FAIS Ombud lambastes the good citizen warranty
On 28 October 2008, FAIS Ombud Charles Pillai took the unprecedented step of ruling on a decision made by his industry peer, the Ombudsman for Short-Term Insurance. Pillai determined in favour of the complainant Melishree Maduray and ordered registered financial services provider Action Plan Management (the first respondent) and insurer Renasa Insurance Company (the second respondent) to jointly pay her R109 345 (with interest calculated back to August 2006) in compensation. Readers should note that the FAIS Ombudsman determination is made on the grounds of inadequate/improper advice from both insurer and insurance broker and does not, as such, constitute a reversal of the Short-Term Ombudsman decision.
Maduray had insured her vehicle for R146 000 on a Renasa-underwritten Skysure insurance policy (with Action Plan Management as her broker) on 1 June 2006. Two months later, on 31 July 2006, Maduray was involved in an accident which rendered the vehicle a write off. She claimed that she was travelling at approximately 120kmp/h when she was forced to swerve for an animal and rolled the vehicle. The insurer repudiated the claim based on data from the Skytrax vehicle tracking system that showed the vehicle speed at the time of the accident was 161kmp/h. This contravened the so-called good citizen clause contained in the insurance policy.
What does it mean to be a good citizen?
The Skysure policy is sold as a behavioural policy. What this means is the insured undertakes to drive the vehicle in a responsible manner in return for (we assume) a competitive monthly premium. The policy requires the insured to take up a three year vehicle tracking contract, which device is used to monitor aspects of the driver’s behaviour. Incidentally, the ability to monitor a motor vehicle’s speed exists in most of today’s GPS devices. When Maduray took her complaint to the Ombudsman for Short-Term Insurance the original claim repudiation was upheld on the grounds that she had contravened the policy waiver by driving the vehicle in a reckless manner, exceeding the speed limit by more than 40kmp/h. But the FAIS Ombud had other ideas…
Before we get to his decision let’s take a look at the clause at the bottom of this insurance claim wrangle: “Condition Precedent to Liability – The insured hereby waives and holds the Company harmless for any loss, damage or liability if the vehicle is used other than in accordance with the laws, regulations, road and traffic ordinances and bylaws of South Africa, including but not limited to, the transgression of any speed limit, parking the vehicle illegally, disobeying and contravening of road and traffic ordinances, driving under the influence of alcohol, but for this warranty, instituted a claim against the Company, unless the motor vehicle is stolen. This warranty overrides any conflicting wording in the policy and any endorsements.
“The Insured agrees and acknowledges that the Skytrax tracking system that uses both General Packet Radio Services (“GPRS”) on the GSM cellular network, as well as Global Positioning Systems (“GPS”) shall be the exclusive measurement by which the use of the Insured’s vehicle shall be monitored in terms of this Policy.
“The Insured shall bear the onus to prove the inaccuracy of the Skytrax tracking system should the Insured dispute same.”
Pillai notes that similar policy wording appears in most policies for motor insurance. The difference in the Renasa underwritten policy thus lies in the second and third paragraphs covering the use of the Skytrax tracking system to enforce the conditions proposed in the first. Pillai leaves little doubt as to his feelings on the conditions attached to the insurance policy in this case. “Given the wording of the warranty, an insured may be forgiven for thinking she may just as well park the car in her garage and not drive it at all for fear that she may unintentionally or for an otherwise valid reason unavoidably breach the warranty and find that she is not covered,” he said.
Is it really ok to break traffic law?
Pillai further asserts that it’s impossible for any driver to comply with the letter of the law. It’s ironic how particular Mr Pillai can be when applying the FAIS Act to cases brought for his consideration; yet be so dismissive of contraventions of the country’s Road Traffic Act? And while we agree the complainant has a case on the grounds of inadequate advice, we’re rather taken aback by the tone of Pillai’s determination. “The warranty clause is repugnant even on the basis of principles of equity. It is manifestly unfair in that it is one-sided, practically impossible to comply with and places the onus to prove the inaccuracy of the tracking device (I should rather say ‘monitoring’ device, for that is what it really is) on the insured,” he says. We agree the clause is open to interpretation, and in this regard all insurers should take note. But it’s not repugnant to expect a driver to act responsibly. A driver who purchases a Skytrax insurance policy does so in the understanding that the tracking device will be used to monitor them.
There are elements in this determination which support the arrogance of South Africa’s road users. After all, if South Africa’s law enforcement agencies cannot punish traffic law offenders, then surely it’s pretentious of insurers to think they can! It’s common knowledge that the majority of accidents on our road results from a traffic law violation. Thus when South African drivers flout the law they expose short-term insurance companies and underwriters to unnecessary additional risk. Every time a drunk driver puts their car into a ditch they simply fill in a form, sit back and wait for the insurance company to make good. When a youngster puts his car into a barrier at 180kmp/h he simply files a claim and expects the insurer to compensate him for his recklessness. The same holds if you jump a red traffic light and cause a three-car pileup. Once again the insurer carries the can!
If we put aside all other issues for the moment we have to ask: Does the FAIS Ombudsman really expect the financial advisor and insurer to explain to every client that they need to obey the rules of the road? We certainly know that he doesn’t think the insured will heed the advice!
The law is an ass!
We think this type of ‘monitoring’ device should be installed in every vehicle on South Africa’s roads. That way the (apparently) very few of us who make every attempt to drive within the law won’t have to stump of thousands of rand in extra monthly short-term insurance premiums to cover the no-account hooligans that dominate our roads. The so-called good citizen warranty might be dismissed as an easy out for insurers who want to avoid paying claims… But this assumption shouldn’t hold if the insured agrees to be monitored in exchange for a competitive premium! If, as Pillai suggests, no South African motorist can comply with the laws of the road, then no motorist should sign up for such an insurance contract in the first place.
In a perfect world any FAIS Ombudsman determination would be a cut-and-dried affair. In our view this determination leaves too many unanswered questions. We certainly hope the respondents in this case take the matter further.
On a final note, The Ombudsman for Short-Term Insurance (OSTI), Brian Martin, has responded to the determination made by the FAIS Ombud – click here to read the response.
Editor’s thoughts:
With the high incidence of motor vehicle accidents on South Africa’s roads you would think a ‘behavioural’ incentive on a motor insurance policy would be a good thing. But this innovative technique to reduce short-term insurance claims appears destined to fail. Do you think it’s unreasonable for an insurance company to refute a claim where gross negligence can be proved? Add your comments below, or send them to [email protected]
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