Ombuds often provide practical insight into how our industry should operate.
Material Misrepresentation or Simple Oversight?
Mr. D contacted the insurer to insure a newly purchased vehicle. During the underwriting of the policy, Mr. D informed the operator that he had purchased the vehicle for his daughter, Ms. L, who was only in possession of a valid learner’s license at the time of the call. Mr. D also informed the operator that Ms. L was scheduled to take her driver’s license test approximately one month later.
The insurer required the details of the regular driver to underwrite the risk and could only list a driver with a valid driver’s license. The operator enquired whether Mr. D would be the regular driver until the daughter obtained her license.
He confirmed that he would be.
The operator advised Mr. D that he would need to call the insurer once his daughter became the regular driver as the premium would then be calculated based on his daughter’s risk profile. Mr. D agreed and the policy incepted.
Ms. L obtained her driver’s license approximately one month after inception of the policy. However, Mr. D failed to inform the insurer that she had become the regular driver. Ms. L was involved in an accident approximately six months after she had become the regular driver.
The insurer repudiated the claim on the ground that there was a material change in risk. The insurer advised that it would have charged a higher premium had Ms. L been noted as the regular driver. Accordingly, as a result of the lower premium that was paid, the insurer suffered prejudice in the premium that it had received.
In the Ombudsman’s view, there was no evidence that Mr. D intentionally failed to inform the insurer that Ms. L had become the regular driver.
The fact that he had disclosed, during the underwriting call, that the vehicle was bought for Ms. L and that she would be the regular driver once she obtained her driver’s license, was evidence that Mr. D did not intend to misrepresent this information in order to pay a lower premium.
Based on the jurisdiction of the office to apply equity, where appropriate, the Ombudsman made a recommendation for the claim to be settled proportionately. The insurer, after much deliberation, agreed to settle the claim on that basis.
A proportionate settlement is where the insurer settles a claim in proportion to the percentage of the premium received in relation to the premium that should have been received. For example, if the insurer only received 50% of what the premium should have been with the correct risk noted, 50% of the claim will then be settled.
Three other interesting cases are also discussed in the ST Ombud’s Briefcase.
Theft by False Pretences
Mr. R advertised his vehicle for sale on a website and was contacted by a potential buyer. They proceeded with the necessary paperwork in order to transfer ownership. When Mr. R received a bank automated SMS indicating that the agreed purchase price had been deposited into his account, he released the vehicle to the buyer. When the funds did not reflect in his account, Mr. R contacted his bank. The bank informed him that EFT transactions can take up to three days to clear and reflect in the bank account. The bank did not confirm that the funds had cleared before the vehicle was released. Needless to say, the funds never appeared in Mr. R’s account, and his claim was rejected by the insurer.
Mechanical Damage after driving through water
Mrs. S suffered damage to the engine of her vehicle when she drove through a pool of water and the engine’s vehicle cut out. She did manage to start the vehicle again but as she drove further, there was a noise emanating from the engine, which according to Mrs. S, became progressively louder.
The insurer rejected her claim on the ground that the damage sustained to the engine was of a mechanical nature and the damage was not caused as the result of an insured event as listed in the policy. The Ombud, however, had a different view.
Late Notification and Actual Prejudice
Mr. C took out a legal expenses policy with the insurer which covered him, inter alia, for attorney’s costs on conveyancing matters. He bought property in July 2014 and subsequently incurred attorney’s costs relating to the conveyancing procedure of such property but only submitted a claim for indemnification to the insurer after a period of 30 days. The insurer declined the claim.
“All claims must be lodged within 30 (thirty) days from date of occurrence of the event giving rise to the claim.”
In terms of Section 10 of the Financial Services Ombud Schemes Act 2004, the Office of the Ombudsman is mandated to apply equity and fairness. This means that the office is able to make decisions on matters which are not solely based on the strict interpretation of the terms and conditions of a policy. This is especially so in instances where the results of a rejected claim based on the policy terms and conditions are unfair or unjust or if the insurer cannot demonstrate that it suffered prejudice as a result of the breach of the contract by the insured.
Click here to download the latest Ombud Briefcase for details on the Ombud’s interventions, how these claims were settled.
Ms. Deanne Wood was appointed as the new Short-term Ombud with effect from 01 March 2016.