The declaration of COVID-19 as a global pandemic, and in accordance with local law, as a national disaster, has undoubtedly had several ramifications. Virtually all spheres of human dealings, typically ranging from economic, social to legal, have been adversely affected. In this legal write up, we review the effects of Statutory Instrument 85 of 2020 (Exchange Control regulations 2020) on insurance contracts; the effect of payment of premiums using free funds on the insurance contract.

1. Monetary regime in Zimbabwe

Following the adoption of the multicurrency regime in 2009, Zimbabwe reverted to the exclusive use of the Zimbabwean dollar in 2019. This was done through various legislative instruments, particularly the Finance Act No.2 of 2019 and Statutory Instrument (S.I) 212 of 2019 . S.I 212 of 2019 provides for exclusive use of the Zimbabwean dollar to settle all domestic transactions as well as penalties for failure to do so. It also provides for exceptions allowing use of foreign currency in certain transactions.

2. Meaning of Free Funds: Exchange Control Regulations

Free funds are defined in the Exchange Control Regulations 1996, S.I 109 of 1996 as follows:

“free funds mean money which is lawfully held outside Zimbabwe by a Zimbabwean resident and which was acquired by him otherwise than as the proceeds of any trade, business or other gainful occupation or activity carried on by him in Zimbabwe;”

The Courts have been called upon to determine the effect of these provisions and in the Supreme Court case of Barker v African Homesteads Touring & Safaris (Pvt) Ltd & Anor , the court noted, “…both an actual payment and an agreement to make payment outside Zimbabwe require authorization by the exchange control authority, except where the act is done by an individual (as opposed to a company) with free funds available to him at the time of the act concerned.”
Thus, in terms of these regulations an agreement to pay by a natural person with free funds was lawful.

3. Statutory Instrument 212 of 2019

• 3.1 S.I 212 of 2019 provides for the exclusive use of the Zimbabwean currency to settle domestic transactions.
• 3.2 Accordingly, the provisions allowing use of free funds to settle domestic transactions fell away with this instrument.
• 3.3 Following S.I 212 of 2019, the Insurance and Pensions Commission issued circular 13 of 2019. In terms of this circular, all pre-existing insurance policies which were denominated in foreign currency would run to their natural expiry. All new insurance policies were to be issued in local currency with the exception of international travel insurance, motor insurance for vehicles in transit, customs bond insurance, bank cash in transit and safari operators insurance.

4. Statutory Instrument 85 of 2020

• 4.1 Under the guise of assisting the public to deal with the devastating effects of Covid-19, S.I 85 of 2020 was promulgated. In terms of section 6 of S.I 85 (payment of goods and services using free funds), any person can now use free funds for the purchase of goods and services in Zimbabwe. It must be highlighted that it remains that goods and services must be chargeable in local currency, and payment may be made in foreign currency using an official exchange rate on the date of payment.
• 4.2 This therefore means that, policyholders may pay their premiums or contributions in foreign currency at the official exchange rate.
• 4.3 The premiums and contributions must be chargeable in Zimbabwean currency. Insurers cannot therefore demand payment to be exclusively in foreign currency, but rather, provide an option to pay in foreign currency at the official exchange rate.
• 4.4 It is pertinent to note that S.I 85 of 2020, adds to the already confusing monetary regulatory regime as it does not purport to repeal S.I 212 of 2019. The Exchange Control regulations thus have laws on one side prohibiting the use of foreign currency while on the other allowing the use of free funds. S.I 212 of 2019 prohibits a buyer and a seller from transacting in foreign currency while S.I 85 of 2020 permits a buyer to transact in foreign currency.

5. IPEC Circular 7 of 2020

• 5.1 Following S.I 85 of 2020 , IPEC issued circular 7 of 2020 in April of 2020. The Circular seeks to reiterate the position as stated in the Exchange Control regulations on free funds.
• 5.2 It clearly lays out that all insurance contracts remain denominated in Zimbabwean dollars save for the insurance policies exempted under circular 13 of 2019.

6. Section 81 of the Insurance Act

Section 81 of the Insurance Act provides as below;
81 Sums insured etc., to be stated in currency of Zimbabwe
(1) In every policy every sum of money mentioned in the policy shall be stated in the currency of Zimbabwe, unless
the parties to the policy have, at the time of the issue or subsequent to the time of the issue of the policy, agreed that every sum of money mentioned in the policy shall be stated in some currency other than the currency of Zimbabwe.
(2) If the parties to a policy have agreed that every sum of money mentioned in the policy shall be stated in some
currency other than the currency of Zimbabwe, that fact and the currency in question shall be stated or endorsed on the policy in distinct terms in printed or typed letters no smaller than, and as legible as, the letters of the other provisions of the policy.

• 6.1 An ordinary reading on the above section makes it lawful
  for an insurance policy to be denominated in other currencies.

   

• 6.2 This position in the law becomes difficult to reconcile considering,
  The Exchange Control regulations in particular S.I 212 of 2019 which provides as follows:
  “Transactions excluded from scope of “domestic transactions””

4. The following transactions are not within the scope of the definition of “domestic transaction” in subsection (1) for the purposes of these regulations
(e) transactions in respect of which any other law expressly mandates or allows for payment to be made in any or a specific foreign currency.

• 6.3 It may be argued that section 81 of the Insurance Act is an exemption to the scope of domestic transaction, in that allowing a policy to be denominated in other currency is an implication that the premiums to this policy may be paid in that same currency.
• 6.4 It can then be further argued that allowing premiums to be paid using free funds as provided in S.I 85 of 2020 would then give credence to the fact that section 81 of the Insurance Act permits foreign currency denominated policies. Surely once the premium has been paid in foreign currency, it also follows that the benefits would also flow in the same currency.

7. Analysis

• 7.1 The purpose of insurance is to be indemnified in the event of loss. It anticipates loss and undertakes to cover part or the entirety of that loss, thereby providing cover and certainty in an eventual loss.
• 7.2 However, the latest monetary regulatory framework (S.I 85 of 2020) with the rationale to assist the public in light of the devastating effects of Covid-19 also has its own devastating effects on the insurance industry.
• 7.3 This brings back some of the challenges observed by the Justice Smith Commission of inquiry ; “… an indictment on the macro-economic policy failures of the country which continue to have adverse effects on the insurance and pensions industry.”
• 7.4 Trying to reconcile section 81 of the Insurance Act as read against S.I 212 of 2019 and S.I 85 of 2020 leads to more confusion and can lead to different interpretations. However, we form the opinion that whilst the Exchange Control regulations override all other enactment,section 81 of the Insurance Act does not expressly mandate for the payment of premiums in foreign currency ( free funds), it cannot be taken to mean that foreign denominated policies are permissible. Even assuming we err in this regard, we take comfort in the fact that S.I 85 of 2020 only permits the insured (purchaser of services) to use foreign currency and not the insurer (seller of service). Thus the policy cannot at law be denominated in any other currency.
• 7.5 Thus, the contract currency of all insurance contracts is Zimbabwean Dollars (ZWL) and the settlement currency of all insurance contracts shall remain Zimbabwean dollars. However, premiums can be paid in foreign currency on condition that they are free funds.
• 7.6 It is puzzling that the law allows for premiums to be paid in one currency and for claims to be settled in another currency. In addition, there does not appear to be any distinction between local versus foreign risks, except for those that are exempted in terms of S.I 212 of 2019. The reality is any policyholder paying premiums for a domestic policy using foreign currency will always be underinsured and is arguably worse off than those paying premiums in local currency.
• 7.7 The Consumer Protection Act defines a consumer contract as follows:
  “consumer contract” means a contract for the sale or supply of goods or services or both, in which the seller or supplier is dealing in the course of business and the purchaser or user is not…”
• 7.8 The Insurance contract is a consumer contract and falls within the ambit of the Consumer Protection Act. Thus as provided by the preamble of the Consumer Protection Act, much should be done to protect the consumer of insurance products and services by ensuring a fair, efficient, sustainable and transparent marketplace for insurance consumers. The payment of premiums in foreign currency ‘free funds’, is unfair to policyholders where they do not get the return they have been paying premiums for, and it is not sustainable for the insurance industry. The distortions in the economy caused by the currency changes or risks should not lead to the wholesale distortion of legal principles of the law of insurance.