The importance of making a client aware of material terms and conditions in a policy contract was underlined in a recent FAIS Ombud determination.
On 2 March 2013, the complainant’s Hilux was stolen at a retail store in Bedworth Park. He immediately reported the theft to Altech Netstar. Netstar could not locate the Hilux due to their inability to pick up the signal from the tracking device installed in the Hilux.
The insurer subsequently turned down the claim on the basis that the complainant failed to adhere to the policy condition relating to the testing of the tracking device as set out in the contract:
“It is warranted that the tracking system should be tested every six months and proof supplied that system was tested, to be produced at the time of a claim.”
The complainant contends that it was respondent’s non-compliance with the provisions of the FAIS Act and negligent failure to disclose the material term relating to the testing of the tracking device, that led to the denial of his claim.
The respondent asserts that he was requested by a vehicle dealership to source cheap insurance cover for clients. One of the dealership’s clients was the complainant who, upon being presented with insurance quotations, selected the Saxum quotation.
The respondent refers to the proposal form that was completed by complainant and the proviso that stipulates that the onus is on the insured to avail himself of ‘ALL TERMS AND CONDITIONS’ of the policy. He contends that there are hundreds of insurance clauses in an insurance contract and it could not be expected of brokers to explain each and every clause to clients.
The respondent goes on to argue that statutory disclosure documents were sent to the complainant, and he was requested to read all the documents including the policy schedule. He emphasised that the tracking warranty clause is prominently displayed on page 4 of the policy schedule. Therefore, the complainant ought to have been aware of the term. The admission here is that the material term relating to the testing of the tracking device was not disclosed prior to concluding the contract as the General Code demands. In short, complainant was not placed in a position where he could make an informed decision about the transaction.
Netstar indicated that they could not attest to whether the tracking device was faulty or not:
“…the reasons for non- recovery range from the unit being removed or damaged by the perpetrators, to the vehicle being taken into an area where signal is not available. These occurrences may happen notwithstanding the unit being tested by the customer
The Ombud referred to Section 7 of the General Code of Conduct to explain what is required in terms of disclosure and, specifically, material terms:
‘(1) Subject to the provisions of this Code, a provider…must-
(a) provide a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision;
(b) (b) ………….
(c) (c) in particular, at the earliest reasonable opportunity, provide, where applicable, full and appropriate information of the following:
(e) (vii) concise details of any special terms or conditions, exclusions of liability…restrictions or circumstances in which benefits will not be provided.
Clearly, the respondent fails to grasp the issue. Section 7 does not postulate an advisor explaining all the terms and conditions in a policy to a client. Section 7 is about enabling customers to make informed decisions and this is inherent in the principle of treating the customer fairly. Customers should not discover at claim stage that they are bound by provisions of which they were not aware. It is the duty of the provider to disclose all material provisions of a policy to the client and in the circumstances of this case, respondent failed to discharge that duty.
It was incumbent upon respondent to explain to the complainant the consequences of failure to adhere to the material terms and conditions of the policy. In this case, the consequence of not complying with the material term of testing is that the policy would not respond to a theft claim. Simply put, the provision carried grave consequences for complainant in the event of non-compliance. Had respondent disclosed the provision and taken the time to ensure that complainant understood, it would have placed him in a position where he was able to choose to adhere to the provision or obtain alternative cover.
Whilst it is not expected of you to disclose each and every clause in the contract, you are required to determine those which are material, and bring this to the attention of the client.
Please click here to download the full determination.