Magic Eye Trading 77 CC v. Santam Limited - (10 Dec 2019)

A claim for indemnification insurance under an insurance contract can only arise when liability to third party in a certain amount has been established

Insurance

The issue in present appeal is whether an insured’s contingent right to claim indemnification under an insurance policy is capable of becoming prescribed in terms of Section 12(1) of the Prescription Act 68 of 1969 before the liability of the insured, and its extent, is determined.

The appeal arises out of a delictual claim by Imperial Cargo Pty Ltd (Imperial) claiming damages to its truck, when it was allegedly forced off the road on 21 March 2009 by another truck. Imperial alleged that, Mr. Perumal Chetty, the driver of the other truck was acting within the course and scope of his employment with Magic Eye Trading 77 CC t/a Titanic Trucking (Magic Eye), and was solely responsible for the incident.

Mr Chetty and Magic Eye denied all liability. Santam Limited (Santam) was joined as a third party after the close of pleadings. The third party notice was premised on an insurance policy issued by Santam in favour of Magic Eye which included indemnity insurance against loss suffered by Magic Eye by way of liability to third parties as a benefit under the policy.

In the third party notice, it was claimed that, by virtue of certain clauses in the policy, Magic Eye had a contractual right to claim indemnity from Santam for any liability to the injured party attributed to them. Santam filed a special plea of prescription contending that upon the occurrence of the defined event, alternatively when Mr Chetty and Magic Eye became aware of the event further alternatively when Santam repudiated the claim, a right to indemnity against the contingent future monetary consequences of the accident became vested in the Magic Eye. Because Magic Eye failed to serve the notice of joinder on Santam within three years of any of the above dates, any third party claim that they may have against Santam has prescribed. In reply to the special plea it was averred that prescription commences to run only after the claim has been paid or at least once the insured has firmly committed itself to making payment.

A claim for indemnification insurance under an insurance contract can only arise when liability to the third party in a certain amount has been established. The debt, for purposes of prescription, therefore, becomes due, when the insured is under a legal liability to pay a fixed and determinate sum of money. Until then a ‘claim’ for indemnification under the policy does not exist, it is only a contingent claim.

Magic Eye’s right to approach the court for a declaration concerning the obligation of Santam to indemnify it in the event of Imperial establishing liability has thus not prescribed, in fact prescription has not even begun to run. Santam’s special plea ought to have been dismissed. The appeal must accordingly succeed. The appeal is upheld with costs including the costs of two counsel. The order of the court a quo is set aside. The special plea of the third party is dismissed.

Tags : INDEMNIFICATION CONTINGENT RIGHT POLICY