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Business or commercial insurance?

Business or commercial insurance? – Advisor’s duty to ensure clients are correctly covered

The conundrum of business vs commercial vehicle insurance is once again showcased in one of the most recent determinations issued by the Office of the FAIS Ombud. An insurer originally rejected a client’s claim because the client (“the complainant”) used the insured vehicle for commercial use and not for business use as indicated on the insurer’s personal lines insurance policy.

The complaint arose from the loss incurred by the complainant as a result of the respondent’s failure to ensure that the complainant’s vehicle, which was utilised as a courier business, was appropriately and correctly insured.

The background

The complainant, who is self-employed as a courier, purchased a 2011 Toyota Hilux 2.5d 4D on 23 July 2013.
The vehicle was purchased with the intention of it being used as a courier vehicle and had been fitted with what is described as a ‘High Volume Canopy’, or ‘Courier Canopy’.
The complainant was assisted by the respondent to source insurance for the vehicle, which was subsequently secured on 23 July 2013.
On 30 July 2015 the vehicle was stolen and the complainant subsequently submitted a claim which was rejected by the insurer, the reason being that at the time of the loss the vehicle had been insured on a personal lines policy. Furthermore, the use of the vehicle had been captured as business use, when the vehicle had been used for commercial purposes.

The complaint

The complainant claimed that he specifically disclosed to the respondent that the vehicle would be used as a courier vehicle. He had been under the impression that the respondent had adequately provided for this after having insured it for business use. The complainant claims to have never been informed that he required a commercial insurance policy. As a result, the complainant approached the FAIS Ombud.

The outcome

In the determination, the Ombud highlighted the role of the advisor in this instance being that of an agent of the complainant, a relationship governed by the law of agency. The determination highlights applicable case law which details the obligations and duties of an advisor to exercise reasonable care to ensure that an insured is appropriately covered. These obligations and duties are enclosed in the General Code of Conduct for Authorised Financial Services Providers and Representatives.

Some of these include:

Obtain all relevant and available information from the prospective client so that after an analysis is conducted a recommendation can be made that is appropriate in terms of the complainant’s needs and circumstances.
If the respondent complied with this section, it would have been in a position to recommend a commercial lines policy to the complainant.
A financial adviser needs to conduct a financial service in accordance with the required due skill care and diligence.
In this case it was evident that “…the respondent had no understanding or appreciation of the insurer’s product offerings, let alone the option that was appropriate to the complainant’s needs and circumstances”.
The respondent further failed to show compliance with the Code in respect of maintaining a record of advice indicating that a needs analysis was conducted and detailing why the product ultimately recommended was appropriate for the complainant’s needs and circumstances.
In this case the respondent just completed the ‘Domestic’ proposal form provided by the product provider with two options for the use of the vehicle and selected business use. He did not realise that the personal lines policy or domestic policy from the insurer was not appropriate to the complainant’s needs and circumstances.

There was therefore no doubt that the respondent’s negligence in failing to firstly demonstrate that it had assessed the financial needs of the complainant, and secondly to adequately advise the complainant as to the appropriate policy cover to meet his needs, are the reasons for the loss suffered by complainant.

The Ombud found that respondent’s conduct ignored the very contract he had with the complainant and the requirements of the FAIS General Code of Conduct.

As a result the Ombud ordered the respondent to pay the complainant an amount of R144 590.

Click here to download the determination.

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