Ombud raps broker for not disclosing the difference between a “nominated” and “regular” driver

The Office of the FAIS Ombud is on the warpath against incompetent or negligent financial services brokers and is clearing the figurative motor vehicle insurance minefield of buried landmines and booby traps.

This week Noluntu Bam (pictured), the Deputy Ombud for Financial Services Providers, ruled against a broker for failing to advise his client whose claim for accident damage had been rejected that he should have specified his son as “regular” driver younger than 26 years.

Last week Charles Pillai, the Ombud for Financial Services Providers, ruled against Absa Insurance Brokers for failing to inform a client that adjusting the insured value of his vehicle in line with depreciation would reduce his premiums and save him money.

Ms Bam’s determination draws attention for greater public awareness of the difference between a “nominated” and “regular” driver.

Jacobus Johannes Grove of Kempton Park complained he had suffered loss of R19 382 (cost of  vehicle damage plus towing fees) because National Insurance Co-ordinators CC, represented by Johann Boschoff, had failed to draw his attention to a clause in a new insurance policy that excluded cover for a driver under the age of 26 not specified as “regular” driver.

The Complainant had, through the Respondent, secured cover for his VW Golf 1800, with Santam. Cover under the Santam policy lasted from 2002 until 31May 2005 when as a result of what the Respondent referred to as “a forced move”’, Complainant’s insurance arrangement, together with a number of other policyholders, was moved over to Hollard Insurance Company Limited.

In a letter dated 1 May 2005, the Respondent advised the Complainant in a letter that: “The good news is that your monthly premium, excess structure and cover will not be affected.

“We have also negotiated Roadside Assistance as part of your insurance policy through Hollard and at no additional cost to you. This service includes assistance with mechanical and electrical breakdowns that require emergency roadside assistance.”

Complainant said he had faxed a letter to the Respondent advising he was nominating his son Cornell, then 17 years of age and in possession of a learner driver’s licence, as a driver of his motor vehicles.

On 6 September 2005 the Complainant faxed a letter to the Respondent advising that Cornell had obtained his driver’s license. In that letter, the Complainant once again informed the Respondent that Cornell was nominated to drive all his vehicles.

On 18 May 2006 Cornell was involved in an accident whilst driving the Complainant’s vehicle.

A claim lodged with Hollard was rejected. The reason cited was the Complainant’s failure to comply with policy conditions in that he had not specified driver younger than 26 years as the “regular” driver.

The Complainant wrote to the Respondent stating that he was unaware of the condition until Hollard declined his claim. He could not understand why Hollard could use a term that he was unaware of to deny his claim.

On 8 June 2006 Hollard wrote to the Complainant reiterating its decision to reject his claim and further informed him that a policy schedule detailing all the conditions and endorsements applicable to his policy had been forwarded for his perusal and safe keeping.

At the Complainant’s request, the Respondent mailed a copy of the Hollard policy schedule to him on 9 June 2006. Indeed, the policy schedule contained a clause excluding cover for drivers under the age of 26 not specified as “regular” driver.

The Complainant lodged a complaint to the Ombudsman for Short Term Insurance (OSTI) on 15 June 2006 in which he denied ever receiving the policy schedule from Hollard prior to the abovementioned accident. He claimed the first time he heard that his son was not covered under the policy was when Hollard notified him of the rejection of his claim.

He stated that he has in his possession policy schedules from Santam dating back to 2 May 1998 until 7 February 2005 and had at all times acquainted himself and complied with all his responsibilities as a policy holder.

The practice was that in the first quarter of every year, the Respondent would forward him the policy schedule for the particular year.

The Complainant mentioned that the policy document which Hollard used to reject his claim was only received by him on 9 June 2006, which was after he had submitted the claim.

On 20 November 2006, the OSTI informed the Complainant that the underwriting criteria of the insurer were fully within the knowledge of the Respondent and, therefore, the insurer’s decision to reject the claim was in order. OSTI informed the Complainant that should he be of the view that the Respondent had failed him in its duties, he should lodge a claim with the Office of the FAIS Ombud.

The Respondent told the Office of the FAIS Ombud it was not guilty of any wrongdoing. It said the Complainant’s son was not yet 26 years at the time of the accident and product suppliers regarded the fact that a driver is under 26 as a material risk factor and, therefore, levied additional excess.

As far as Respondent was aware, the Complainant only “nominated” his son. It was only during the processing of the claim that Respondent got to know that the Complainant’s son was a “regular” driver of the vehicle.

The Respondent said had the product provider been aware that Cornell was a “regular” driver, the premium would have been loaded. Thus, claimed the Respondent, the Complainant had benefited from the non-disclosure.

The Respondent added the roadside assistance the Complainant sought to claim was not applicable, as it was only available in instances of mechanical breakdown and not in accident cases.

The Respondent concluded that the Complainant was not candid with it. In its view, the rejection was in line with the policy conditions.

While various annexures were submitted by the Respondent to support its case, the Respondent frankly admitted it did not have a client advice record. No reasons were furnished for failing to maintain this record.

The Respondent said when Cornell obtained his driver’s license, the Complainant on his own volition nominated him as an “occasional” driver of his vehicles.

This, according to the Respondent, meant the Complainant was aware of his obligations. The Respondent also argued that the Complainant’s son, however, was not nominated as a “regular” driver of any of the vehicles.

It only transpired after the accident that the son was actually the “regular” or possibly the only driver of the vehicle involved in the accident.

The Respondent concluded by stating the onus was on the Complainant to disclose any changes in the circumstances that would adversely affect the policy.

Ms Bam said in her ruling that the Complainant’s sole claim had always been that nobody disclosed to him that his son would not be covered under either of the policies, namely, the Santam or the Hollard policy.

Complainant had been advised by the Respondent in a quotation from Santam that because his son was younger than age 26, he would be liable for additional excess of R1000. However, no mention was made in the quotation that any driver under 26 must be noted as a “regular” driver.

However, the Santam contract dated 10 February 2005, which was issued three days after the quotation, contained the clause that any driver under 26 must be noted as a “regular” driver.

Complainant was unaware of this change between the Santam quotation and the Santam contract. He believed that the new term came with the move to Hollard.

Ms Bam said the Respondent was unable to that show that the Complainant’s attention had been drawn to the inclusion of an important new clause in the Hollard policy schedule which was not in the Santam quotation.

“By the time complainant would have received the letter, he would have already made a decision on the basis of the terms set out in the quotation.

“Fairness, care and diligence demand that once the provider could no longer finalise the contract on the basis of the terms set out in the quotation, it should have gone back to complainant to disclose the term.

“This would have given complainant the chance to consider whether the new term or condition would suit his circumstances and make a decision accordingly.

“Since respondent has furnished no proof that it counselled the Complainant about the sudden inclusion of a term excluding his son from cover if he is not registered as a regular driver, I would have expected it to have resolved the complaint with the Complainant without dragging the process this far.

“Instead the Respondent supported the insurer in its rejection of the claim when the problem is actually one of non-disclosure on its part,” said Ms Bam.

Ms Bam took issue with the Respondent for emphasising the Complainant’s “nomination” of his son, as opposed to specifically registering his son as a “regular” driver as is required by the policy.

“There are fundamental flaws in this argument. To start with, there is no indication that respondent had disclosed the existence of the term excluding cover for drivers under the age of 26 where they have not been specified as ‘regular’ drivers.

“In addition, the Respondent does not give any indication that it had ever properly advised complainant of what a ‘nominated’ driver is as opposed to a ‘regular’ driver.

“Judging by respondent’s decision in its later response to this Office to characterise the nomination of the Complainant’s son as ‘occasional’ driver, it would appear that the Respondent links the term ‘nominated’ driver to a less than frequent user of a vehicle as opposed to a ‘regular’ driver.”

Ms Bam said when the move to Hollard was being arranged, a financial service ought to have been rendered. This was an opportunity for the Respondent to properly advise its client about the concepts of “nominated” and “regular” drivers.

“When the Complainant sent the letter of 5 September 2005, informing respondent that his son had obtained his driver’s license and that he is nominated to drive all his vehicles, the Respondent ought to have been aware that up to that stage, it had not properly advised its client of the meaning of the concepts.

“It should have seized that opportunity to advise its client. It failed to do so. I cannot, therefore, see how the Complainant can be expected to have known or complied with the term on which Hollard based its decision to reject the claim.

“The Respondent’s conduct fell short of the general duty of financial service providers.”

Ms Bam said that instead of acknowledging its own shortcomings whilst rendering the financial service, the Respondent sought to paint the Complainant as an untruthful person who failed to disclose the true circumstances and had benefited from a cheaper premium.

“On the contrary, the Complainant’s conduct can hardly be construed as that of a person who was looking for insidious ways to save on premiums.

”The Respondent failed to pertinently inform the Complainant of the term introduced in the Santam quotation which formed the basis for the policy eventually issued by Hollard.

“It is, therefore, the Respondent’s conduct that caused complainant’s loss,” said Ms Bam.

In finding the Respondent liable for the towing charges rejected by Hollard because the vehicle had been in involved an accident, Ms Bam said it was reasonably interpreted that emergency roadside assistance was part of or amongst other types of assistance that would be rendered when the vehicle was rendered inoperable. In this context, it would also include the case where the vehicle was rendered inoperable due to an accident.

Ms Bam ordered the Respondent to pay the Complainant the sum of R17082 (R18600 retail value of vehicle, plus R1332 for towing charges, less R2000 excess, less R100 excess for driver under 26 years of age).

• In her determination, Ms Bam said it is not unusual for the Office of the FAIS Ombud to receive complaints relating to movements of clients’ insurance arrangement from one insurer to another, often without the knowledge of the insured. The phrases often used are “the book was taken over” or “the book was sold to” or “the book was transferred to”. Whilst appreciating the urgency of the situation in this case and the necessity to take steps to ensure that complainant and the rest of the clients affected had cover, this practice, as is evidenced in the Complainant’s case, fails in one important respect. Providers do not often recognise that a new contract of insurance comes into existence the moment a new insurer underwrites the risk and, therefore, a financial service ought to be rendered. The practice may also undermine the client’s right to decide whether he or she wants to be insured with an insurer of the respondent’s choice. A client may have valid reasons for not wanting to deal with a particular insurer. Whilst I make no ruling on the aspect of moving complainant from Santam to Hollard without complainant’s knowledge, providers need to approach such cases with caution and observe proper compliance with the provisions of the FAIS Act.

Click here to read the full determination (PDF file)