Registrar’s decision to protect policyholders upheld

In a victory for policyholders, the Appeal Board of the Financial Services Board has upheld the Registrar’s findings against Orange Insurance Limited (Orange, or the appellant). The Registrar had found that Orange was liable for claims arising from insurance policies that were issued by Fleetsure (PTY) LTD (Fleetsure) and Valuline 155 (Pty) Ltd trading as Fusion Underwriting Agency (Fusion) on behalf of Orange, because binder agreements existed with the two companies, and that Orange had failed to properly manage its relationships with Fleetsure and Fusion. Binder agreements are agreements in terms of which an insurer authorises another person to enter into policies on its behalf, where that other person acts as if it is the insurer.

The thrust of the Registrar’s argument was that there was legal binder agreement between the two companies, effective from 1 June 2008. The Registrar maintained that this was a binding agreement, and that managing the relationship with Fleetsure and Fusion was intertwined with Orange’s awareness of the conduct of Fleetsure and Fusion (i.e. that these companies were issuing policies on its behalf).

Orange had claimed that these agreements were void and that according to the shareholders’ agreement there was a duty on Fleetsure and Fusion to provide it with certain information prior to the parties entering into the agreements, and their failure to do so should be read to mean that no insurance policy would be accepted by Orange until this was done.

The Appeal Board dismissed this argument, having found that the agreements were indeed legally binding and that the agreements authorised Fleetsure and Fusion to grant cover on behalf of Orange. The board also found that Orange received premiums from, and advanced funds to, Fleetsure and Fusion and received invoices from Fleetsure and Fusion in respect of management and administration fees, which invoices were paid. The board found therefore that the appellant was aware of Fleetsure and Fusion’s activities and failed to properly manage its relationships with Fleetsure and Fusion. For these reasons, the Registrar’s decision was upheld.

These findings have major implications for all insurers as they underline that insurers are responsible for persons that act on their behalf.

Orange now has to settle all outstanding claims arising from policies issued by Fleetsure and Fusion for the period during which Orange was the underwriter. In light of the decision, the Registrar is considering further action to ensure that the claims of policyholders will be met. This does not preclude policyholders whose claims have not been paid from approaching Orange directly for payment or taking legal action.