Osti flags increase in disputes due to ‘reasonable precaution’ clause

The Ombudsman for Short-term Insurance (Osti) has once again flagged the increase in the number of complaints from consumers whose claims are rejected because insurers allege the driver failed to exercise reasonable precaution or due care.

The number of these complaints increased by 48% in 2019 and 2020, and last year the Osti considered 26% more complaints of this nature compared to 2020, according to the Osti’s annual report for 2021.

Many of the claims were rejected because the driver was allegedly speeding.

“The reasonable precautions/due care clause is a general condition of cover applicable to all categories of insurance. However, the upward trend in claim rejections based on this ground has not been seen in other categories. In 2021, homeowners’/building and household contents insurance claim disputes on this ground comprised 1%. Commercial claims comprised 3%,” the Osti said.

Last year, the Osti considered 369 complaints relating to accident claims that had been rejected on the ground that the driver failed to exercise reasonable precautions/due care. Of these, 47 rejections were overturned, and insurers paid the claims. The ombudsman issued eight formal rulings under the office’s escalation process.

Rejections were overturned, for instance, where an insurer relied on an inaccurate and/or incomplete report from an accident reconstruction specialist concerning the calculation of the speed and how it contributed to the accident.

The Osti said it does not simply accept an expert’s report as decisive. It carefully evaluates the evidence and determines to what extent the expert’s findings and conclusions were established on logical and accurate reasoning.

Even when an insurer has satisfied the Osti that the driver was speeding, a rejection of the claim may be overturned because it failed to establish the legal requirement to prove that the driver acted recklessly.

“Essentially, this requires proof that the driver knowingly courted danger, with reckless abandon and in disregard of the reasonable possibility of the loss eventuating, and then failed to take reasonable steps to prevent it. A claim cannot be invalidated by the insurer if it, at best, established that the driver drove negligently,” the Osti said.

Complaints related to motor accidents declined from 73% in 2020 to 65% in 2021, but this remained the biggest category of motor insurance complaint.

Warranty and mechanical breakdown claims were the second-biggest type of vehicle insurance dispute. Complaints in this category rose to 14% last year from 11% in 2020.

This was followed by theft and hijack claims, at 7%, unchanged from 2020.

Read: Insurers making increasing use of ‘reckless driving’ clause to reject claims

Homeowners’ insurance: ‘defective construction’ disputes

The Osti also noted the continuing increase in the number complaints relating to homeowners’ claims rejected by insurers on the ground that the loss or damage resulted from defective construction and/or maintenance issues.

Complaints of this nature increased in 2020 to comprise 47% of homeowners’/building insurance complaints, and they made up 53% of these complaints last year.

Nearly 50% of homeowners’/building insurance disputes are related to claims for damage caused by acts of nature, mainly storm-related.

Household contents: power surges

There has been a steady increase in complaints relating to damage caused by power surges. These complaints increased from 3% in 2018 to 6% in 2019. In 2020, 11% of household content disputes were related to power surge claims. In 2021, they comprised 16% of complaints related to household contents insurance.

The Osti said consumers should review their policy documents to ensure that they enjoy cover for damage caused by a power surge. Some household contents insurance policies do not include this cover, while other policies may only cover power surge damage for an additional premium if it is requested.

Theft and burglary claims comprised 44% of household contents complaints last year, declining further from 2020.

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