Wording of exclusion; more than one interpretation

29 August 2017 Myra Knoesen
Myra Knoesen, FAnews Journalist

Myra Knoesen, FAnews Journalist

Research shows that whilst organisations are often aware of the costs of client misunderstandings, only one in three claim to have taken any action to close the gap.

The scary thing about this is that the real cost of client misunderstandings may be even higher when considering the impact on the brand and reputation of the company.

According to the website of the Ombudsman for Short Term Insurance, the Ombudsman receives a number of complaints about excesses in terms of insurance policies, which demonstrates a general misunderstanding of what excesses are and how they work. It continued to highlight that whilst this is a very natural view, it demonstrates a misunderstanding of the nature of an "excess" and this misunderstanding is sometimes contributed to by the insurer concerned.

In a case study published in the Ombudsman’s Quarterly Briefcase, the issue for determination by the Ombudsman was whether the clause limiting liability in respect of goods stolen from a vehicle was applicable in circumstances where the goods were stolen in conjunction with the item (i.e. the trailer) in which they were housed.

The case at hand

Whilst on a holiday trip, Mr X parked his vehicle and trailer in a parking area at a coffee shop. He was meeting family at the coffee shop on his way back home from holiday.

When Mr X came out of the coffee shop, the trailer with its contents to the value of R200 000 had been stolen.

Relying on a limit of R20 000 in the policy for “loss of contents from a vehicle”, the insurer offered to settle the claim in the amount of R20 000.

Mr X challenged the insurer’s decision and sought indemnification for the full value of the loss.

Under the “Contents of all risks cover”, the policy provided cover for contents anywhere in the world. The policy read “(we) will compensate you for any loss of or damage to contents removed from a dwelling anywhere in the world up to an amount not exceeding 25% of the contents sum insured of the dwelling or the amount stated in the schedule – whichever the lesser.”

The policy read further that: “Compensation under this cover is specifically excluded as per the following: 3.7 loss of contents from a vehicle (including caravans and trailers) in excess of R20 000.”

The complainant’s version

Mr X argued that, as a layman, he found the wording of the exclusion “was unclear, ambiguous and inadequate” for him to understand the scope of the limitation. He further stated that “loss from a vehicle” has a different meaning from “loss of a vehicle with its contents.”

He was of the opinion that the exclusion did not apply to the loss “of a vehicle with its contents”. He stated that “loss from” and “loss of” have totally different meanings. He understood it to mean that the exclusion would only apply where loss occurred from the vehicle/trailer and not where the vehicle/trailer was stolen with its contents.

He said that the fact that the contents were later removed (“loss from”) was irrelevant as the initial loss happened with the theft of the trailer, and that such loss was not excluded or dealt with in the policy document.

The respondent’s version

The insurer, in its formal response to the office, stated that in order to enhance the ease of legibility, the policy had been written in plain English. It was drafted in such a way that the normal, literal meaning of the words could be assigned to them.

The insurer concluded that the loss had indeed occurred “from” a trailer and that the limitation applied. The insurer stated that it had performed in terms of the policy contract between it and Mr X by having offered R20 000 in compensation for the loss claimed.

The Ombud’s judgement

The Ombudsman recommended to the insurer that it settle the full claim raising the point that the word “from” does not only indicate the point in space at which a journey, motion or action starts but also means separation or removal, such as in the example “the party was ousted from power after sixteen years”.

In the Ombudsman’s view there was no separation of the stolen contents from the trailer; the contents were stolen together with the trailer and therefore the exclusion relied on by the insurer did not apply.

As Mr X had cover under the contents all risk section of the policy up to a limit of 25% of the contents sum insured, Mr X’s claim was payable under this section of the policy.

The Ombudsman further stated that the fact that the word “from” was open to more than one interpretation, as illustrated by the examples given by the insurer, entitled the Ombudsman to invoke the contra preferentum rule against the drafter of the policy, being the insurer.

The Ombudsman held that the insurer was therefore not entitled to apply the R20 000 limit to Mr X’s claim and recommended that the insurer pay the claim in full, which the insurer agreed to do.

Editor’s Thoughts:
The Ombudsman held the view that if it was the insurer’s intention to exclude or limit its liability for a claim where items were stolen together with an insured vehicle or trailer, then this should have been clearly stated in the wording of the exclusion. A stark reminder once again, to make complicated principles easier to understand in a clear, concise and effective manner. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Myra, 01 Sep 2017
Hi Pierre catchy indeed! It is amazing how one simple word “from” can lead to more than
one interpretation.

Hi Pieter the insurer's name is mentioned in the determination at the beginning and thereafter, as the 'insurer'. We simply state what is being mentioned. Please feel free to have a look at the full determination here to get more details.

Hi Deborah the policy read further that: “Compensation under this cover is specifically excluded as per the following: 3.7 loss of contents from a vehicle (including caravans and trailers) in excess of R20 000.”
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Added by Pierre Snyman, 29 Aug 2017
Hi Myra
Contents removed from the dwelling normally has numerous other cover which is not vehicle related. The insurer had the opportunity to record a limit in the schedule which would have overruled the 25% of contents value. It was interpreted that the contents was never stolen "from" the vehicle because it was at no stage separated from the vehicle. The word "from" rendered the theft of the vehicle together with the contents a valid claim in terms of the policy. Catchy !!
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Added by Pieter Nel, 29 Aug 2017
By not mentioning the name of the insurer (and therefore the wording applicable in this case) you create the impression that the result would have been the same under any policy. This is misleading as it is definitely not the case. The wordings used by insurers differ substantially and there are quite a few wordings where the ombudsman's opinion would not have stand.
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Added by Deborah George, 29 Aug 2017
Hi Myra

I am concerned that the cover states "contents removed from a dwelling...." a trailer attached to a motor vehicle in a carport is not a dwelling! so irrespective of the exclusion there was no cover.

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