INSURANCE – ALL YOU NEED TO KNOW

Insurance is a contract in terms of which the insurer undertakes, in return for the payment of a price or a premium by the insured, to render the insured a sum of money, or the equivalent to a sum of money, on the happening of a specified and uncertain event in which the insured has some interest. The insurance contract is also referred to as an “insurance policy”. The rationale behind insurance is to protect oneself against the occurrence of undesirable risk.

Types of insurance

In South African law we have two types of insurance, namely indemnity insurance and non-indemnity insurance.

Indemnity insurance is taken out to indemnify oneself against a loss. In other words, insurance is taken out so that one is reimbursed if one suffers a loss. Non-indemnity insurance, on the other hand, is taken out to indemnify oneself against the occurrence of a future uncertain event such as death or disability.

Statutory law

There are two statutes dealing with insurance in South Africa, namely the Short-term Insurance Act 53 of 1998 (hereinafter “SITA”) and the Long-term Insurance Act 52 of 1998 (hereinafter “LITA”).

The abovementioned Acts control the insurance industry and aspects of insurance policies with the view of protecting the interests of those insured. The Acts also provide for the registration and control of insurance companies in South Africa.

The SITA focuses on indemnity insurance. For example, motor vehicle policies and health policies. Whereas, the LITA focuses on non-indemnity insurance. For example, life policies, disability policies and health policies.

The Minister has also enacted Policyholder Protection Rules for the respective Acts.

How is an insurance policy created?

There are two parties to an insurance policy: the insured and the insurer. There may also be instances where a third party is nominated as the beneficiary of a policy.

The Acts refer to the person entitled to be provided with the benefits of a policy as the “policyholder”.

At common law, no formalities are required for the conclusion of an insurance policy. In practice, however, insurance policies are generally reduced to writing.

Essential elements of an insurance policy

  1. The obligation to pay a premium

First, there must be an obligation on the insured to pay a premium.

“Premium” is defined in section 1(1) of LITA and SITA as “the consideration given or to be given in return for an undertaking to provide policy benefits”.

There is no rule that the premium must be paid before the contract becomes binding on the parties. However, there must at least be an undertaking by the insured to pay a premium to render the contract “complete”.

Generally, insurers will adopt a policy of ensuring that the insured pays the premium before they take on the risk.

  1. The happening of a specified uncertain or unplanned event

For risk to exist, the event must be in the future, and it must be uncertain as to whether it will occur, when it will occur and how much harm it will cause.

In the case of Sydmore Engineering Works v Fidelity Guards (Pty) Ltd 1972 1 All SA, it was held that the insurer must have no control over whether the event will occur.

  1. The existence of an insurable interest

The case Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company South Africa Ltd 2013 4 All SA 71, defines an “insurable interest” as the insured’s interest in preventing the risk which he/she is insured against from materialising.

  1. The obligation of the insurer to render compensation

The contract must provide for the payment of a sum of money or render to the insured an equivalent to the payment of money, by the insurer if the risk materialises.

The obligation on the insurer varies depending on whether the insurance is indemnity or non-indemnity insurance.

If it is indemnity insurance, the insurer undertakes to compensate the insured for the actual loss which he/she has suffered as a result of the happening of the event.

If it is non-indemnity insurance, the insurer undertakes to pay a specified sum of money (or to make periodic payments of specified amounts of money) to the insured on the happening of an event, regardless of the extent of the actual monetary loss which was incurred.

Reference List:

  • Lakeand others NNO v Reinsurance Corporation Ltd and others 1967 (3) 124 (W) 127H
  • Short-term Insurance Act 53 of 1998
  • Long-term Insurance Act 52 of 1998
  • Sydmore Engineering Works(Pty) Ltd v Fidelity Guards (Pty) Ltd 1972 1 All SA
  • Lorcom Thirteen(Pty) Ltd v Zurich Insurance Company South Africa Ltd 2013 4 All SA 71

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

ELECTRONIC SIGNING OF DOCUMENTATION

The commercial world is currently moving to greater levels of digitisation. Organisations are implementing automated and electronic solutions in an effort to improve efficiency and better the environmental footprint at the same time. The move to digitisation and electronic signatures prompted questions surrounding the legality of these documents. This article aims to highlight certain legal aspects of electronic signatures in both a general business environment and an audit industry environment.

Different types of electronic signatures

The Electronic Communications and Transactions Act, 25 of 2002 (ECTA) differentiates between standard electronic signatures and advanced electronic signatures. Standard electronic signatures include digital or scanned signatures. An example would be using an iPad to sign a document or merely printing, signing and scanning the document. Advanced electronic signatures are defined as electronic signatures which results from a process which has been accredited by the Authority as stipulated in Section 37 in the ECTA, for example, Quicklysign.

Standard electronic signatures are sufficient in most instances if and when the method of signing had not been agreed upon by the parties beforehand. Advanced electronic signatures are required for a suretyship agreement as well as signing as a Commissioner of Oaths (Section 18 of ECTA). Some documents are specifically excluded from being signed electronically (as per Schedule 2 of ECTA) for example:

  • an agreement for alienation of immovable property;
  • an agreement for the long-term lease of immovable property in excess of 20 years
  • the execution, retention and presentation of a will; and
  • the execution of a bill of exchange as defined in the Bills of Exchange Act, 34 of 1964.

Electronic signature of financial statements

Stakeholders in the audit industry will be all too familiar with the challenges being posed by printing various sets of financial statements, only to be scanned again after signature. The industry seems to be one of those that will benefit from the efficiencies provided by electronic signatures but are these electronic signatures on a director’s and auditor’s report acceptable?

The Independent Regulatory Board of Auditors (IRBA) identified the increase in usage of electronic signatures on financial statements and audit reports and reported on the matter through the 2017 public inspections report. IRBA communicated that the following challenges are experienced by the practice of electronic signatures:

  • uncertainty as to the identification of the final version of the auditor’s report and annual financial statements;
  • uncertainty as to the approval by the company’s board of the exact final version of the annual financial statements; and
  • the risk that the incorrect annual financial statements are published.

We are of the opinion that an advanced electronic signature service provider, as approved by the ECTA, will sufficiently mitigate the above-mentioned challenges identified by IRBA. Contact us in order to obtain more information as to how we can assist in finalising documentation efficiently.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)