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If you snooze, you loose

01 June 2016 Dawn Bachan, DJ Swanepoel and Associates

All insurance policies require timely notification of a claim in order for the insured to be indemnified.

Policies contain a material clause that requires notice of the loss to be given immediately, as soon as possible, or within a specified period of time.

Absolved from liability

As with any material condition of a contract, a failure to fulfil these conditions constitute a material breach of contract and the insurers can be absolved from liability.

The insurers must prove actual prejudice arising from the delay. Prejudice in this context means concrete harm to the insurer's ability to investigate the loss, defend a liability claim, or develop a defense to coverage.

If the insurer can demonstrate that the late notification of a claim has actually prejudiced them in the investigation of a claim, alternatively in the mitigation of the loss, then the insurer can be successfully absolved from liability.

General repercussions

The General Code of Conduct for Authorised Financial Services Providers (FSPs) and Representatives a code promulgated by virtue of Section 15 of the FAIS Act sets out the basis of the broker’s liability. Therefore, a broker can be held liable if either he/she give late notification of a claim or do not advise the insured of the potential repercussions of the late notification.

Attention is brought to Section 7 (1) (a) which reads:
“7. (1) ... a provider must (a) provide a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client, and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision.”

Rejection on valid ground

An insurance broker was ordered by the FAIS Ombudsman to compensate a transport operator R171 875, 56 after an insurance claim was repudiated due to late notification by the broker.

The insured complained to the Ombudsman that the broker had failed to lodge the claim with the insurer, Senate, within the stipulated period of seven days. In July 2008, the insured’s truck was hijacked on the Meyerton/Vereeniging highway while transporting a load of steel coils.

The insured notified the broker of the loss on the same day, and all documentation pertaining to the claim was completed by the insured on 30 July 2008. The insured received a letter from the insurer dated 8 August 2008, rejecting the claim on the basis of late submission. This was, however, not forwarded on to the insured.

Clint Janssen, Managing Director of Senate, said the claim was first reported on 7 August 2008, a full 12 days after the loss occurred on 25 July 2008. The policy carries a strict seven-day claim notification for hijacking losses. Janssen noted the reason for the strict seven-day claim notification period is because Senate is a large insurer in the transport market, and as such, needed to develop a network of hijacking investigators and informants focused on recovery of hijacked loads.

“However, this is only effective if we are alerted within a reasonable time of the incident. As such we needed to encourage prompt notification, by way of the maximum seven-day notification period as a condition of cover, which is emphasised in large bold font in the policy document so as to specifically draw the reader’s attention,” said Janssen.

The FAIS Ombudsman pointed out that the broker’s conduct violated the provisions of the FAIS Act whilst rendering financial services to the insured.

The FAIS Act sets out strict rules governing broker’s conduct and will hold brokers to account should the insured’s policy be breached due to the broker’s poor administration and/or negligence.

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