Can insurers collide?

Nearly 20 years have passed since the landmark judgement in Rand Mutual Assurance (RMA) v Road Accident Fund (RAF) was handed down in 2008. This historic decision created ripples that continue to be felt today, making it worthwhile to revisit the case and examine its ongoing implications.

RMA serves as the workers’ compensation insurer for several mines. As we have discussed previously, it was established before national workers’ compensation legislation was passed, providing personal injury coverage for people working in the mining industry – specifically for accidental injuries.

Before this legislation existed, personal injury insurance policies were available on the private market. These policies compensated injured parties, including coverage for medical costs associated with injuries. In essence, personal accident policies provided what we now know as workers’ compensation coverage. Workers’ compensation is simply a statutory form of personal injury insurance that can theoretically be provided through the insurance market without specific legislation.

When the Workers’ Compensation Act (WCA) was passed nationwide in 1914, RMA already existed, and the legislation accommodated its continued operation. The Act imposed an obligation on employers – termed “individually liable employers” – to pay workers’ compensation. In practice, employers insured this obligation with RMA, creating a seamless system where injured mineworkers submitted claims directly to RMA. The individually liable employer faded into the background, fostering the perception that RMA was the primary institution handling occupational accident compensation. This perception gained further credence when the Compensation for Occupational Injuries and Diseases Act 1993 (COIDA) replaced the WCA.

In the US, workers’ compensation was first introduced at a state level. Although the introduction proved problematic, by the 1920s it was generally regarded as successful. This success prompted the question: if occupational accidents could be effectively managed through workers’ compensation schemes, why couldn’t the same approach be applied to motor vehicle accidents?

Columbia University extensively investigated this question, publishing its findings in 1932. The study essentially recommended applying the workers’ compensation model to road accident victims. Following this recommendation, countries worldwide began enacting legislation to address motor vehicle accidents.

South Africa followed this trend in 1942 with the Motor Vehicle Insurance Act, though it was not based on the workers’ compensation system. Previously, South Africans injured in motor vehicle accidents had to sue the wrongdoer – typically the other vehicle’s driver – only to discover that the wrongdoer often could not pay court awards. Judges frequently expressed concern about rendering judgements against proverbial “people of straw”. The Motor Vehicle Insurance Act introduced compulsory liability insurance, ensuring that every driver or vehicle owner was insured for harm caused in motor vehicle accidents. This system eventually evolved into the current RAF system.

South Africa now operates two compensation schemes: the older workers’ compensation system and the more recent RAF. The RAF has been problematic for decades, currently carrying a deficit of approximately R400 billion. At one point, the RAF abandoned Generally Accepted Accounting Principles (GAAP) in favour of alternative accounting standards, which significantly reduced the reported deficit. However, the Auditor General disagreed with abandoning GAAP, and when the RAF refused to budge, the matter proceeded to court, which ruled in favour of the Auditor General’s position.

Whilst this outcome was unsurprising, it is remarkable that the matter required judicial intervention. This should have been a policy issue resolved by the responsible cabinet minister. Clearly, all is not well with the RAF, which faces numerous other challenges: the CEO is currently suspended, the board has been dissolved, and parliament has announced an investigation into RAF operations.

Nevertheless, both compensation schemes exist. This raises the question: what happens when a mine employee is injured in a motor vehicle accident where both funds could potentially be involved? Thus we are brought to the central court case. Mr Y, who worked for a mine covered by RMA, was injured in a motor vehicle accident and received compensation from RMA. The accident was caused by a negligent driver, Mr D. The crucial question arose: could RMA recover anything from the RAF?

To understand this issue conceptually, consider that Mr Y has two potential claims: one against the insurer (RMA) for medical expenses, and another against the negligent driver (Mr D), who is insured by the RAF. If Mr Y were paid by both sources, he would receive double compensation – first from RMA and second from Mr D (with funds ultimately coming from the RAF). Common law prohibits such double payments. 

If Mr Y receives payment from Mr D, the law considers that Mr Y holds that money in trust for RMA. Common law developed to allow insurers to claim directly from the person who caused the harm – in this case, Mr D. This legal development occurred before 1778, when Lord Mansfield in Mason v Sainsbury established the general principle that an insurer, having indemnified the insured, could recover from the wrongdoer either (1) in the name of the insured, or (2) by standing in the shoes of the insured and suing directly. This is known as the law of subrogation.

Although this was an English case, Cape Colony legislation in the 1800s established that in commercial matters such as insurance, South African law would align with English law. In 1918, a South African court case confirmed that subrogation was part of South African law.

Applying traditional subrogation law to workers’ compensation cases, RMA – having paid Mr Y’s medical expenses – would sue the negligent driver (Mr D) using Mr Y’s name, resulting in a case styled “Y v D”. However, in 2008, RMA approached the court with a request to simplify this process: could it sue the RAF directly? Could the case be “RMA v the RAF” instead of “Y v D”?

The court answered affirmatively. This was historic: for approximately 400 years, no insurer had ever been allowed by the law to do this. The Supreme Court of Appeal ruled that all insurers could henceforth pursue this direct approach. Remarkably, as far as is known, no insurer has yet utilised this new legal avenue, instead continuing to follow the traditional subrogation law framework of “Y v D”.

Discovery Health has been attempting to achieve similar results. As a medical scheme, Discovery pays medical bills for members involved in motor accidents and has been trying to recover these payments directly from the RAF for over a decade. Some time ago, the RAF CEO issued a memo instructing RAF staff not to refund medical scheme payments. When Discovery obtained a copy of this memo, it challenged the directive in court. Although the court overturned the memo, this did not result in the RAF actually refunding medical costs paid by Discovery and other medical schemes. Multiple additional cases have been launched, and the saga continues.

Nearly 20 years after the landmark case, significant problems remain. When Y sued D under traditional law, the legal framework was crystal clear: Mr D negligently caused harm to Mr Y, giving Mr Y an unambiguous legal claim. The parties and cause of action were transparent for litigation purposes.

However, on what legal grounds can RMA sue the RAF? The RAF did not cause any harm to RMA, making the legal foundation unclear. As time passes, clarity does not improve. For example, if Mr Y were killed and his life insurer paid R2 million, would the RAF be liable to refund the life insurance coverage? The legal mystery continues to deepen, leaving fundamental unanswered questions about the scope and application of this groundbreaking 2008 decision.