In a recent Short-term insurance case study, the Ombudsman for Short Term Insurance (OSTI) emphasised that short-term insurance contracts are entered into in good faith. “Under common law, a policyholder when requesting cover must make full disclosure of all matters material to the insurer’s assessment of the risk. This principle is founded on the insurer’s legal right to be informed of all the material facts to enable it to properly assess the risk. An insurer has the right to void a contract of insurance if the proposer has misrepresented a material fact,” OSTI remarks.
These remarks are as a result of a case where an insurer declined liability for a claim based on the following grounds:
|1.||Fraudulent Claim: Misrepresentation of relevant information|
|2.||Non-Compliance: Lack of Reasonable Proof of Ownership.|
Alleged loss by client
|●||Mrs V’s policy incepted with her insurer on 26 November 2018. She enjoyed “All Risks” cover for portable possessions.|
|●||Mrs V submitted a claim to her insurer in respect of the theft of her laptop and camera out of the boot of her motor vehicle, which occurred on 2 April 2019.|
|●||The laptop and camera were specified under the policy.|
|●||Mrs V also had cover for her motor vehicle and household contents under the policy.|
Reasons for the insurer’s claim decline
|●||The insurer stated that Mrs V failed to disclose additional claims submitted to her previous insurer during the relevant three year period.|
|●||She only advised of one occurrence to the value of R20 000.|
|●||A TransUnion Claims Enabler Report recorded 12 claims to the total value of approximately R291 499.00.|
|●||Mrs V’s previous insurer also advised that her previous policy was cancelled based on “unfavourable claims history”.|
|●||As a result the insurer advised that the underwriting information provided by Mrs V was incorrect.|
|●||It rejected the claim and voided the risk based on material misrepresentation and dishonesty.|
|●||The assessor also found that Mrs V claimed for the same items under her previous insurance and was compensated accordingly.|
|●||The insurer further argued that it would not have concluded a contract of insurance with the client had it been aware of her insurance loss history.|
The Ombudsman’s findings
OSTI quoted a Supreme Court of Appeal case which stated: “There is a duty on both insured and insurer to disclose to each other prior to the conclusion of the contract of insurance every fact relative and material to the risk (periculum or risicum) or the assessment of the premium. This duty of disclosure relates to material facts of which the parties had actual knowledge or constructive knowledge prior to conclusion of the contract of insurance.”
Therefore, in OSTI’s’ view a ‘reasonable person’ in the position of Mrs V would consider that the additional losses and claims may influence the insurer’s assessment of the risk and should, therefore, be disclosed.
Based on the examination of the initial transcript, the OSTI was satisfied that the underwriting questions relating to Mrs V’s loss history were clear. OSTI also confirmed that Mrs V was advised at the commencement of the underwriting conversation that the information she provided must be true and complete. She was also informed that incorrect information may affect the outcome of her claims.
Osti’s view was that the insurer was justified in its decision to avoid the risk on the ground of a material misrepresentation. The rejection of Mrs V’s claim was therefore upheld.
Misrepresentation in numbers: Last year’s OSTI Annual reports shared that the secondary cause for complaints was rejections based on the insured’s alleged non-disclosure or misrepresentation of underwriting details at sales stage. However, OSTI saw a 22% decrease of such complaints in 2018 compared to 2017. OSTI has always emphasised the importance of the insured’s contractual obligation to provide true and complete information when taking up a policy or updating it. Insurers are also required to conduct the sales process in accordance with the agreed industry code. What will the stats show this year …let’s wait for April 2020 to see!
Click here to read the case study as published in OSTI’s Briefcase publication.