Contradictory views on Material Terms?

The latest Newsletter from the Short-term Ombud contains details of a rejected claim as a result of the fact that, at underwriting stage, the client did not inform the insurer of previous losses. Mr. R was of the view that the insurer should have carried out a background check on him when the policy incepted.

The Ombudsman advised Mr. R that, during the underwriting of the policy, the insurer had requested that he disclose all his previous losses. It was clear that Mr. R had provided the insurer with incorrect information and did not disclose all his losses. The insurer created a duty of disclosure on Mr. R to provide the insurer with correct information and was thus prejudiced by the incorrect information.

After the inception of the policy, the policy terms and conditions, as well as the policy schedule were e-mailed to Mr. R. The schedule contained the information furnished by him at the inception of the policy and it was clear that he had only disclosed one claim or incident.

During the validation of the claim it was established that Mr. R had, in fact, had eight previous claims prior to the inception of this policy.

The Ombudsman was satisfied that the insurer had indeed provided Mr. R with his policy schedule and the terms and conditions of the policy via e-mail within 30 days of the inception of the policy. Therefore Mr. R did have the opportunity as well as the obligation, to familiarise himself with the information contained in the policy documentation.

From previous determinations, it appears that the FAIS Ombud holds a different view as regards disclosure of material terms.

There is another determinant at play here:

Section 3(1)(a)(iii) of the General Code of Conduct stipulates:

“When a provider renders a financial service, representations made and information provided to a client by the provider, must be adequate and appropriate in the circumstances of the particular financial service, taking into account the factually established or reasonably assumed level of knowledge of the client”. It is not clear from the article whether, and to what extent, this was determined.

Establishing a “reasonably assumed level of knowledge” is almost as wide a term as the other old carthorse: “acting with due care and diligence”.

The Ombudsman further informed Mr. R that the insurer alerted him to the fact that the policy is issued in good faith and based on the information provided by him. The insurer was therefore under no obligation to carry out a background check on Mr. R as it relied on the information provided by him.

This is an interesting angle, which has not been employed by any respondent to complaints lodged with the FAIS Ombud in the past.

Could it be that a complaint to an industry Ombud may result in a more beneficial finding for an adviser than one with the Statutory Ombud?


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