensation Act. If they are injured in their course of their employment as a result of the employer’s negligence, their only remedy is the common law.(e)General LiabilitiesThere are many sources of potential liability arising from ordinary activities away from the residence other the few mentioned above. These were, in fact the original reason for the development of personal liability insurance. Examples include the following:- Stones thrown up by your power mower while cutting grass- Your dog running down the street an biting the postman- An accident you cause as pedestrian when you step in the path of a moving vehicle- Negligently poking your umbrella in someone’s eye(f) Usual exceptionsThe cover excludes compensation payable to:-- The insured and any member of his family normally resident with him- Any one acting in employment with him (at the time of the event) other than domestic staff- The insured’s co-directors and their families

The exclusions are meant to prevent collusion.- Loss, destruction or damage to property in the custody or control of any of the above- Liabilities arising out of:-

- Insured employment, business or profession- Ownership of land or buildings other than the insured’s dwellings insured

under the policy- Ownership or use of vehicles, air or watercraft.- Liability accepted by contract or agreement, which would not otherwise have

attached.

5.2 Professional liabilityGeneral forms of public liability policy exclude advice or treatment of a professional nature, as claims do not always arise from accidental injury or loss of or damage to property within the meaning of an ordinary public liability policy.

Professional liability insurance is meant to protect the professional man against legal liability for loss or damage sustained as a result of his/her own professional negligence and that of his/her employees in their conduct of his/her business.

(a)ContractA contractual relationship comes into existence when someone employs someone to act on his behalf. It is an implied term of the contract that the professional man/woman will exercise care and skill expected from any other competent practitioner in that profession. If he/she fails to exercise care and skill causing loss or damage to the client, he can be sued for negligence arising from breach of contract.

(b)DelictThe law describes professional negligence and accountability of an expert. The “reasonable man” test is replaced by the “reasonable expert” in other words, the reasonable dentist, surgeon, electrician, lawyer, insurance broker, etc. The standard is not the highest in the relevant profession or occupation but the general or average level of expertise.

The professional man is liable for loss or damage as a result of advice given under contract for reward or without contract. By taking responsibility he is under the same duty to exercise reasonable care and the damages are the same whether he is sued in contract in contract or delict.(c)Policy wordingsThere are “blanket” wordings suited for a wide range of occupations. Examples of standard wordings cover:-- Breach of duty of care occasioned by any neglect, error or omission on the part of the insured, any employee, any agent, the predecessors, or any other person, firm or company acting jointly with the insured.- Claims from third parties arising out of any dishonest or fraudulent act or omission on the part employee or agent.- Defamation- Loss or damage to documents- Compensation for court appearance- Other costs incurred with the insurer’s consent- Negligence or employee error, is the most frequent cause of claims- Many professional firms are in the form of partnerships, liability is joint and several. The policy indemnifies existing and new partners against liabilities that may arise from the previous firm’s negligence

- A substantial excess usual applies. (d)Types of riskThe need for cover is extended to cover many kinds of occupations. Sometimes, cover is a statutory requirement or required by agreement. Some professional associations negotiate group schemes for their members but many policies are arranged on an individual basis. Underwriting and rating considerations depend on occupation or profession but is usually based on numbers, qualifications and experience of principals and staff, previous claims record and the limit of indemnity required.

5.3 Examples of occupations and professions requiring professional indemnity

(i) AccountantsAn accountant must know the general principles of company law and the statutory requirements of the auditor’s certificate. Claims usually arise for failure to detect defalcations, negligence in examining business accounts or giving advice or mishandling of client’s tax affairs.

In De Meza V apple, Van Straten and Stone (1975) the auditors supplied an incorrect declaration of fees under the client’s business interruption insurance. The client was found to be underinsured when a fire occurred and a claim was intimated.

(ii) Architects and engineersThese professional may be liable for incorrect advice, incorrect drawing up of plans, and errors in specifications, designs, tenders or quantities, negligent supervision of structural and other work.The professional indemnity policy covers only the risk of negligence, e.g. a professional may use reasonable skill and care and yet produce something that is faulty and cannot be used for its intended purpose.

(iii) Auctioneers, estate agents, surveyors, valuersReasonable care and skill is required of these professionals in the services they render to their clients, e.g. firm will be liable for failure one of its employees to exercise reasonable care a valuation.

(iv) Doctors, dentists, medical auxiliaries, opticiansPersons in these professions may be subject to claims on the grounds that they failed to use reasonable care. Recent press reports of medical malpractice are disturbing and indications are that it won’t be long before medical practitioners are sued. Opticians may have claims made against them for wrong prescription f spectacles or contact lenses, etc.

(v) PharmacistsClaims arise from errors in making up prescriptions, e.g. incorrect dosage, can have serious consequences.

(vi) AdvocatesAn advocate owes a duty to the courts as well as his client and could be negligent in the advice given or work done before a case comes for trial.

(vii) LawyersClaims usually arise from failure to take the required legal action within the statutory period, resulting in the action becoming prescribed. Claims may also arise in connection with the sale of property or land, drawing up trusts, administration of estates, etc

(viii) Insurance brokersBrokers must carry out their client’s instructions and give proper advice. As agents of the insured they may be guilty of non-disclosure of facts which there were aware of resulting in repudiation of claims.

(ix) StockbrokersThey can be liable for negligent advice or failure to carry out the client’s instructions, e.g. buying when they were supposed to sell.

(x)Hospitals and nursing homesThe hospital can be vicariously liable for the errors and omissions of its staff. Liability will depend on who employs the employee (i.e. doctor, nurse, radiographer, laboratory technologist, etc). If the hospital does, it will be liable. If the patient selects and employs the doctor or nurse, etc, the hospital will not be liable.

(xi) School teachersTeachers have a duty to take reasonable care to prevent injuries to school children under their care e.g. on school tours. If a pupil is injured due to teacher’s negligence e.g. driving recklessly, despite the existence of a signed indemnity indicated that the all tours shall be undertaken at the child’s own risk, the school will be liable.

5.4 Directors and officers liability

5.4.1 Duties of DirectorsA company is a legal fiction. Its affairs are governed by natural persons called the board of directors. The board’s powers are derived from the shareholders whom they represent and are articulated in the corporation’s governing documents which include the articles of association, any bylaws and shareholder agreements (Colley et al (2003).In the discharge of their duties, the directors must demonstrate the following:-(a) Good faith

Directors have a fiduciary duty to the entity and must honestly apply their minds and act in the best interests of the entity at all times. By assuming their office, the directors commit allegiance to the enterprise and acknowledge that the best interests of the corporation and shareholders must prevail over any individual director’s interest. The directors should therefore not use their corporate position to

make personal profits or gain other personal advantages. The duty of fair dealing requires that all the directors’ transactions with the corporation must be handled in a forthright and open manner that is fair to the interests of the corporation.

(a) Good faith

Directors have a fiduciary duty to the entity and must honestly apply their minds and act in the best interests of the entity at all times. By assuming their office, the directors commit allegiance to the enterprise and acknowledge that the best interests of the corporation and shareholders must prevail over any individual director’s interest. The directors should therefore not use their corporate position to make personal profits or gain other personal advantages. The duty of fair dealing requires that all the directors’ transactions with the corporation must be handled in a forthright and open manner that is fair to the interests of the corporation.

(b) Care

The directors must act with a degree of care expected of a reasonable person caring for assets of “an incapacitated person” (King, 2002). The entity is an incapacitated person. A company can be taken as an incapacitated person being represented by its directors. To this end, the directors must exercise good stewardship over the entity’s assets. They have the duty to be informed and to make necessary inquiries, from either management or experts, to arrive at this state (Colley et al, 2003).not use the company’s assets for personal gain and must honestly apply their minds in making a decision in regard to the enterprise side of the entity’s business operations.

(c) Skill

The directors must use their previously acquired experience in the discharge of their obligations. They must also use their experience to add value to the debate around the table especially in the decision making.

(d) Diligence

The directors must do their homework and come to the decision making table fully informed about the issues to be decided upon. They must understand the issues and information given to them. To this end they must study the Board pack furnished to them in advance to enable meaningfully debate and resolutions at the board meetings.

5.3. 2 When are claims most likely

(a) Mergers. Take-overs and divestmentDirectors have to account for assets during these times. In recent, many directors have been held accountable to the new owners for shortfalls in assets or for incorrect statements made at the time of sale.

(b) LiquidationClaims resulting from company failure can become lengthy, complex and expensive to defend.

(c) Share issues Both civil and criminal issues can fall upon the director involved in the public issue of his company’s shares, especially from representations made in issue documents.

(e) OthersClaims have been made against individual directors or entire board for misleading advice, wrongful dismissal, age discrimination, and sexual harassment, breach of confidentiality, environmental impairment and errors in drawing up contracts. The policy would be able to provide cover for the defence costs.5.3.3 Policy structureThe policy is in two parts:(i) Protects the directors and officers in their personal capacity, in circumstances

where they can claim from the company.(ii) Indemnifies the company in respect of any loss where it is required or allowed

to indemnify the directors or officers.ExclusionsThese vary from insurer, but might be:

- Bodily injury and damage to property- Claims insured under other policies (e.g. professional liability)- Pollution risks- Claims where there is personal profit or advantages to which the director was

not legally entitled- Claims brought about by dishonesty of the individual director- Claims made by one director/ officer of the company, against another- Circumstances known about at inception

Limit of indemnityThis is an aggregate limit for all claims in any one year.5.5 Construction risksPolicies for these risks are issued either for a specific contract or on annual basis, subject to a declaration of contracts and a maximum contract, above which individual terms must be agreed.

The policies specify the insured as:-- Principal, contractors, all subcontractors employed by the main contractor and all

other sub-contractors engaged on site in the performance of the insured contractCover is provided to the extent required by the contract:

- Suppliers, manufacturers or other company person or party undertaking work on the contract site but only in respect of loss damage or liability originating at

the contract site arising out of their involvement in the performance of the insured contract at the contract site

- Any transport contract, company, person or partly undertaking transit or providing temporary storage during transit of the property insured

- Any company, person or party providing temporary storage of the property insured at premises other than the contract site.

The policy has as an “own damage” section for contract works and surrounding property damage and a public liability section.

(i) The public liability section defines the insured wide enough to include all interested parties, but only in direct connection with the performance of the contract and subject to the contract terms.

(ii) Loss, damage or liability arising from professional activity (project managers, consultants, engineers, architects, quantity surveyors and others) and off-site manufacturing is excluded. This is matter for professional indemnity insurance.

(iii)Cover is subject to a limit per event.

5.6 The standard liability sectionSpecial wordings have been developed to meet individual circumstances in liability insurance, but in practice most policies are usually worded so as to give basic cover that meets ordinary needs.

(a)The coverPoints to note:The policy specifically mentions that the aggrieved party must seek compensation from the insured and the policy indemnifies the insured subject to its terms and conditions.

Damages are dependent upon legal liability – this makes clear that this is not an all risks cover.

Cover is limited to claims for damages arising out of:-

- Injury – accidental death, bodily injury or illness of persons, mental injury and emotional shock- Damage – accidental loss or physical damage to tangible property

Territorial limitsThe original injury or damage must happen within the territorial limits specified in the policy schedule.

In the course of the businessA full and exact description of the insured’s business is very important in liability insurance.

During the period of insuranceThis is the usual wording and insured must notify the insurer of any event which may give rise to a claim. The actual claim by the third party often comes about only later

Limit of indemnityThis is the limit in respect of all claims arising out of any one occurrence and includes legal costs

(b) Specific exceptionsThe policy excludes:-

- Injury in the course of employment, under a contract of service. This falls under NSSA Act. Separate employer’s liability insurance and is usually taken on a contingency basis.

- Damage to property belonging to the insured on which he has been working or in his custody or control in that of his employee. Property must be insured under material damage insurance.

- Advice or treatment of a professional nature (other than first aid). This is a matter of professional indemnity.

- Ownership, possession or use of mechanically propelled vehicles. This is matter of motor insurance

- Anything to do with aircraft, airstrips, airports or helipads. This is matter for specialist aviation insurance

- Products and their containers elsewhere than on the insured’s premises. This is a matter of products liability insurance.

- Defect, error or omission in work completed and handed over. This can be covered for an additional premium under the defective workmanship extension,

- Seepage, pollution or contamination, unless, caused by a sudden unintended and unforeseen occurrence. It is difficult to draft an exclusion clause.

- Fines, penalties, punitive exemplary or vindictive damages- Damages in respect of judgements not first obtained in Zimbabwe. The

jurisdiction clause is added to avoid confusion – only courts within the specific territories are courts of first instance

- First amount payable. This does not relieve the insured of his duty to inform insurers of possible claims and may not attempt to deal with the matter himself.

(c) ExtensionsThe policy can be extended to cover an additional insured apart from the insured

and indemnify otherinterested parties:-- In the event of death of the insured, his personal representatives in respect of

liability incurred by the insured- If the insured so requests, partners directors and employees- In connection with liability arising from the performance of a contract entered

into by the insured for the insured for the purposes of the business.- Sport and social clubs, including their members and officers and visiting teams,

canteen, welfare organisation, etc.Provided that:-- The aggregate liability of the insurer is not increased- They are not entitled to indemnity under any other policy- The indemnity under, applies only where the insured would have been entitled to

indemnity if the claim had made against the insured

The parties listed are subject to the terms, exceptions and conditions of the policy in the same way as the original insured and insurers waive rights of subrogation against them.

Examples

Security firms – indemnifies insured in respect of liability assumed by virtue of his contract with a security firm

Cross liabilities (in respect of group of companies) – treats the individual companies as if a separate policy had been issued to each, provided that the aggregate liability of the insurer is not increased.

Tool of trade – except for fork –lift trucks, the operation, and demonstration or use vehicles as a tool of trade is excluded under the liability section of the motor policy. This extension provides the cover needed.

Employees and visitor property – liability in respect of property belonging to partners, directors or employees of the insured and visitors is excluded under special exception section. This extension provides cover.

(d)Tenant’s liability

In terms of common law, a heavy onus is placed on the tenant of a building for fire and explosion damage occurring in the premises occupied by him.

Most local insurers subscribe to an agreement whereby the building insurers will not exercise rights of subrogation against the tenant unless the fire or explosion was caused by his wilful or negligent act or that of his servant acting in the scope of his employment or tenant has undertaken to insure the building against fire and explosion. Damage can occur in a number of ways other than fire and explosion and the owner has a common law right to compensation.

5.7 Claims made and occurrence basisPolicy can be issued on “occurrence” basis or a “claims made” basis.(a)Occurrence basisThe event that results in the claim must occur during the current period of insurance and the insured must advise the insurers of that event immediately or as soon as is possible. The actual claim might not be made against the insured until sometime later.

(b)Claims made basisThe event giving rise to the claim must be after the retroactive date shown in the schedule, and the claim must first be made against the insured during the period of insurance. This wording is common in the local market and will be discussed further below.

5.8 Claims made basisA claims made policy is one where the event giving rise to the claim must be after the retroactive date shown in the schedule, and the claim must first be made against the insured during the period of insurance.

The modern high technology industrial society has produced long-tail claims, inter alia; claims for diseases, pollution, or the sale of goods, made many years after the policy was effected and the event actually took place.

The law and technical knowledge may have changed dramatically between the time of the policy and the making of the claim, insurers will have to pay current claims our premiums received years before – i.e. premium and indemnity limits which are inadequate in present conditions.

(a)AdvantagesIt provides insurers an opportunity to underwrite the risk more realistically and to close their books once a policy has lapsed.The insured‘s claim is dealt with by his current insurers and indemnity, not those under some previous policy.(b)Disadvantages

(i) There may be a gap in cover when the insured changes from an occurrence to a claims made wording. The previous policy would not cover damage occurring after the policy had lapsed, and the new policy will not apply to anything before the retroactive date.

(ii) If insurers of a claims made policy refuse renewal an insured can be unprotected against events which have already happened, but for which claims have not been made.

(iii) On inception, the insured must disclose, all past claims and events which might give rise to claims in the future. It is often difficult for an insured to disclose all possible claims, and an innocent misrepresentation might result in the policy being voidable.

(c)Policy wording

The policy wording specifically mentions that the defined event must occur after the retroactive date and the claim must be made in writing during the period of insurance.

CHAPTER 6

PUBLIC LIABILITY UNDERWRITING

6.0 IntroductionMany industrial companies have failed in the recent pat as a result of legal liability clams, for example:

- Manville Corporation, the world’s largest manufacturer of asbestos products, arising out of asbestosis claims

- Union Carbide, 37th largest American company, arising out of a toxic gas release in Bhopal, India.

- A H Robins, arising out of the contraceptive, Dalkon ShieldThere have also been massive court awards against tobacco companies, on the grounds that they failed to warn against the dangers of nicotine. A major disaster resulting in extensive claims anywhere in the world has an immediate impact on the

thinking of liability insurers, regarding premiums, terms and conditions required for the future.

Risk ControlLiability claims arise from events. Liability surveys and underwriting considerations are closely related to the control of the physical risk. One very claim in the recent past arose from a fire in the MGH Hotel in which a number of people were killed. The event concerned was fire and loss reduction and prevention a matter of fire protection and emergency evacuation procedures.

Legal liability risk control is not limited to insurable events. Therefore, the search for exposures should include all areas from which a third party action could arise.

6.1 Basis of ratingIn most cases damages are quantifiable in terms of money, so premiums must be linked to measure of exposure expressed in monetary terms as well as to the degree of hazard, the size of the business and level of activity. Rates based on monetary values have the advantage that premiums adjust automatically to altered levels of inflation.(a)Wage roll/ PayrollWages, productive wages, are often used, but can be misleading. It is better to ensure a company employing a few skilled, highly paid and motivated workers, than one spending less but a poorly trained and disgruntled workforce.(b)Turnover

This could be an indication of business activity and is often used as a basis for rating. Turnover figures reflect not only wages but the cost of supplies and materials.

(c)Area of premisesThis is used as a rating factor in some classes, again with the proviso that it is better to insure with adequate space than those that are overcrowded.

(d)Numbers involvedPremiums might be based on:- Number of staff – shops, hairdressers Number of beds, tables, seats – hospital, restaurants, cinemas Membership figures, for private clubs and institutions Attendance figures – fetes and sporting events that attract large numbers of

spectatorsMore than one basis may be needed. A holiday resort e.g. might be let out rooms, run a restaurant, hire out boats and riding horses, and other games.Where the premium is adjustable, insurers fix the basis to be used at inception. A declaration is submitted at the end of the year as required by the policy conditions and the premium for the past year and for renewal and adjusted as necessary.

(e)Flat ratingStraightforward risks are often charged a flat non adjustable rate even this should be reviewed from time to time, as inflation reduces the value of money, and the likelihood of larger claims, in money terms, increases.

6.2 Premises and away risksThe standard policy form on the market includes all activities connected with the insured’s business, so it very important to consider these aspects for rating purposes.

(a)Premises riskFull details of the insured must be disclosed to help the underwriter in properly assessing the risk. In addition, the following aspects should be considered:-

Other occupants – the insured may cause damage to their property e.g. by fire, smoke and water damage. There are chances that the other occupants may be injured.

Visitors – these include customers, tradesmen and deliverymen bringing stock or raw materials of collecting orders. The underwriter should consider the parts of the premises visited and the extent of contact of the visitor and insured’s plant, machinery, employees and the degree of control over this by the insured.

Other third parties and third party properties – insured can damage or injure surrounding third parties and their property during the course of his business, including pedestrian and road traffic. The major risk is that of fire that can spread to adjacent premises with serious consequences. A liability underwriter must obtain a fire plan and report to help him understand the risk better since it will detail the various processes carried on.

(b)Work away from the premisesThe liability underwriter must know the nature and extent of the insured’s business activities. This might involve simple hand delivery of documents or complicated as a major construction project. He must consider the fact that there is continuous exposure when work is carried away from the insured’s own premises, at and inside a third party property or in a public place. The report should also show the occupancy of surrounding properties and how they are separated from the insured’s premises and the distance between them. Other potential sources of claims include interfering with the natural flow of water.This will depend on:-

Location of activities- Nature of premises Extent of heat process

(i) Location of activitiesWork in a country area should be a better risk than in a built up district, because off fewer people and less traffic about and less congestion. However, in farms there might be a spread of fire risk to crops and grazing.

The construction of new buildings should be a better risk than work on existing property. There is more room for the operations on new sites, work can be easily planned and most of the property in the vicinity will be in the contractor’s custody and control.

With existing property, the building itself, its contents, third party property is exposed to risk. In addition, other contractors, the third party’s employees, as well as occupants and tenants, present an injury risk.

Operations on offshore installations, e.g., oil extraction, form another area of specialist cover.

(ii) Nature of premisesWork in high risk environments, e.g. petrochemical works or on board ship will attract a higher premium than similar work in dwellings, offices and shops.

For example, the risk of a plumber causing flood damage in a domestic environment is very real but the financial consequences are very small. A mechanical services doing the same broadly similar work in an industrial environment, the flood damage could be very expensive as water may damage some expensive equipment e.g. computer servers, etc.

(iii) Extent of heat processesThere are many instances of building being damaged or destroyed as result of careless use of welding and heating equipment, .e.g. trades using electric, oxyacetylene and other welding and cutting equipment.

Insurers will usually impose special warranties relating to the precautions to be taken and the issue of “hot work” permits. The contractor will be responsible for a substantial excess.

6.3 Examples of individual risksThere is a huge diversity of trades and processes which can cause events likely to cause liability claims. A few examples are discussed below. Save for a few small risks, a survey should be done a matter of policy so that the liability underwriter fully appreciates the nature of the insured’s business before making a decision.

(a)Agricultural and allied risksThe following should be considered in underwriting these risks:-

Size in hectares, divided between crops, grazing, timber and other land. What public roads or servitudes intersect or adjourn the farm are firebreaks

present? Is the property fully fenced, and are fences and gates in good order? Animals

may start into the next farm and eat plants. They may stray into roads and cause traffic accidents.

Are there any special hazards on your land such as mines, quarries, tips, earth dams or other bodies of water? Dams may burst, flooding property downstream.

Nature of any activities away from the farm, e.g. hiring out of labour to nearby farms

Crops sprays and weed killers used and how applied. Drift and surface water can carry these onto a neighbour’s crops.

Any other business activities e.g. accommodation to visitors, farm produce sold to visitors or horse riding lessons given

(b)Agricultural shows fetes and sports meetingsThe underwriter should consider the following material features:-

The type and intention of show e.g. a small community event or a large scale affair staged over several days

The nature and capacity of seating stands. They may be permanent structures under the control of a local authority or they may be a temporary erection of steel scaffolding and timber. The underwriter must find out the person who carried out the job and his experience and if he has own insurance arrangements. Temporary structures have collapsed in some cases in the past killing or injuring people.

What is to be exhibited, e.g. animals or working machinery, needing precautions to keep visitors at a safe distance

The catering arrangements, e.g. are there individual stallholders or is the catering offered by contractors, and existence of any insurance

Car parking arrangements e.g. are the organiser responsible or is public parking used. If there are parking attendants who controls them? Disclaimer notices should be displayed where they can be readily seen by the public. The number of vehicles influences the premium.

Any other attractions e.g. animal rides, a fun fair, a fireworks display. Such work may be in the hands of independent contractors and a check would be made on the nature of the contract with them and whether they hold insurance.

(c)Catering and entertainment risksCatering ranges from a small kiosk to a full scale restaurant. There is risk of claims for food poising, and products liability like take-aways.Some claims arise from clothing torn by defective seats or injuries by tripping on defective floor coverings or slippery surfaces. In an example involving McDonalds, the American fast food chain, paid a substantial compensation to a customer to a customer who spilt hot coffee on her lap.

In places where people gather in large numbers, the main catastrophe is the possibility of panic ensuing upon fire. The adequacy of emergency exits and emergency lighting is of utmost importance.

In sports stadia, arrangements are made to regulate the entry of spectators. Usually these arrangements are unsuited for rapid exit in an emergency or panic situation. Remember the crowd trouble at the National Sports Stadium in 2002 in Harare. More than ten deaths occurred when there was a stampede as a result of use of teargas by the police – the exit points were allegedly locked or insufficient.In underwriting liability risks of entertainment risks the underwriter should also consider the age, construction and seating capacity of stands and the speed with which they can be emptied in an emergency.

(d)Chemicals, oils and gasesThe extensive use of toxic, flammable and explosive substances poses severe risk o f property damage and injury and great care is needed in underwriting. Apart from the more familiar hazards, there are new chemicals and mixtures marketed under trade names, and it may be necessary to refer to the supplier for details and precautions regarding safe use and storage. Some substances are relatively safe on their own, but very dangerous in combination with others or certain circumstance. For example, burning sulphur stockpiles can release fumes that can combine with rain to form sulphuric acid. This can fall over a wide area damaging crops and injuring people.

Liquefied petroleum gas (LPG) is a convenient fuel extensively used in industry, the home and leisure activities. However, LPG is highly flammable and a leaking cylinder can lead to a rapidly spreading fire. Care should be taken in storage of LPG and storage cylinders should be stored upright and safe from tampering. The cylinders should be stored away for heat to avoid explosions.

6.4 Contractors

This includes civil engineers, builders, road and sewer contractors, plumbers, painters and similar trades. Risks range from the one man jobbing builder to the large international contractor engaged in major civil engineering and construction,

6.4.1 Policy coverIndemnity will be for the following:-

Work done in the past. In Sharp v Sweeting and Son Ltd (1963) a canopy fell several years after it was erected and injured a third party. The erection was defective and so the contractor was liable.

Liability for advice given, resulting in injury or damage – many large contactors operate on a design and build basis.

Liability for goods supplied – a contract normally supplies and erects, but may only supply

Damage to surrounding property – this exposes insured to special risks, such as removal and weakening of support, must be taken into account.

Use of plant, owned or hired in Indemnity to principals and other involved in the contract Liability by agreement – the policy does not exclude liability assumed by

agreement, e.g. in the case of the insured contracts, subcontracts and agreement for the hire or loan of construction plant. At times some plant hire contracts have to be entered at short notice and involve serious responsibilities. The contractor needs this automatic cover.

6.4.3 ExclusionsNormally, the policy will not cover:-

Property in the custody and control of the insured Property being worked upon, and arising out of the work Making good defective work or replacing materials

6.4.4 Underwriting considerationsIn addition to location, nature of premises and use of heat the following additional aspects must be considered:(a) Damage to property in the ground

Sewers, telephone and electricity cables, gas pipes and water mains may be damaged by mechanical excavators or even by picks and shovels. Damaged gas mains may cause explosions, damaged electricity and telephone cables involve substantial consequential loss claims. Repair of cables is very expensive. An excess is usually applied to the “ground” risk.

(b) Demolition workLarge scale demolition, sometimes involving the use of explosives is usually undertaken by specialist contractors, but smaller jobs might form a necessary part of the construction contract.

(c) Rubbish skipsCare must be taken that these do not cause an obstruction. An unlit skip left on a road at night is a danger.

(d) ExcavationsUnguarded and unlighted excavations are a danger to pedestrians and motorists. Heaps of earth by the roadside is also encountered. The length, width and depth of excavation are also relevant.

(e)Civil engineersTheir work includes road and sewer construction, bridges, harbours and dams and may involve tunnelling danger of collapse, damage to underground services) diverting existing water courses, with risk of flooding especially during the rainy season.The use of explosive for blasting rocks may cause injury or damage from flying fragments or vibrations (shock waves).Bridge construction is matter for specialists and calls for technically qualified supervision at all stages. Very high indemnity limits are essential on account of the catastrophe hazard.

(f) Plant hire contractorsPlant hire contractors have a liability for defects in the plant they hire out, and for the negligence of their employees.

(g)DevelopersDevelopers might purchase or lease land and design the structures to be erected. The work might include landscaping and access roads within the development property. They might do all or part of the actual work or sublet this to contractors or labour only sub-contractors. The developer’s policy should cover all anticipated liabilities.

(h)Garages and filling stationsThe usual motor traders’ policy covers the motor risk on and off the premises. A public liability policy may be required to cover the ordinary premises liability and extend this to include products liability (spare parts sold, and take-away refreshments) and defective workmanship.

(i) Hospitals, clinics and nursing homes

In addition to professional liability already discussed in chapter 5, hospitals may incur additional liability from:-

Defects in premises, plant and equipment – plant must be well maintained. Negligence of ordinary staff Contaminated foodstuffs, medicines or other substances supplied – there

must strict security and control over storage and issue storage of drugs Loss or damage to the patient property Spread of infection

Premiums can be based on the number of beds. Outpatient treatment must also be taken into consideration. Alternatively, premiums may be based on fees charged.

(j) Hotels and other accommodationHotel keepers have a liability for loss or damage to property given into their custody, unless due to casus fortuitous or vis major. However, they usually limit their responsibility in terms and conditions the guest accepts when signing the register and often stipulate that any valuables should be handed in for safe custody.

Hotel keepers have a law common duty of care to avoid death and injury to their guests and property. They must maintain their premises in a reasonable condition.

(k)Municipalities and local authoritiesThe various departments making up a local council create a diversity of risks with potential liabilities attaching to each, e.g.

Clerical and treasury departments – basically office work Halls – problems associated with places of public entertainment or where a

large number of people are present. Construction and maintenance – this is where most liabilities arise e.g.

unprotected drains. Inspection work. Local authorities are responsible for drafting local bye-laws

and carry out health and safety inspections. There is a potential liability in the event of negligent inspection by council’s substations.

Water, gas, and electricity supplies. Contaminated water, spreading of infection, unsafe conditions at electrical substations.

Parks and open spaces - swings and roundabouts for children, water bodies are a potential source of liability.

Libraries and museums – risks associated with public places, particularly when children are involved.

Fire brigade, and municipal security officers, including traffic control. Entertainment – liability may arise from amenities such as picnic and

camping sites, change rooms and ablution blocks and swimming pools.Because of the diversity of risks, the insurer may draw up a questionnaire to gather information on the risks. A general survey is also advisable. Many insurers prefer an adjustable premium basis or a rate on pay roll and a proportion of the payments to outside contractors.(l) Quarries and sandpits

A survey is essential and the report and proposal should disclose:- The situation of the quarry in relation to roads, footpaths, third party

property and third parties in general The adequacy of fencing to stop people and animals from straying onto

the people, especially during blasting. The operator owed a duty of care to both visitors and trespasser.

The nature of materials quarried The nature and type of explosives used, the size the charges, the storage

arrangements, and the experience of the blaster The nature and type of machinery and plant used, including ancillary

processes such as crushing or screening The place and manner of loading vehicles, and whether these are the

insured’s own or the property of third parties.Premiums could be based on wage roll or turnover.

(m) Riding schools and riding establishmentsRisks arise from ownership or occupation of premises, injury to pupils and others or their property arising our riding of horses. Premiums are based on the number of horses and also the number of competitive events.(n)Schools and collegesThe school authorities have a duty of care to visitors and learners. However, the main source of liability is injury to learners. Boarding schools are at risk 24 hours a day and there is food and drink risk. A survey is always advisable. Premiums usually depend on the number of students.(o)Security firmsThe liability of these firms for loss or damage following failure to carry out their undertaking to guard the property is potentially heavy. The underwriter must consider whether the firm is a member of a recognised association, their experience and claims record, use of dogs and firearms training.

(p)Theft, fire, and sprinkler systemsThe alarm or sprinkler may fail to work when it should. An installer or manufacturer is open to claims for defective products or faulty installation. There is a heavy loss potential and the liability should be aware of this and rate accordingly.

(q)Satellite tracking and vehicle recovery systemsThe effectiveness of these depends largely upon:-

The spread of territory covered The effectiveness and speed of the response and recovery The expertise of the installation

Some anti-theft and anti-hijack systems offer the facility of remotely controlled engine immobilisation. Liability arises from faulty installation or operation of the device.

CHAPTER 7

CLAIMS HANDLING

7.0 Introduction A short term insurance policy is a contract to pay money. The contract, subject to certain terms and conditions, provides indemnity to the insured on the happening of an insured event. The administering of indemnity in terms of a liability policy is no exception. The claims administrator must have intimate knowledge of the policy contract wording and the law of liability. The claims administrator must have knowledge in the way law is administered by the courts i.e. the processes and some rules of the Magistrate’s and High Courts.The claims administrator must be able to instruct laywers and consult advocates and a number of relevant experts to assist him in processing the claim in terms of the policy in equitable manner and in terms of the law.

7.1 Claims Notification and Investigation

(i) Notification(i) Liability claims are notified like any short term insurance claim. The claim is

registered and a claim number allocated. With the widespread use of computers in commerce this may be done on a computer system. The computer system allows for the recording of statistical information as well as payments and estimates. A claims folder is opened which should also contain the basic details of the policy to help the claims administrator in processing the claim in terms of the policy.

(ii) The claims administrator should that the policy in force.However, he should note that:- It is a liability claim and the notification may possibly be made even after

the policy has been cancelled or lapsed

In the case of claims incurred policies, he should check, that the policy is in force at the time when the incident that gave rise to the claim took place

In respect of made policies, he should check that a policy is in force when the notification is made and that the incident that caused the claim occurred after the retroactive date indicated on the policy schedule.

He should remember that an insured incident reported during the period of insurance – a claims made policy will respond in similar way to a claims incurred policy.

(iii) He must obtain full details of the incident. In more serious cases it is better to appoint adjusters or investigators and even attorneys to investigate and obtain information.

(iv) In common law a plaintiff does not have to notify the defendant of an accident or even his intention to claim damages. It is advisable for the plaintiff to start the legal proceedings within the statutory period before the claims is time barred.

The insurer in some cases becomes aware of the claim when action against their insured has commenced, which may be years after the incident. The wording of all liability policies on the market provide that the insured must report in writing any incident “that may give rise to a claim” and also specifies that this must be done immediately or “as soon as practicable”. Failure may have serious repercussions for the insured as payment of claim is subject to the observance of all the terms and endorsements of the policy.

Implications of notification provisions(e) Early reporting enables the insurer to investigate while evidence is still available

and to make decisions about any intervention needed, e.g. representing the insured at hearings, etc.

(f) If notification is delayed, any investigation or handling of the claim must be done on a “without prejudice” basis. The insurer must notify the insured of this position, if he does not he may be estopped and will be unable to decline the claim.

(ii)InvestigationTime is of essence in claims notification and administration. Investigations must be carried out as soon as possible before the scene of incident alters. Information and evidence may be very difficult later e.g. physical evidence and witnesses can and do disappear.

(iii) WitnessesWhen a claim form or report discloses names of witnesses, written statements should be obtained from them. It is advisable to obtain a detailed written and signed statement from the witnesses on first contact. This ensures that the information is complete and useful.

It is very important to ask the correct leading questions and the claims administrator may need the help of loss adjusters, investigators or lawyers when

taking statements from witnesses. Most people are reluctant to come forward and act as witnesses to court cases and as a result will say they did not see what really happened. However, it may be advisable to get their written and signed statement to that effect to ensure that their evidence cannot be used by the other side as they can change their mind.

Whenever, litigation is inevitable, all the available evidence must be tightened up and any evidence previously collected reviewed. The witnesses may have to be re-interviewed where necessary. Any conflicting evidence must be reconciled well before the case is due in court.

(iv) Technical expertsThe advice of technical experts is indispensable due to the complexity of machinery and equipment in both industry and commerce. Most production and control processes are electronically controlled and computerised. Assistance should there be obtained from suitably qualified and experienced experts as general reports from investigators may be inadequate in some instances.

Expert advice, dependent on the nature of, may be obtained from mechanical or electrical engineers, civil engineers, metallurgists, accident reconstruction experts, specialists employed at manufacturers, actuaries, forensic accountants, medical specialists, etc.

When an accident is caused by or alleged to be as result of a defect in plant or machinery, the damaged part must always be preserved as evidence.

Serious accidents, e.g. explosions, accidents involving loss of life, aircraft crashes, accidents involving lifting and hosting apparatus, including passenger and goods lifts and escalators, are subject to official enquiry in terms of the various statutes applicable. The claims administrator should make efforts to obtain a copy of the record of such enquiry as this may help make a decision on liability without much personal investigation. Where official enquiries fail to take place or seem to take forever, the insurer is advised to carry out their own enquiries.

(v)Sketch plans and photographsA picture tells a thousand words (Chinese proverb. It is therefore critical for the claim administrator to obtain scale plans, maps or sketches, photographs and video recording of accidents especially those involving machinery and land vehicles.

(vi) Admissions of liabilityAll liability policies condition a condition stipulating that the insured must make no admission of liability, expressly or implied without the permission of the insurers. Insurers have subrogation rights in terms of the policy in all matters relating to the claim.

This includes the defence or prosecution of the claim as well as the settlement thereof. The insurers have the right to conduct litigation in the name of the insured whether in defence or prosecution of a claim.

These conditions are meant to conduct claims to the mutual benefit of their insured and themselves within the framework and limits of the policy. Insurers have the best legal advice at their disposal and they are likely to defend the case better the insured and only pay for amounts arising out of actual legal liability and nothing else. However, the insured remains responsible for any payments motivated to retain businesses goodwill.

(vii) Medical evidence

It is essential to have a medical examination of the injured person in all liability claims for personal injury. This must be done as soon as possible by doctors appointed by the insurers. Where this is not possible, e.g. in the event of serious injuries, an early examination made without prejudice is a sensible business precaution.

7.2 Handling Procedures

(a)Review of evidenceWhen all the preliminary information and evidence is available, the insurers then decide on the future course of action. When considering evidence, the golden rule is that everything must be critically questioned. Only direct evidence is admissible in court not hearsay. In deciding the future course of action they must:-(g) Consider the position regarding the liability of their insured to the claimant and

also their liability to indemnify their own insured in terms of the policy(h) Make the decision as soon as possible, and where they cannot hey should advise

the insured to proceed as if he were uninsured e.g. where there is a dispute between insurer and the insured or if claim is notified late.

(i) Advise the insured to pass the summons to the them immediately where the issue of summons is inevitable or threatened. This is critical because summonses are issued with time limits ranging from 3 days to 21 days.

(j) The claim administrator must pass on the summons and claim papers to the insurer’s legal department with instructions on their requirements. Unless where liability is to be denied or amounts claimed are outrageous, this may be the most ideal time to commence negotiations for settlement without prejudice.

(b)Denial of liabilityDuring the early stages of the claim, no action should be taken which is likely to unduly antagonise the third party or spoil the opportunity for cordial negotiations. However, this is easier said than done as our legal system is intimidatory in nature and society at is becoming more litigious and keen to take legal action. Claimants often have unrealistic expectation of value of their claim, fuelled by what they pick from the media, e.g. astronomical amounts in punitive damages awarded by jury trial in American television series.

The insurer should not take a firm and uncompromising denial of liability before enquiries into the circumstances surrounding the accident are complete. Denial of

liability should only be made after careful consideration of all evidence available and communication entered into should be on a without prejudice basis.(c)Without prejudiceThis means that any action taken by the insurer is not to be taken as admission of liability. Any correspondence written on an without prejudice basis, to the either the insured or claimant, should be clearly endorsed “without prejudice” and kept as part of the evidence to be used in court.

In 1906, the previous Chief Justice of South Africa explained the words, in the case of De Beers’ v Epling, to mean without prejudice to the rights of the person making the offer in case the offer is refused and they include an obligation not to make use of the offer if it is not accepted. The implication is that letters written without prejudice should not be put in evidence except by consent. The objective or rationale of the rule is to encourage litigants an opportunity to discuss and even settle the matter out of court without fear of having their statements use against them in a court of law.

(d)Early settlement Early settlement of third party claims claim help avoid unnecessary, lengthy and very expensive law suits. However, this does not mean the claims administrator must settle claims at all costs to avoid summons. Only claims involving reasonable amounts need to be dealt with as soon as possible.

(e)Delayed settlementIt is not always easy to pay all claims promptly. For example, claims involving serious injuries cannot be settled until the claimant’s condition has fully stabilised and a reliable prognosis can be made. Any payments made may be incorrect estimates and be advisable to delay payment.

7.3 Claims negotiation

(a)Negotiating a settlementThe successful negotiation of liability claims depends much on the degree of preparation before discussions for settlement. It is advisable for the claim administrator to have full facts about the incident. This helps in forming informed decisions and compromises in the negotiation process.(b)Techniques of persuasionThe objective of the claims negotiator is to persuade the ‘opposition” to modify its views so that broad conformity is reached between the contending parties, i.e. the insurers and third parties or their representatives.

The following techniques could be used by the claims administrator to change the attitude of claimants:-

By arranging the evidence to the insurers’ best advantageWhere an insurer exercising subrogation rights has a reasonably good defence, an exchange of statements on a without prejudice basis is suggested.

By casting doubt on counsel’s opinionThis allows reassessment and modification of opinion on quantum.

By seeking the claimant attorneys’ figure for settlementThe objective is to get an indication of what the third party‘s expectation as a minimum settlement.

By the “loss leader” gestureThis allows for making of concession on dubious special damages items as a gesture of goodwill. This may create a conducive atmosphere for negotiation on the more expensive general damages.

By raising complicated legal pointsUseful legal points on liability claims include the duty of care and effect of either the plaintiff or defendant or both as well as the complicated apportionment of damages.

By playing down the effects of photographsClinical photographs taken during operations and used in claims on personal injury can appear shocking, but the claims administrator should bear in mind that the claimant’s condition could have vastly improved since they were taken. This point should be raised during the discussions.

(c)Psychological points Experience has that the willingness of litigants to conclude outstanding litigation

is subject to seasonal factors. For example, just before Christmas and long adjournment at the end of the year, litigants are often keen to dispose outstanding cases and are more willing to settle. An offer previously rejected may well be accepted by formulating a slightly improved offer.

Experience, has also shown that it is often possible to reach a settlement just before trial. At this time the parties involved are faced with heavy trial preparation costs and be more prepared to “discount” their risks than at any other stage.

There are inherent risks in any court action. Unexpected information may materialise or a witness may not fare well in the box. Perhaps counsel for one of the sides may make a compelling argument and sway the judge in his client’s favour. Litigants are better advised to concede say 20% of their claim to reach a settlement out of court.

(d) Tone of correspondence The adversarial nature of our legal system makes it very difficult to avoid and uncompromising attitude in dealing with opponents in a claim in delict. However, there is very little to gain from such an attitude at the beginning of the case. The claim administrator should be polite and professional and keep the communication channels open for possible future negotiation.

(e) Attitude to opponentsIn today’s increasingly litigious society, the claim administrator should never underrate the claimant. Unfailing courtesy is essential at all times. A display of personal feelings must never be allowed to intrude, even when some pride and satisfaction is justified when a matter is concluded on favourable terms.(f) ConsistencyAll claims should be dealt with in a consistent in order to avoid unnecessary, lengthy and expensive settlement negotiations. Bargaining when negotiating may be unavoidable, but the claims administrators should avoid the temptation to get carried away. It may be advisable to be a little generous in some instances which

can easily be recovered in other more flexible negotiations later. If the lawyer representing the client shows sincerity by laying his cards on the table the insurers should reciprocate for the benefit of both parties.(g) QuantumClaims values for most liabilities insurance policies are a subject of negotiation because of the divergence of opinion that often exists regarding the true value of a claim. Negotiation has to be done with sincerity without unnecessary prejudicing or antagonising the claimant. This should take into consideration the vast legal precedents on similar claims. The claims administrator should keep himself updated of developments in this field e.g. Zimbabwe and South African Law reports, Quantum of Damages (a specialist publication) by Corbett and Buchanan, which is update yearly. The importance of using experts cannot be over emphasised, and the claim administrators should seek their assistance always.

(h)Policy limitsWhen a claim is notified and there are indications that the limit of indemnity as stated in the policy is likely to be exceed the client should be informed immediately. This could occur the loss exceeds the sum insured or the sum assured available has been reduced by previous indemnities paid.

(i) Discharge/releaseWhen the claim has been admitted for payment, whether out of court or not the insurer must obtain a signed discharge form from the claimant before disbursement of any claim proceeds. The discharge form should be carefully and clearly worded to release the insurer from further liability on the same claim, e.g. payment of the amount stated herein represents the final payment and releases the insurer from further liability.(j) Payment with denial of liabilityThese include ex gratia payments and should be accompanied by a statement to the effect that the payment is made without admission of liability on behalf of the payer, which can be insurer or insured.

CHAPTER 8

LEGAL ASPECTS AND PROCEDURES8 Introduction The claims administrator must be able to instruct lawyers and consult advocates and a number of relevant experts to assist him in processing the claim in terms of the policy in equitable manner and in terms of the law. He must also be able to calculate and set reserves, both for the purposes of reserving and quantifying claims and for the purposes of settlement.

The above aspects are dealt with below:(a)LitigationSerious thought must always be given to any claim that may possibly become the subject of litigation, in view of the cost and cost and the uncertainty of the outcome of legal actions. Even when the defendant’s case seems a good one, the expected may still happen and the verdict can go in favour of the plaintiff may be the result. Even after the defendant is successful and cost is awarded in his favour, he may not be able to recover anything simply because the plaintiff lucks the funds to pay. To this end it may sometimes be better to try to settle a claim for a small sum, known as “nuisance value” rather than contest the matter. Such an offer should only be made if it is reasonably certain that plaintiff’s lawyers will go ahead with the issue of a summons if no offer is made.

Before starting out on litigation, insurers usually obtain an opinion from their lawyers and counsel on the merits of their cases and the prospects and desirability of contesting a case. If it decided to go to litigation must start within a definite period from the time the action arose. In most civil cases this is three years. 8.1 The administration of civil justiceThe administration of justice in Zimbabwe is divided between the various Divisions of the High and lower courts.

(a) Constitutional courtThe Constitutional Court’s only function is to hear matters pertaining to the Constitution of Zimbabwe and to interpret applications thereof. Matters can be referred direct but in practice, most cases are referred to the Constitutional Court by High court judges if they are of the opinion that the point to be decided on is of a constitutional nature. The other important duty of the constitutional court is that it has to consider and certify the constitutionality of every new law passed by parliament.

(b) The Supreme Court of appealApart from the Constitutional court, this is the highest court in the land. It is based in Harare and only hears matters on appeal from Divisions of the High court. It does not hear first hand evidence but decisions are based on the documents and records of cases and legal argument presented to the court by counsel appearing for the parties. The party that appeals is called the appellant and the party opposing the appeal is called the respondent.

(c) The High CourtThe High Court is headed by a Judge President, assisted by a number of judges. It has jurisdiction over all people and things. It also acts as a court of appeal from the Magistrate’s court.

(i) Local divisionsLocal divisions of the high court exist in areas where there is a considerable amount of work e.g. Harare and Bulawayo. They are manned by judges.(ii) Circuit courts Circuit courts are constituted in the various provinces and sit from region to region as designated by the Judge President to assist members of the public who would otherwise have to travel long distances. They hear mostly criminal cases.

(d) Inferior courts (lower courts)The following constitute inferior courts in Zimbabwe.(i) Magistrate’s CourtThese courts are constituted for districts all over the Zimbabwe. Civil and criminal cases heard by magistrates. At the time of writing the jurisdiction in civil cases is restricted to USXXXXXX.

Although the High Court has jurisdiction over all people and things in their area, the magistrate’s court is restricted to certain criminal matters and in respect of civil not involving amounts in excess USXXXX. Also magistrate’s court cannot order specific performance, hear divorce or issue interdicts.There is an automatic right of appeal from the lower courts to the High court

(ii) Small claims courtTo speed up the process and alleviate the load on the courts, provision has also been made for small claims courts in all cities and towns, which hear civil actions involving sums up to an amount (currentlyXXXXX)

8.2 Documents and Principles in Civil Litigation

(a) Basic conceptsThe presiding officers of the High and Constitutional are called judges and are addressed as “my lord” or “my lady” as the case may be. The magistrate’s court is presided over by a magistrate who is addressed as “your honour”.

All cases are heard by presiding officers. There are jury trials in Zimbabwe. In serious cases, a judge may appoint assessors, usually retired senior magistrates advocates to assist him.

The magistrate’s court is a creation of statute and magistrates are paid civil servants. Judges in High and Constitutional Courts are appointed by the President from the ranks of senior practising advocates.

(b) SummonsThis is a legal document that is issued out of either the Magistrate’s or High Courts, as the case may be. It is served by the messenger of court or sheriff respectively and directs the defendant to enter an appearance to defend the action that is instituted by the plaintiff against him. This document notifies the defendant that, in the event of his failure to defend the action, judgement may be taken in his absence. This is known as judgement by default.

(c) Entering an appearanceA summons clearly states the time allowed to enter an appearance to defend. Notice must be served to enter appearance to defend within the period stipulated and within a further 21 days (court days are working week days excluding weekends and public holidays).

(d) PleadingsAll formal documents that are filed following the serving of a summons are collectively known as pleadings. These documents include:-

Notice to enter an appearance to defend an action Request for further particulars of claim Plaintiff’s plea Notice of set down Discovery affidavit

Notice in terms of the various Rules of Court.Once the parties involved in the action have filed a plea, it is said that “pleadings have closed” (as the parties have broadly stated their case). At this stage, the point of Litis contestatio is reached, which means that the action can survive the estate and will transfer to his estate in the case of his death. Filing of pleadingsAl the pleadings, starting with the notice to enter appearance to defend, are filed on the court file and the served (delivered and signed for) on the other party’s attorneys. The court file is a public document and is available for inspection at the clerk of the Court’s office.

(e) Payment into courtIn action for recovery of debt or in delict, the defendant can at any time after appearance to defend has been entered, make a payment into court.

(f) Third party noticeIf the defendant is entitled to recover from another party, that party is brought in as a third party to a High court sending a Third Party Notice. This notice is similar to a summons and appearance to defend must also be entered within a stipulated period. The third party becomes a party to the action.(g) Case set down for trial

Setting down an action consists of sending a request to the registrar of the Court to the effect that the action is to be set down for trial at the place specified in the summons.

It is an indication by a party that they are ready to proceed to trial as soon as the court can hear the case. A case can be set down by either part but this is usually done by the plaintiff.

The following aspects must be considered when a case is set down for trial:- The action must be set down on a particular list (i.e. civil, divorce, etc) Certain documents must be lodged at the time of setting down Notice must be given to the other party

(h) Discovery of documentsOnce a case has been set down for trial, discovery of all relevant documents must be made to enable both sides to properly prepare for the trial. This involves listing all the documents in a list in the form of an affidavit attested to by the parties to the action.

(i) Counsel briefingAt this stage a decision is made on whether to instruct senior or junior counsel or both. Depending on the degree of difficulty and amount of work, a junior counsel may have to be appointed to assist senior counsel. This will increase trial costs substantially as the junior counsel is also paid.

(j) Hearing of an actionThe onus of proving the case rests on the plaintiff. Witnesses who may not attend voluntarily can be called by means of a subpoena (witness summons). It is the duty of a witness to state the facts as he knows them, and not to express and opinion unless he is an expert witness.

Plaintiff’s counsel opens the case by addressing the court, outlining the main features of the case. He then calls his witnesses in turn box and they tell their story in answers to his questions. Cross-examination by the defence by the defence counsel usually follows.

(k) Counsel for defence opensAt conclusion of the plaintiff’s case, counsel for the defence opens in a similar way and calls his witnesses who are in turn cross examined by plaintiff’s counsel and may be re-examined by counsel for the defence.

(l) Closing speechesAfter giving evidence is completed, counsel for the plaintiff sums up his case and counsel for the defence replies. In the High Court, counsel will give a summary of the main points of their arguments in support of their cases to the judge beforehand. This is known as “heads of arguments” and sets out legal principles and case law relied upon.

(m) Costs

In a civil action the court has discretion in awarding costs. The cost order follows the result of the case and is awarded in favour of the winning party, if an apportionment is ordered; the cost order also usually follows the same percentages as the apportionment. Bill of cost, as the accounts are known, are usually drawn up by cost consultants, who are experts in drawing up the bills in accordance with tariffs laid down in various courts.(n) AppealIf either party has reasons to be unsatisfied with the outcome of a case, he may lodge an appeal. In the High court an appeal can only be granted with leave of the court. If this is not given, the Chief Justice may be petitioned.

The path of appeal is, from the magistrate’s court to the High court and from the High court to a full bench. This means three or five judges hearing the case together and deciding on a majority. Appeals from decisions of the High court are head by the Supreme Court, under the control of the Chief Justice of Zimbabwe, sitting in Harare.

The usual grounds of appeal are points of law and generally counsel’s opinion is obtained on the entire judgement after careful consideration of any grounds for appeal. A matter on a point of law is more likely to succeed than a matter of fact or evidence. The court of appeal will not have the benefit of seeing and hearing the witnesses and it will be extremely reluctant to interdict with a credibility finding for instance.

A decision to take a case on appeal must not be taken lightly because of the cost implications.

8.3 The effect of Time on ClaimsTime can wipe out or extinguish a claim after the lapse of a sufficiently long period. Time can also increase the cost or value of a claim to a defendant.

(a) PrescriptionExcept where otherwise provided by statute, all delicts prescribe after three years, i.e. it becomes unenforceable. Prescription is regulated by the Prescription Act. Specific regulations contained in statutes such as the Defence Act, Police Act, Road Traffic Act, etc, override and impose different periods of prescription some as short as 12 months. An extension of prescription can be requested and will usually be given if asked for in time.

Points to note:- Prescription does not run against a minor. Minors have 12 months after

attaining majority (18 years) to institute legal action. However, this is not in addition to the normal three years.

Prescription does not run against persons that are insane or under curatorship

Prescription does not run whilst a debtor is outside the country Prescription is delayed by an admission of liability. It starts running anew for

a further period from the date of the admission The serving of a summons interrupts and stops the running of prescription

Prescription can be extended by agreement

(b) Escalation of value (over time)Claims in respect of personal injury are always assessed and a value placed thereon by the court at the time of the hearing. This means that in the case appears in court say in five years after an accident, the claim is assessed by the court at that time to take into account the effects of inflation.

(c) Interest on damagesInterest on claims for damages can be claimed from the date of judgement until payment in terms with the Prescribed Rate of Interest Act. Defendants must assess the effect of possibly having to pay interest at the going rate (currently XXXX) in addition to any capital amount for which they may be responsible. This should encourage early decisions as to whether to settle or defend actions.8.4 Claims Estimates and ReservingThe most important function of the claims administrator is the calculation, setting and maintaining of estimated claims reserves.

If his estimates are high, it will force the insurer into making extra provision for heavy future payments. This will tie up capital and restrict growth or even force cost cutting measures, e.g. closure of some branches or forced staff retrenchments.

If his estimate is too low it will result in the insurer being unable to meet their obligations resulting in bankruptcy.

(a) Estimating and reserving for claimsThe Insurance Act Chapter 24:07 prescribes in sectionxxxxxx that value of liabilities of a short term insurer....shall be determined in accordance with Generally Accepted Accounting Practice. The Act is however, silent on the way in which this liability is to be determined. Although there are no rules laid down on estimating reserves, the following commonsense criteria can be applied in making provisions for outstanding claims:

(i) CompletenessA provision must make allowance for all claims that are likely to require future payments (i.e. IBNR claims).In respect of claims already opened, estimates should make provision for all payments that likely to be made in respect of any item under the claim, including, but not limited to:-

Liability in term of the policy Legal costs (own and third party) Fees in respect of adjustors and investigators Fees for expert witnesses (medical, legal, etc) Fees in respect of reports such as police, post mortem, enquiry, etc) Architects’ and surveyors’ fees for claims involving fixed property.

(ii)AccuracyThe provision should be as practical as possible based on the information available and properly motivated and reasoned expectations about the future of the claim.

(iii) AdequacyThe provision should be enough bearing in mind bearing in mind that overestimating is nearly as damaging as underestimating.

(iv) IntegrityThe provision should be genuine and not unscrupulously increased or decreased to hide profits or disguise losses or outstanding liabilities.

(v)ConsistencyThe estimating process should be consistent from claim to claim and from one year to the next. Any differences should be explained and justified to avoid unintentional over and under provision for outstanding liabilities.

(vi) Principal factors in estimating provisionsThe principal factors in estimating outstanding claims provisions fall under three main headings:-

Basic methods of estimating provision for outstanding claims, e.g. individual valuation and average cost system or a combination of both

Safety margin ( to allow for contingencies) Other features

(b) Individual valuationWith this system, estimated provisions are set in respect of individual claims both for the current year and prior years. It is impossible to accurately forecast the final cost of a claim. Reasons for this challenge include:

- The insured’s liability (at law) is not entirely clear- There could be contributory negligence and apportionment of damages may

apply- Quantum of the plaintiff/ third part’s claim may be in dispute- If the claim involves personal injuries, the claimant’ condition may not have

stabilised- Possible ligation could dramatically increase legal costs

It is advisable to set provision conservatively, i.e. making error on the side of caution and work on the basis that every outstanding legal action can be lost and that every serious accident may result in expensive permanent disability. (c) Average cost systemComparative claims figures from year to year are sometimes used and averages determined. This is called the average cost method system for estimating current claims. Figures for at least three years (factoring in recent trends) should be used in determining the estimate. Amounts already paid should then be deducted from the estimate to balance should be the reasonable estimate to be provided for the outstanding claims,(d) Combination of both methodsAn insurer can also use both the individual valuation and average cost systems in estimating provisions for current and previous year’s claims.

(e)Safety marginProvisions for outstanding claims are based on estimates it is therefore prudent to allow for a margin of safety. In addition contingency and IBNR claims reserves

should be provided for. The claims administrator should avoid both grossly overestimating and underestimating the provision to cover unforeseen contingencies.

(f) Other features

When all individual estimates in respect of outstanding liability claims have been made, certain adjustments may still be required and provision made accordingly. These include:-

Incurred But Not Reported claims (IBNR)After the close of a year, there were be claims that have occurred but have not been reported. There will also be liabilities that in due course will give rise to “claims made” claims. These are known in the industry as IBNR claims. Historical claims experience should be used in estimating the additional reserve

Reopened claims – certain claims may need to reopened and additional provision should be made

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