Non-life ombud rules that insured can keep written-off vehicle

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The Non-life Insurance Division of the National Financial Ombud Scheme issued one formal ruling in its 2024 financial year. The ruling arose from a dispute between an insured and Dotsure over the write-off of a motor vehicle following an accident.

Thasnim Dawood, senior adjudicator in the Non-life Insurance Division, provided a summary of the ruling, which was made in favour of the insured.

Background to the dispute

Dotsure declared the insured’s vehicle a Code 2 write-off after determining that the repair costs reached 60% of the vehicle’s value, a threshold at which it deemed the repairs uneconomical. This decision falls within the insurer’s discretion, a standard practice in the insurance industry to manage claims efficiently when repair costs approach or exceed a vehicle’s worth.

The insured contested this decision on two fronts:

  • He argued that Dotsure relied on inflated or unreasonably high repair costs to justify the write-off, questioning the accuracy of the pricing provided by the insurer’s service provider.
  • Even if the write-off was valid, the insured wanted to keep the vehicle and repair it himself, believing it was still repairable, rather than surrendering it to the insurer.

The insured proposed that Dotsure pay him 60% of the vehicle’s value in cash and allow him to retain ownership.

Dotsure disagreed with this proposal.

The insurer’s position

Dotsure defended its stance by emphasising its policy terms and compliance with the South African Insurance Association’s Code of Conduct, an industry regulation designed to ensure transparency, safety, and fraud prevention in handling written-off vehicles.

The key points from Dotsure’s argument included:

  1. The insurance policy was not intended to provide unlimited coverage or to pay out 60% of the vehicle’s value as a cash settlement for repairs. Instead, the 60% threshold triggered a total loss settlement, where the insurer would indemnify the insured for the vehicle’s value and take possession of the salvage.
  2. Dotsure required the vehicle to be dealer stocked – registered in the insurer’s or a salvage agent’s name – before it could be sold back to the insured or anyone else. This process, mandated by the SAIA Code, serves multiple purposes:
  • Registering the vehicle as a write-off allows future buyers to access its accident history (via a Transunion report or licensing office records), enabling informed purchasing decisions.
  • It ensures that repairs on written-off vehicles are inspected by authorities before ownership is transferred, preventing unsafe vehicles from re-entering circulation.
  • It reduces the risk of vehicles being repaired inadequately (for example, by “backyard repairers”) and sold without proper oversight.

Dotsure offered the insured the option to purchase the salvage from a salvage yard after the claim was settled, but only after transferring ownership to the insurer and completing the dealer-stocking process. The insured refused, unwilling to relinquish ownership temporarily, because he intended to retain and use the vehicle himself.

The insurer warned that bypassing this process – by paying the insured cash and letting him keep the vehicle – could:

  • Allow substandard repairs without inspection, endangering future owners.
  • Expose Dotsure to litigation if an unsafe vehicle caused harm.
  • Undermine the SAIA Code’s protective framework.

Non-life Division’s initial assessment

The Non-life Division first evaluated the insurer’s right to write-off the vehicle. The Division agreed with Dotsure that the 60% repair cost threshold justified declaring the vehicle a write-off, affirming the insurer’s contractual discretion.

However, the Division then turned to the fairness and reasonableness of Dotsure’s insistence on dealer stocking, invoking its equity jurisdiction to assess the situation beyond strict policy terms.

The key findings included:

  • Dotsure failed to demonstrate how allowing the insured to keep the vehicle and receive a cash settlement would harm its interests or violate the Code’s intent.
  • Since the insured was the owner, had insured the vehicle, and intended to retain it, the risks of fraud (for example, selling an unsafe vehicle to an unsuspecting buyer) were minimal.
  • The insured had already started repairs, reinforcing his commitment to retaining the vehicle for personal use.

The Division recommended that Dotsure:

  • Allow the insured to retain the vehicle.
  • Pay him the write-off settlement value (what it would have paid under a total loss scenario) without requiring dealer stocking.

Dotsure rejected this, citing its obligation to comply with the SAIA Code. This prompted the referral of the complaint to the Escalation Committee.

Escalation Committee’s ruling

The Escalation Committee reviewed the case and issued a provisional ruling, later finalised, that balanced the Code’s purpose with the dispute’s unique circumstances:

    • The Committee acknowledged that the SAIA Code aims to prevent fraud and ensure safety, not to create unnecessary obstacles for owners retaining their vehicles.
    • The insured’s status as the vehicle’s owner, coupled with his intent to keep it, distinguished this case from scenarios where dealer stocking prevents fraudulent resale.
  • Requiring ownership transfer to the insurer or salvage yard, only for the insured to repurchase it, would impose an unfairly circuitous process without advancing the Code’s goals.

The Committee ruled that:

  • The insured could retain ownership and possession of the vehicle.
  • Dotsure must indemnify him with the write-off settlement value, bypassing the dealer stocking requirement.

This decision prioritised equity – ensuring the insured was restored to a reasonable position without undue burden – while respecting the insurer’s initial right to declare a write-off.

Only after the final ruling did Dotsure relent, agreeing to:

  • Pay the insured the write-off value.
  • Allow him to keep the vehicle without transferring ownership or dealer stocking it.

The claim was settled accordingly, resolving the dispute.

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