This case was taken on appeal with regards to motor vehicle insurance by the motorist after his claim was dismissed in the amount of R608 772.20 against the insurer, Outsurance. The appeal deals with the consequences of an insured who failed to disclose to the insurer an incident which may give rise to a claim, even though the insured did not intend to lodge a claim under the contract at the time of the incident or in the future.
The main question is therefore whether an insurer may reject a claim for damages to the vehicle owing to the failure by the insured to disclose a previous unrelated incident.
The insured entered into a contract of insurance with Outsurance to provide comprehensive cover for his vehicle and for household contents. The policy schedule reflects the premiums and the excess amount of R20 000.
The judge stated: “The insurer, as part of its business branding profile as the self-proclaimed leader in the personal insurance market, prides itself on saving the consumer money by consistently offering the best premiums based on the exclusion of brokers, with the result that no commissions are payable and that its premiums are based on an individual’s profile.”
Terms and Conditions of the Outsurance policy
Outsurance makes continuous reference that there is no fine print in their documents and that the documents are easy to read and user-friendly so there are no hidden surprises. Elsewhere in the document they concede that information is in plain language ensuring that it is easy to read and conveys the details in the clearest possible way.
Unfortunately, it appears that the policy is not worded in plain language as the insurer may have believed. The insurer’s intention to word the policy in plain language seems not to have had the intended outcome. This created uncertainty as to what was expected of an insured who may not want to lodge a claim in the hope of preserving his ‘Outbonus’. It is this scenario which has given rise to the litigation.
The policy places various obligations and responsibilities on an insured as there are various sets of provisions of the policy which are relevant to the issues on appeal. The policy stipulates that the insured must report a claim or any incident that may lead to a claim as soon as possible, but not later than 30 days, after any incident for which the insured does not want to claim but which may result in a claim in the future.
Complying with the Provisions
The motorist supplied the insurer with a repair quotation to the amount of R608 772.29. He also informed the insurer of the accident and complied with all other formalities regarding the lodging of the current claim amount. There is no dispute that the policy was operative at the time of the accident as all premiums were up to date. It is also not disputed that the motorist lodged his claim within the stipulated 30 day period. There was no attempt made by the motorist to withhold information from the assessor during interviews.
This leads to the crux of the appeal – whether the motorist was contractually obliged to disclose the two incidents in which the insured vehicle was previously damaged. Or put differently – whether his failure to disclose the two previous incidents allows the insurer to avoid liability and reject a current claim.
Rejection by Insurer
Outsurance rejected the motorist’s claim providing the reason that he was “driving under the influence”. They then tendered a refund of the premiums paid by the motorist as a form of consolation. They further stated that he breached a condition of the policy as his alcohol blood level exceeded the legal limit. A statement made by the motorist’s employee leading to the rejection of the claim was however not permitted as evidence. The court therefore did not take this statement into consideration and the reason for the material breach of contract pleaded by Outsurance was not valid.
The further reason by the motorist for not reporting the incidents was that he did not want to lose his OUTbonus. The learned judge stated that the OUTbonus is what supposedly sets it apart from others in the insurance industry as their branding slogan proclaims: “You always get something out”. The policy documents explains in plain language that as an insured, you are rewarded for not claiming. It was therefore not surprising that the insured, in light of the benefits of not submitting a claim, did not disclose the previous incidents. The motorist also believed that he fell within the confines of the excess amount of R20 000 which he would have had to pay had he claimed. The judge stated that in his view, the insurer’s policy is designed to discourage its clients from submitting claims.
Wording of policy
The policy wording of Outsurance is not similar to other conventional policies which are subject to annual renewal. Their policy also does not have a requirement that the insured inform the insurer on the anniversary of the policy of any change in circumstances that may lead to a reconsideration of the risk. Outsurance submitted that it chose not to require its clients to complete an annual questionnaire, in terms of which it would reassess the risk on a yearly basis.
Outsurance gives examples in its policy of the meaning of a “change in circumstances”. They do not however include in their list of circumstances an accident or collision with another vehicle. The judge interpreted change in circumstances as a change in a client’s financial position which would affect him being able to pay his premiums as determined at the inception of the policy. The policy indicates in plain language that “your premium is based on your individual profile”. As the judge stated, this means that they make sure good risk clients do not subsidise bad risks. This therefore means that Outsurance requires to be informed immediately of the financial position of the insured and whether it has been adversely affected by a civil judgment, sequestration, administration order or liquidation of a company in which he has an interest.
As the learned judge stated: “In my view, if the respondent intended for this clause to include the occurrence of every ‘incident’, it should have said so. The requirement to report immediately a change in circumstances contemplates, in my view, a change to the insured’s personal circumstances rather than a change to the condition of the vehicle.”
The clause obliges an insured to immediately report any incident or damage to his motor vehicle. This imposes an uncertain and vague burden on an insured client. The versions of what could constitute an “incident” are innumerable and too wide to define. Outsurance should have specifically spelt out, in unambiguous terms, what it required the insured to report. The obligation to report a claim or an incident only arises if the insured wishes to enforce the indemnification of loss which the insurer is obliged to honour.
With regards to the previous incidents which the motorist did not claim for, he elected to repair his own vehicle and that of the other party.
The judge stated that the common sense interpretation of the clause regarding the 30-day notice period, only means that if the insured elects not to report the matter within 30 days, he loses the right to claim his loss in respect of that incident only. It can therefore not be said that the election to not report an incident and not to claim means that the insurer can avoid to pay a claim of a serious collision. The requirement to notify the insurer of every incident may result in insurers being flooded with irrelevant events. It would also create general confusion and uncertainty among the clients as to what incidents should be reported.
The appeal was upheld and the previous court order set aside. Outsurance was ordered to pay the motorist for the damages claimed.
Considering the outcomes of Treating Customers Fairly
If we consider the TCF outcomes in light of this case, we can highlight the importance of ensuring that clients are given clear information so they understand their obligations and the circumstances in which the benefit of a financial product will or will not pay out.
Advisors have an important part to play in this outcome as clients who go through an advisor, and not direct, will rely on their advisor to give them professional advice and all the necessary and material information so they can make an informed choice and have a good understanding about how the product will perform in different scenarios.
When deciding whether or not to distribute or market a particular product (‘due diligence’ or ‘research’ process) advisors should consider whether their target market or clients are likely to understand the information given by the relevant product provider. Testing the information with a few clients will help advisors to get a good understanding of whether it is easy enough to understand or whether there are ambiguities which could place clients at risk down the line. Making this a ‘business habit’ will enable advisors to show their clients the value of their advice.
Produced August 2015