No cheers for broker who signed up a client in a pub – FAIS Ombud orders him to pay for failing to properly advise
The Ombud for Financial Services has once again emphasised that professionalism is what should drive the rendering of financial services.
Charles Pillai (pictured) has ordered a broker who merely got a client to sign a proposal form for short term insurance over a couple of pints without explaining an important term of the contract, to pay for the loss subsequently sustained by the client after his house was burgled.
Mark Sandy of Port Elizabeth met Peter Greenwood, a broker and key individual of Greenwood Insurance Brokers CC at the Golden Duck pub in Port Elizabeth during 2004.
During one of their casual conversations Sandy got to know that Greenwood was a broker. He then spoke to him about insurance for a motor vehicle he was about to purchase. Greenwood advised him that it would be prudent to insure his vehicle together with his home and its contents. This was obviously so that he could enjoy cheaper premiums.
Sandy was eventually insured with New National Assurance Company, after Greenwood filled in an insurance proposal which Sandy signed on 2 June 2005. This happened, according to Complainant, whilst they were drinking beers together.
On 1 February 2006 when Sandy got home at about midnight, he found that his house was broken into and items totalling about R34000 had been stolen.
He reported this to Greenwood who advised him to obtain quotations for the stolen items.
After Sandy had submitted a claim claimed, weeks went by without him being advised about any progress on his claim.
Eventually he met Greenwood outside the pub and asked him what was going on.
Greenwood advised him that his claim was not going to be paid because he did not have his alarm system on at the time. Sandy advised Greenwood that there must have been some mistake as he never had an alarm system. Sandy then called the assessor who had come to his house after the burglary to find out what was going on. The assessor told him “the same thing” as Greenwood. He eventually received a letter from the insurer advising that the claim would not be paid because the burglar alarm warranty had not been adhered to.
In response to the complaint, Greenwood maintained that Complainant should have read the proposal form and that the policy was issued in terms of his instructions.
He further maintained that “A Burlglar Alarm Warranty is applicable in terms of the policy conditions. If Mr. Sandy had picked this aspect up, he would surely have requested that it be removed.”
During the course of dealing with the complaint, the Ombud had recommended that the matter be settled by the Respondent, as they had failed to maintain a record of advice as required by the Financial Advisory and Intermediary Services Act and they could, therefore, not provide the necessary documents to verify that the Complainant was indeed advised about the burglar alarm warranty. However, Respondents failed to accept the recommendation.
In his determination, Pillai examined whether Greenwood had sold the policy to Sandy in compliance with the FAIS Act and whether, if he failed to do so, the negligence had occasioned the loss suffered by the Complainant.
Whilst Pillai found that there was a dispute as to whether the Complainant was advised that he needed to have an alarm system linked to a 24-hour armed response, he nevertheless found that “the balance of probabilities favour the Complainant that 2nd Respondent did not disclose the requirement of a burglar alarm”. The Ombud found this because:
· 2nd Respondent (Greenwood) has not specifically challenged this important aspect of Complainant’s case;
· The proposal form was completed by 2nd Respondent and signed by Complainant;
· Respondents failed to provide evidence in the form of a written record of advice indicating that they had specifically drawn ‘Complainant’s attention and notice to the requirement that there be an alarm in the premises linked to a 24-hour armed response;
· The Ombud said that “An alarm linked to a 24-hour armed response is both an important detail in the average South African’s life, as well as something which the user thereof would be painfully aware. Such a system requires a monthly fee to be paid to a security company and requires the user to enable and disable the system frequently. In short, if Complainant was made aware that he had to have a security system, as Respondents allege, then alarm bells would have gone off that he did not have such a system.
· Pillai further found that the Respondent’s statement that if Complainant had ‘picked up’ that a burglar alarm warranty was applicable, he would have asked that it be removed, to amount to a clear acknowledgement that he had not drawn this requirement to Complainant’s attention.
In holding that it was Respondents’ conduct that caused Complainant’s loss, the Ombud further relied on a common law doctrine that even if the Complainant’s own carelessness may have caused him not to avoid his loss, the Respondents were nevertheless to be held fully liable for such loss.
The Ombud ordered that the parties should settle and agree the amount of damages, failing which the matter should be brought back to him to determine such amount.
Click here to read the full determination - (PDF file 60 kb)
