A broker is not a policeman

Balancing the scales of justice is often a tricky job. When we read the reports and cases coming out of the offices of the Ombud, we often see insurers and brokers getting dragged over the coals for what the relevant Ombud deems poor advice on the part of the broker, or negligent activities on the part of insurers.

It is good to see that the scales of justice also work in the broker and insurer’s favour. We recently published a newsletter on a determination sent out by the Office of the Short Term Industry Ombudsman which proved popular with our readers.

Rising damp

Mrs Z submitted a claim to her insurer for damage caused as a result of rising damp. Relying on an exclusion in the policy for damage caused as a result of gradual deterioration or operating causes or as a result of defective workmanship, the insurer rejected the claim on the grounds that no insured peril had occurred in terms of the policy.

Following the rejection of her claim, Mrs Z lodged a complaint with the Osti. Mrs Z did not contest the actual basis on which the insurer declined liability, nor did she argue that the damage was the result of a cause other than that stated by the insurer. Instead she disputed the rejection of the claim on the ground that the insurer had not supplied her with the policy documents containing the above exclusions.

She argued that, in the absence of receipt of such documents, and owing to her lack of knowledge of the policy exclusions, the insurer could not rely on the provisions of the policy wording.

Taking a chance

It was also Mrs Z’s contention that she had previously held a policy with another insurer, where she would have enjoyed the said cover. She stated that she would have kept her previous policy if she had been properly informed of the policy exclusions by the current insurer.

The relevant policy documentation in this matter included the policy wording, the policy schedule, the proposal form and its supporting documents. The insurer contended that the documents were sent to Mrs Z as a complete set, including the policy wording. Mrs Z had confirmed receipt of the schedule and other documents but not the policy wording.

All the evidence suggested that a policy wording was provided to her or that she could have even requested the policy wording prior to accepting the policy.

According to the insurer, it was also clear from the evidence that even if it were accepted that the policy had not been received, Mrs Z still had a duty to request the policy wording from the insurer. It appeared that there had not been any effort on the part of Mrs Z to request the policy wording during a period of approximately two years.

Furthermore, the insurer argued that Mrs Z had submitted a previous claim in which the policy wording had been discussed.

The ruling

Osti pointed out that even if it were accepted that the insurer had failed to provide the policy wording, this would not necessarily mean that the claim must be honoured by the insurer.

It was further pointed out that in terms of South African law, and more specifically what is known as the Expedition Theory, if the insurer can prove that it sent documentation to the insured’s correct address, the documents will be presumed to have been received by the insured within a reasonable period… unless the insured can prove the contrary.

The Ombudsman upheld the rejection of the claim by the insurer.

Issues to consider

There is no doubt that the Osti made the correct ruling. Outright fraud cannot be tolerated in any form.

This case does raise a few questions though. In a technology driven world, where there are emails and interactive platforms where a policyholder can access all of the details concerning their policy, why are we still using the postal service to deliver key documents such as policy schedules and policy wording?

The reality of South Africa is that letters often gets lost in the post. How would this ruling then change? The insurer can prove that the documents were sent to the correct address in a timely manner and the policyholder can pose a legitimate argument that they never received it. This leads us to an interesting debate as to what is the acceptable way, from a legal standpoint, to receive a policy schedule. We will follow up with the Financial Services Board on this issue.

Readers weigh in

We allow our readers to comment on newsletters and the Ombud rulings always gather the most amount of comments. We share some of it but motivate you to also read the other comments and also share your views on the issue online.

MK said that this issue is more a matter of changing the status quo - rather impress clients than depress clients. Life is too fast and hectic nowadays for the layman to know everything he buys or sells, and needs professional advice and service.

“The solution is for the FSB to ‘unregulate’ premiums, so brokers and insurers can deliver more and charge more for more advice and enhanced services. This would also encourage brokers being policemen as and when the policeman is absent thus improving the insurance industry’s image,” said MK.

PD said that this case does however raise an interesting point with individuals approaching the FAIS and or OSTI Ombudsmen. Are they not required to give their evidence under oath? If so lying under oath would constitute perjury with the associated censure. This may make those considering fraud more cautious.

“In this case, the complainant states that her previous policy provided cover for rising damp and gradual deterioration. I have been a broker for 36 years and have yet to come across such a policy. I believe the OSTI should have requested a copy of the previous policy, and if she was lying, charge her. This is probably not within the mandate but should be,” said PD.

Jakes Jacobs said that he is just confused as to why such a decision was made in favour of the insurer if you look at past decisions against brokers when a policyholder was explained all material facts and even when requesting clients to read their correspondence, the blame was laid in front of the broker. He added that there is still the option of registered mail - that will give proof of receipt of said item. “I have personal experience of emails that was sent to me but was not received by myself. That is why I tell people who will be sending me an email, that on delivery of their mail I will confirm receipt thereof and if they have send the mail but I have not confirmed receipt thereof, they must accept that I have not received it,” said Jacobs.

Charmaine Pollak said that she thinks a new ruling has to be made on the most legally accepted way of delivering the policy to the client.

It will be interesting to see how cases such as this will be handled in the future.