The Ombudsman for Short-term Insurance (OSTI) has published the second edition of its newsletter for 2021: The Ombudsman’s briefcase Issue 2 of 2021. This issue contains news and events, case studies, consumer tips, as well as some statistics and trends from 2020.
Some of the OSTI’s statistics for 2020 reveal the following:
Motor Vehicle Insurance Disputes
- The highest number of complaints, at 73%, were accident-related claims.
- Warranty and mechanical breakdown claims consisted of 11%.
- Theft and hijack claims consisted of 7%.
- There was a downward trend of 12% in the number of complaints relating to accident claims being rejected by insurers on the basis that the incident driver was under the influence of alcohol.
- The number of complaints rejected on the basis of the “reasonable precaution clause” has increased. The OSTI considered almost 300 complaints on this issue.
- 16% of the total number of motor vehicle disputes were in favour of clients.
Commercial Insurance Disputes
- There was an increase of 62% compared to 2019 of the total number of commercial complaints considered by the OSTI.
- Motor vehicle claims consisted of 21%.
- Building complaints made up 18%.
- 22% of commercial insurance complaints related to business interruption insurance, 15% of which were COVID-19-related business interruption.
- 16% of the disputes were resolved in favour of the client.
(These statistics do not reflect the outcome of the business interruption complaints as the relevant court judgement was only handed down in December 2020, meaning that these claims are only being processed in 2021).
Below we take a closer look at the case studies which focus on motor vehicle claims which were rejected on the basis of a breach of the ‘reasonable precaution clause’, as well as a claim for business interruption as a result of COVID-19.
Case Study 1: Motor Vehicle Claim – failure to prove recklessness
In the first case study, the client’s motor vehicle was damaged when the client collided with the rear of another motor vehicle. The insurer rejected the claim on the basis that the client violated a policy condition, the reasonable precaution clause, which requires the client to exercise due care. The reasonable precautions clause is a general exclusion to cover that is contained in most motor vehicle insurance policies. The clause refers to the client’s obligation to exercise due care concerning the insured vehicle and to take reasonable precaution to prevent any losses. This clause excludes the insurer’s liability for a claim due to loss or damage caused by the client’s own actions.
The insurer submitted that the client did not take reasonable care and precaution in order to limit the loss, as the client had been travelling over the legal speed limit when the accident occurred. The insurer stated that the client disregarded the rules of the road and had been reckless, which therefore resulted in the accident taking place. The insurer was of the opinion that, if the client had been travelling at the speed limit or less, the client would have been able to minimise the extent of the damage.
The client challenged the rejection of the claim, stating that the insurer had no proof that the speed at which the client was traveling was the cause of the accident. Further, the client stated that the third-party had driven into his path unexpectedly, which resulted in the accident being unavoidable.
The OSTI stated that the insurer can only rely on the reasonable precaution clause to avoid a claim where the client was guilty of reckless driving in the legal sense, i.e. if the client intentionally caused the collision, but confirmed that the policy condition does not preclude a successful claim for damage caused by the client’s own negligence. The OSTI went on to conclude that the insurer had failed to prove that the client in fact foresaw that the other motor vehicle would suddenly move into the client’s path and that the client recklessly reconciled himself with that result. The OSTI overturned the insurer’s decision, and the insurer went on to settle the claim.
Case Study 2: Motor Vehicle Claim – Recklessness established
This case sets out that the client’s cousin, who did not have permission to drive the insured vehicle, was involved in an accident with the client’s vehicle. The client subsequently submitted a claim for a motor vehicle accident, which was rejected.
The client stated that he had been visiting his family for Christmas, when his fiancé received a call from the tracking company informing them that his vehicle was moving. Shortly afterwards, the client’s cousin returned to the gathering and informed the client that he had been in an accident.
The client’s cousin stated that a third party drove past him at high speed. The cousin then veered over to the right of the road, as he was afraid, which resulted in him losing control of the vehicle. A reconstruction expert completed calculations and concluded that the client’s vehicle had been traveling at a speed of more than double the speed limit.
After the facts had been taken into consideration, the OSTI found that the probabilities favoured the conclusion that the client’s cousin foresaw that by persistently driving at a high speed, it would result in the loss of control over the vehicle. The OSTI concluded that the insurer discharged the onus of proving recklessness on the part of the driver in relation to the loss and that the loss was therefore not covered by the policy.
Case Study 3: Business Interruption
In this case study the client, a conference and training facility, submitted a business interruption claim to its insurer as they had received many requests to cancel bookings due to the pandemic. The insurer rejected the claim on the grounds that the business was not interrupted as a result of damage to the insured property caused by one of the insured events covered by the policy, but rather due to the government regulations regarding COVID-19. The policy, which was a peril-based policy, did not include COVID-19 as an insured peril under the Fire Section of the policy.
The insured challenged the rejection of the claim by stating that due to the nature of their business they had been forced to shut down and had suffered loss.
However, the OSTI concluded that the policy was a peril-based policy, which requires that there must be physical damage to the property for a valid claim. Business interruption caused by COVID-19 did not fall within any of the insured perils contained in the policy. The OSTI upheld the insurer’s rejection of the claim.