Azrapart (Pty) Ltd and Accelerate Property Fund Limited, the plaintiffs in the litigation, were co-owners of the Fourways Shopping Mall in Sandton. As a result of the Covid-19 pandemic in 2020, the plaintiffs and their tenants experienced disruptions to their business, resulting in their loss of rental income.
Kajal Mulchandani
Rona Evans
Richard Hoal
Having engaged an insurance broker in 2019 to procure Assets All Risks cover for their business, the plaintiffs submitted a business interruption claim for loss of gross rentals, which fell under the Infectious or Contagious Disease Extension (ICD) in their policy.
Insurers took the position that the policy did not include ICD cover and the policy ought to be rectified by the deletion of the ICD clause. On this basis, they argued they were not liable to indemnify the plaintiffs. The plaintiffs subsequently instituted proceedings against the insurers for the sum of R1bn, being the value of the loss which they believed should be indemnified.
High court ruling
The central issue before the High Court was which document constituted the contract of insurance (and by implication, whether ICD insurance, on which the claim was premised, formed part of the agreement between the parties). Closely linked to this issue was whether the policy stood to be rectified, as argued by the insurers. The Court gave careful consideration to all of the documents exchanged leading to the issue of the written policy of insurance and held that the final written policy (not the earlier placement documents) constituted the contract.
In coming to this finding, the Court invoked the parol evidence rule, and the principles of rectification in finding that the written Policy included ICD coverage. The Court emphasised that while contextual evidence may aid interpretation, it cannot vary the text of a complete written agreement, which included ICD cover in this instance. Its findings ultimately turned on the legal implications of various actions by the broker’s and insurers’ employees, in concluding the contract. These actions did not evidence a common intention to exclude ICD cover, leading the Court to reject the insurers’ rectification plea.
Appeal to the SCA
On appeal, the question before the Supreme Court of Appeal (SCA) was whether the contract of insurance stood to be rectified, as this was the remaining appellant’s case.
To provide context for the origin of the dispute, the SCA outlined the common practice in the insurance industry for negotiating insurance contracts. The Court explained that such negotiations are typically conducted under a set of “governing rules,” documented as “Drafting Instructions,” which establish the agreed base wording for the draft proposal.
Negotiations begin when the insured requests a quotation for the required insurance terms, which request is made using the broker’s standard template, known as a “Quoting Slip.” This slip sets out the standard terms and conditions for the type of contract and provides space for the parties to record any requested subjectivities and conditions.
Parties communicate their proposals, counter-proposals, and amendments on the same Quoting Slip, with any additions or changes highlighted to ensure clarity, while unhighlighted text is taken as accepted. This exchange would continue until the final text is agreed by the insurer and the broker (on behalf of the insured).
The negotiations end with the insured issuing a “Placing Slip” for signature by the parties, indicating acceptance of the antecedent agreement from the Quoting Slip. The wording of the signed Placing Slip would then be the basis on which the insurance contract would be drafted and provided to the parties.
In reality, the sequence of the negotiations that took place was as follows:
- In July 2019, the broker initiated a request for a quotation to the lead insurer, making use of the broker’s standard form Quoting Slip. This version of the quoting slip included ICD Cover.
- In response to this request for a quotation, the lead insurer sent back a version of the Quoting Slip which (for reasons unknown) did not include ICD Cover. The omission was not highlighted or drawn to the broker’s attention, as required by the governing rules. The SCA concluded that it wasn’t detectable to a reasonable reader unless they painstakingly checked every word against the initial Quoting Slip.
- As a consequence, two versions of the Quoting Slip were used interchangeably during the negotiation – one including ICD cover, and one without.
- Further correspondence was exchanged between the remaining four insurers in relation to their risk capacity, and it was agreed that they would follow the line of the lead insurer.
- In November 2019, after the risk capacity had been agreed in principle, the broker sent a Quoting Slip dated 14 November 2019 to each insurer to confirm the final risk capacity percentage. This version of the Quoting Slip excluded ICD Cover; however, it was signed by the lead insurer and 3 others.
- In December 2019, the broker sent the Placing Slip to all parties for signature. The Placing Slip included the ICD cover and was signed by the insurers.
- In March 2020, the broker sent the final policy wording to the insurers. The wording included ICD Cover. The inclusion of the ICD cover was never questioned.
In the context of the insurers’ defence of rectification and determining the common and continuing intention of the parties, the SCA endorsed the parol evidence rule invoked by the High Court:
“When a contract has been reduced to writing, the writing is, in general, regarded as the exclusive memorial of the transaction and in a suit between the parties no evidence to prove its terms may be given save the document or secondary evidence of its contents, nor may the contents of such document be contradicted, altered, added to or varied by parole evidence”.
Applied to the facts, the contract between the parties was the last document, being the contract of insurance which was distributed and signed for acceptance by all parties in March 2020. The terms and conditions of the contract of insurance reflected those of the Placing Slip, signed by the parties before the contract of insurance. The SCA held:
“These last two documents contain the terms and conditions of the agreements concluded during the negotiations between the insured and insurers, and their intention to enter into an insurance contract. It is therefore these last two documents that have to be properly interpreted to consider whether there is a ‘mistake common to the parties’, that would raise the question of rectification.”
Accordingly, these last two documents needed to be properly interpreted to consider whether there was a common mistake that would raise the question of rectification. The SCA was unanimous in concluding that the insurer had failed to establish grounds for rectification as:
- No prior consistent intention existed between the parties to exclude ICD cover.
- The broker’s request for quotation and the Placing Slip both included the ICD clause.
- The insurer never objected to its inclusion when signing the Placing Slip or the final policy.
- The alleged “error” was only raised two years later, when Covid-19-related claims emerged.
Implications for insurers and brokers
The SCA has importantly highlighted that signed Placing Slips and final policy documents are decisive, and their terms will be enforced as the definitive reflection of the parties’ intentions.
This places a substantial responsibility on insurers and brokers to ensure that their agreed terms are accurately recorded and clearly highlighted during the negotiation phase. Any deviations from negotiated terms must be expressly marked, highlighted and formally acknowledged, particularly within Quoting Slips, and prior to signing Placing Slips, parties must verify that the terms to which they are committing precisely reflect the coverage they are willing to provide.
In the context of multi-insurer placements, follower insurers cannot rely solely on the lead insurer; they are required to independently confirm that both the Placing Slip and final policy faithfully represent their agreed participation and scope of cover.
Brokers, in turn, bear a duty to reconcile all negotiated terms, meticulously track amendments, and ensure that the final policy accurately mirrors the intentions of the insured and the participating insurers.
