Bad tricks won’t solve advice gap
Brokers spend a great deal of time and effort planning for their clients’ future and assessing their long-term goals. However, there are the few who continue to create a bad effect on the efforts of others.
This was the issue in the recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud). This was a complaint arising out of the dispute involving the advice given by a broker to a client.
Some background
Lizelle Franca Botha, the complainant, carried on a small business undertaking the installation and maintenance of fibre optic cables for clients. The nature of the business required Botha to call on clients and install and maintain cabling at their premises. The business involved travelling to clients with equipment and stock to do the work.
The equipment consisted of electronic and other devices used by Botha to do the work.
The very nature of Botha’s business meant that her equipment was not “office bound” but had to be moved from the office to clients’ premises on a regular basis. This meant that the equipment will be at a risk of damage or theft while in transit.
To insure against all risks relating to her business, Botha approached Anna Mathilda Ackerman, the respondent, to obtain insurance cover. There was already, and at all material times, a broker-client relationship between the parties.
Ackerman recommended insurance cover which Botha accepted. After obtaining cover, Botha was robbed on her way to a client and all her equipment and personal belongings were taken by three robbers. The incident was reported to the police and a claim was filed against the insurance policy.
The issue at hand
The insurer rejected the claim due to the fact that the equipment in question should have been insured under the “all risk section” of the policy. This was due to the fact that the equipment was regularly removed from the business premises. The insurer pointed out that they were not informed that the equipment was moved out of the premises regularly and in the ordinary course of Botha’s business. Had this information been given to them, they would not have agreed to insure the equipment under the “electronic equipment section”.
The risk in the equipment was much higher once they were regularly removed from secured premises and transported and used on site at client premises. Accordingly the premium charged would have been substantially more than the amount quoted. The underwriters even suggested that they may have rejected the application for cover due to the high risk.
Attributing the oversight
Ackerman claims that at no time did Botha state that the equipment will be removed from the insured premises on a daily basis. Ackerman prepared the schedules in respect of the cover, together with the policywording, and posted the same to Botha. The latter had seven days within which to report any errors. There were no questions over the cover provided in the policy.
Even after receiving the documents, Botha still failed to inform Ackerman that the equipment was going to be removed from the premises for use in the business. Ackerman states that as a broker, Botha failed to inform her as to how the equipment was used and where it was intended for use.
Ackerman further submits that Botha had been in business for ten years and cannot claim to be unsophisticated and uninformed. According to Ackerman, the “essence” of the problem was Botha’s failure to make a full disclosure of the facts to Ackerman.
She denies that she contravened the code and that she failed to act in the interests of her client, pointing out that, to the best of her knowledge, she procured the best product for her client. She states that no less than four people discussed the matter with the client and where there was doubt, guidance was sought from the underwriters. The latter confirmed that the cover was appropriate.
Ackerman denied acting negligently or unlawfully in advising her client and submits that she cannot be held liable for the errors made by the underwriters.
Three sides of the story
It is obvious that the underwriters gave a quote based on an existing policy or according to the schedules as presented by the broker. It is certainly not in dispute that Ackerman did not tell the underwriters that the equipment was to be moved from secure premises on a daily basis.
Ackerman then attempts to avoid the consequence of this omission by stating that even if correct it would have made no difference to the cover, or the premiums, Botha wanted.
Ackerman is contradicted by the underwriters who point out that the appropriate section was “all risks”, based on the fact that the equipment was to be moved from secured premises. Underwriters do not communicate directly with members of the public; they obtain information, when assessing risk, from the approved brokers in good faith.
It does not require genius to work out that Botha works outside the secured offices and will transport stock and equipment to clients and back to the office. Upon a competent assessment of the risks, Ackerman should have conveyed this fact to the underwriters. She failed to do so. It was for Ackerman to ensure that cover was obtained under the correct section of the policy and according to Botha’s needs.
Accordingly Ackerman is ordered to pay to Botha the amount of R211 051.64.
Editor’s Thoughts:
There are always three sides to a story. Everyone blames the next person. However, when we look at this case the blame shifts to reveal the truth. From this we are reminded that it is critical for brokers and advisers to fully understand their clients business when assisting them with their needs. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
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it is because of Brokers like these, that the Act exists. Report Abuse
Sadly it seems the few where it go wrong is reported on almost in advertisement form by the OMBUD (justifying its existence and office cost) and in sensationalized editorial by the industry comics. Like this one.
Come on Editor I change my request to a challenge. Do a study and article showing the numbers against the number of pieces of advice given. i suspect that will show that advisers do a very good job all over. Report Abuse
Assuming Ackerman was a newly appointed broker and was asked to find renewal terms based on existing cover, she did exactly what was required. If Botha sought additional or enhanced levels of cover one would assume she would have asked or probed these increases in cover with Ackerman and they would have been included in the quotation request.
Business owners in South Africa are notorious for wanting their insurance as cheap as possible, whether the correct levels of cover or not and are quick to blame the brokers when the results are to their detriment. It may not take a 'rocket scientist' to assume certain tools and equipment are used outside the client's premises, but you can lead a horse to water and often the horse is stubborn and self righteous enough to insist they are far more astute than the lowly insurance broker.
The fais ombud is not impartial and never has been, none of them. This is another instance of that God complex. Report Abuse
As a general comment one wonders if brokers had more time by not having to deal with unnecessary legislative red tape and compliance bureaucracy whether more and better advice would be given as they could focus on the real business issues and requirements.
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Furthermore the basis of indemnity under the Business All Risks Section is indemnity or replacement value conditions, neither of which are as favourable to the insured as the basis of indemnity under the Electronic Equipment Section. Report Abuse