Justified in the reliance of definitions

10 July 2019 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.

A vehicle’s retail value

Mr N submitted a claim to the insurer, Discovery Insure, in respect of the theft of his vehicle, which occurred on 4 October 2018. Mr N’s complaint is with regards to the settlement amount.

The insurer offered to settle the claim in the amount of R17 000. This amount was based on the vehicle’s retail value at the time of the loss according to TransUnion. Mr N disagreed with the insurer’s settlement offer on the basis that the insurer did not inform him that the value would be determined in this way.

The policy incepted on 4 October 2018 and the insured vehicle, a 1994 Toyota Conquest 1300, was insured for retail value. The insurer’s Plan Schedule was sent to Mr N.  According to the cover letter accompanying the schedule, the policy document gave the insured details of what he was covered for, the premium breakdown and confirmation of his personal underwriting details. The cover letter also informed Mr N to download the Insurer Plan Guide for a comprehensive guide of the benefits provided.

Retail value: defined in the policy

Mr N argued that the schedule did not define the term retail value. Mr N submitted that the average policyholder understood retail value to mean the average of retail prices actually charged in the open market and not the value listed by TransUnion.

The insurer pointed out that the term retail value was in fact defined in the guide. The guide goes on to state how much the policyholder is covered for after the loss or damage to the vehicle, how the insurer calculates the retail, retail value booster, market or nominated value of the vehicle and specified extras when the policyholder claims.

Mr N asserted that the insurer failed to draw his attention to the material fact that the retail value referred to in the schedule had a ‘restricted meaning’ set out in the guide. Mr N submitted further that the insurer must consider how most consumers do not read standard written contracts thoroughly before accepting cover. As such, the terms must be brought to the insured’s attention at sales stage and given appropriate prominence.

OSTI did not agree

Mr N’s further argument was that the insurer did not prominently draw his attention to a significant limitation as defined under the Policyholder Protection Rules, asserting that the insurer’s definition of retail value is restrictive. 

OSTI did not agree. The cover letter accompanying the schedule distinguished it from the plan guide and clearly indicated that the guide was a comprehensive guide in respect of the insurer’s plans, benefits and rules. Mr N was directed to read both documents.

According to the insurer, the basis of calculating the retail value was set out in the guide, and in compliance with the Policyholder Rules. The definition of retail value in the guide was suitably set out under the heading “Important definitions” and OSTI was satisfied that the sub-heading was given appropriate prominence in the text.

OSTI’s view was that the insurer was justified in its reliance of the definition of retail value set out in the guide and accordingly the values set out in the Transunion guide. As such, the insurer’s settlement offer was upheld.

Driving under the influence

Ms M submitted a claim to the insurer, MiWay Insurance, in respect of a vehicle accident whilst the vehicle was driven by a family member (incident driver).

The insurer rejected the claim on the grounds that the damage to the vehicle occurred when a member of Ms M’s household, who has authorized access to the vehicle, used the vehicle without her consent and failed to adhere to the policy by driving whilst under the influence of alcohol and failed to comply with the insurer’s reasonable request.

Reference to evidence

In support of the rejection of the claim for driving under the influence of alcohol, the insurer made reference to evidence from a security guard, tow operator, two passengers as well as video footage.

The transcript from the security guard’s statement was that “he spoke like he is drunk.” When the towing operator was asked whether the incident driver smelt of alcohol, he said “no I would be lying.” Passenger one advised that, “We were drinking but I do not know about him, as he was not at the same table as us.” Passenger two advised that they found the incident driver at a pub. The witness did not know what the incident driver had been drinking. The witness advised that the incident driver was tipsy.

The insurer submitted that in the video footage the incident driver was clearly unsteady on his feet and his eyes were blood shot.

Insufficient evidence

OSTI watched the video footage and disagreed with the insurer’s observations. According to OSTI, the onus on the insurer is to demonstrate on a balance of probabilities that the incident driver drove the vehicle whilst under the influence of alcohol and that this affected him to such an extent that it impaired his ability to drive or control the vehicle.

OSTI advised the insurer that it had provided insufficient evidence to overcome the required burden of proof. OSTI recommended that the insurer settle the claim. The insurer agreed to comply with OSTI’s recommendation and settled the claim.

Alleged change of risk address

Mr T submitted a claim to the insurer, Guardrisk Insurance, in respect of the theft of his motorcycle, which occurred on 11 August 2018, whilst it was parked outside his cousin’s home. The insurer rejected the claim on grounds that Mr T had failed to take steps to prevent the loss and failed to disclose a change in risk address.

The insurer submitted that on 11 August 2018 at 17h00 Mr T parked his motorcycle outside his cousin’s premises next to the gate on the pavement. Mr T went out and returned at 23h30 and found that the motorcycle had been stolen. The insurer advised that Mr T had parked the motorcycle at his cousin’s premises for the past two months and had failed to notify the insurer of the change in risk address. The insurer stated that Mr T did not secure the motorcycle with a chain or affix it to an object.

Mr T disputed the rejection of the claim and submitted that his motorcycle had been parked at various locations such as malls and restaurants without it being chained or secured to any object. He further advised that the motorcycle had been kept at his cousin’s premises whilst undergoing repairs. On Mr T’s version there had been no change in risk address.

Material to the loss

The office requested the insurer to address it on the materiality of the alleged change of risk address to the loss. The insurer was requested to advise as to how it would have underwritten the risk if it had been advised that Mr T would be keeping the motorcycle at his cousin’s premises for two months whilst undergoing repairs.

The insurer submitted that, although there was a change in address, this would not have affected the overnight parking as the policy stated ‘Locked garage or behind locked gates’. Mr T had kept the motorcycle behind locked gates whilst it was at his cousin’s premises.

The insurer had thus not proven that the change in risk address was material to the loss and the insurer had not demonstrated any prejudice suffered as a result of the alleged change in risk address.

OSTI’s view on the claim

The insurer in this matter had failed to produce any evidence to the effect that it could reasonably be inferred that the actions of Mr T were reckless.

The insurer had stated in its rejection letter that Mr T had not secured the motorcycle with a chain or to a fixed object whilst leaving the motorcycle outside the premises. The insurer had not proven that it was a requirement of the policy that, when leaving the motorcycle unattended, Mr T had to have secured it with a chain or to a fixed object.

OSTI therefore disagreed with the insurer’s decision to reject the claim on a lack of due care and it was OSTI’s view that the claim be settled. The insurer agreed to comply with OSTI’s recommendation, and the claim was settled.

Editor’s Thoughts:
These cases remind us of the importance of brokers in helping clients understand their policies… policy provisions, terms and definitions make a big difference! Do you agree with this? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me -


Added by Vorster, 10 Jul 2019
The ruling regarding the drunk driver is arbitrary at best. Having had an incident close to home recently where an accident occurred in which no one was injured but the vehicle was badly damaged: the OUTsurance representative harangued and literally mobbed the driver telephonically. The driver had contacted OUTsurance directly after the incident and had been advised no action was needed, only to be accused of drunken driving by the telephone rep on the basis of enjoying a drink earlier in the evening. The OSTI decided in favour of OUTsurance. Knowing how responsible this particular driver is, and now reading about this case where there is real doubt, I for one find the OSTI increasingly unbelievable.
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Added by cynical simon, 10 Jul 2019
I wopuld like to comment on the OSTI'S ruling on the "under the influence" ruling. The OSTI"S ruling is of course one hundred and umpteen percent correct but unfortunately was based on the wrong rule viz. the rule applicable in civil matters[ the balance of probabilities rule]. It is my considered opinion driving underr the influence of alcohol is a criminal matter to be heard by a criminal court [ not the Miways of this world} and according to the rule applicable to criminal matters namely the "beyond reasonable doubt "rule..
In the days when black was black and white was white and legislation was clearly defined a driving under the influence charge was difficult to prove even after hearing testimony by medical experts, yet of late it has become a very convenient and "acceptable"way to base the judgement of this serious charge on the wrong rules and frivolous evidence
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Added by S P, 10 Jul 2019
Its amazing how the OSTI can arrive rule for the insurer based on the fact the client was to read and understand the fine print. If an advisor was involved then.the story would have been different. The advisor should then have demonstrated that he/she explained the definitions of restricted value etc. Or.maybe is this for the Faid Ombud?

The drunken driver scenario would also have turned out differently if fatalities was involved.Maybe I misread this one but for me you should not be driving period if you consumed any alcohol. This ruling sends out the wrong message, you can get away with drinking alcohol when a claim arises. Aaai...this seems all subjective in the end.
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