Non-compliance with a policy requirement

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.

The case studies focus on some of the obligations and conditions placed on insureds when they enter into insurance policies.

Case Study 01 - Non-compliance with inspection requirement

The insured submitted a claim for the theft of her vehicle. The insurer declined liability for the claim on the basis that the insured had not taken the vehicle for an inspection when the policy was concluded and, therefore, there was no cover in force.

The insured submitted that while she had an active motor policy with her previous insurer, she was contacted by her current insurer and was offered a policy with a lower premium. The insured accepted the lower premium and cancelled her existing cover. The insured then suffered a loss shortly after the new policy began. However, the claim fell within the excess and she attended to the repairs at her own cost. The insured stated that, since the first claim on the policy was processed by the insurer, she was under the impression that the cover was in force and there were no issues with the policy.

The insurer submitted that the insured was advised telephonically and in writing to take her vehicle for an inspection. The insured was advised that until the inspection was completed, she would only have third-party liability cover and that her full premium would still be deducted. The insurer submitted further that communication was sent to the insured when the policy was amended. The insured was advised that the inspection was outstanding, and the insurer confirmed the details of the service provider where the insured could take the vehicle for an inspection. The insured was also advised how to do the inspection herself using the insurer’s mobile application. The insurer relied on provisions in the policy to decline liability for the motor vehicle theft claim.

OSTI noted that during the validation of the first claim, the insurer appointed its service provider to do a digital assessment of the vehicle. The insured had also submitted photographs of the damage to the vehicle to the insurer. The existence of the vehicle could easily be verified by the assessment that was conducted by the insurer’s service provider shortly after the policy incepted. The photographs submitted by the insured demonstrated that the vehicle existed and confirmed its condition before the second claim.

The insurer’s argument that the first claim had not been validated was not supported by any evidence. In fact, the insured provided evidence that the first claim was processed, and that she was advised to carry the loss herself as the damage fell within the excess. The insured was under the impression that the policy had been validated at that stage.

OSTI agreed with the insured’s assertions in this regard. OSTI stated that upon submission of the first claim, the insurer should have emphasised the significance of the inspection and insisted on it if it was still required.

Had the insured’s first loss been handled properly, the insured would have simply been informed that the policy was not in force due to her non-compliance with the inspection requirement and not that the claim fell within the excess. The insurer could not simply revert to the preinception sales discussion when subsequent developments had clearly overtaken that fact. OSTI found that the insurer had not demonstrated any prejudice by the insured’s non-compliance with the inspection requirement. Since the circumstances of the theft claim were not disputed, OSTI recommended that the insurer settle the insured’s claim.

The insurer did not agree with the recommendation and escalated the matter to the Escalation Committee. Following the issue of a provisional ruling against the insurer by the Escalation Committee, the insurer agreed to settle the claim.

Case Study 02 - Claim for theft of a motor vehicle rejected

The insured VW Polo was stolen from the insured’s residential address 10 months after the vehicle was placed on cover. The claim was rejected by the insurer on the basis that the insured did not take the vehicle for an inspection which was a requirement for cover.

In his complaint to OSTI, the insured did not dispute that the inspection requirement was not met. The insured argued that the insurer was in the position to make use of alternative means to validate the claim, especially since premiums were deducted monthly.

The insurer stated that the insured was informed telephonically that a condition for cover to commence would be for the insured to take the vehicle for a physical inspection at a service provider; alternatively, the insured could conduct the inspection himself through the insurer’s mobile application. The insurer also provided proof of correspondence sent to the insured after the sales call which set out the same condition for cover.

The insurer advised that during the validation of the claim, a Hire Purchase Investigation (HPI) was conducted on the vehicle based on the information provided by the insured. The insurer did not find any match on the make, model, colour, VIN or engine numbers provided by the insured. In fact, the vehicle registration number belonged to an AUDI and not a VW Polo.

The insurer also noted the following: the vehicle was a second-hand vehicle; the vehicle was not recovered, therefore, there was no physical evidence to confirm the existence of the vehicle; and there were no witnesses or third parties to the incident.

Having regard to the factors mentioned above, the insurer argued that it was wholly material that an inspection was not conducted on the vehicle at the inception of the cover. The insurer submitted that it could not confirm the existence and/or condition of the vehicle before the date of the loss and, more importantly, after the inception of the policy.

OSTI stated that the purpose of the inspection requirement is to confirm the existence of the vehicle and the condition of the vehicle. The insured failed to meet a specific condition for cover. The failure in this regard resulted in the insurer not being in a position to properly validate the claim due to the discrepancies noted. Furthermore, the insurer successfully demonstrated that it had BREAK exhausted all avenues to ensure that the claim was validated despite the condition of cover not being met. It, therefore, considered it material that the vehicle was not inspected and that the condition for cover to commence had not been met.

OSTI agreed that, based on the information available, it was impossible to establish whether the vehicle existed and OSTI upheld the rejection of the claim.

Case Study 03 - The vehicle used fell outside the scope of cover

The insured claimed for accident damage to his motor vehicle. When the vehicle was placed on cover, it was insured for use as a shuttle service.

During the validation of the claim, the insurer established that the vehicle was registered for use as a taxi with a local taxi association. The insurer concluded that as the vehicle was used as a taxi to carry fare-paying passengers, this use fell outside the scope of cover.

Read the full case study here.

Case Study 04 - Non-compliance with security requirement

The insured’s claim for the theft of his vehicle was rejected by the insurer on the basis that the insured did not comply with the security requirements stipulated by the policy. The insured vehicle was not fitted with a tracking device.

Following the rejection of the claim, the insured approached OSTI for assistance.

Read the full case study here.

Writer’s Thoughts

Insurers commonly stipulate that a motor vehicle must undergo an inspection before insurance coverage can begin, as per standard procedure. Do you agree with the outcomes of these case studies? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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