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An alleged breach of an insurance contract

29 January 2019 Myra Knoesen

In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complainant, Petrus Hermanus Wessels, lodged a complaint against the respondents, based on an alleged breach of the insurance contract.

The first respondent is UMC Brokers, an authorised financial services provider (FSP). The second respondent is Mark Freswick, a key individual and representative of UMC Brokers. Reference in this determination to ‘respondent’ or ‘respondents’ should be read as reference to both respondents.

Insuring a wildebeest

During September 2015, Wessels purchased a golden wildebeest for a sum of R570 000. Following the purchase, he was referred to the respondent by a fellow wildlife farmer who was also a long-standing client of the respondent, in order to insure the wildebeest.

On the advice of the respondent, Wessels applied for a wildlife insurance policy with New National Assurance Company, which was underwritten by Savannah Marine. Wessels application was accepted by the insurer and was incepted on 7 September 2015. The wildebeest was insured for R570 000 at a premium of R1 950. The period of insurance was recorded in the contract as being from 7 September 2015 to 31 August 2016.

On 2 November 2016, Wessels informed the respondent that while he did not sign a new policy to renew the period of insurance, he noticed that the insurer was still deducting the premiums for the cover. Wessels enquired from the respondent whether the cover was still in place and if it was, if the cover was still subject to the terms to which he had agreed prior to inception of the policy.

The policy schedule

On 3 November 2016, the respondent confirmed that the cover was still in place and attached a copy of the policy schedule to prove this. The respondent also asked Wessels to peruse the policy schedule and to ensure that he was happy with the terms and conditions of the cover as set out in the policy schedule. The policy schedule recorded that the policy had been renewed with effect from 1 September 2016 and that it was set to expire on 31 August 2017.

In January 2017 however, Savannah Marine advised the respondent that the insurer, New National, had not renewed its wildlife facility to underwrite wildlife policies and that all existing policies, including Wessels policy, would expire on 31 March 2017. At the time this decision was taken by New National, Savannah Marine was one of two underwriters contracted to New National to underwrite its wildlife facilities. The other underwriter was Risk Guard Alliance. New National resolved to keep only one of the underwriters and on this basis terminated its relationship with Savannah Marine. On 15 March 2017, the respondent informed Wessels that his policy would be transferred.

Wessels asked the respondent to confirm whether this proposed insurer, in the event of a claim, would pay out the amount for which the animal was insured with New National. Wessels followed this question with a statement that ‘otherwise we need to cancel’. 

The respondent advised him that the maximum market related value for which the animal would be insured with the new insurer was R80 000 to R100 000. The respondent then asked Wessels if he wished to cancel the policy. There was no response to this question received from Wessels but on 22 March 2017, the respondent sent Wessels an email advising him that his policy had been cancelled. 

The respondent’s version

The respondent set out a timeline of the events that the respondent alleged took place from when it was notified that New National had terminated its relationship with Savannah Marine, to when this communique was brought to Wessels attention. The respondent also alleged that the policy had been cancelled on account of the email received from Wessels on 17 March 2017 in which the respondent states it was instructed to cancel Wessels policy if the new underwriter, Risk Guard Alliance, could not cover Wessels animal on the same terms as Savannah Marine.

The respondent claims that the alleged instruction from Wessels to cancel his policy, meant that he no longer required the insurance. The respondent further alleged that in its view, Wessels relied on the clause in the contract of insurance which required that the insurer provide him with 30 days written notice, in order to relieve himself of the effect of ‘his own failure’. The respondent alleges that Wessels failed to act ‘positively and timeously’ and that the time it would have otherwise taken to seek alternative cover would not have been enough. The respondent concluded by saying that it was not the one that that failed Wessels, but that Wessels had failed himself.

Two main defenses

According to the FAIS Ombud, there are two main defenses on which the respondent relies to refute Wessels allegations. The first defense is that Wessels email of 17 March 2017 constituted a valid instruction from him to cancel the policy. The second defense is that Wessels had enough time to consider the quote from Risk Guard and to confirm whether he was willing to accept it failing which Wessels, of his own choosing, would have had no cover.

Did the complainant have enough time to consider the quote from Risk Guard? Did the complainant’s email of 17 March 2017 constitute a valid instruction from him to cancel the policy?

Breach of contract

According to the FAIS Ombud, the timeline reveals that the respondent had three months within which to firstly advise the complainant of the impending cancellation of the contract by the insurer, and to source alternative cover for the complainant. The Ombud says it is unclear why the respondent did not advise the complainant that New National had terminated its relationship with Savannah Marine, and what the consequences of this would be as soon as he was informed of this. According to the Ombud, it is also alarming that the second respondent, in his  response to the complainant, did not clarify to the complainant that he was not going to move to a new insurer but that the underwriter would change and that this is why a new contract would have to be concluded.

Another issue, according to the FAIS Ombud, is that the respondent was informed verbally that the complainant’s policy would be cancelled as of 1 April 2017, and at no time did New National, or Savannah Marine on behalf of New National, provide the respondent with written notice of the intended cancellation.

In the FAIS Ombud’s opinion, the second respondent knew what the consequences of cancelling the complainant’s policy would be. However, the Ombud says, he did so anyway. This, according to the Ombud, was on the back of an unjustifiably incorrect interpretation of the email received from the complainant and, without confirmation from the complainant on whether in fact this was what he wanted. Rather than call for written confirmation of the intention to cancel the policy, the Ombud says he was seemingly prepared to accept whatever cover New National offered, even if this did not accord with the needs and circumstances of the complainant. In the FAIS Ombud’s view, the respondent acted negligently and the damage to the complainant was foreseeable. The FAIS Ombud ordered the respondents to pay to the complainant the amount of R456 000. 

Editor’s Thoughts:
Wessels asked the respondent to confirm whether this proposed insurer, in the event of a claim, would pay out the amount for which the animal was insured with New National. Wessels followed this with a statement ‘otherwise we need to cancel’. Wessels was told that the maximum market related value for which the animal would be insured with the new insurer was R80 000 to R100 000. So, he knew he was not covered for the same amount and could have sourced alternatives. However, at the same time, the respondent had three months to advise the complainant of the impending cancellation of the contract by the insurer, and to source alternative cover for the complainant. So, who failed who? Is it the respondent that failed Wessels, or did Wessels fail himself?  Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

 

Comments

Added by Nancy Bowring, 07 Feb 2019
I believe both the complainant and the respondent had responsibilities - not just the respondent. I would have made the respondent pay half of the claim
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Added by CraigA, 30 Jan 2019
I guess we can assume that the animal died? How was the amount of R 456,000 calculated if the insured amount was R 570,000? Did the insurer pay the balance? Seems a little vague.
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Added by Schalk, 29 Jan 2019
Nowhere in the article does it mention that the client instituted a claim, but I guess it is assumed?
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Added by Eric, 29 Jan 2019
Feel sorry for adviser, client taking a big chance since he is out of pocket.

The instruction was clear "cancel" if not same value" ... But the above also highlights that adviser need to go extra lengths to confirm that client wanted to cancel ...
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