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Non-compliance by insureds

28 April 2020 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. In one of the cases it is clear that non-disclosure is still a very serious thing.

Payment of missed premiums

An insured approached OSTI for assistance following the rejection of his claim for an accident that occurred on 11 June. The insurer rejected the claim on the grounds that the insured had failed to make payment of his premium for the month of June.

As agreed, the insurer debited the insured’s bank account on 27 May in order to collect the premium that was due for cover for the month of June. This debit was returned unpaid. The insurer again submitted a debit on 12 June, 15 days later, but again the debit was returned unpaid.

OSTI was provided with copies of the insured’s bank statements and it appeared that on both occasions that the insurer attempted to collect the premium, there were insufficient funds in the account.

The insured argued that had he not missed the payment of June’s premium, his premium payments would have been up to date as he had never missed a premium before.

A period of grace

OSTI found that the insured was under an obligation to ensure that the premium was timeously paid every month in order to enjoy cover under the policy. The failure to make payment of the premium for one month would entitle the insurer to decline cover for that month.

The Policyholder Protection Rules (PPRs) provide a period of grace of not less than 15 days to enable insureds to make late payments of premiums. Outside of the 15 days, insurers are contractually entitled to reject a claim.

In the circumstances, OSTI could not take the insured’s complaint further against the insurer and it proceeded to close the file.

Claims procedures and time limitations

Mrs S had a legal expenses insurance policy which covered the conveyancing costs of the purchase of a property up to a maximum of R6 000. The insurer rejected the claim on the grounds that the claim was submitted late.

Documents provided by Mrs S showed that she had purchased a property and it was registered in her name in 2016. However, Mrs G only submitted a claim to the insurer for the conveyancing costs during 2018.

Mrs S said in her complaint that she was not aware that her policy covered conveyancing costs.

The insurer stated that the policy required an insured to inform the insurer of any insured event or cause of action that may give rise to a claim within 30 days of the event. The insurer argued that the significant delay by the insured in reporting the claim prejudiced its assessment of the claim as it would be unable to verify the event.

OSTI found that, but for the late notification, the insured had a valid claim in terms of the policy. Since the insurer could not demonstrate what actual prejudice it had suffered by the late notification, this office requested the insurer to reconsider its stance and settle the claim based on the conveyancing tariffs applicable in 2016. The insurer agreed and settled the claim.

Advising the insurer of a change

The following case study highlights the importance of advising the insurer of a change in the risk.

The insured submitted a claim for a motor vehicle accident to his insurer. The insurer rejected the claim on the grounds that the regular driver of the vehicle at the time of the accident was not the regular driver noted on the policy schedule.

When the policy was underwritten, the insurer was advised that the regular driver of the vehicle would be the insured. The vehicle was involved in an accident while the insured’s daughter was driving.

During the investigation of the claim the insured’s daughter advised the insurer that she was the regular driver of the vehicle. The insurer submitted that the insured had failed to inform the insurer of the change in regular driver and rejected the claim in accordance with the policy.

The insured submitted that his daughter was driving the insured vehicle to take the insured’s younger child to school every morning. The insured stated that he would normally take his son to school on his way to work. However, he had started attending a skills program which required him to leave home earlier every morning because he needed to travel a greater distance.

For this reason, he allowed his daughter to use the insured vehicle to take his son to school.

Acceptance of the risk

The insurer argued that, in terms of the above provision, there was a duty on the insured to notify the insurer of the change in the regular driver and that the regular driver was material to the insurer’s assessment of the risk. It argued further that the insured breached the policy terms and conditions by not advising the insurer of the change in regular driver and, as a result it was prejudiced by the breach and it was entitled to reject the claim.

However, there was nothing before the office to suggest that the insured intentionally misrepresented the regular driver. There was also no indication that the insurer would not have accepted the risk had it been advised of the change in regular driver.

In the circumstances, the office found that it would not be fair nor equitable to the insured if the insurer rejected the claim in its entirety. Instead, it recommended that the insurer calculate the premium prejudice that it had suffered and make payment to the insured of the adjusted amount.

The insurer agreed to abide by our recommendation and settled the insured’s claim.

Writer’s Thoughts:
Every policy sets out the insured’s obligations. As OSTI points out, contracts of insurance create duties and obligations for both the insurer and the insured. Failing to adhere to these obligations may prejudice the insurer’s assessment of a claim and may provide the insurer with grounds to reject a claim. Although there was a duty to disclose in two of the cases, the insurers still agreed to settle the claims. Do you believe this is a fair outcome? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - editor@fanews.co.za

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