Determination & Ruling from FAIS Ombudsman - Broker negligence

A short term insurance broker who failed to transfer a client's cover has been ordered by the FAIS Ombud to make good the R76 211 loss suffered in a burglary.

In finding the broker guilty of negligence and non-compliance with the FAIS Act, Charles Pillai, the Ombud for Financial Services Providers, said care and diligence entails that the respondent should have ensured that none of its clients was left without cover when it decided to transfer its short term insurance book.

The complainant, J Kearney, said she had taken out a short term insurance policy through the respondent, A R Strauss Financial Services Pty Ltd. The insurance was administered by Dex and underwritten by Renasa.

Due to the size of the premium collected by Dex from the respondents business, which Renasa considered to be negligible, the respondent was advised that it was no longer viable to continue doing business with Dex.

Renasa accordingly advised Dex that as of the 30 September 2004, Renasa would cease to offer cover to all short term insurance policy holders under the respondents portfolio.

Thus all policyholders who had enjoyed short term insurance cover from Renasa would be left without cover as from 1 October 2004 unless the respondent took steps to remedy the situation.

Such steps would include, amongst others, informing the policy holders of Renasa's decision.

The respondent decided to transfer its short term insurance book to another broker who would ensure that the policy holders affected enjoyed cover from another short term insurer.

However, Kearneys record with respondent was never transferred to the new broker. Also, she was neither advised of the intended transfer to another broker nor was she advised that she would no longer enjoy cover as from 30 September 2004.

Kearney's house was burgled on 13 November 2004. Furniture, jewellery, clothing and equipment estimated to be worth R92 540 and which would have been covered by the policy underwritten by Renasa were stolen.

When Kearney called the respondent's offices on the day of the burglary with a view to instituting a claim, she was told by the respondent that she should not worry as the claim would be sorted out.

On 15 November 2004, the complainant's husband was advised by the respondent that there was no insurance cover in place as the existing insurance policy had been cancelled.

The complainant argued that neither she nor her husband was responsible for the cancellation of the policy.

The FAIS Ombud made several attempts to elicit a response from the respondent, without success.

The Ombud has found that the respondent had acted negligently in that despite having received the notice from Renasa through Dex on 28 August 2004, it failed to notify the complaint that she would no longer have cover from 1 October 2004;

The respondent had failed to ensure that the complainant's account was transferred with the rest of its clients to Prestasie, the new broker who took over its short term insurance book.

The respondent had failed to ensure that the complainant continued to enjoy short term insurance cover under the circumstances;

It also failed to prevent the harm the complainant eventually suffered, although it was foreseeable that the complainant would suffer financial prejudice in the event of a claim materialising whilst the short term insurance cover was not in place.

The Ombud found the respondent's conduct was incongruent with the obligation to render the financial service in the interests of the client.

"There was lack of care and diligence. The respondent had a whole month and some few weeks within which it could have notified the complaint about the cancellation and sought her instructions with regard to the transfer. It did not do so.

"At the time that the respondent decided to transfer the short term insurance book to Prestasie, it failed to ensure that the Complainant's record was also successfully transferred.

"Care and diligence entails that the repondent follows up on all communication with all its short term insurance clients to ensure that none of its clients is left without cover.

Pillai ordered the broker to pay Kearney R76 211 based on a loss adjuster's report of the value of the loss.