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Short term insurance – Duty to disclose a change in risk

In addition to making the correct disclosures at the start of a policy as well as paying the premium, most policies place a duty on the insured to inform the insurer of any change in circumstances that may affect the insurer’s ongoing acceptance of the risk.

A recent ST Ombudsman case study highlights the importance of this obligation:

The insured submitted a claim for a motor vehicle accident to his insurer. The insurer rejected the claim on the grounds that the regular driver of the vehicle at the time of the accident was not the regular driver noted on the policy schedule.
When the policy was underwritten, the insurer was advised that the regular driver of the vehicle would be the insured. The vehicle was involved in accident while the insured’s daughter was driving. During the investigation of the claim the insured’s daughter advised the insurer that she was the regular driver of the vehicle.
The insurer submitted that the insured had failed to inform the insurer of the change in regular driver and rejected the claim in accordance with the policy.
The policy contained a provision relating to the regular driver.
The insured submitted that his daughter was driving the insured vehicle to take the insured’s younger child to school every morning. The insured stated that he would normally take his son to school on his way to work. However, he had started attending a skills program which required him to leave home earlier every morning because he needed to travel a greater distance. For this reason, he allowed his daughter to use the insured vehicle to take his son to school.
The insurer argued that, in terms of the above provision, there was a duty on the insured to notify the insurer of the change in the regular driver and that the regular driver was material to the insurer’s assessment of the risk.
It argued further that the insured breached the policy terms and conditions by not advising the insurer of the change in regular driver and, as a result it was prejudiced by the breach and it was entitled to reject the claim.

In the view of the ST Ombudsman there was nothing to suggest that the insured intentionally misrepresented the regular driver. There was also no indication that the insurer would not have accepted the risk had it been advised of the change in regular driver.

In the circumstances, the Ombud’s office found that it would not be fair nor equitable to the insured if the insurer rejected the claim in its entirety. Instead, they recommended that the insurer calculate the premium prejudice that it had suffered and make payment to the insured of the adjusted amount.

As a result, the insurer agreed to abide by the recommendation and settled the insured’s claim.

Change in risk happens continuously, with the resultant impact on insurance cover, and even more so this time of restrictions and lockdown. Stay close to your client and assist him or her with understanding the terms and conditions of their policies, and specifically material conditions which may become more probable in these strange times.

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