In the latest newsletter of the Short Term Insurance Ombud, a case was dealt with where an insurer rejected a client’s claim because the client used the insured vehicle for commercial use and not for business use. The insurer saw this as misrepresentation and an instance of non-disclosure.
The insurer stated that the client did not inform them at the inception of the policy that the vehicle will be used as a metered taxi. The insurer indicated that this affected the risk profile of the client and they would not have accepted this risk had they been aware of this at inception.
The client however stated that he notified the sales agent of this fact and sent the agent the bank statements as supporting documentation. This was submitted to the insurer and hence the client states that the insurer would have known about the business that was being conducted with the vehicle.
The insurer stated that the client advised that he would be using the insured vehicle for ‘business use’ when it was actually for ‘commercial use’. The policy wording dealing with business use specifically states that it is covered for private, social, domestic, pleasure, professional and/or business purposes, excluding commercial use. The client’s policy therefore did not cover for commercial use. The client failed to disclose that he would be using the vehicle to convey passengers for reward and that he merely requested the vehicle be insured for business purposes. According to the insurer, the carrying of passengers for reward was ‘commercial use’.
The Ombudsman found that the insurer failed to prove that the client intentionally failed to disclose the commercial activity he was conducting. The Policy Protection Rules states that the insurer is under an obligation to at all times render services honestly, fairly and with due skill, care and diligence to its clients. The sales agent had a duty to ask the necessary questions in order to furnish the insurer with the correct information about the use of the vehicle. The Ombud requested that the insurer pay the insured’s claim in full.
Even though the insurer was ordered to pay the client, this case arose because the client was not provided with clear information at inception. In TCF Outcome 3, customers must be given clear information and be kept appropriately informed before, during and after the time of contracting. Clients may not understand the ‘jargon’ or ‘terminology’ which is used in a quote or a policy document. Making sure that information is given to clients in plain language, taking into account the client’s product experience and level of education, will help to prevent a mismatch between the client’s expectation and the performance of the product.