The Ombud expresses that she is unimpressed by the respondent in that they failed to respond fully and failed to take any responsibility by unfairly trying to blame a financial advisor and orders them to pay the complainant R85 500.
The complaint relates to the failure of a financial services provider (FSP) to provide short term cover for the complainant. This complaint was initially referred to the Ombud for Short-term Insurance (OSTI). However, after considering the facts, the OSTI decided that the complaint fell within the jurisdiction of the FAIS Ombud.
The complainant owns a farming business and approached his financial advisor for short-term insurance who then put a policy in place for the farm. On a future date, during a routine revision of the cover, the advisor advised the complainant to add cover to his existing policy against fire damage for a game fence on the farm. The complainant agreed to this and instructed the advisor to add the cover to his policy.
Three months after the complainant and his advisor agreed to add the fire cover to his policy, a fire on the complainant’s farm destroyed a portion of the game fence. An assessor measured the damage at R85 500. The complainant filed a claim with the insurer to claim for the damage, but the insurer rejected his claim stating that according to their records, there was no cover for game fencing in the policy.
It turned out that the offices of the financial advisor had failed or neglected to have the additional fire cover processed which meant that there was no cover in respect of the damaged game fence. The complainant holds the company of the advisor liable stating that they had a duty to carry out his instructions. The Ombud therefore said that the actual issue is to determine whose conduct it was that caused the failure to procure the cover and who is responsible for the consequences of that conduct.
The financial advisor stated that he worked for a company which was owned by the respondent. When he returned to the office after meeting with the complainant, he handed the instructions to an administrative clerk in order for her to load the requested cover for the game fence. He later asked the clerk whether the instruction had been completed to which she responded in the affirmative.
What is important to note here is that the advisor had left the FSP/the Respondent just after he gave the instruction for the fire cover to be added to the complainant’s policy. The fire on the complainant’s farm occurred after the advisor had resigned and left the company. He therefore did not have access to the file or other records at that point in time when the fire occurred and when the complainant issued a claim.
The Ombud highlighted the fact that the complainant’s claim was rejected by the insurer due to the fact that the request to extend cover to include the game fence was not conveyed and sent through to the insurer. The Ombud found that the financial advisor had provided sound advice to his client. The rejection of the claim was due to an omission by an employee of the respondent. The actual identify of that employee is not material and what is material is that such employee committed an act of omission/neglect within the course and scope of their employment. Therefore, the respondent as the employer is responsible for the omission caused by its employee and was ordered to pay the complainant the value of the rejected claim of R85 500.
Key learnings that every FSP can take from this determination:
A letter was sent to the respondent requesting documents which the FAIS Act and the General Code of Conduct (the Code) require a licensed FSP to keep.
Document the operational procedures which you have implemented to avoid the risk of clients suffering harm
The Ombud specifically requested the respondent to provide details of the systems they had put in place to avoid the risk of clients suffering harm from employees negligence. This request relates to section 11 of the Code which is about Risk Management – every FSP should have an operations manual which documents its existing controls and the systems, policies and processes which they have in place to mitigate the risk of clients suffering harm. A risk management plan is also a method of identifying and documenting the areas of a business that pose the biggest risk to the FSP and what controls should be put in place to address and monitor those risks. It is important that an FSP is able to show that they have taken a proactive approach in managing their operational procedures and monitoring their risks.
Make sure sufficient Professional Indemnity cover is in place
It may seem that the amount of R85 500 is not a big amount for an FSP to pay as compensation to a client as the FSP would have Professional Indemnity (PI) cover. An FSP should ensure that its PI cover does indeed include negligent omissions of its staff members and that the amount of cover is sufficient. This case furthermore highlights the importance of monitoring all staff members, including administrative staff in their daily tasks as it is clear that the FSP will be liable for their mistakes. Vicarious liability is where an employer, being the FSP and the Key Individual, can be held liable for the acts or omissions of its employees. It is therefore important that an FSP evaluates the level of risk its employees may have on the business and that they are sufficiently insured for any mistakes.
Keep records of all client interaction
The Ombud also requested documents of the representations made to the client and the record of advice (sections 3 & 9 of the Code) but this was also not provided, as they did not keep proper records. The finding again highlights the importance of all FSPs documenting all correspondence with clients and information given to clients. Such information must be documented and stored in a secured manner which is easily accessible should it be requested by the Ombud or the Regulator.
If you have not yet attended our Risk Management Plan seminar, please contact your Masthead regional office to book your seat.
In this seminar we use learnings from real life FSB on-site visits to guide you on what the FSB regards as risks.
We’ll take you through a step-by-step process to identify the regulatory and business risks in your business. We will look at risks in each area of the business including: strategic; operational; human resources; financial; marketing; advice and customers.
You will also be guided on how to rate the severity of risks, calculate the impact on your business and learn how to mitigate risks in your business.
To contact your regional office click here