|This is an appeal by Centriq Insurance (Centriq) against a ruling holding it liable to its insured member, a financial advisor (Mr Castro), under a professional indemnity policy.
Mr Castro advised Mrs Marisa Vogel Oosthuizen (the Respondent), who is a widow, to invest the proceeds of her deceased husband’s policy in an amount of R 2 million rand in Sharemax Investments (Pty) Ltd in a property development scheme know as ‘The Villa Retail Parks Holding 2”. However, Mr Castor neglected to inform the respondent that the villa was a yet to be completed shopping complex.
This development failed following an investigation by the Reserve Bank. Consequently, the respondent sued Mr Castro for the loss of her capital sum as there was no prospect of recovery from Sharemax. In turn, Mr Castro claimed indemnity from Centriq.
Centriq denied liability and relied on an exclusion clause that precludes it from indemnifying an insured member in respect of third-party claims arising from or contributed to by depreciation in value of any investment or as a result of a representation as to the performance of any such investments.
|Insurance contracts have a risk-transferring purpose, therefore provisions that place a limitation upon an obligation to indemnify are usually restrictively interpreted. It is therefore an insurers duty to clearly spell out the specific risks it wishes to exclude.
Should there be ambiguity in the interpretation of such a clause, the policy will be generally construed against the insurer. An exclusion clause must be interpreted in a manner that is consistent with and not repugnant to the purpose of the insurance contract, of which is to indemnify a financial advisor for breach in connection with negligent financial advice.
Centriq had the duty to bring the claim within the indemnity exception by proving that Mrs Oosthuizen’s investment initially had a material value which then declined. This is because without decline there is no depreciation. Depreciation refers to the diminishing of investment value over time and not to an investment that is not capable of generating an appreciable value from the beginning.
Furthermore, the purpose of Centriq’s policy is to indemnify its insured members against liability, consequently an interpretation that renders the purpose of the indemnity invalid, does not meet the yardstick and yields an unrealistic and undesirable result.
|The court concluded by saying that Centriq offered this policy to all members of the Financial Intermediaries Association, whose main business is to offer financial advice. It cannot then be accepted that the mutual intention of these members and Centriq was to exclude all coverage for their investment business. If Centriq sought to achieve this type of exclusion it should have done so with much clearer language.|
The court confirmed that the main issue at hand was not that the investment had depreciated nor performed inadequately but rather that it was not a safe investment having regard to the Respondent’s needs. It was held that the court a quo correctly upheld Mr Castro’s claim to be indemnified in accordance with the terms of the policy.
When interpreting insurance contracts, the court will always adopt an interpretation that will yield commercially sensible results. Investors circumstances and instructions will be considered when the courts consider claims of this nature.
Written by Lindokuhle Mashilo and Dewald Claassen