One man’s loss is another man’s gain

Myra Knoesen, FAnews Journalist

The simple act of taking a car without permission could leave a client liable if his or her child gets into an accident and injures someone or causes damage to another vehicle.

Determining who pays for the damages caused can be tricky. According to the National Road Traffic Act, a holder of a learner's license may only drive when accompanied and supervised by a licensed driver. Where a vehicle is driven without a license or where the driver has a learner’s license but does not comply with the law regarding learners,the insurer is inclined to decline liability at the time of damage.

Caught in the act

As one complainant to the Ombudsman for Short-Term Insurance’s (OSTI) office recently found out, taking a parent’s car without permission has more serious consequences than just being reprimanded.

Accordingly, the dispute arose out of a claim for a loss after the insured’s daughter had taken his motor vehicle without his knowledge or consent. Whilst driving the vehicle she was involved in a collision where the vehicle was damaged. She did not have a driver’s license and only had a learner’s license and was not accompanied by a licensed driver, as required by law. 

The insurer declined liability of the claim as their policy entitled them to “decline liability where the vehicle is driven without a license or where the driver has a learner’s license but does not comply with legislation regarding learners at the time of loss or damage”.

Determining factors

The policy clearly stated that the insurer did not accept liability where the driver did not comply with the licensing requirements or provisions in terms of the law, therefore the outcome of this approach was considered straight forward as the policy simply did not provide cover. The insurer could not be expected to pay the claim on this basis. There was also no reason to require the claim to be paid on the basis of equity. 

The insured did not dispute this provision, but contested the insurer’s right to decline liability on the basis that the situation was likened to an emergency, as his daughter needed to purchase food from a fast food outlet which was approximately 500 meters away from the insured’s house.

On reviewing the claim as a theft claim in which the daughter stole the vehicle for temporary use, the insurer contended that this could not be a case of theft as the incident involved only temporary use of the motor vehicle and that there was no intention to permanently deprive the owners (parents) of their motor vehicle.

The Ombudsman agreed with the insurer but also considered whether the act of the daughter constituted statutory theft in terms of Section 1 of the General Law Amendment Act 50 of 1956 which made unauthorised use the same as theft under certain circumstances. The Ombudsman pointed out that if the facts led to the conclusion that it was “furtum usus” (statutory theft), then the license requirements prescribed by the policy could not be relied upon by the insurer to decline liability. The Ombudsman concluded however, that the facts did not constitute statutory theft and that there was no basis upon which the claim should be paid.

FAnews interviewed Michele Peach, Head of Short-Term Operations at Hollard and Jessica Gounden, Head of Dispute Resolution at New National Assurance Company about the issue at hand and if the decision to reject the claim was correct and fair in this case.

“Insurers cannot accept liability for actions that are illegal, as in this instance where the vehicle was driven by a learner driver unaccompanied by a licensed driver. However, as an insurer it is important to accept that “life happens” and to look at materiality before making a decision to reject a claim. So if, for example, the vehicle had been stolen while parked at the take away outlet after having been driven there by the (unlicensed driver) daughter, the theft claim would be covered in terms of the policy as there would be no causal link between the theft and the fact that the vehicle was driven without a license,” said Peach. 

Honesty is the best policy

Peach mentioned that the issue of the “regular driver” of insured vehicles has become a challenge. 

“As insurance pricing models become increasingly sophisticated, so the importance of disclosing the correct regular driver becomes more critical. Many consumers know that motor insurance for younger drivers tends to be more expensive and are tempted to be dishonest as to the identity of the regular driver in order to receive the benefit of a reduced premium. While this may well bring about short-term gains, it could turn out to be costly in the long run. Lower premiums are unlikely to outweigh the costs of a claim rejected for non-disclosure/misrepresentation. This may also impact future insurability and premium rates,” said Peach. 

“Brokers should ensure that clients are made aware of all exclusions on policies and they should highlight the importance of honest disclosure. Brokers should, as a standard practice, ensure that clients understand that illegal activities are not covered by any insurance policy,” concluded Peach. 

“I would be inclined to agree with the outcome of the issue. Whilst “emergency” may or may not be defined in the policy wording, an emergency would constitute a crisis or a life threatening situation, a reasonable man would not deem the purchase of fast food as an emergency situation – especially when many fast food outlets offer a delivery service,” said Gounden. 

“We have recently encountered a claim where the daughter of an insured used the insured’s vehicle to transport an elderly neighbour to the hospital due to an emergency. The accident occurred en-route. The daughter was not accepted as a driver on risk, due to her driver’s license period being less than the policy requirement of three years. The daughter however, acted on the insured’s instruction since she was at work and unable to transport the neighbour, this was disclosed at the intimation of the claim. As an insurer, we admitted the claim on the basis that the situation was indeed that of an emergency, the information could be verified,” continued Gounden. 

“The client must be properly advised to disclose the extent of use of the vehicle by other parties other than the client him/herself, as the accuracy of this information can be verified at claim stage,” she concluded. 

Editor’s Thoughts:
We often hear of client dishonesty and disclosure issues but in instances like this where the policy clearly states the outcome, the client has no one else to blame but him or herself, especially if the broker maintained the right balance of providing all the required information and presenting this information in a clear, concise and effective manner. Do you think the judgment could have been much fairer to the insured? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za