Moonstone: Ombud more flexible than formal courts

The latest newsletter from the Ombud for Short-term Insurance contains details of a case where the Ombud had interceded after a claim was declined for what appears to be a perfectly valid reason.

“The Insured carried on business as an electrical contractor and from time to time hired out a plant and equipment. The Insured entered into a lease agreement with a customer for the hire of a TLB machine. The machine was hired out on the Insured’s standard terms and conditions which included an undertaking on the part of the customer that it would accept responsibility for the transporting of the machine to its site. The customer in turn engaged the services of a transport company to move the machine.

Whilst being transported to the customer’s site the truck conveying the machine was involved in an accident resulting in extensive damage to the machine. The Insured instituted legal proceedings against the customer to recover the damages to the machine but its customer was shortly thereafter placed in liquidation. At that stage the Insured contacted his broker to enquire whether it would be possible to file a claim against his Insurer but was advised that no cover for such events existed and that no claim was possible.

However, after the Insured’s policy came up for renewal and the matter was again queried with the broker, it was discovered that the policy did in fact provide cover for such eventualities and that the Insurer would be liable to indemnify the Insured for the loss. However the Insurer rejected liability for any claim on the grounds of late notification. The Insurer maintained that notification of the incident giving rise to the claim had been given to the broker 38 days after the event occurred whilst the policy prescribed that notice was to be given within a period of 30 days.”

The reason for the late notification appears to be the result of the insured first trying to get the client who had hired the equipment, and who was liable for the damage, to pay for the loss, but when they were placed in liquidation, he approached his broker who gave him the wrong information.

It is interesting to note the following observation made by the Ombud:

“The Ombudsman pointed out that whilst a court may not have equitable jurisdiction to relieve the Insured of the consequences of the notification condition, the Office of the Ombudsman did. It was also pointed out that if there was negligence on the part of the broker, then the matter would be referred to the FAIS Ombud for further investigation.”

The insured did refer the matter to the FAIS Ombud after the insurer had made an ex-gratia offer which he found unacceptable. The Insurer and the broker thereafter entered into an agreement in terms of which the Insured would be indemnified for the loss suffered.

There are two conclusions to be drawn from the above, one of which is that the broker did not know the conditions of the policy he recommended to a client. The other conclusion I leave to you.

It will be very interesting though to find out how the real facts came to light during the policy review seven months later.

What is not clear from the article is whether the complaint to the Ombud was withdrawn. This raises another interesting question:

Is the Ombud obliged to stop his investigation if the complainant withdraws his complaint?

Seeing that we got such a marvelous response last week, I will leave the answer in your capable hands. Let me know what you think by e-mail to [email protected]