Promissory warranties are at the heart of South African insurance law, establishing the obligations of insured persons and the rights of insurers. Unlike usual contractual warranties, found in other, non-insurance-centric relationships which, if breached, can produce a right to damages in favour of the innocent party, promissory warranties in insurance contracts can lead to the outright avoidance of cover, even if the breach of warranty has no causative link with the loss suffered.
In non-insurance contracts, warranties constitute contractual terms, they assure certain facts or performances, and under them, a breach typically entitles the innocent party to damages rather than termination. The position in relation to promissory warranties is fundamentally different; they constitute assurances of future performance or conduct, and endure during the duration of the contract or policy period.
Under insurance law, the insured usually meet ongoing obligations during the policy term. An example of this is adhering to particular safety precautions such as putting your alarm on when you leave your home or parking your car in a lockable garage as opposed to on the street. The promise-based nature of these warranties means that even minor deviation from total compliance by the insured, however unrelated to a loss event, may give insurers an appropriate basis for cancelling coverage.
Under South African common law, the insured guarantees compliance with warranties in the strictest sense, this is especially true where the warranty is drafted in absolute terms.
Absolute warranties differ from relative warranties. Relative warranties are framed generally, do not specify what is required of the insured, and generally contain an element of reasonableness in determining whether or not the relevant warranty was breached by the insured.
Absolute warranties on the other hand, are drafted in specific terms which must be complied with in full. Even minor or temporary non-compliance with such terms could be considered to constitute non-performance and thus, a breach by the insured. The reasonableness or not of circumstances underling the breach is irrelevant.
What are the practical effects of this distinction? By way of an illustrative example: imagine that you go away on a trip to Mauritius but forget to turn on your home alarm system when you leave for your holiday. While you are away, your geyser bursts and floods your house. There is no link between the flooding and the alarm system; had the alarm system been on your home would have still flooded. However, the presence of promissory warranties in your insurance policy means that that you, the insured, have breached contract, and your insurer can use this to avoid payment of any claim you may submit pursuant to the damage caused by the flooding.
Importantly, the breach of a promissory warranty does not render the contract in question automatically void. Instead, it provides the insurer the opportunity to attempt to escape liability and to repudiate the contract. Further, it is not necessary for the insurer to prove that there is any causal link between the loss suffered and the breach in order to exercise their right to escape liability. Neither is it necessary for the insurer to show that the promissory warranty was material to the risk and loss for the insurer to escape liability through repudiation.
There is no excuse that the insured party can use for their non-compliance with the promissory warranty in the traditional circumstances. They are not able to rely on the fact that the term in the warranty was immaterial to the risk that the insurer acceded to, nor can they rely on the argument that the breach they committed was one which was innocent, in good faith or unavoidable. As stated previously, they cannot even rely on the fact that the breach made no contribution to the loss which was suffered. The lack of a causative requirement or a materiality requirement places the insured party at a significant disadvantage in comparison to the insurer
While laws surrounding this issue are slowly changing, the position set out above remains the governing position in South Africa. It is therefore important to ensure that you have read and fully understood the terms of your insurance policies and that you are fully aware of what is required of you to ensure full compliance with any promissory warranties present in the policy.
For any assistance or advice in relation to insurance policies and your obligations in this regard, contact our offices and one of our attorneys will happily assist.