Non-disclosure of material terms – Costly omission by FSP

“The customer is always right” – a slogan that encourages especially service staff to give a high priority to customer satisfaction. In today’s testing economic times, and yesterday’s budget speech is testimony to this, consumers are testing the market to ensure that they get what they feel they are entitled to.

The financial services industry is also subject to this doctrine, especially where FSPs and reps don’t comply with the basics of rendering a financial service. Although the consumer also has an obligation to ensure that they understand what they are committing too, the regulated financial services industry provides the FSP and rep with specific requirements they need to comply to. Many FAIS Ombud determinations are evidence of failure to comply.

The General Code of Conduct for Authorised Financial Services Providers 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 7 (1) (c) (vii) further determines that representatives must disclose concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided.

In a recent FAIS Ombud determination this regulation was used to uphold a complaint and the respondents were ordered to pay the complainant an amount of R310 227.44.

A complaint arose from the rejection of a claim following the theft of a vehicle insured under the policy. The basis for the rejection was that the vehicle was not fitted with the appropriate tracking device.

The complaint was at first dismissed by the Ombudsman for Short Term Insurance. As a result the complainant lodged the complaint with the FAIS Ombud.


The complainant operates a transport company and has a fleet of vehicles insured under a policy. The complainant claimed that the same vehicle tracking device was installed on the whole fleet of vehicles, which comprised a “Vigil Lite” only monitoring system and a “Sleuth” back-up system, installed by Altech Netstar. The complainant confirmed that at no time since the inception of the policy was he informed that the tracking device that he had in his vehicles were not sufficient.

During September 2015, the complainant purchased a 2015 Toyota Hilux bakkie, which he requested the respondent to add to his policy. This vehicle was fitted with the same tracking device as the rest of the fleet.

On 11 February 2016, the Toyota Hilux was reported stolen. Upon submission of a claim to the insurer, the complainant was informed that the claim was rejected on the grounds that the tracking system installed did not meet its requirements of an “early warning system”. The complainant stated that the respondent failed to advise him that the early warning system was a requirement and that the installed devices were not sufficient.

The FAIS Ombud’s ruling

The respondent claimed in all his correspondence to the Ombud office that an appropriate general explanation of the material terms of the contract (an approved tracking device) was provided to the complainant and that they adhered to all FAIS obligations.

The Ombud stated that the respondent’s entire argument rested upon non-compliance by the complainant to adhere to the request to submit the tracking certificate. The respondent argued that had this been adhered to, they would have been in a position to advise the complainant, ex post facto, and that he did not comply with the requirements of the insurer.

In the view of the Ombud, this argument is totally misplaced. The Code obliges a financial service provider to place his client in a position to make an informed decision. This can only be done if the client is provided with the required information upfront. This is further enforced by section 7 (1) (c) (vii) which requires disclosure of any special terms or conditions where liability will be excluded, or where excesses apply.

There is sufficient information to suggest that the respondent failed to appropriately apprise her client of the specific terms of the insurance contract that could affect his cover. Consequently, as a result of the respondent’s failure to adhere to the Code, the complainant did not install the early warning system. The respondents’ conduct is the sole cause of the complainant’s loss.

Click here to download the FAIS Ombud determination.

In a similar case, regarding vehicle security measures, the Ombud also ruled in favour of the client. Click here to download this FAIS Ombud determination.

The FAIS Ombud website hosts an archive of determinations that can be filtered to show only particular years or categories.

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