The onus of proving recklessness

12 August 2021 Myra Knoesen

We summed up some case studies from the Ombudsman for Short Term Insurance’s (OSTI) briefcase, which we thought would be interesting for our readers.

Insurer fails to prove recklessness

In case study one, the insured motor vehicle was damaged when it collided with the rear of another motor vehicle. The insurer rejected the insured’s claim for the damage to the vehicle on the basis that a policy condition requiring the insured to exercise due care had been violated. 

By travelling at a speed of approximately 173km/h, said the insurer, the insured had disregarded the rules of the road and had been reckless.

The insured said the insurer had no proof that speed was the cause of the accident. He said that the third party had driven into his path suddenly, resulting in the accident being unavoidable. The insured further submitted that there was no proof that, had he been travelling within the speed limit, the accident would have been avoided. 

OSTI’s response

OSTI said the insurer can only rely on the reasonable precaution clause to avoid a claim if the insured was guilty of reckless driving in the legal sense, in other words, if he deliberately or intentionally caused the collision.

OSTI said that there was no evidence to support the insurer’s argument that, if the collision had taken place when the motor vehicle was travelling at 110 km/h, then the damage to the vehicle would have been extensively less and it would have been economically feasible to repair it, as opposed to having to write off the vehicle. The policy condition of due care does not preclude a successful claim for damage caused by the insured’s negligence. However, the insurer is not liable for damage which results from the insured’s reckless conduct. The policy contains an express exclusion of the insurer’s liability for “loss or damage caused intentionally by” the insured.

OSTI said the condition of due care would also not preclude a successful claim if, for example, the insured motor vehicle was driven at an illegal speed of 125 km/h at the time of the collision and expert evidence proved that, had it been driven at 120 km/h, less damage would have resulted from the impact.

The insurer failed to prove that the insured in fact foresaw that the other motor vehicle would suddenly move into his vehicle’s path. OSTI overturned the insurer’s decision to decline the claim and the insurer proceeded to settle the claim. 

Insurer establishes recklessness

In case study two, the insured submitted a claim for a motor vehicle accident which occurred whilst his cousin was driving the insured vehicle. The insured stated that he was visiting his family. Shortly thereafter, the incident driver arrived back at the family home and informed the insured that he had been involved in an accident.

The incident driver said that, while he was driving, a third party drove past him at a high speed. He became afraid and veered to the right and lost control over the vehicle. The incident driver confirmed that he did not have the insured’s permission to drive the insured vehicle.

An accident reconstruction expert calculated that the insured vehicle was travelling at a speed of 139 km/h on a road with a maximum speed limit of 60 km/h when the accident occurred. The insurer obtained a copy of the vehicle’s tracking report which showed that the vehicle was travelling at speeds of 122km/h and 132km/h when the accident was detected.

The insurer rejected the claim. The insurer said the incident driver was a relative of the insured and, as such, it did not matter whether consent was given. Where an incident driver fails to adhere to the terms and conditions of the policy, the claim will be rejected.

The insured denied that there had been gross negligence on his part and was forced to take responsibility for what happened because he was related to the incident driver.

OSTI’S finding

OSTI found that from the driver’s persistence in continuing to drive at that speed, the logical inference is that he reconciled himself with that consequence. From these inferences, it followed that the driver acted recklessly. OSTI concluded that the insurer discharged the onus of proving recklessness on the part of the driver in relation to the loss, and that the loss was therefore not covered by the policy.

Restaurant claims for BI

A claim by a restaurant for loss of business during the COVID-19 lockdown between March and June 2020 was rejected by the insurer on the basis that there was no material/physical damage to the insured property that had caused the interruption to the insured’s business.

While the consequential loss section of the policy provided for cover for loss resulting in the interruption of the business as a result of a notifiable disease, within a 50-kilometre radius of the business, the insurer maintained that COVID-19 had not been notified to any local authority. Also, said the insurer, a local event would exclude a National State of Disaster or the National Lockdown as the proximate cause of the loss.

The insured claimed that it was forced to close the restaurant because of a COVID-19 case within a 50-kilometre radius of the business. The restaurant suffered huge financial losses due to the cancellation of bookings and a decrease in turnover.

OSTI’S findings

While OSTI agreed that there was no physical damage to the business premises, the insured provided evidence that there were confirmed cases of COVID-19 at a school within a 50 kilometre radius of the insured’s premises. It still satisfied the distance requirement and business had been interrupted due to a notifiable disease. OSTI recommended that the insured’s claim be settled in full.

With court cases relating to COVID-19 business interruption claims, the insurer requested OSTI to delay making a finding until such time as the courts had ruled on the interpretation of the extension. The complaint was pended until judgment was handed down in the court cases. In light of OSTI’s recommendation and the Supreme Court of Appeal’s judgment in the case of Guardrisk Insurance Co Ltd v Café Chameleon CC 2021 (2) SA 323 (SCA), the insurer accepted liability for the claim.

BI claim rejected as no insured peril operated

The insured, a conference facility, submitted a business interruption claim after it received many requests to cancel bookings due to the COVID-19 pandemic.

The insurer rejected the claim on the grounds that the business was not interrupted as a result of damage to the insured property caused by one of the insured events covered by the policy, but rather due to the government regulations with regard to COVID-19.

The insurer submitted that the business interruption section of the policy would only respond in the event that one of the defined events under the fire section operated. There was no “damage” at the insured’s premises (i.e., there was no operation of an insured peril) and as a result, the business interruption section could not respond.

OSTI’s findings

OSTI said that the policy was a peril-based policy, and it was a requirement that there must be physical damage to the property, as a result of one of the perils noted in the policy, and that this damage must lead to the business interruption. On the facts, the loss did not arise from an insured peril. Business interruption caused by COVID-19 did not fall within any of the insured perils in the policy.

OSTI therefore upheld the insurer’s rejection of the claim.

Writer’s Thoughts:
Interesting case studies on the onus of proving recklessness. From the Business interruption (BI) claims its clear that policies are loosely interpreted, with no clear understanding of what is covered exactly. BI cover has presented many challenges in the last few months, what have some of your experiences been with clients? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].


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