A material change to an insurance policy, such as changing from a co-policyholder to a sole policyholder, should alert the “reasonable adviser” of need to review the contact details in the policy and ensure they are still correct.
This is according to the Ombud for Financial Services Providers in a determination made against an insurance brokerage. The determination, which was delivered in February, followed a decision by the Financial Services Tribunal in November last year.
The Tribunal set aside the Ombud’s decision to dismiss the complaint and ordered the Ombud to reconsider it.
Read: FAIS Ombud erred in dismissing complaint against insurance broker, says Tribunal
The dispute in this matter centred on whether the financial services provider had taken adequate steps to inform the client of a material condition of cover – namely, the introduction of an additional security requirement for motor vehicles deemed to be high risk.
Secondary tracking device requirement
The complainant, Christo Nel, held a short-term policy with Guardrisk since 2018. The underwriting manager was CIB (Pty) Ltd.
Nel married Sarie Swanepoel in February 2020, and they were the co-policyholders on the policy.
Nel insured his Toyota Fortuner 2.8 on 1 August 2020. At the time, it was a requirement of cover that the vehicle had a factory-fitted alarm and an immobilizer, as well as a CIB-approved tracking device.
When the Fortuner was added to the policy, Nel also amended the policy to become the sole policyholder.
The vehicle was stolen in July 2023. In September, Guardrisk rejected Nel’s claim because the vehicle was not fitted with a secondary tracking device or back-up unit – a condition that applied to certain high-risk vehicles.
Nel said it was only when he submitted his claim that he discovered that the secondary tracker requirement had been implemented with effect from 1 April 2023.
He submitted that his broker, Barton Insurance Brokers (Pty) Ltd, had failed to inform him of this material change to his policy, which was implemented three months before the theft.
The email address linked to the policy
Barton submitted that it did notify all clients of the additional tracker requirement via email on 1 March 2023. It used the email addresses on CIB’s system, to which it had access.
In Nel’s case, the email was sent to his wife’s email address, which was the email address linked to the policy. This was because Mr and Mrs Nel had previously been the co-policyholders.
Barton said the notification process included contacting each policyholder personally by phone. However, Nel was the only client who inadvertently did not receive a follow-up call.
In response, Nel said neither he nor his wife received the email. Even if Barton did send the email, it was sent to the wrong email address.
His policy document did not include the email address or phone number.
Nel said that from July 2023, when he became the sole policyholder, he communicated from his email addresses whenever any changes to the policy had been requested. He submitted that he engaged with Barton via email at least 21 times to make policy changes before his vehicle was stolen. With every request for a policy change, the policy document was sent to his email address, not his wife’s.
Nel further submitted that Barton acted negligently because it did not take any steps to ensure he had received the additional security requirement notification by, for instance, phoning him.
No explicit instruction to change the address
In April last year, the Ombud’s Office dismissed Nel’s complaint, saying it lacked reasonable prospects of success.
The Office believed that Nel could not provide evidence of a specific instruction to Barton to change the email address on record. Barton could not be expected to change the email address on record without a direct instruction from the policyholder.
After the Tribunal ordered the Office to reconsider the complaint, the Ombud recommended that Barton settle the claim.
Barton disputed the Tribunal’s reasoning and findings. It said Mrs Nel’s email address had been the only one on record since the policy’s inception. It is standard procedure to use the address on record.
Barton could not change the address without an explicit instruction from Mr Nel. There was no evidence or instruction from Mr Nel directing Barton to change the primary email address. An unauthorised change would be a breach the data protection laws.
‘A clear implied instruction’
In his determination, Advocate John Simpson acknowledged that Barton was correct when it asserted that, under normal circumstances, it would be “highly unusual and concerning” if an adviser changed a client’s contact details without direct instruction.
“However, each case must be judged on its own facts and circumstances.”
The Ombud said an adviser is expected to review policies and request guidance or instruction where applicable. It would be reasonable to expect an adviser to seek instruction or guidance from a client if there is a material change to the policy, or if there is “an ongoing clear and apparent change” in the client’s contact details.
Nel’s becoming the sole policyholder was a material change “that would alert the reasonable adviser to review the contact details in the policy and ensure that they are still correct”, Simpson said.
“A change from a co-policyholder to a sole policyholder is not a minor and insignificant change. It embodies a clear implied instruction that the previous co-policyholder is no longer a client in terms of the policy and should be removed from the contact list. At the very least, Mr Nel should have been asked whether the contact details on its system should remain the same. There is no evidence that the contact details were reviewed, and Barton confirms that the email address was not changed at that time.”
Factual and legal causality
Simpson said sections 2 and 6(a) of the General Code of Conduct for Authorised Financial Services Providers and Representatives applied to the case.
Section 2 states that a provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.
Section 6(a) states that a provider must, in making contact arrangements, and in all communications and dealings with a client, act honourably, professionally and with due regard to the convenience of the client.
He said “a reasonable adviser” in Barton’s position would have reviewed the contact details in the policy in 2020 when a material change was made to a sole policyholder.
In the following years, Barton was “very well aware” that its main communication was primarily with Mr Nel and not his wife.
“A reasonable adviser would have sought formal instruction or confirmation to change the contact details on the system it uses. By failing to review and update the information, Barton did not adhere to reasonable standards and the general provisions of the Code and was, therefore, negligent.”
Simpson said Barton’s failure to follow up the email notification with a phone call to Mr or Mrs Nel compounded the FSP’s negligence.
He described the failures to send the email to the correct address and make the follow-up call as consecutive and ongoing multiple errors.
If Barton had changed the email address on its system to the correct one, Nel would have noted the notification of the new tracker requirement. There is a high probability that he would have installed the system, and the insurer would have paid the claim. The same probability applies if a follow-up phone call had been made to him.
“In this set of circumstances, there is clear factual and legal causality. Barton is liable for the loss suffered by Mr Nel,” Simpson said.
The Ombud ordered Barton to pay Nel R681 250 (the sum insured), plus interest of 11.25% a year from the date of the determination to the date of final payment.
If the practice is to only send communication to the registered email address, why did they accept instructions for almost 3 years from an email address not in their system? I hope that they are not charging him a broker fee on top of all this.
Good and valid question