The Ombudsman for Long-term Insurance and the Ombudsman for Short-term Insurance (OSTI) recently published its first combined Annual Report. The Annual Report 2020 includes, among others, complaints statistics and key figures, complaints trends, as well as explanatory notes and insurer statistics. The report also includes case studies from recent industry incidents, which focus on among others, misrepresentation, non-disclosure and business interruption.
The report also includes case studies which are intended to provide guidance and insight into the way the Ombudsman deals with complaints. There are some important lessons advisors can take from these cases to avoid similar issues arising when clients claim. We take a closer look at the case studies which focus on non-disclosure, misrepresentation, business interruption, driving without a license and remote jamming.
Case Study 1: Misrepresentation
In this case, the insured submitted a motor vehicle claim for accident damage to his silver Opel Astra, as a result of a third-party colliding with the rear of the vehicle. The claim was rejected on the grounds that the insured misrepresented the details of the regular driver when the policy was sold. The case sets out that at the policy’s inception, the insured placed two vehicles on cover: a silver Opel a and a white Ford. During the sales conversation, the insured nominated his father as the regular driver of both vehicles and was not informed of the consequences of not nominating the correct regular driver.
During the validation of the claim, the insurer established that the insured was indeed the regular driver of the Opel. The evidence which the insurer relied on to substantiate the rejection of the claim was that the insured was noted as the regular driver of the Opel at his previous insurer. Also, the fact that the insured’s father and a neighbour confirmed that the insured owned both vehicles, with the Opel being purchased most recently, supported by a statement from a third party that she had only seen the insured drive the Opel and that the insured’s father drove the Ford.
In the validation conversation with the assessor however, the insured’s father confirmed that the insured’s employer provides him with transport to and from work, and that the insured is only off from work once per week and every fourth weekend. The insured’s father stated that the insured “normally” drove the Opel, however, in terms of the insurer’s own definition of “regular” driver, the “normal” driver would not necessarily be the regular driver given the limited opportunities the insured had to drive the Opel since the cover start date.
The insurer stated that if it had been notified of who the actual regular driver was, it would have charged a higher premium, which meant that the insured’s misrepresentation was material to the underwriting of the risk.
Further, the insured’s neighbour stated that the insured drives the “two Astras”, and on further probe confirmed that the insured drives “the white one” the most. Regarding the evidence from the third party, it was found that she lives in another area and her evidence could not serve as confirmation that the insured was the regular driver. The fact that the insured was noted as the regular driver on a previous policy, is also not sufficient evidence.
The OSTI overturned the insurer’s rejection and recommended that the claim be settled in full. The insurer agreed to abide by the OSTI’s recommendation.
Case Study 2: Business Interruption Insurance
In this case study, the insured lodged a business interruption claim related to the loss of income as a result of the COVID-19 lockdown restrictions, which were published on 18 March 2020. The insurer disputed the cause of the business interruption and rejected the claim on the grounds that a general pandemic and the government’s action in response thereto, were not considered insured perils.
The insured had business interruption cover, with an extension that covers losses due to an interruption or interference with of the business as a result of a contagious or infectious disease at the business premises, or within a 50 km radius of such premise. The insurer accepted that COVID-19 is regarded as an infectious disease for purposes of the extension on the business interruption cover. However, the insurer argued that in terms of the policy, the insured peril is the outbreak of the disease at or within a 50 km radius of the insured’s business premises.
The insured proved that there were in fact cases of COVID-19 within the given radius and at the business premises itself, however the insurer still declined liability arguing that the cause of the business interruption was not due to the COVID-19 cases, but rather the government’s action and nationwide lockdown.
The Ombudsman used a test for factual causation, where it advised that if it were not for COVID-19, the lockdown measures would not have been imposed, and the business would therefore not have suffered financial losses. In considering these facts, there was a causal link between the local COVID-19 cases, the lockdown and the business being interrupted. This view is based on the judgment in the Café Chameleon v Guardrisk Insurance matter, which was later confirmed by the Supreme Court of Appeal in Guardrisk Insurance Co Ltd v Café Chameleon CC 2021 (2) SA 323 (SCA). The OSTI recommended that the insurer settle the claim. The insurer accepted the recommendation and settled the claim accordingly.
Case study 3: Remote Jamming
This case sets out that the insured’s bag had been stolen from his vehicle’s boot for which he submitted a claim to his insurer. The bag contained travel documents and some personal electronic items. The insurer declined the claim on the grounds that there was no violent and forcible entry into the vehicle.
The insurer relied on specific exclusions in the policy wording that stated that it would not be liable for the insured’s property lost from an unattended motor vehicle unless the insured property had been concealed in a locked car boot or a compartment that formed part of a locked vehicle and there is violent and forcible entry to the vehicle. The insured stated that he had locked the vehicle by remote control when he had walked away from his vehicle.
The insured provided the CCTVC footage which provided evidence that the insured in fact suffered a loss due to theft. The Ombudsman found that the thieves used a sophisticated method to keep the insured vehicle under surveillance and to gain access to it. The Ombudsman was of the opinion that the insurer settles the claim, as it would be unfair for the insurer to decline the claim as the Ombudsman is also entitled to evaluate the merits of the dispute on considerations of fairness and equity.
However, the insurer pointed out that the video footage had not shown that the insured locked his vehicle when leaving it, and the insured could not be given the benefit of the doubt. The vehicle’s locking would have prevented the loss, and the insurer stated there had been no basis on which to conclude that the insured had locked the vehicle or that a device used to affect the loss. The OSTI office found that there had been no basis on which to order the insurer to settle the claim.
Case study 4: Non-disclosure
A complainant approached the OSTI for assistance as she was dissatisfied with the insurer’s decision to reject her late husband’s motor vehicle claim. The insurer rejected the claim on grounds of non-disclosure of material facts at the policy’s inception.
The case sets out that the insured (deceased) failed to disclose that he had previously been charged with driving under the influence of alcohol. In the sales conversation, the insured was asked to disclose whether he had any convictions against him due to driving under the influence, which he responded that he did not. The insurer argued that it would not have accepted the risk if the insured had disclosed this correct information.
The office of the Ombud considered all of the information and evidence in light of Section 53 of the Short-term insurance Act and did not agree with the insurer’s decision. The office listened to the recording of the conversation and found that insurer’s wording of the question limited its application to persons other than the insured.
Due to the insurer not creating the duty of disclosure regarding the insured’s own history and had limited the question to other drivers, the insurer was not entitled to raise the defence of non-disclosure and /or misrepresentation. The recommendation to the insurer was to settle the claim, which the insurer accepted and settled the claim in full.
Case study 5: Do not let anyone drive your car without a valid licence
In this case, the insured lodged a claim for stolen items and damage to her insured vehicle, which was later rejected by the insurer. The insured regularly allowed her unlicensed partner to drive her vehicle, and on this specific occasion, the insured’s partner was the victim of an attempted hijacking which left the vehicle damaged.
Dissatisfied with the insurer’s rejection, the insured approached the OSTI for assistance. The insured felt that the hijacking would have occurred regardless of who was driving the vehicle, and that the fact that her partner does not have a valid licence was irrelevant to the incident. Further, the insured claimed that she had a medical emergency, and therefore allowed her partner to use the vehicle to go to the pharmacy. However, the partner confirmed that before he went to the pharmacy, he attended a business meeting. The insurer argued that if there was truly an emergency, the partner would not have first attended a business meeting.
The OSTI’s view is that once the policyholder hands the keys to an unlicensed person, there would be no cover, regardless of what happens whether it be a hijacking or accident. Further, the OSTI held that the insurer was contractually entitled to reject the claim. The insurer relied on a provision of the policy which excludes cover where any person with the insured’s permission drives the vehicle without a license. The Office upheld the insurers decision to reject the claim.
Lessons
According to Section 7(1)(c)(vii) of the FAIS General Code of Conduct, Advisers must in particular and at the earliest reasonable opportunity, meaning prior to contracting, provide full and appropriate information. This section specifically refers to ensuring that the client has concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided.
It is therefore important for Advisors to always go through the policy document with their clients to highlight specific policy exclusions and important conditions. Advisors are reminded to alert their clients to any obligations that the client should comply with as conditions of cover, such as disclosing the correct regular driver of a vehicle.
Further, Advisors are encouraged to emphasise the importance of transparency and making full disclosures which could prevent the possibility of a claim being rejected based on non-disclosure or misrepresentation.