An interesting case was published in the December Short-term Ombud’s Briefcase.
Mr. J submitted a claim against his insurer for contents stolen from his home during a burglary. The insurer rejected the claim on the ground that Mr J failed to comply with the alarm warranty, which stated the following: “It is warranted that if a burglar alarm is installed in the building and that such alarm is monitored by a security company who provides response services for alarms, that the alarm is maintained in working order and is activated whenever the private dwelling is not occupied. If the terms of this warranty are not complied with, we will not pay for any loss as a result of theft from the private dwelling, nor more than R10,000 for theft from any outbuilding not directly communicating with the private dwelling’:
Mr. J advised that, for approximately two months prior to the loss, he had experienced problems with the alarm. He said that, despite numerous attempts by the alarm company to repair the alarm system, the alarm was not repaired properly and he therefore cancelled his alarm contract. At the date of loss, the alarm was therefore still installed but not activated. Mr. J advised that after the loss a new alarm system was installed by another alarm company.
The insurer conceded that the alarm was not a security requirement but that Mr. J enjoyed a discount of 15% on the premium by virtue of the fact that he had an alarm installed at the risk address. On this basis the Ombudsman requested the insurer to settle the claim but deduct the prejudice they had suffered on the premium, as a result of the alarm not being in working order.
The insurer initially did not agree with the Ombudsman’s recommendation:
- The policy was subject to certain conditions which Mr. J. had failed to comply with.
- Insurance contracts are governed by the principle of utmost good faith which required both parties to the insurance contract to deal in good faith, and in particular, created a duty on the insured to disclose all material facts related to the risk.
- The insurer also submitted that, although they do take the Treating Customers Fairly (TCF) principle(s) into consideration, the basis of insurance like “underwriting a risk” and applying terms and conditions of the contract must be emphasised.
- J had failed to comply with the insurance contract by cancelling the alarm agreement and not notifying his broker or the insurer of the change in risk.
Ombudsman’s Views and Findings
The insurer was advised that, as the rejection letter only relied on a breach of the alarm warranty, the insurer’s later reference to a change in risk amounted to a new rejection reason which the Ombudsman said they were not entitled to now raise.
As a result the Ombudsman remained with his recommendation that the insurer should settle the claim by deducting the applicable premium prejudice suffered. The insurer agreed to do so and the offer was accepted by Mr. J.
- By bending the rules for one client, you are not treating the rest fairly, if one considers the most basic of principles of insurance.
Personally, I tend to side with the views expressed by the insurer in this case. There are always two parties to a contract, and each should fulfil its obligations, which does not appear to have been the case here.