What are reasonable precautions? – Ombud’s view provides guidance

In the current tough economic times, and as financial pressures increase, fraudulent claims are a major challenge to the short-term insurance industry. In order to address this, insurers rely more and more on assessors as well as investigators to validate any suspicious claims, resulting in many being rejected.

Many of these claim disputes are then referred to the Ombudsman for Short-term Insurance. The publication of these rulings provides insight to the public, advisors and insurers on the possible outcomes in similar circumstances.

In one of the latest case studies published in the Ombud’s Briefcase, the requirement that the vehicle owner should take reasonable precautions to prevent loss, damage or liability is addressed.

Basis of claim rejection

Mr B submitted a claim to the insurer for accidental damage to his vehicle. Following the submission of this claim, the insurer appointed an assessor to inspect the vehicle and determine the nature and cause of the damage.

The assessor’s report stated that the vehicle suffered physical damage, including damage to the engine sump, which was as a direct result of the impact from the collision. This portion of the claim was authorised by the insurer in the amount of R66 215.45. The report stated further that the vehicle also sustained engine damage in excess of R200 000.00. According to the assessor, the engine seized as a result of the vehicle being driven without engine oil after the collision.

In view of the assessment findings, the insurer excluded the claim for the engine damage on the basis of the following clause in the policy, under the heading “General conditions”,

“2. Prevention of loss

You must take all reasonable precautions to prevent loss, damage or liability.”

The insurer asserted that Mr B breached a duty to take reasonable care to prevent further damage to the vehicle after the impact and as a result of such breach it was not liable to pay for the engine damage.

The client’s response

Mr B indicated that he swerved to avoid a large pothole in Jan Smuts Drive and collided with a road divider on the right-hand side between two lanes. Mr B indicated that the vehicle took a “heavy blow” on the bottom front and then came to a standstill.

He stated that the area was well known for smash-and-grab attempts and as it was already dark he did not exit the vehicle to inspect the damage. Mr B decided rather drive the vehicle to the nearest point of safety, being a service station further down the road.

According to Mr B, his conduct under the circumstances was not reckless. He maintained that he was exercising his duty to take reasonable steps to prevent a further collision or criminal activity.

The insurer’s assessment

The insurer relied on a “reasonable precautions clause” to decline liability for the engine damage. There are a number of conflicting decisions about how this clause ought to be interpreted and applied. The courts have generally recognised that the clause must be restrictively construed so as to ensure that it does not undermine the very purpose of a policy of insurance by interpreting it as the basis for exclusion of liability for Mr B’s negligence. In order to rely on such a clause and justify the repudiation of a claim arising from damages caused by Mr B’s own actions, the insurer must show that Mr B acted recklessly.

Driving a vehicle from an accident scene is not in itself an indicator of recklessness. However, it is a well-known fact that a vehicle is in danger of major mechanical damage when it displays a warning light on its instrument cluster. The driver in these circumstances is required to exercise caution in his operation of the vehicle. Mr B confirmed during the claim validation that he noticed a number of warning lights on the vehicle dashboard and that the vehicle was not responding well.

OSTI’s view

OSTI was persuaded by the insurer’s argument that Mr B was not in any imminent danger. OSTI noted that the accident scene was not at an isolated location or even very late at night which would increase any potential risk. According to OSTI Mr B had various options included pushing or rolling the vehicle to the side of the road, securing the scene with warning lights/hazards, traffic cones or triangles and seeking roadside assistance from the insurer or from Mercedes. When Mr B continued to operate the vehicle, he courted the danger of a separate cause of damage, which in OSTI’s view justifies recklessness. He, therefore, assumed the risk for himself.

The damage which occurred after Mr B’s decision to drive the vehicle from the accident scene fell outside the scope of cover. The distance travelled by Mr B, in this case, was also immaterial. The damage would have been limited to the sump if the vehicle had not been driven from the accident scene.

As this is a civil matter, the issue is determined on a balance of probabilities and based on the information provided by the parties to the dispute.

Therefore, it was OSTI’s view that the insurer was justified in its decision to decline liability for the damage to the engine on the basis of a breach by Mr B of his duty of care. OSTI was unable to assist Mr B and the matter was resolved in favour of the insurer.

In our view, this is a case that should be referred to the Financial Sector Tribunal. In the current climate of criminality, it is difficult to envisage that “the reasonable man” would have acted differently under these circumstances.

Click here to download the Ombud’s briefcase that also features cases in favour of the client.

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