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Ombudsman for Short-Term Insurance responds to determination made by FAIS Ombud

04 November 2008 Ombudsman for Short-Term Insurance

The Ombudsman for Short-Term Insurance responds to determination made by the FAIS Ombud to good citizen warranty in insurance contracts and his criticism of too many ombudsmen being bad for the industry

The Ombudsman for Short-Term Insurance (OSTI) responds to the determination made in the matter of Maduray V Renasa Insurance Company and his criticism of too many Ombudsmen being bad for the industry.

The determination involved the consideration of a so-called “Good Citizen Warranty” included in a motor vehicle insurance policy.

The insured filed a claim against her insurer for damage arising out of an accident which occurred in June 2006.

The insurer rejected liability for the claim on the grounds that the insured had violated the terms of the warranty as she had travelled at a speed of 161kms per hour at the time of the incident.

The warranty contained in the policy stated that the insured would not be liable “if the vehicle is used other than in accordance with the laws, regulations, road and traffic ordinances and by-laws of South Africa, including inter alia, the transgression of any speed limit... .”.

The insured alleged that she was not aware of this term and that it had not been brought to her attention by her insurance broker prior to the inception of the policy.

The insured’s complaint against the insurer was dealt with by an ex-employee of the Ombudsman for Short-Term Insurance, prior to the appointment of its current Ombudsman, Brian Martin (Pictured).

“Upon inspecting the file it appeared as though the person who dealt with the complaint approached the matter on the basis that a comprehensive motor vehicle policy provides an indemnity against one’s own negligence.

However, the insurer argued that the insured had specifically agreed to be bound by the terms of the warranty in exchange for a substantially reduced premium, or other benefits”, says Brian Martin.

“I presume that he thereafter considered the matter only from the perspective of whether or not the insured had complied with the contractual obligations imposed by this term and concluded that she had not.”

The Ombudsman states that he agrees entirely with the views of the FAIS Ombud concerning this type of warranty and said that had the matter been brought to him for determination, he would not have upheld the insurer’s rejection of the claim and would have struck out the warranty in question as incompatible with the principles underlying insurance contracts.

“I must stress that it is easy to criticise the handling of a matter with the benefit of hindsight, bearing in mind that the decision to support the insurer was made about two years ago”, says Brian Martin.

“Of concern to me is the comments made by the FAIS Ombud regarding our office and the relationship between the various Ombud Schemes”, says Brian Martin.

An agreement has always existed between the various Ombudsmen to refer complaints falling outside of their jurisdiction to the relevant Ombud for their attention.

The complaint against the broker in this case was referred to the FAIS Ombud by the Short-Term Ombudsman, as the outcome was not considered to be satisfactory and it was felt that the broker may well have a case to answer.

There are effectively six different Ombudsman schemes in the financial services industry, two of who are statutory and four of which are voluntary.

The statutory schemes are the FAIS Ombud and the Pension Fund Adjudicator whilst the voluntary schemes are The Banking Services Ombudsman, The Long and Short-Term Insurance Ombudsman and the Credit Information Ombud.

All voluntary schemes operate within the framework of their Terms of Reference, which are recognised in terms of the Financial Ombudsman Schemes Act (FSOS).

The benefit of having specialised skills to deal with complaints for the different industries is of course obvious.

“It is unfortunate that the FAIS Ombud has criticised our office for the way in which the matter was handled, overlooking the thousands of matters that are resolved by our office each year in favour of the consumer."

"Last year our office recovered R84 million for consumers."

"We will be approaching the Financial Services Board to discuss issues surrounding the jurisdiction of the offices of the various Ombudsmen with a view to improving efficiencies and co-operation”, says Brian Martin.

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