Claims legal
Joffe's LOL: Letters of law
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Prevention of loss - Lack of due care
Nearly all non-life insurance policies include a clause requiring the policyholder to take all reasonable precautions to prevent losses. This clause, known as the “due care” clause, obligates the insured to demonstrate care towards their insured property and mitigate potential losses wherever possible.
This requirement presents challenges because insurance policies are designed to protect us from our own mistakes and negligence. For instance, we purchase car insurance to cover accidents, even when we exceed speed limits or run stop signs. Similarly, if a laptop is stolen after being left unattended at a restaurant, we expect the claim to be honoured.
However, the reality is more complex. Insurance policies often include a caveat that the insured must comply with all relevant laws and regulations. Any material breach of these laws and regulations can invalidate a claim. For example, in the case of CC Designing BK vs Santam, the court ruled that the insured must demonstrate actual foresight and a reckless disregard for consequences, rather than mere negligence.
The true enquiry, in my judgment, is not whether Cloete was negligent in the delictual or comon law sense, but whether he acted in a reckless manner regarding the sale of the Mercedes. It is as well to remember that the question is predominantly one of fact: not what Cloete should reasonably have foreseen or how he ought prudently to have acted; but what he actually foresaw, how he in fact reacted, and his state of mind in conducting himself as he did.
We can see clearly here that the Insurer cannot only prove that the Insured was negligent. The test for negligence is whether the reasonable man would have foreseen damage or harm from occurring and then what steps (if any) the reasonable man would have taken.
We cannot therefore as Insurers say that the Insured should have acted on the same standard as the reasonable man, it is a higher test than that. Judge Comrie is clear, the Insurer must prove the actual foresight of the Insured and having that foresight disregarded the consequences.
Moreover, in the Renasa Insurance Company Limited v Watson (2016) case, the court upheld the policyholder’s claim, emphasizing the need for insurers to prove the foreseeability of loss. The court ruled that it is insufficient for insurers to rely solely on the reasonable person’s standard of care; they must establish that the insured had actual foresight of the risk and disregarded it.
Additionally, in commercial policies, the insured entity is a company rather than an individual. It is easier to attribute negligence to a person than to a company. Typically, a company’s “controlling mind” includes its directors and senior management, but not lower-level employees like drivers or workers. Therefore, proving that senior management was aware of or involved in negligent behaviour is necessary to reject a claim based on this clause.
Finally, regarding compliance with regulations, insurers must show that the company’s controlling mind chose to ignore the specific regulation, and that this breach was material to the claim. This is not always straightforward to prove, as no cases have yet defined the extent of recklessness required for such breaches.
Overall, enforcing the due care clause and compliance with regulations involves a high burden of proof for insurers, requiring more than just demonstrating negligence.