Should this have been stated in the policy?
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.
Concern about access control
In case study one, the insured operated a vehicle rental business from an access-controlled business park. An arrangement was made for the insured’s client to collect two vehicles from the insured’s business premises one Saturday morning at 09h30. When the client arrived at the insured’s premises to collect the vehicles, it was discovered that one of the vehicles had been stolen. The insured notified the tracking company, and the vehicle was recovered on the same day. The recovered vehicle had, however, been stripped of all its major mechanical components. The insured submitted a claim for the loss to the insurer.
Following the validation of the claim, the insurer’s assessor raised a concern about the access control at the business park, from which the insured’s business operated. The assessor reported that he was easily granted access to the business park. He said that the security guards did not require him to provide any of his details, or to complete a visitor’s register. The security guards were hired by the owner of the business park and not by the insured.
The insurer rejected the claim on the basis that the insured had failed to comply with an endorsement in the policy schedule which related to access control. The insurer also stated that the insured had failed to take reasonable precautions to prevent the loss. The insurer argued that the endorsement in the policy schedule placed an obligation on the insured to be responsible for the access control at the risk address. It submitted that the insured did not comply with the endorsement.
The insured submitted that access control was never stipulated as a policy requirement or a condition of the cover. It argued that if the insurer required a specific type of access control with specific requirements, this ought to have been stated in the policy. The insured pointed out that the security measures that were in place when the assessor visited its business premises were the same as those disclosed to the insurer when the policy was underwritten.
OSTI’s findings
OSTI said that the policy of insurance must be interpreted by endeavoring to ascertain the intention of the parties, as expressed by the language used in the contract. The extent to which the insurer’s liability is limited must be clearly spelled out, and any provision that purports to limit the insurer’s obligation to indemnify must be restrictively interpreted. OSTI confirmed that the definition of access control and the requirements or standards on which the insurer relied, were not stipulated in the policy documents. It stated that the definition of “access control” had many facets which the insurer ignored in favour of the definition that best suited its stance. The policy did not place an obligation on the insured to provide access control. The access control endorsement in the policy schedule was, in fact, a reflection of what the insured disclosed as the security on the premises where the vehicles were kept.
OSTI overturned the insurer’s rejection of the claim and recommended that the claim be settled.
Decision to decline liability
In case study two, the insured reported that his vehicle was damaged after he drove it through a flooded road. He said that the vehicle stopped immediately and would not start or shift gears.
A service provider appointed by the insurer stated that the vehicle suffered damage to the engine as a result of ‘water being sucked into the engine when the insured drove over water on the road’. The service provider found that the air cleaner was wet, and the intercooler was full of water. A compression test revealed that the connecting rods were bent due to a hydraulic lock caused by water entry into the cylinders. The insurer concluded that the damage was not covered because the vehicle only sustained damage to the engine.
The insured argued that the claim should be settled on the ground that the policy covered damage caused by natural disasters.
The insurer maintained that, although an insured peril operated, the policy exclusion applied in the circumstances. The insurer submitted that no other part of the vehicle was damaged at the same time as the engine, or as a result of impact during an accident.
OSTI’S finding
OSTI considered the definition of the word’s “impact” and “accident”. OSTI found that a fortuitous event had occurred which fell within the definition of an “accident”. Accordingly, OSTI found that the insured’s loss fell within the cover provided by the policy and recommended that the insurer settle the claim.
The insurer disagreed with the re-commendation and requested a review. The issue for determination was whether the engine damage was caused “upon impact”.
On a proper interpretation of the policy, the damage which caused the engine to seize did not occur upon impact during an accident, and as such, was not covered. The insurer’s decision to reject the claim was upheld, based on the policy exclusion.
Evidence not reliable or convincing
In case study three, the insured was involved in a motor vehicle accident. She said that, while she was driving, she heard a sound and then lost control of the vehicle. The vehicle drifted from the right to the left and then collided with a boundary wall.
An assessor appointed by the insurer noted that the tyres were not in a roadworthy condition. The insurer subsequently appointed a tyre specialist to report on the condition of the tyres and how this may have contributed to the accident. The tyre specialist was of the view that the condition of the tyres would have contributed towards this collision. Based on the assessment findings of the tyre specialist, the insurer concluded that there was no cover for the claim as the vehicle was not in a roadworthy condition.
The insured challenged the accuracy of the insurer’s measurements and supplied OSTI with photographs as proof.
The insurer submitted a further report from the tyre specialist in response to the insured’s arguments.
OSTI had to decide whether the insured’s tyres were in a unroadworthy condition at the time of the accident and whether this contributed to the damage. OSTI gave consideration to the submissions made by the parties, the terms and conditions of the policy and the proven facts. OSTI was satisfied that the insured had supplied sufficient evidence to demonstrate that the rear axle tyres were in a roadworthy condition, even after the accident. The insurer, however, did not take any steps to confirm its measurements, even after the insured lodged a complaint with the insurer’s dispute resolution department. The insurer opted to stand by the assessment findings of the tyre specialist notwithstanding the compelling issues raised by the insured.
OSTI found that the conclusions drawn by the tyre specialist were speculative and could not be relied on to decline liability for the insured’s claim. Accordingly, OSTI recommended that the insured’s claim be settled. The insurer agreed to settle the claim.
Read both case studies in full, plus another claim for the loss of water as a result of a leak on a property here.
Writer’s Thoughts:
Again, these cases remind us of the importance of brokers in helping clients understand their policies… policy provisions, terms and definitions! Do you believe the rulings were fair in these cases? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - [email protected]
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