Failure to disclose material terms and conditions has been the downfall of many an adviser when a complaint is laid with the FAIS Ombud. Admittedly, 20/20 vision is only possible in hindsight as far as insurance goes, but upfront communication can save your bacon one day.
“I want to insure my personal possessions.” “The value of my personal portable possessions is about R50 000.” These are just some of the generic sentences that most clients use in an insurance cover quote discussion.
In many instances these phrases are linked to marketing lingo used in insurance adverts and brochures:
When you insure your personal belongings with us, no matter where you are in the world, when your items are lost, stolen, or damaged, you are protected.
We’ll cover the standard portable possessions you and your household members take with you up to a specific value.
No need to worry if your possessions are damaged or stolen.
However, clients need to fully understand exactly what kind of cover they are getting for their money before they make a claim and discover that the wording does not mean quite what they thought. Policy wording in terms and conditions have in many cases been a bone of contention as it is quite often misinterpreted by the insured.
Furthermore, TCF Outcome 3 specifically states that “customers are given clear information and kept appropriately informed before, during and after the time of contracting. Financial advisers must pay due regard to the information needs of the customers and communicate information to them in a way which is clear, fair and not misleading.”
The close personal custody and control requirement
In a recent case published by the Office of the Ombudsman for Short-Term Insurance (OSTI), the policy at hand provided that the client’s insured valuables were governed by the “close personal custody and control requirement”. “It means that the insured property shall be held by, worn or attached to the insured at all times whilst in transit,” according to OSTI.
In this specific case OSTI upheld a decision by an insurer to reject a claim for the loss of engagement and wedding rings.
Circumstances that lead to the claim
The insured was on holiday when he went to the beach with his wife and baby. He took a bank card, cash, watch and the rings and put them in his wife’s bag for safekeeping. The bag was put in a baby’s pram while they were at the beach. After a few hours they went to a shopping mall and when they opened the closed area of the pram, the bag was missing.
Insurer’s rejection and OSTI’s endorsement thereof
According to the insurer the policy only covered the Insured Property when it is in the “close personal custody and control” of the insured, as defined, or in the main safe or vault of the hotel/motel. Property kept in a safe in a hotel room will be covered only if the room is occupied by the designated individual. Losses from unattended hotel rooms are excluded absolutely.
A decision was made by the Assistant Ombudsman to uphold the insurer’s rejection of the claim. “It is not in dispute that the rings were in a bag which was stowed under a pram at the time of the loss. Therefore, the insured did not comply with the close personal custody and control requirement which the policy defines as …shall be held by, worn or attached to, the insured at all times whilst in transit.”
Similar but different
In two similar “personal belonging” claim cases, which we discussed recently, the OSTI ruled against the insurer. The immediate question would be “why?”. The answer lies in the small print, the terms and conditions and more so the policy wording of the specific policy.
Ayanda Mazwi, Senior Assistant Ombudsman explains:
“The facts in the cases studies referred to may have been similar, however, the clauses in the policy wording relied on by the insurer to decline liability are clearly distinguishable.”
In the previous two case studies, the specific clause relied on is referred to as a ‘reasonable precautions clause’. It essentially excludes the insurer’s liability for a claim arising from loss or damage caused by the insured’s own actions.
Click here to download the latest OSTI case study.
These differences in interpretation are a timely reminder for financial advisers to always make an effort to work through the terms and conditions with their clients – make use of these cases studies as a reference. In these times of social distancing and remote work, we provide readers with opportunities such as these to stay top of mind with clients, reinforcing their value add. As the threat of direct insurers and DIY options increase, it is important to counter it now.