A recent decision by the Supreme Court of Appeal underlines the gravity of insurance fraud and how badly it can backfire on you. A man was ordered to repay his insurer his full claim of R1.6 million plus interest even though only a portion of the claim was found to be fraudulent.
In November 2016, a Pretoria homeowner, Tshamunwe Masindi, submitted a claim to his insurer, Discovery Insure, for damage to his house and its contents caused by a storm. He also claimed, as permitted under the policy, for the costs of emergency accommodation during the time that his home was uninhabitable.
The total claim, which amounted to R1.6 million, was paid out by Discovery Insure between December 2016 and May 2017. Of the total amount, R675 000 covered Masindi’s costs for emergency accommodation while the remainder, of more than R900 000, covered the damage to his house and its contents.
On investigating further, the insurer found that the R675 000 accommodation portion of the claim was “tainted by fraud”, according to the court papers.
Acting in accordance with the terms and conditions of the policy, Discovery Insure cancelled the policy retrospectively and demanded that Masindi repay the entire amount, including the legitimate portion of the claim.
The relevant clause in the policy reads as follows:
“All benefits in terms of this plan in respect of any claim will be lost and this plan may be voided or cancelled at our discretion:
- Where there is a misrepresentation, non-disclosure, misdescription by you or anyone acting on your behalf; or
- If false or incomplete information is supplied for any fact and/or circumstance in connection with an application for cover or in connection with a claim in terms of this plan by you or anyone acting on your behalf; or
- If any claim or part thereof under this plan is in any way fraudulent, or if fraudulent means or devices are used by you or anyone acting on your behalf to get any benefit under this plan…;
- If any fraudulent information and/or document whether created by you or any other party is provided to us … in support of any claim under this plan…;
- If the size of any claim is inflated by you or anyone acting on your behalf or with your involvement, for any reason whatsoever….
“Where any benefit under this plan is forfeited in circumstances set out in this section, we will have the right to cancel your plan retrospective to the reported incident date or actual incident date, whichever is the earliest.”
Masindi failed to pay back the amount ordered, so Discovery Insure took the case to the Johannesburg High Court. Although the court acknowledged that the insurance company had been defrauded, it overruled aspects of the above-mentioned clause in the policy, deciding that Masindi should be liable only for the fraudulent part of the claim that covered the emergency accommodation.
Discovery Insure appealed the High Court decision and successfully had it overturned. In its judgment, the Supreme Court of Appeal said the relevant clause was “clear and unambiguous”.
It noted: “Forfeiture clauses of the kind like the ones under consideration in this case are now a common feature in insurance contracts … As a general rule such clauses are viewed as valid and therefore enforceable. They are designed to protect the insurer against fraudulent claims and to discourage attempts to gain undue advantage by the insured by lodging falsely inflated claims. If unbeknown to the insurer, the insured submits a fraudulent claim which is then paid out, the insurer is entitled to recover the full amount paid out to the insured.”
The lesson for consumers is clear: if even a small part of your claim is fraudulent or inflated, you stand to forfeit the entire claim. It’s not worth losing out on the whole amount by “sneaking in” something you shouldn’t or inflating the value of any of the items lost or repairs done.
* Hesse is the former editor of Personal Finance