A broker is not a policeman

25 October 2016Jonathan Faurie

Balancing the scales of justice is often a tricky job. Often, when we read the reports and cases coming out of the offices of the ombudsmen, we see insurers and brokers getting dragged over the coals for what the relevant ombudsman deems poor advice on the part of the broker, or negligent activities on the part of insurers.

Do the scales of justice ever work in the broker or insurer’s favour? The following case from the Office of the Short Term Industry Ombudsman (Osti) suggests that it does, but there are some issues of contention that need to be considered.

Rising damp

Mrs Z submitted a claim to her insurer for damage caused as a result of rising damp. Relying on an exclusion in the policy for damage caused as a result of gradual deterioration or operating causes or as a result of defective workmanship, the insurer rejected the claim on the grounds that no insured peril had occurred in terms of the policy.

Following the rejection of her claim, Mrs Z lodged a complaint with the Osti. Mrs Z did not contest the actual basis on which the insurer declined liability nor did she argue that the damage was the result of a cause other than that stated by the insurer. Instead she disputed the rejection of the claim on the ground that the insurer had not supplied her with the policy documents containing the above exclusions.

She argued that, in the absence of receipt of such documents, and owing to her lack of knowledge of the policy exclusions, the insurer could not rely on the provisions of the policy wording.

Taking a chance

It was also Mrs Z’s contention that she had previously held a policy with another insurer, where she would have enjoyed the said cover. She stated that she would have kept her previous policy if she had been properly informed of the policy exclusions by the current insurer.

The relevant policy documentation in this matter included the policy wording, the policy schedule, the proposal form and its supporting documents.  The insurer contended that the documents were sent to Mrs Z as a complete set, including the policy wording. Mrs Z had confirmed receipt of the schedule and other documents but not the policy wording.

All the evidence suggested that a policy wording was provided to her or that she could have even requested the policy wording prior to accepting the policy.

According to the insurer, it was also clear from the evidence that even if it were accepted that the policy had not been received, Mrs Z still had a duty to request the policy wording from the insurer. It appeared that there had not been any effort on the part of Mrs Z to request the policy wording during a period of approximately two years.

Furthermore, the insurer argued that Mrs Z had submitted a previous claim in which the policy wording had been discussed.

The ruling

Osti pointed out that even if it were accepted that the insurer had failed to provide the policy wording, this would not necessarily mean that the claim must be honoured by the insurer.

It was further pointed out that in terms of South African law, and more specifically what is known as the Expedition Theory, if the insurer can prove that it sent documentation to the insured’s correct address, then the documents will be presumed to have been received by the insured within a reasonable period…unless the insured can prove the contrary.

The Ombudsman upheld the rejection of the claim by the insurer.

Issues to consider

There is no doubt that the Osti made the correct ruling. Outright fraud cannot be tolerated in any form.

This case does raise a few questions though. In a technology driven world, where there are emails and interactive platforms where a policyholder can access all of the details concerning their policy, why are we still using the postal service to deliver key documents such as policy schedules and policy wording?

The reality of South Africa is that letters often gets lost in the post. How would this ruling then change? The insurer can prove that the documents were sent to the correct address in a timely manner and the policyholder can pose a legitimate argument that they never received it. This leads us to an interesting debate as to what is the acceptable way, from a legal standpoint, to receive a policy schedule. We will follow up with the Financial Services Board on this issue.   

Editor’s Thoughts:
But when does reliance on a broker or insurer border on spoon feeding? If a client is mature enough to take out a policy, they should be mature enough to ask for documents that take long in getting to them. Brokers  and insurers are not policeman. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by MK, 26 Oct 2016
Editor’s Thoughts:
But when does reliance on a broker or insurer border on spoon feeding? If a client is mature enough to take out a policy, they should be mature enough to ask for documents that take long in getting to them. Brokers and insurers are not policeman. Please comment below, interact with us on Twitter at @fanews_ online or email me your thoughts.

Its more a question to change the status quo i.e. rather to impress clients , than depress clients. Life is too fast and hectic nowadays for the layman to know all in everything he buys or sells, and needs professional advice and service.

The solution is for the FSB to un-regulate the premiums, so the brokers and insurers can deliver more , but also charge more for more advices and enhanced services including better products with wider cover resulting in less repudiations with more happy clients . This would also imply brokers being policemen as and when the policeman is absent ! Thus improving the insurance industry’s image above and away from the old and tired adage of buying insurance as it is deemed a necessary evil .Instead of buying insurance because wording is simple and transparent and all honest claims are paid on time without undue delay !! .

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Added by PD, 26 Oct 2016
Interesting article and clearly the correct ruling. It does however raise an interesting point with individuals approaching the FAIS and or OSTI Ombuds. Are they not required to give their evidence under oath? If so lying under oath would constitute perjury with the associated censure. This may make those considering fraud more cautious.

In this case, the complainant states that her previous policy provided cover for rising damp / gradual deterioration. I have been a broker for 36 years and have yet to come across such a policy. I believe the OSTI should have requested a copy of the previous policy, and if she was lying, charge her. This is probably not within the mandate – but should be.

Good faith is fundamental to our industry. (Society?)

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Added by jakes jacobs, 25 Oct 2016
there is still the option of registered mail - that will give proof of receipt of said item.
I have personal experience of e-mails that was send to me but wasn't received by myself. That is why I tell people who will be sending me an e-mail, that on delivery of their mail I will confirm receipt thereof and if they have send the mail but I have not confirmed receipt thereof, then they must accept that I have not received it.
That is why I always ask for a "delivery receipt" & a "read receipt". If the recipient doesn't confirm by way of the "read receipt", at least I have proof that it was delivered. I will quite often blind copy me in said mail, that way also showing that mail was send and in all probabilities would have been received by the various parties.

I'm just confused as to why such a decision was made in favour of the insurer ( which company as a matter of interest ) if you look at past decisions against brokers when a policyholder was explained ALL material facts and even when requesting clients to read their correspondence, the blame was laid in front of the broker.
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Added by Charmaine Pollak, 25 Oct 2016
I agree with the editor on the spoonfeeding bit and it is logical that a person takes insurance for fortuitous losses and can take insurance for lack of maintenance, gradual deterioration, vermin etc which I am sure would have been pointed out to the client at point of sale. With most people having access to e-mail and the postal service being practically non-existent, I think a new ruling has to be made on the most legally accepted way of delivering the policy to the client.
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