Discovery Insure Limited vs. Masindi - (14 Jun 2023)

Insured persons are under a duty to act in good faith in their dealings with insurers

Insurance

The issue before the Supreme Court was whether Discovery Limited (Discovery) was entitled to terminate the insurance policy with retrospective effect from the date of the occurrence of the incident giving rise to the claim, and reclaim the monies paid to Mr. Masindi pursuant to a partially fraudulent claim. The high court held that Discovery was only entitled to the portion of the claim that was not tainted by fraud.

As a general rule, insured persons are under a duty to act in good faith in their dealings with insurers. Ordinarily, a wilful lodgement of a false claim by the insured constitutes a breach of that duty of good faith which entitles the insurer to terminate the policy. That eventuality would then relieve the insurer, in the absence of an express term to the contrary, of liability under the policy from the time of termination of the policy. The effect of this would be that rights and obligations that had accrued before termination would remain unaffected by the termination.

Insurance companies have the right to incorporate comprehensive forfeiture clauses in their policies and where such clauses are included and are similar to the one upon which Discovery relied, then the insurer would be entitled toreclaim the full amount paid in settlement of the claim that subsequently turned out to be partly genuine and partly fraudulent.

On the facts of the case, the doctrine of accrued rights found no application since there could be no rights accrued, as the forfeiture clause applied with retrospective effect from the date of the incident giving rise to the claim. Forfeiture Clause 5.13 explicitly provides that upon breach of its terms, Discovery would be entitled to terminate the policy with retrospective effect from the date of the incident giving rise to the claim, ie 10 November 2016. When the Respondent lodged the claim on 11 November 2016, he had already forfeited all the benefits under the policy.

Once the policy was terminated on 10 November 2016, there was no policy in extant under which the Respondent could claim any of the benefits that would otherwise have been available to him had the policy not been terminated a day earlier. Discovery was under no obligation to pay out any moneys to the Respondent on 5 December 2016 onwards because the policy had, on 10 November 2016, already terminated. Discovery was entitled to a refund of all the moneys previously paid out by it to the Respondent and, thus, to the relief it sought in the high court. Appeal allowed.

Tags : INSURANCE POLICY REFUND MONEYS