From: The Registrar, Supreme Court of Appeal
On 21 September 2004, the Supreme Court of Appeal dismissed the appeal by Mutual and Federal Limited against the judgement granted by the Johannesburg High Court ordering it to indemnify Rumdel Construction (Pty) Ltd in the sum of R2, 500,000.00 together with costs in terms of a contract of insurance. It upheld the cross appeal by Rumdel Construction that the trial court erred in not granting it interest on the aforesaid amount and ordered Mutual and Federal to pay interest on the amount of R2 500,000 at the rate of 15.5% per annum as from 14 October 1997 to date of payment.
The appeal arose out of damages suffered by Rumdel construction due to the tropical cyclone Lizette which flooded the Nampula Province in Mozambique during 21 to 28 February 1997. Rumdel Construction was then engaged in building roads and bridges in Mozambique. Cyclone Lizette severely damaged two stretches of road which Rumdel after completion was about to hand over to the Mozambican Government. Rumdel prior to commencing the construction of the roads had obtained insurance cover for the above contract work from Mutual and Federal. This storm damage led to an insurance claim that Mutual and Federal rejected. The Johannesburg High Court held that the storm damage was a peril covered by the policy and dismissed Mutual and Federal’s contentions that Rumdel Construction did not have the necessary insurable interest to claim indemnity under the policy and further that it was not liable to indemnify Rumdel Construction because the road in question was defectively designed.
The appeal court found that the damage to the roads was not caused solely by their design but rather by the unusually heavy downpour. That being the case Rumdel was obliged to repair this damage. Therefore and on a proper construction of the insurance contract Rumdel did have the necessary insurable interest to insure the roads.
As for the design defence the court held that there was no acceptable evidence led by Mutual and Federal that the roads, which were low cost, high risk, high maintenance, low volume, all weather roads were defectively designed. The design standard was known to the Mutual and Federal and it accepted the risk on the basis of this knowledge. The defective design defence was also rejected.
The court further held that from the available evidence it was clear that Rumdel had not, when it agreed the quantum of the damage, compromised its claim for interest. Rumdel had on 14 October 1997 made a demand on Mutual and Federal for the losses suffered by it. This letter of demand with its attached annexures minutely described the manner in which Rumdel had computed its loss. The letter of demand thus complied with the requirements of law and Rumdel was entitled to interest on its claim at the rate of 15.5% from the 14 October 1997 to date of payment.