Determination & Ruling from FAIS Ombudsman - Motor warranty policy

The ambiguous wording in a motor vehicle mechanical breakdown insurance policy should not penalise the buyer, FAIS Ombud Charles Pillai has ruled.

In ordering a Springs motor dealer to fully compensate the car owner for the cost of repairs undertaken, Pillai, the Ombud for Financial Services Providers, said the dealer should have taken the trouble to licence the sales representative to sell the particular product.

Pillai was also critical of the fact that the motor dealer had acted as a financial services provider despite not being licensed to do so as required in terms of the FAIS Act. He thus referred a copy of his determination to the Financial Services Board.

The complainant, Zahid Hatiz, said that in July 2005 he had purchased a mechanical breakdown insurance policy for his car from Springs Car Wholesalers CC, trading as Springs Valid Value. He was advised by Blanche Jansen Van Vuuren, a sales representative employed by the motor dealer. 

The policy is administered by S A Warranties (Pty) Ltd and underwritten by Regent Insurance Company Ltd.

In a Schedule of Benefits in the policy, there were two plans, Plan A and Plan B.
The exact wording is as follows: "Plan A: Vehicles less than 5 years (the current year and prior 4 year models)/110 000 kilometres; Plan B: Vehicles less than 8 years (the current year and prior 7 year models)/160 000 kilometres."

In terms of Plan A the cover provided for the steering mechanism was R5000. The same cover under Plan B is reduced to R2 500.

Hatiz' car suffered a mechanical breakdown and repairs were undertaken at a workshop in Randburg in November 2005.

The workshop issued two invoices. The first for R2 915.05 was for repairs not covered by the warranty.

The second invoice in the amount of R4 517.08 was for the repair of the power steering pump and replacement of the accessory drive belt. Of this amount, R3 567, 01 was for the only two items on this invoice falling within the ambit of the cover afforded under Plan A, that is, the power steering pump and labour. SA Warranties paid only an amount of R2 500, being the maximum benefit in terms of Plan B.

In his complaint to the Ombud, Hatiz said he was informed by the claims department he could only claim for Plan B amounts as the mileage on his car was greater than 110 000km.

He said the plan that he was sold was clearly defined as Plan A and was clearly marked by Jansen Van Vuuren in his presence.

"The consultant that sold me the warranty explained to me the claims procedure, showed me which plan I was on (Plan A) and the amounts that I could claim under.

"These amounts were circled on the actual policy document. It was explained that because my car was less than five years old, the plan that I would fall under was plan A.

In response to the Ombud requesting the respondent's version of events, Jansen Van Vuuren claimed she had explained to Hatiz that in the event of a claim, he would be paid out in terms of Plan B as his vehicle had covered 131 500kms.

"Mr Hatiz was not only explained the warranty in detail but advised by me to read his policy documents as well," she said.

Pillais response to this was: "The question as to how Plan A came to be circled, when the benefit under Plan B was explained was not dealt with.

'Complainants version that Plan A was circled by the representative is a material representation that goes to the heart of the matter."

In his determination, Pillai said Hatiz complaint was based on a section of the General Code of Conduct For Authorised Financial Service Providers which requires that representations made and information provided to a client must be factually correct and not be misleading.
 
"Respondent has failed to ensure that full information was provided with respect to exclusions of liability and restrictions as required in terms of the Code. The policy has numerous restrictions and exclusions which appear not to have been drawn to the plaintiffs attention.

"The benefits under  Plan B are so restrictive, as to make me question as to why anyone would take up the policy."

The Ombud said that in circling Plan A, the respondent had represented to the complainant that he would enjoy benefits under Plan A.

"The policy wording is misleading. The use of a forward slash between '5 years (the current year and prior 4 year models)/110 000' could have two different meanings.

"The first could be that the underwriter covers vehicles that are less than five years old or alternatively have less than 110 000 km.

"The second interpretation could be that vehicles less than five years and with less than 110 000 km are covered."

"It is my view that this misleading statement should be placed squarely at the door of the product provider.

"Quite clearly this statement may have led this unlicensed representative to carry the confusion through to the consumer who bought the product."

The Ombud said it was the duty of the respondent to ensure that the advice given was "clear and unambiguous" as required by the Code.

Pillai said that in consequence of the respondent's negligence and non-compliance with the Fais Act, the complainant had purchased the insurance policy in the belief that he was covered in terms of Plan A as opposed to Plan B.

As a result the complainant had suffered financial prejudice when attempting to claim against the policy as the policy paid out the lower amount as set out in Plan B.

The respondent was ordered to pay the complainant the sum of R1 067, 01, being the balance of the amount of R3 567, 01.