The Western Cape High Court handed down judgment on 14 February 2019 in the matter of Watson & Another v Renasa Insurance Co Limited.
The judgment dealt in part with the application of what has come to be known as the Reinstatement Value Conditions (“RVC”) clause, a common clause in many contemporary indemnity insurance policies (most notably, the Multimark III policy wording). This clause should not be confused with the Insurer’s right to reinstate (usually found in the general conditions to the policy) which affords the insurer the right to elect to either reinstate the property or effect payment in lieu thereof.
The RVC clause affords the insured the election to be paid the cost of reinstating or repairing the damaged property with new property rather than accepting an indemnity payment calculated as being what it would have cost the insured to purchase similar used property immediately before the damage. The reinstatement value is often substantially higher than the indemnity value however, the RVC clause has a number of provisos including, the proviso that the work of reinstatement or repair “…must be commenced and carried out with reasonable dispatch, otherwise no payment, beyond the amount which would have been payable if these reinstatement value conditions had not been incorporated herein, shall be made” as well as the proviso that “until expenditure has been incurred by the insured in replacing and reinstating the property, the company shall not be liable for any payment in excess of the amount which would have been payable if these conditions had not been incorporated herein”.
In the Watson matter, the argument arose before the Court that these provisos envisage that expensive print finishing machinery and premises needed to be secured by Mr Watson and monies expended thereon before he would be entitled to rely on the RVC clause. It was argued on behalf of Mr Watson, that he did not have the financial wherewithal, as a result of the delay caused by the insurer to do so and that it could not be expected of an impecunious insured to have to do so, without any undertaking from the insurer that payment would be forthcoming.
The Court stated “Clauses of this nature can give rise to difficulty and are open to potential abuse by an insurer who is less than bona fide. If no payment is made by an insurer at all, it places an impecunious (or relatively impecunious) claimant at a severe disadvantage when compared to similarly-placed insured parties, who are possessed of greater means. Such an impecunious insured would be required not merely to evidence a sincere intention to replace or reinstate the destroyed or damaged property, but would further be required to do so, absent any firm commitment by the insurer that it accepts liability for the resultant costs”.
Following the judgment in Grand Central Airport (Pty) Ltd v AIG South Africa Ltd the Court found that, in the context of the insurers argument that it should be the person that manages the insured’s reinstatement by being entitled to determine payment once and if compliance by the insured with the RVC clause has, in it’s view, taken place, the Court said “To interpret these words as sanctioning the defendant’s conduct is a bridge too far. To my mind, it would offend against the legal convictions of the community to find that, in the present case, the defendant insurer should nonetheless be permitted to effectively slash the extent of its payment liability after having withheld the performance of its own indemnity payment obligation under the policy”.
Andrew Ginsberg of Assheton-Smith Ginsberg Inc., Mr Watson’s attorneys stated that
“this judgment should serve as a word of caution to insurers when the RVC clause is invoked by relatively impecunious insureds. If there is no argument as to liability, this judgment seems to be precedent that, at the very least, the indemnity value should be paid which will give the insured the necessary capital to commence reinstatement”.
