Oudtshoorn Municipality Case | Principle of Utmost Good Faith | Lia Marus
The Oudtshoorn Municipality case was groundbreaking in that it abolished the principle of 'utmost good faith' in South African law.
Mutual and Federal Insurance Co. Ltd v Oudtshoorm Municipality, causal negligence, policy holder, pulic liabiliy policy, Oudtshoorn Municipality, appeal, appellant, respondent, insurance cover, materiality of facts
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The effect of the decision in the Oudtshoorn Municipality Case on the validity of principles of English insurance law that have been applied in SA law

The facts of the Mutual and Federal Insurance Co. Ltd v Oudtshoorm Municipality case (Oudtshoorn Municipality Case):

 

  • The owner of a light aircraft crashed into a pole immediately outside the boundary of the Oudtshoorn aerodrome. (The aerodrome was owned by the Oudtshoorn Municipality.)
  • Said aircraft owner instituted action against the Oudtshoorn Municipality (hereinafter referred to as the respondent) and was awarded damages. (These were awarded on the basis of causal negligence.)
  • The respondent was the policy holder of a valid public liability policy that was in force at the time of the collission. It had been issued by the predecessor in title of the appellant, in other words the person who was the beneficiary of the policy before the Oudtshoorn Municipality was.
  • The claim for damages succeeded.
  • However, on appeal, the appellant contested that the claim for damages should have failed owing to the overhead powerlines that the aircraft had collided with. In other words, the appellant contended that the respondent had not disclosed facts which were materially relevant to the granting of insurance cover.
  • The court ruled that in order to determine the materiality of facts to a case, the reasonable person test – and not the reasonable insurer/insured test – should be applied. It also ruled that the concept of ‘utmost good faith’ – which is a principle from English law that had been applied in South African law – should be abolished. Now, in South African law, there are no degress of good faith.
  • It ruled in favour of the appellant and the appeal was upheld.

 

In terms of case law decisions, these apply to future instances where similar facts are seen again. They are not applied retroactively. Thus, in cases that come after Oudtshoorn Municipality Case, the principle of utmost good faith is not applied. Only the principle that insurance contracts must be of good faith is applied.

Oudtshoorn Municipality Case
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