Insurance begins with information and it begins with the understanding the insurer knows considerably less about your risk than you do.

An insurer decides whether to take the risk, what to charge, what excess to impose and what conditions to attach, almost entirely on what it has been told. Some of that information is “material” meaning it could reasonably affect how the risk is assessed.

Non disclosure is material information that should have been given and was not. Misrepresentation is information that was given, but paints an inaccurate picture.

You see a renovation. The underwriter sees a building with the roof off, unfamiliar people on site and an alarm that has been disarmed for six weeks. You see a sensible upgrade, panels on the roof, an inverter, a battery in the garage. The insurer sees a high fire risk, a new theft target and a question about who signed off the installation.

Some examples. Previous losses, vacancy, occupancy changes, alterations, location, security removed or not yet installed, new machinery, hazardous work on site, insolvency, a vehicle now doing deliveries. All of these change the risk exposure and must be disclosed to your insurer.

Disclosure also does not end on inception day. It is on ongoing duty. Risk changes, make sure your policy detail follows and describes those changes.

An insurer cannot deny a claim over trivia. Materiality is judged by what a reasonable, prudent person would consider likely to have affected the assessment of the risk.

Worked Example

A distribution warehouse in Montague Gardens is insured as fully occupied. Turnover drops and for eight months roughly 60% of the floor stands empty. Nobody mentions it.

Copper is stripped from the vacant side over a long weekend. The claim comes to R1.4 million.

The client sees a theft claim on a building that has been insured for years. The insurer sees a different occupancy from the one it priced., a vacant commercial space, weaker supervision, a different theft profile altogether. Vacancy was material. It could have produced a warranty, a loading, a higher premium, a restriction or removed cover totally.

The policy was in force. The premium was paid. It still became non disclosure, as the risk the insurer agreed to cover was not the risk it had on claim day.

Insurance is about uncertainty of loss. The technical word is fortuity or accidental, which is a formal way of saying the event has to be capable of not happening.

A collision is uncertain. A storm damaging a roof is uncertain. A pipe bursting on a Sunday is uncertain. A component that has been wearing out for eleven years is not uncertain. That is time doing what time does.

Wear and tear is deterioration from age and normal use. Tyres, brake pads, roof coverings, bearings. Gradual deterioration is the slow version of the same story, rust, corrosion, rot, decay, waterproofing and so on.

Insurance does not convert deferred maintenance into an insured event on the day the maintenance becomes visible. That is not meanness. That is the difference between a policy and a service or maintenance plan.

But there is a second half and it is the half that often gets missed. The fact that the “failed item” due to wear and tear is excluded does not automatically mean everything damaged afterwards is excluded too. That is resultant damage and it is usually where the real financial loss when claiming.

There are three questions. What failed? Why did it fail? What separate damage followed?

Worked Example

A twelve year old geyser in a Constantia home fails on a Tuesday morning. The geyser itself is R9,200. Water comes through the ceiling into the kitchen, the interiors and flooring come in at R214,000.

The client expects the whole invoice to be a claim. The wording splits it.

The geyser failed through age, so replacing the unit is wear and tear rather than an accident. The geyser cost of R9,200 is the clients responsibility, subject to any specific geyser benefit the policy provides.

The sudden escape of water into otherwise sound rooms is a different event. That R214,000 can still be covered, less the excess, provided the policy treats the escape as accidental and an exclusion is not drafted wide enough to exclude the resultant damage.

Same morning. Same water. Two insurance decisions.

Now turn it round. If water has been seeping through failed waterproofing for three years, staining walls, rotting skirting, slowly enough that no one could name the day it started, the insurer may well treat cause and consequence (the resultant damage) alike as gradual deterioration.

There is a common belief that being careless or negligent negates a claim. If that were the rule, the product would be just about useless.

A very large part of insurance exists since people make mistakes. Drivers misjudge gaps. Employees drop things. Taps get left running. A contractor puts a spade through the neighbour's water main. Liability cover in particular exists to respond to negligence.

Policies do carry reasonable care or reasonable precautions provisions, but those are not a requirement to be perfect. No wording expects you to foresee every possible accident.

The complex cases of care turn on knowledge. Once you know a serious danger exists, what you do next is critical. Do not court danger, if you court danger you are acting recklessly, which is a “no no” insurance wise and will lead to claim rejections. The solid test is, act as though you were not insured. You are ae your own insurer. What do you do next? What do you do to avoid loss?

Worked Example

A small guest house outside Stellenbosch has a valley gutter that silted up after autumn. There is a quote for R12,000 to clear and reseal it. July is busy and the work gets deferred.

A winter front arrives. Water flows over the gutter into three suites. Repairs and lost accommodation total R420,000.

The storm was happened. So was the maintenance quote sitting in the inbox since April.

The client sees storm damage. The insurer sees a known defect left in place. Reasonable care does not require the owner to stop the rain, it requires them to deal with an obvious, relatively inexpensive, already diagnosed blockage rather than waiting for the weather to cause loss.

A burst pipe at 02:00, found at 06:00, is an accident. A blocked gutter you have been considering since April is a bad risk mitigation decision.

Indemnity means insurance looks to put back into the same financial position you enjoyed before an insured loss, subject to the policy. Not better off. The same.

That is straightforward. setting the basis of settlement (indemnity) or put another way, setting the sums insured, is more tricky.

A vehicle, a building, a machine, a painting and a pallet of stock can all be valued differently. Replacement cost, market value, indemnity value, retail value, agreed value. These are not synonyms and the one that applies to you is in your policy. Read it carefully. Speak to a risk advisor if you need clarity.

Worked Example

A specialist machine bought six years ago for R2 million is destroyed in a fire. The nearest equivalent today costs R3.4 million.

The owner expects R3.4 million. Whether that is how the policy responds depends on the basis of settlement.

On a replacement or reinstatement basis, the answer may well be R3.4 million. On a depreciated indemnity value or market value basis, it will be considerably less, as the policy intends to put the owner back where they were with a six year old machine, rather than buying them a new one.

Same fire. Same machine. The basis of settlement usually significantly changes the amount paid.

Many problem claims are caused years before the loss, they start the moment the sum insured was chosen and never checked against what the policy required.

A building is not insured for what you paid for it, what the municipality thinks it's worth, or what it might sell for. It is invariably insured for full rebuilding cost, including VAT, professional fees , demolition costs, debris removal and the like.

Business interruption is another sum insured that is calculated incorrectly in a high percentage of policies we see. typically, clients do not understand the difference between the accounting gross profit definition and the insurance definition of gross profit. then, aspects like factoring in trends, growth, inflation and an indemnity period long enough to cover the rebuild, the lead times and the slow climb back to normal turnover.

Then, Stock (insured under Fire) has its own basis for setting the sum insured correctly. Plant and Machinery has another.

In policies, where full value sums insured apply and where the required sum insured is higher than the amount insured, you have a proportionate underinsurance or average problem. If average applies, a claim is reduced in the same proportion to the incorrect sum insured. Simply put, if you insure for half your loss, half your claim is paid.

Worked Example

A light industrial building is insured for R14 million. That's what the company paid in 2019, rounded up. A proper reinstatement valuation, VAT inclusive, with demolition and professional fees, puts the correct figure at R28 million.

A fire takes out a workshop wing. It is not a total loss. The repair is R3 million.

The client expects R3 million less the excess. Average applies.

R14 million over R28 million is 50%. The insurer's arithmetic is 50% of R3 million — R1.5 million, before the excess.

The fire was insured. The building was not insured for what the policy required. That is how a perfectly valid partial claim gets halved.

Insurance does not necessarily pay for the last thing that happened. It pays, for the dominant or effective cause of the damage being claimed. This is called proximate cause, in insurance speak and it usually only becomes interesting when more than one cause is at play, which in our experience is most of the time.

Lightning strikes a building and starts a fire. The chain is obvious.

A storm occurs and water comes through a roof and the assessor then finds the waterproofing has been failing for years. Now there are two “cause” candidates in the story and someone, usually the assessor has to work out what role each cause played.

Unsurprisingly, these conversations can very quickly become complex and technical.

Worked Example

A factory roof is 28 years old. There are some bad patches. It leaked in two previous winters and was patched and forgotten both times. Hail arrives, sheeting opens and the claim is presented as R2 million of storm damage.

The adjuster walks the roof. Very carefully I might add. Some sheets were sound and were clearly damaged by the hail. A large section was already brittle and rusted through at the laps and was definitely not going to see another season.

The storm is not ignored. But the whole repair invoice is not covered. The dominant cause of the failed section is gradual deterioration. The dominant cause of the punctured sound sheets is hail. The settlement payout splits.

The client who thought "hail damaged the building, therefore this is a hail claim" discovers that proximate cause does not start and end at hail.

A policy does more than say what is covered. It also draws clear lines around when it will pay.

A condition is a requirement of cover or of making a claim, such as an alarm, tracker, fire protection, stock storage or prompt claim notification. A warranty is usually a more specific promise about how the risk will be managed and breaching it can seriously affect whether a claim is paid or not. An exclusion identifies loss or circumstances the policy was never intended to insure. Resultant damage may sometimes still be covered where it is separate physical damage flowing from an excluded cause, but only if the exclusion does not also exclude ensuing or consequential loss. The policy schedule, endorsements and exact wording always decide the outcome.

Worked Example

Two neighbouring commercial units suffer the same failed waterproofing after a wet August. Each has about R740,000 of damaged ceilings, ruined partitioning and damaged contents.

Policy A excludes the waterproofing membrane itself, but pays the sudden and accidental water damage to

other insured property (in this case the damaged ceilings, ruined partitioning and damaged contents). So, the membrane repair is the client’s responsibility and the damaged interiors are paid, less the excess.

Policy B pays nothing, as it excludes loss or damage caused by gradual ingress, seepage or failed waterproofing and does not restore cover for the resulting damage to the interiors. Same rain, same ceilings, but the all the damage falls within the exclusion.

In this example, no one is arguing about the membrane. The issue is whether the policy pays for the resultant damage. The crucial words were, “damage caused by.” That is why two clients with the same leak may receive very different payouts and why comparing premiums is never the same as comparing cover.

Insurable interest is classic insurance shorthand that sounds more complicated than it is. In simple terms, you can only insure something if you would suffer a financial loss or if you have a legally recognised responsibility, if it were damaged, lost or destroyed. Ownership is the obvious example. A tenant who installed and is responsible to insure a drywall partition under a lease has an insurable interest. So does a bank financing an asset, a contractor responsible for property while working on it, and a business holding customers’ goods. In fact, many businesses have a bigger exposure to customers property than they realise.

Worked Example

An operating company insures a production building for R18 million and pays the premium for six years without incident. Then a fire guts the plant room. Only then does anyone compare the title deed with the policy schedule.

The building belongs to a family trust. The company is the tenant. Yet the company is the only named insured and the trust appears nowhere in the policy documentation. The company may have an insurable interest in its plant, stock, tenant improvements and any liability it has assumed under the lease, but it does not automatically have an interest equal to the owner’s full loss when the building burns. A tenant’s interest may be limited to its use of the premises, its contractual liability, or another identifiable financial prejudice.

The fire happened. The premiums were paid. But the building claim may stall on basic questions. Whose loss is it and does the policy insure that party’s interest? The trust should ordinarily be reflected as the insured owner, with the operating company included for its separate interests where appropriate. Always a good idea to have these questions answered before a loss.

A claim has two stages and they often get blurred.

First, you generally have to show that a loss occurred, that you had an insurable interest in what was lost, that it falls within the cover granted and what it was worth.

Then, if the insurer says an exclusion, breach or other ground removes that cover, the insurer generally needs a proper factual basis for relying on it.

That distinction is fundamental. You cannot say "I had a loss, so pay me." And an insurer cannot simply quote an exclusion and say "therefore we do not.”

Worked Example

A home is burgled and watches, jewellery and electronics worth R350,000 are taken.

Some items have invoices. Some were gifts. One watch was bought fifteen years ago. Several pieces were inherited. There are photographs showing most of it, bank records for some purchases and a jewellery valuation from 2023.

The claim needs to establish, on the evidence that exists, that the items were there, that the insured had a financial interest in them and what the amount of the loss is. That does not mean an original till slip for every pair of socks and insured objects in the house. It does mean the claim has to be capable of support.

Where the records are thin, the claim does not become fraudulent. It usually becomes quite slow.

The other bit of insurance shorthand speak says you can only insure something once. Yes, most of the time.

The same property or financial interest can be found under more than one policy. What cannot normally happen is recovering the same financial loss twice, as that runs against the principle of indemnity (no enrichment, you are put in the same financial position after the loss, not a better one).

Where two policies do cover the same interest against the same risk, contribution allows the insurers to share the claim, in proportion to their exposure, between them.

Worked Example

Machinery worth R1 million is insured for R1 million under Policy A and, through an administrative mix up when brokers changed, for R1 million under Policy B.

Fire causes R1 million damage.

The business has lost R1 million. It has not lost R2 million, regardless of how many premiums were paid. Contribution decides how the insurers split the R1 million between them and in the case it would more than likely be R500 000 each.

Two policies. One loss. One indemnity.

Suppose somebody else wronged you and caused your loss. Your insurer pays you. That person does not get to walk away simply as you have already been paid out (indemnified).

The insurer generally steps into your shoes and takes over your legal rights to recover from whoever was responsible. That is subrogation and it exists so that the negligent party, not the policyholder premium pool, makes good on their bad, where the law allows.

It has a consequence that sometimes catches people out. If you have already signed away your right to claim against somebody, say a hold harmless clause in a lease, an indemnity in a suppliers standard terms, a waiver buried in a warehousing agreement, you may have inadvertently given away something the insurer was relying on. If you prejudice your insurers recovery rights and you can prejudice your own claim.

Salvage is the other side of the same coin. What remains after a loss still has value. After paying the claim, the insurer will usually take ownership of, or obtain the right to dispose of, the salvage. It may sell damaged machinery, recoverable stock, vehicle wreckage or building materials to a specialist salvage buyer, recycler, repairer or auction house.

The sale proceeds reduce the insurers net cost of the claim. In principle, recoveries from salvage and subrogation help reduce claims costs and support more sustainable premiums across the insured pool. They will not necessarily reduce your premium directly, but the recovery should be reflected as a claim credit in that your profitability loss ratio (the ratio of claims paid to premium received).

Worked Example

A logistics business signs a warehousing agreement with a clause holding the operator harmless for damage to stored goods. Procurement reads it as boilerplate, as it looks exactly like boilerplate.

Eighteen months later a forklift ruptures a sprinkler line and R3 million of stock is written off.

The insurer pays, then looks to recover from the warehouse operator and finds a signed document saying it cannot. Suddenly, clause 18.7, the hold harmless clause in the warehousing agreement that no one focused on when signing, becomes the most important clause in the building. By signing it, you may already have surrendered the insurers right to claim from the warehouse operator. That can leave the insurer unable to recover the R3 million it paid from the party responsible for the loss. If the insurer’s recovery rights have been prejudiced, it may reduce or reject your claim to the extent of the recovery it has lost due to you signing the hold harmless agreement.

On salvage, a vehicle worth R500,000 is written off and the wreck is still worth R100,000. If the insurer settles the total loss and takes the salvage, it recovers part of its outlay by selling the wreck. If you want to keep the damaged vehicle and the insurers agree to this, that R100,000 has to be reflected in your settlement offer. Indemnity means R500,000. Not R500,000 and a wreck.