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The consequences of non-compliance

24 January 2019 Myra Knoesen

In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complaint arises from the rejection of a claim following the theft of a vehicle insured.

The complaint lodged

The first complainant is Kloof Plant Hire CC. The second complainant is Mr Krish Moodliar, owner of the first complainant. The first respondent is CDK Event Solutions T/A CDK Brokers. The second respondent is Reneta Naidoo, a key individual and representative of the first respondent. Reference in this determination to ‘respondent’ or ‘complainant’ should be read to be a reference to both respondents or complainants.

The complainant holds a commercial insurance policy with Western National Insurance Company. The basis for the rejection was that the vehicle was not fitted with the appropriate tracking device.

Where it all began

Moodliar stated that he knew Naidoo from a previous brokerage where he was her client. Around 2009, Naidoo opened her own brokerage, and he moved his portfolio with her. At the time, he was insured with another insurer, and Naidoo also moved his policy to Western National. He operates a transport company and has a fleet of vehicles insured on the said policy.

Moodliar had approximately 29 vehicles and trailers insured on the policy at the time. He claims that the same vehicle tracking device was installed on the whole fleet of vehicles, which comprised of a Vigil Lite only monitoring system and a Sleuth back-up system, installed by Altech Netstar. Moodliar confirmed that at no time since the inception of the Western National policy, was he informed that the tracking device that he had in his vehicles, were not sufficient.

During September 2015, he purchased a 2015 Toyota Hilux bakkie, which he requested the respondent to add to his policy. Similarly, this vehicle was fitted with the Vigil Lite and Sleuth systems.

In e-mail correspondence of 21 September 2015, the respondent confirmed that the Toyota Hilux was added, and an amended policy schedule was attached noting the new premium. The e-mail further stated that: “Please note that all vehicles over the value of R150 000 are required to have an Approved Satellite Tracking Unit fitted. Should you wish for a Tracker or Netstar consultant to contact you with regards to the different products they offer, please advise me accordingly. Kindly forward me Tracking Certificates for all the vehicles over R150 000. Should you not comply with this requirement please note that in some cases your claim will not be entertained, or a separate excess will apply.”

Seeking repayment

On 11 February 2016, the Toyota Hilux was reported stolen. At the time, the vehicle was driven by Moodliar’s son. Altech Netstar performed a ground and air search, however, the vehicle was never recovered. Upon submission of a claim to the insurer, Moodliar was informed that the claim is rejected on the grounds that the tracking system installed did not meet its requirements of an “early warning system”.

Moodliar stated that the respondent failed to advise him that the early warning system was a requirement. He was not prepared to risk non-payment of a claim on his fleet of vehicles, therefore, had he been aware of the requirement, he would have fitted the required device.

In addition, Moodliar claimed that the systems he fitted in the vehicles were more expensive than the early warning system that was required. He holds the respondent liable for the loss that he suffered, owing to the incorrect advice provided and he seeks repayment of the insured value of the vehicle, being R344 697.

The respondent’s version

During May 2017, the complaint was referred to the respondent, to resolve it with Moodliar. The respondent replied on 31 May 2017. The essential parts of the response are summarised as follows:

The phrase “approved satellite tracking unit” is not a particular type of unit, but a mere reference to all types of satellite tracking units in general. The only requirement is that the satellite unit must be approved by the insurer. The aforesaid sentence is further clarified where the respondent’s employee stated that a Tracker or Netstar consultant can contact the complainant with regards to the different products on offer, should he so wish.

The respondent further refers to an e-mail sent to them by Altech Netstar on 10 March 2016 where it is stated that Moodliar did approach Netstar and was advised of all the options available to him, but the unit that was fitted is what the client (complainant) selected. The respondent claimed that Moodliar did not consult their office or the Netstar consultants to confirm if the selected device complies with the requirements of the insurer.

The respondent further stated that despite requests for a copy of the tracking certificate, it was only provided during the claims process. As a result, they were not aware which device was installed, and could therefore not have insisted on the installation of the early warning system. Moodliar informed them telephonically that he went to Netstar and fitted the tracking device, which is the device he allegedly instructed Netstar to install without considering the other options, says the respondent.

In short, the respondent was of the view that they complied with the requirements of section 7 (1) (a) of the General Code of Conduct, in that an appropriate general explanation of the material terms of the contract (an approved tracking device) was provided to Moodliar. The respondent maintained its submission in this reply that they were not provided with the tracking certificates and could therefore not comment on the devices that were installed. Moodliar was informed of the consequences of non-compliance (the submission of the tracking certificate) and failed to adhere to instructions given to him to ensure that the correct tracking device was installed. This was instrumental in the rejection of the claim.

The FAIS Ombud’s stance

According to the FAIS Ombud, had the respondent understood the intricate product they sold to their client, they would have been aware of the specific requirements of the policy in question, and explained it properly to their client

Whilst a satellite tracking device would have sufficed for vehicles under R150 000, in addition, the early warning system is required for vehicles exceeding this value. It is this requirement, in the FAIS Ombud’s opinion, that the respondent was duty bound to disclose to her client. It is however unlikely, the Ombud says, that the respondent explained the additional requirements, limitations and excesses on this policy to her client.

The Ombud says that it is not the duty of the Netstar consultants to advise a client of the appropriate device to install. According to the Ombud, the requirements of insurers in all likelihood differ, which is why it was the responsibility of the intermediary who collects commission from her client, to ensure that they provided their client with the correct information. The FAIS Ombud noted the amount payable to the complainant is calculated on the basis of what the complainant would have received, had the correct tracking device been installed. The respondents are hereby ordered to pay the complainant the amount of R310 227.

Editor’s Thoughts:
It is understandable that the rejection of the claim was that the vehicle was not fitted with the appropriate tracking device. However, do you believe it was the complainant’s carelessness to submit the tracking certificates, which resulted in the respondent’s inability to advice whether the correct device was installed in the vehicle? Or do you believe the respondent is fully liable in this case? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

 

Comments

Added by Peter, 25 Jan 2019
I would have liked to see the wording of the insurers requirement as to whether it actually reads to include the term "early warning system". Unfortunately the article does not cover that aspect.
If it is indeed true my 1st question would have been why does the broker deal with an insurer that has those types of limitations on their policy. I would like to suggest that you are looking for trouble to happen when you allow your clients to be exposed to limited policy wordings like that. Policy limitations should be left to the direct insurers. A broker cannot afford to compete in that type of product.

We as brokers should only deal with insurers who sell quality products. We have a responsibility to sell good products. Brokers by the nature of their liability regarding advice should steer clear from limited policy wordings.

There is another question that arises. The insurer according to my understanding has a responsibility to train their service providers on their product. Have they done this training? If not why not? It also cannot be the 1st time that the insurer had to repudiate a claim for this reason. I would suspect that it is a common repudiation with such a restricted wording. What have they done to ensure that their brokers and clients are aware of this liability and risk exposure?

In today’s market this type of limitation is no longer suppose to be on an insurance policy. I understand the requirement for a tracking device. I do not understand the requirement for an early warning system especially on a value as low as R150 000. There is market practise after all and this is not market practise.

Remember as a broker I deal with 500 policies through different insurers. As an insurance company I deal with 5000 policies on my product only. Surely at some point the insurer must be attached with a responsibility to inform their brokers and clients of trends that is identified in their claims process? Lets just highlight the issues concerned. It will protect everyone.

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Added by Andre Goethals, 25 Jan 2019
Everybody in the insurance industry wants to be “recognized” as professionals. Unfortunately the quality of work often seem to be incongruent with this desire.

There should have been evidence led of how many reminders were sent to the client.
Brokerages should have documentation controlling what is required for each process in their business.
They can automate reminders, requests, etc. until these have been marked of as being done.

In the past many intermediaries probably escaped the repercussions of their negligence.
One should know the products that you sell. Ignorance is a material risk to clients as they depend on “expert’’ advice.
Fortunately there are avenues to assist the client, as for example the Ombud.

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Added by P. van Blommestein, 24 Jan 2019
Broker advised that any value over R150 000 needs satellite system. We are insurance brokers not motor engineers, doctors, property valuers or actuaries etc. Can we be expected to have detailed knowledge of everything we cover. I think she did her job. Ombud is protecting the client (Good) but what about some protection for the advisor.
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Added by Zwelihle, 24 Jan 2019
Wow!!

It was touch and go there. But surely,not providing the required certificates would have limited the appropriateness of the advice provided.
How could the respondent "ensure that they provided their client with the correct information." when requested information for analysis was not given?

I'm really keen to gain more insight on this matter from other responses that agree with the determination.
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