Beware of liability when buying or selling a short-term book
What happens when a motor vehicle is stolen and the insured is unable to supply proof of the installation of a Vesa approved gear-lock and immobiliser? It’s almost certain the insurer will refuse the claim. And that’s exactly what happened when Busani Leonard Mathebula (the complainant) lodged a motor theft claim against his short-term motor policy. His 2001 Toyota Tazz was stolen on 23 February 2005 – just three weeks after the policy incepted on 28 January. The reason: “No Vesa certificate could be provided by the insured!”
From that point Mathebula played a waiting game. He had to wait until May 2005 to learn that Santam Insurance had rejected his claim. He waited five months for the Short-term Insurance Ombudsman to refuse his initial complaint. His case was then forwarded to the FAIS Ombudsman to ‘investigate’ whether the broker had been negligent in giving advice, after which Mathebula waited until November 2007 before that Office made a recommendation. And he waited until March 2009 for a final FAIS Ombudsman determination after the respondent failed to act on the recommendation. A quick look at the final determination raises a number of issues short-term brokers need to be aware of.
Your word – the written word – and the policy document
The respondents in the FAIS Ombudsman case were Insurance for Your Brokers CC (first respondent) and Christopher Mortimer (second respondent). In his statement to the FAIS Ombudsman, the complainant alleged that “he had not been informed by the first respondent who had sold the policy to him, about the requirement of a Vesa certificate or that one would be required at claims stage.” When the FAIS Ombudsman forwarded this complaint to the first respondent, Mortimer said that the requirements had been conveyed telephonically; but that the tape of the conversation was unavailable due to a technical glitch with the voice recording system. Unfortunately this defence holds no weight with the FAIS Ombudsman who recommended at this stage that the complaint be resolved by the respondent “compensating the complainant for his loss by paying him the sum of R45 000.”
This situation is typical of Ombudsman proceedings. The onus is on the broker (or respondent) to provide concrete evidence that an event took place while the complainant’s allegation of neglect is accepted without question. The complainant’s word holds more weight than the respondents. Whenever the FAIS Ombudsman refers to “a dispute of fact” which he must determine on the basis of probabilities you know the broker is in for a rough ride. By the complainants own admission the broker asked whether the vehicle was fitted with a gear-lock and immobiliser. The complainant answered both questions in the affirmative – but alleges no mention was made of the requirement of Vesa compliant devices. Why would the respondent have left “Vesa” out of the conversation?
In the absence of the voice recording, the FAIS Ombudsman says “Mortimer is unable to provide any other corroborating evidence which would persuade me to believe his version over Mathebula’s.” Mortimer falls foul of section 15(5) of the General Code which provides that “A direct marketer shall be obliged to record all telephone conversations with clients in the course of direct marketing and must have appropriate procedures and systems in place to store and retrieve such recordings.” And that’s the final word on the matter!
FAIS Ombudsman again ignores policy document
The short-term insurance policy document is once again viewed as insufficient in communicating requirements to the insured. “While it is true that Mathebula’s policy documents (which do set out the Vesa requirements) were sent to him on 29 January 2005, the accident occurred less than a month later,” says the FAIS Ombudsman. He opines that since this was the insured’s first motor vehicle (and first short-term motor policy), and given his allegation that the Vesa requirement wasn’t explained to him, that “it would be reasonable to assume that Mathebula did not fully appreciate the meaning thereof.”
What we found interesting was that no effort was made to ascertain the make or manufacture of the devices fitted in the Toyota Tazz. Was the insured asked to provide proof of fitment (or visual proof) of the fitted devices – or is his word in this regard enough for both Ombudsman. It should have been a simple matter to track down details of devices installed between the 2001 manufacture and the January 2005 theft. There must have been some record of installation which could have assisted in this case. And the knowledge might have thrown up a surprise or two… For example – the insured may have had Vesa approved products installed and simply not had certificated proof – in which case the insurer would have paid up. Or – if no proof of installation was found – the insured’s version of events would have been placed under suspicion.
Selling the book doesn’t absolve you
There’s another interesting aspect to this determination. A short-term book carries certain liabilities based on the financial advice the brokerage has given clients in the past. Selling your book to a third party won’t absolve you from future claims. In this case, when the Insurance for You Brokers CC book was sold to Goldex Risk Insurers the new purchaser “had insisted on an express exclusion regarding the liabilities in respect of the book.” The Ombudsman supplies the contract clause which ‘absolves’ the new owner: “The Seller hereby warrants to the Purchaser that the Business Assets, as defined, is [sic] not the subject of any litigation or subject to any attachment.”
From the facts in the determination we conclude Mortimer believed this to be the case when he sold the book. The case in question had been taken to the Ombudsman for Short-term Insurance and finalised at that Office. When Mortimer received the FAIS Ombudsman recommendation in November 2007 he held that the “matter had been resolved some time ago in that the claim had been rejected.” He told the Ombudsman he’d sold his book and was now running a cell phone business. “He further stated that since he was no longer involved in the business, there was no point in sending the recommendation to him…”
Perhaps Mortimer’s mistake was keeping his close corporation active and trading under a different name. At the very least it seems Mortimer should have responded to the Ombudsman’s recommendation rather than taking a defiant stance, because 16 months down the line he’s going to have to compensate the complainant to the tune of R45 000 plus interest.
Editor’s thoughts:
Although we’re not legal experts some of the conclusions drawn in FAIS Ombudsman determinations don’t look like they’d hold in a court of law. We’re particularly concerned about frequent references to ‘the basis of probabilities.’ This case raises some interesting questions around liability – so we’d love to hear your thoughts around ongoing liability when you sell a short-term book. Add your comments below, or send them to [email protected]
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