Error due to insurer’s own negligent conduct

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.

Claim for business interruption

In the first case, the insured’s claim arose when a geyser pipe burst at the risk address on 13 October causing damage to items of equipment. A claim was lodged for water damage to a sound system, televisions, camera system, computer system and point of sale under the business interruption section of the policy. The loss in respect of the damage to the items was accepted by the insurer. The insured also claimed for loss of sales and the insurer offered the insured three days’ worth of lost sales. The insured declined the offer and argued that the business was only restored to its original operations after 13 days, therefore the claimed period should be 13 days and not three days.

The insured challenged the insurer’s decision. According to the insured, the business was a restaurant at which music was played. The computer on which the music was stored was damaged by water. The centralised sound system was also damaged by water. The insured advised that, although the shop was opened for trade, it could not provide its patrons with the “vibe” that they were accustomed to. The business was unable to fully operate after the water damage to the computer, sound system and micros (point of sale). The insured’s case was that there was business interruption or interference in terms of the policy wording and not that the business was not trading at all.

The insurer partially rejected the claim on the ground that the insured was unable to satisfy the requirements to succeed with the business interruption claim and could not prove any financial loss. The insurer referred to the policy wording. The insurer argued that the insured could not prove that the business activities were interrupted and that the insured had suffered a financial loss. The insured business was trading at the time of the loss, as well as after the loss occurred. According to the insured’s financial records, there was no reduction in turnover and, therefore, the insured did not suffer any financial loss. If the insured was unable to serve food to the patrons, it would have indeed suffered a loss. However, this did not seem to be the case.

The insurer argued that the inability to play music at the restaurant had no effect on the finances of the business. There was no nexus between the business, a restaurant, and the music that allegedly could not be played. In further submissions to this office, the insured referred to the policy wording which defines the insured event as loss following from “interruption or interference” with the business. The insured submitted that for the period of 13 days there was a loss in profit due to the damage.

OSTI’s findings

While the policy provides cover for business interruption, the burden of proof lies with the insured to prove that there was an interruption of or interference with the business causing a financial loss. From an assessment of the evidence, OSTI found that on a balance of probability the insured did not suffer an interruption of or interference with the business for a period of 13 days as claimed by the insured. The insurer made an offer of settlement for the items that were damaged and for three days of loss of sales. The insured claimed for 13 days of business interruption or interference and relied on financial statements to substantiate its claim. The statements showed that the insured continued to trade and there is no evidence to support a nexus between the water damage and an interruption or interference to the business. The insured continued to trade in respect of the business, a restaurant. OSTI found that the insured had not discharged the burden of proving its loss in respect of business interruption or interference. OSTI concluded that there was no basis on which to compel the insurer to make an increased offer to the insured.

Non-payment of the premium

In the second case, the insured submitted a claim for damage to his motor vehicle sustained in an accident. The claim was declined by the insurer on the basis that there was no policy in force at the time of the accident. The insurer had incorrectly captured the insured’s banking details, and, as a result, the insurer was unable to collect the premium, and the policy was cancelled. The insurer then recaptured the banking details and reissued the policy. The insured’s banking details had again been incorrectly captured. When the premium could not be collected, the policy was cancelled for a second time.

The insured provided a screenshot of an email between his broker and the insurer wherein the insurer confirmed that it would update the banking details and debit the bank account the following day. The insured submitted that the banking details were provided to the insurer in a clear and legible form. He could not understand how the insurer had captured the banking details incorrectly. The insurer admitted that it had made an error when the insured’s banking details were captured but argued that the insured should have checked that his banking details were correct on the policy schedule and, in addition, that the insured had had sufficient time to obtain alternative cover before the accident occurred. The insurer submitted that the insured was informed that his banking details had been incorrectly captured. The insurer pointed out that neither the broker nor the insured picked up the error in the banking details despite the policy schedule recording an incorrect bank account number. The insurer also confirmed that it had incorrectly captured the details when it issued the second policy. In its submissions to this office, the insurer pointed out that the second policy had been cancelled approximately three weeks before the accident. On this basis, the insurer argued that the insured was aware that his vehicle was not covered and had had sufficient opportunity to source alternative cover. According to the insurer, it was the insured’s responsibility to ensure that the vehicle was covered. The insurer further pointed out that the insured submitted the correct banking details only after the debit had already been submitted and it could not be recalled or amended. It maintained that there was no policy in force at the time of the loss.

OSTI’s findings

OSTI noted that the insurer had captured the incorrect banking details twice. The first and second policies were cancelled because of the insurer’s error. As a result, the insured did not have cover at the time of the loss. The insurer ought to have captured the account details correctly, loaded the new banking details and debited the insured’s account in accordance with its undertaking. The error on both policies was due to the insurer’s own negligent conduct. OSTI found that, under these circumstances, it would not be fair to share the blame between the insurer and the insured and recommended that the insurer settle the claim. The insurer agreed to abide by OSTI’s decision.

Public liability claim

In the third case, the insured is the owner of a game farm. On 28 December, the foreman’s girlfriend (the third party) visited him at the farm. The third party stuck her hand through the fence of an enclosure where a tiger was being held. The tiger bit the third party, amputating the tips of her fingers and lacerating her hand. The third party claimed damages in the amount of R1.1 million as a result of the injuries she sustained in the attack. On 14 April the following year, the third party’s attorney addressed a letter of demand to Mr. L, the sole director of the insured farm. The summons was subsequently served on the insured on 15 June. The insured sent a copy of the letter of demand and summons to the insurer on 17 June. The claim was rejected by the insurer on 23 July. The primary rejection reason was the late notification of the claim to the insurer. Read the full case study here.

Claim disputed based on facts

In the fourth case, when reporting a motor vehicle accident claim, the insured advised that he was on a hands-free phone call with his brother when the vehicle that was following him brightened its lights. The insured thought that the driver of the other vehicle wanted to cause trouble. As a result, the insured lost control of the vehicle. The insured advised that he did not have a proper recollection of the events and was uncertain why the accident occurred.

The insurer appointed an expert to investigate the cause of the accident. The expert established that the insured had travelled at 160km/h in a 100km/h zone. The expert concluded that the accident occurred due to the excessive speed at which the insured had travelled. The insurer declined the claim for various reasons and relied on six separate policy provisions… read more

Writer’s thoughts:
In the first case, the insured had not discharged the burden of proving its loss in respect of business interruption or interference. In the second case, the error on both policies was due to the insurer’s own negligent conduct. In the third case, OSTI was unable to establish the facts on a clear balance of probabilities. OSTI held further that a court of law was the more appropriate forum to consider the evidence in case 4, due to how the insured was challenging the findings made by the insurer’s appointed expert. Is this trend growing… where insureds challenge insurers’ experts? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za