Non-compliance to insurers minimum requirements

10 September 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 you. In one of the cases it is clear that non-disclosure is still a very serious thing.

A collapsed pool

The initial basis of Mr F’s claim was that his swimming pool’s fiberglass shell had cracked due to the extended Western Cape drought. The pool, which had a very low water level at the time, suddenly developed a crack on the side on 11 March 2018.

To validate Mr F’s claim, the insurer appointed a building assessor to inspect the damage. In his report, the assessor found that as Mr F could not fill his pool due to the drought, the pressure from the soil on the side of the pool was too strong for the half-empty pool shell to withstand. This caused the shell to buckle and collapse. The assessor reported that Mr F had failed to use a pool cover to slow down the evaporation process, and that the age of the pool shell had contributed to the damage.

The insurer also appointed a pool specialist to evaluate the extent of the damage. The specialist’s report confirmed the assessor’s findings. The insurer stated that the damage had occurred gradually over a period of time, which was specifically excluded in terms of the policy.

The finer details

Mr F said that he had, in fact, covered his pool for the duration of the summer months, specifically to prevent evaporation. Mr F also felt policyholders should not be penalised because of the drought.

The insured’s service provider reported that the pool’s fiberglass shell had been damaged as a result of tree roots protruding through the soil. It was, in fact, the roots that had pushed against the fiberglass structure causing it to bulge and eventually collapse. Mr F asserted that he enjoyed cover since damage caused by tree roots was not specifically excluded in the policy documents. Mr F also argued that the tree roots could have resulted in subsidence damage, which is an insured peril. Lastly, Mr F stated that the terms and conditions of his policy were never communicated to him.

Having reviewed all the evidence, OSTI found in favour of the insurer saying there was no evidence that the damage was caused by an insured peril. OSTI also noted that even if the damage to the pool was caused by tree roots, this would have happened over time. Furthermore, Mr F had been sent the original terms and conditions of his policy and all policy updates. OSTI upheld the rejection of the claim.

A move and a burglary

Mr V had a risk insurance policy in place for his home since 1 February 2015. However, in August 2018, Mr V moved to a new place of residence. When he moved, he did not inform the insurer of the new address or even that he had changed residences. On 27 May 2019, Mr V’s home was burgled. It was later found that Mr V’s new residence was not fitted with burglar bars or security gates on the doors. The home did have a burglar alarm. However, at the time of the robbery, the alarm was not working.

The insurer rejected Mr V’s claim on the basis that the new residence did not meet the policy’s minimum-security requirements – that of burglar bars on all windows and security gates on all doors, or, at least, having a working security alarm.

Mr V believed he should still be covered by his insurance, albeit at a higher premium. As such, he argued that the “Didcott principle” should apply in this instance and that the claim should be settled. The Didcott principle finds its name from the late Justice Didcott who was the trial judge in Pillay v South African National Life Assurance Co. Ltd 1991 (1) 363 (D + CLD). In that case Didcott J dealt with alleged non-disclosures on risk insurance by the deceased. According to the Didcott principle, it is assumed that the insurer would still have issued a policy, although at a higher premium, even if the insured withheld material information that would impact the risk to the insurer.

The insurer, in this instance, argued that Mr V’s claim would have been paid, even though he moved residence without informing them, had the property conformed to the insurer’s minimum-security requirements. At this point OSTI found in favour of the insurer.

Mr S and the burst pipe

During the course of 2016 into 2017, Mr S experienced extensive damage to his property allegedly as a result of subsidence caused by a burst pipe. This resulted in his foundations subsiding, which caused cracked floors, walls and ceilings. The policy provided cover for loss or damage to the buildings caused by burst water pipes or water tanks.

To prove his case, Mr S provided OSTI with reports from an engineering firm, M-Engineering, that he contracted to examine the water damage caused to the ground underneath his property. The engineers reported that the house was built on a dense, silty, gravelly layer of ground that was interspersed with small pinholes. The cracks in the property were a direct consequence of the formation and disintegration of a weakened honeycomb-like soil structure in the gravelly layer.

Having brought the claim within the policy, the burden of proof shifted to the insurer to prove the grounds on which it had relied to reject the claim. The insurer cited the findings of its engineer, L-Engineering, as the basis for the rejection.

The floors in the lounge and kitchen cracked due to the absence of expansion joints and the movement of clay subsoil upon which the property was constructed. All other damage was indicative of settlement. The settlement was not sudden, but gradual.

M-Engineering engaged an engineering geologist to test the site. These findings refuted those of the insurer.

OSTI had to investigate the differences of opinion from the two engineering firms. M-Engineering asserted that L-Engineering used the incorrect method to determine the soil’s swell potential, whereas M-Engineering not only explained the method used, but also used more than one method of evaluating the swell potential to arrive at the same conclusion. L-Engineering then raised that M-Engineering had confused subsidence with settlement.

M-Engineering argued that the “settlement” referred to by L-Engineering is consolidation settlement which is the “vertical displacement of the soil surface associated with the gradual reduction in volume of a saturated soil of low permeability (e.g. clays) due to a change in effective stress. According to M-Engineering the collapse settlement of the soil caused the foundation to subside. The proximate cause of the collapse settlement was, the burst pipe, which is an insured peril under the policy. L-Engineering then accused M-Engineering of taking a soil sample too far away from where the burst pipe was located, saying the results could not be accurate. However, in the absence of any soil test provided by the insurer, M-Engineering’s evidence could not be refuted.

OSTI found that M-Engineering presented a more plausible assessment of the facts. As such, OSTI concluded that Mr S adequately demonstrated that the damage was directly caused by water from the burst pipe. As such, OSTI concluded that the insured had brought his claim within the ambit of the policy. Accordingly, OSTI recommended that the insured’s claim be settled.

Writer’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 - [email protected]


Added by Myra, 10 Sep 2020
Hi Simon,

The issue is more on non-disclosure e.g ‘moving residence without informing’ and policyholders knowing and understanding their policies in terms of what will and will not be covered. No fault from the broker at all... just highlighting the key role and importance that brokers play.
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Added by cynical simon, 10 Sep 2020
I don't see any fact demonstrated by the three cases quoted where any reasonable person could blame the broker
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