Short-term ombudsman kept busy with a variety of claims

Gareth Stokes, FAnews Online Editor

Claims assessors in the short-term insurance industry probably get to use the phrase “now I’ve heard everything” on a regular basis. And we’re sure the guys at the Office of the Ombudsman for Short-term Insurance (OSTI) get their share of crazy claims too. When time permits we enjoy going through various case studies supplied by the Ombudsman in his annual report and – in this case – The Ombudsman’s Briefcase, Issue 2 of 2011. These case studies clearly indicate the thought processes applied by the Ombudsman to short-term insurance complaints resolution.

Good fences make good neighbours...

There were three case studies printed in the Ombudsman’s latest newsletter, but we thought we’d focus on the article titled “concrete block wall values”. We singled out this claim because walls (whether they be boundary walls or retaining walls as in this case) cause more than their fair share of insurance disputes.

In this case study the insured filed a claim for damage to a concrete block retaining wall constructed on a Plettenburg Bay property. His claim stated that the wall was damaged “by a landslide caused by excessive rain over a four day period”. The Ombudsman picks up the story: The wall in question had been constructed by a company specializing in the construction of retaining walls and was described as a “terraced embankment”. The insured maintained that the wall had been constructed in accordance with the architectural rules applicable to the estate where his residence was situated. According to the insurer this retaining wall did not require an engineer’s certificate, although he did seek input from the consulting engineer responsible for the construction of his house before proceeding.

The insured’s complaint landed at the OSTI after the insurer declined liability on the grounds “the wall was not built to acceptable standards with respect to stability, drainage and compaction!” In this case the insurer had additional ammunition, pointing out that the policy wording excluded cover for damage caused by “normal settlement, shrinkage or expansion of the soil supporting the structures, or the poor compaction of soil used to fill areas under paving and floors”.

Plenty of protection in the policy wording

According to the Ombudsman the insurer had plenty of ‘protection’ built into the policy wording. The policy provided that there was no cover for “damage to retaining walls unless they are designed and constructed according to structural engineering specifications.” Case closed? To the layperson this clause, on the facts provided, would result in the claim being rejected. But the insured was having none of it. He claimed that the wall had been damaged by a landslide which was a covered peril and that the wall was never intended to be designed or constructed according to structural engineering specifications “as it was a terraced embankment and was compliant with local municipal regulations.”

In an instant this small insurance claim became a battle of will and principle. In the ensuing debate both the insured and insurer obtained opinions from a number of consulting engineers and experts…. And what do you know – these experts assessed the matter differently. Experts commissioned by the insurer found the structure acceptable while those engaged by the insurer concluded that wall had collapsed due to “poor compaction and lack of geo-textile behind the wall.” They also said a sprinkler system installed at every tier of the retaining wall had aggravated the situation…

A little help please Mr Ombudsman

Since no resolution could be reached the case was referred to the Ombudsman by the insured. He notes: After the issues were canvassed and ventilated in great depth by both the insured and the insurer but with no resolution being achieved, the Ombudsman was required to make a formal determination of the complaint.

After considering each version of events the Ombudsman turned to an installation manual published by the Concrete Manufacturer’s Association in relation to concrete retaining block walls for additional guidance. This manual states that “the layout of curves and corners for CRB walls requires planning by both the design engineer and contractor and that the input of a consulting engineer was considered, if not mandatory, to at least be highly desirable”. Among other requirements the manual suggests that an engineer’s certificate be provided upon completion of the work and that a consulting engineer approve founding conditions prior to casting of concrete, including providing the engineer with the results of compaction tests... (At this point FAnews couldn’t help but wonder how large the retaining wall in question was!)

A Professional Technical Engineer commissioned by the insurer added fuel to the fire… He observed that “many contractors see these structures as a landscaping solution and do not understand the geo-technical soil mechanics is the factor that any engineer considers when designing these concrete retaining block walls”.

And the verdict is…

The Ombudsman held that the onus rested upon the insured of establishing that a peril covered by the policy had operated and that he had suffered loss or damages as a result thereof. In other words, the insured was within his rights to lodge the claim. On the other hand, the insurer, if it relied upon the terms of an exception as the basis for voiding liability for the insured’s claim have the onus of establishing that the loss fell within the ambit of the exclusion.

The Ombudsman found that the loss indeed fell within the ambit of the exclusion relied upon by the insurer and that the various reports obtained highlighted a number of shortcomings in the design and method of construction of the wall. The Ombudsman favoured the views expressed by the consulting engineers engaged by the insurer who concluded that “had the wall been correctly designed it should have stood up during the heavy rains”. The clause relied upon by the insurer did not necessarily imply that the wall must have been designed by a consulting engineer, or constructed under the supervision of a consulting engineer, but at the very least, the wall must have been designed and subsequently constructed, following structural engineering specifications.

Editor’s thoughts: The lesson from this case study is not to undertake major engineering works on a building site without proper guidance from an engineer. The Ombudsman has sided with the insurer in this case… Do you think the insurer’s conditions with regards the retaining wall are fair in this case? Please add your comment below, or send it to gareth@fanews.co.za