Guardrisk, a unit of JSE-listed Momentum Metropolitan Holdings, has been caught up in another misappropriated premiums scandal in which a company it subcontracted to collect client payments on its behalf allegedly ended up using the money for its own purposes.
Court papers show that FML Life collected insurance premiums to the value of R25.78m on behalf of Guardrisk between October 2018 and July 2019. Instead of paying the money over to Guardrisk, FML Life allegedly used the funds to cover its own business expenses, resulting in litigation that has ended up in the high court in Johannesburg.
The case is reminiscent of the Insure Group Managers (IGM) scandal that came to light in mid-2021. IGM was an intermediary that collected premiums on behalf of insurers including Guardrisk, Santam, Old Mutual and Hollard as well as 45 smaller firms.
Independent intermediaries such as IGM are allowed to collect short-term insurance premiums from policyholders and hold them for up to 45 days in liquid investments such as a money-market account before paying them over. However, instead of holding the collected premiums in an interest-bearing account before handing them over within the prescribed 45-day period, IGM invested the money in property, a deepwater port in Mozambique, a mine rehabilitation plant and an asset management firm.
The scheme began unravelling in 2018 when IGM ran into liquidity problems, which resulted in it being placed under curatorship in September of that year. Santam, Old Mutual, Guardrisk, and Hollard suffered almost R1bn in combined losses as a consequence.
Now it appears Guardrisk has ended up in the same boat again with FML Life. It is suing the company and one of its directors, Baldwin Phillip Kock, over the alleged misappropriation of premiums.
However, Guardrisk’s managing executive for legal and compliance, Bianca Radzilani, told Business Day the FML Life matter is “materially different” from the IGM scandal.
She also does not believe the problem of intermediaries disappearing with premiums is an industrywide phenomenon.
“As far as our own experience is concerned, this is not a systemic issue,” said Radzilani.
Guardrisk claims that Kock signed surety for FML’s obligation to collect premiums and hand them over to the insurer in an agreement executed on October 23 2019, potentially putting him on the hock for the full R25.78m. However, Guardrisk has suffered a temporary setback in trying to get its money back after it failed to get a summary judgment against Kock on the suretyship issue.
On February 15 the high court ruled against Guardrisk’s application for a summary judgment, a legal procedure that would have enabled the insurer to obtain a court ruling against Kock without a full trial.
Default judgment
“It is important to note that Guardrisk has already obtained a default judgment order against the FML Life entity,” said Radzilani. “The application for summary judgment pertained to Guardrisk’s action against an individual [Kock] who stood as surety for FML in favour of Guardrisk.”
Kock resisted summary judgment on the basis that Guardrisk’s attorney, Amelia Costa, who deposed the affidavit in support of the insurer’s summary judgment application, lacked personal knowledge of the cause of action underlying its claim. Citing rule 32 (2) of the summary judgment procedure under the Uniform Rules of Court, Kock claimed Costa had to be able to “swear positively to the facts” underlying Guardrisk’s cause of action while also being able to “verify” that cause of action and the amount being claimed.
Since Costa had no direct knowledge of the suretyship agreement, or the circumstances under which it was signed, Kock argued she was not in a position to swear to an affidavit in support of a summary judgment application.
Kock also argued that the surety agreement only pertained to financial obligations that arose after it was signed and not to any of FML’s existing obligations to Guardrisk at the time it was executed (ie R25.78m).
Guardrisk’s counter-argument was that it didn’t matter whether Costa had personal knowledge of all the facts underlying its cause of action as they were not in dispute. The firm argued this meant there was no reason to refuse summary judgment.
Judge Stuart Wilson ruled that the text of the suretyship was unambiguous and plainly applied to both FML’s indebtedness to Guardrisk at the time the suretyship was entered into and to any obligations that might have arisen thereafter. Nevertheless, he also found that Costa’s obvious lack of direct knowledge of all the underlying facts of Guardrisk’s cause of action meant she would not be in a position to demonstrate why Kock’s defences did not warrant a trial.
“It seems to me that Mr Kock is entitled to the benefit of the doubt, at least at the summary judgment stage,” Wilson said in his ruling. “Accordingly summary judgment is refused. The second respondent is granted leave to defend the action.”
According to Radzilani, a court date for the case against FML and Kock has not yet been set as certain pretrial steps must first be taken. However, Guardrisk has vowed to pursue the matter to its conclusion.
“While it is always preferable for any litigating party to obtain judgment at an early stage through, for example, summary judgment proceedings, Guardrisk welcomes the judgment and will continue to pursue the claim in accordance with the ordinary litigation process,” said Radzilani.
Notices from the Financial Sector Conduct Authority show that FML Life has had its licences under the Financial Advisory and Intermediary Services Act suspended at least twice. The first was in June 2020, while the second was in August 2021, presumably after it managed to get the licence reinstated after the first suspension.
Business Day attempted to contact Kock on Friday via another company to which he is connected, Southern Africa Quantum, and left a message with his secretary requesting comment on this story. That resulted in a letter from law firm Ramiah & Associates requesting that Business Day refrain from publishing this story.
‘Urgent interdict’
“Should your organisation find fit to proceed with the publication, our instructions are to launch an urgent interdict staying such publication and approaching the court towards the claim of damages resulting from such publication,” attorney Dhevan Ramiah said in the letter.
Late on Saturday afternoon, Ramiah advised Business Day via email that Kock had filed an urgent application to the high court in Pretoria to interdict Business Day from publishing this article.
The matter was requested to be heard on Saturday.
However, on Sunday morning Business Day’s attorney advised that the duty judge refused to enrol the matter after explaining to Kock’s attorney that court papers are a matter of public record.
Business Day then again invited Kock to comment on this story through his attorney, to which he sent the following response on Sunday afternoon:
“The matter held between Guardrisk, FML and myself represents a larger body of circumstances that shall need to be ventilated at the trial.
“Notwithstanding this, I welcome the judgment taken on the 15th of February, as it is indicative of the larger set of circumstances and offers me an opportunity to present my facts.”
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