Little sympathy for Ford’s that are not built tough
John Melville, Executive Head of Risk Services at Santam
One of the biggest stories making headlines at the moment is Ford’s recall of its Kuga vehicles that have proven to spontaneously combust while in operation
Close to 40 vehicles have currently been affected by the fault, Ford now faces mammoth reputational damage of recalling over 4 000 vehicles before they too are affected by the fault.
While injuries related to the fault are unclear at this moment, there are some rumours that this may be severe. There are also claims that that there are deaths related to these spontaneously combusting vehicles; however, this needs to be proven.
Looking for cover
In terms of liability, the whole issue opens a can of worms that Ford needs to get a handle on before it gets more out of hand than it currently is.
FAnews spoke with John Stebbing, Divisional Director of General Liability at Camargue, to find out how this crisis will be handled from a liability point of view.
The first thing that needs to be established is what kind of liability is relevant in this situation. Because the components provided to Ford by those responsible for building the components has caused injury and damage beyond pure economic loss, it is a product liability issue.
“The second element that comes into play from a liability point of view is product recall. This policy covers the cost of recalling vehicles insofar as letting people know that their vehicles need to be returned to the insured – in this case Ford – in order for the fault to be corrected on their vehicles,” says Stebbing.
Product guarantee by contrast would pay the cost of making the necessary repairs to a defective product or a product that won’t work. But in the case of spontaneously combusting Kugas, will having product guarantee necessarily assist Ford in this case? Stebbing adds that it may indeed not, “it is doubtful that a product’s guarantee policy would go as far as paying for the damage to the rest of the vehicle caused by the ensuing fire.”
Rising waters
There is no doubt that the waters are now rapidly rising over Ford’s heads as they deal with an issue that has been unfolding over a fair period of time. But where does Ford’s liability cover leave the consumer?
Obviously, all injuries – and possible losses of life – need to be proven before Ford can be approached on this issue. However, if there are legitimate cases, Stebbing indicates that product liability does extend as far as covering injuries and loss of life.
Further, loss of life would extended to include dependents and the effects that the loss of life would have should a breadwinner have died.
There is another issue that Stebbing pointed towards. Depending on the contractual agreements that Ford South Africa has with its franchisees, the franchisees could possibly sue Ford’s directors in their personal capacity for their failure to ensure proper quality management processes. This claim would be based on the loss of revenue that the franchisees have suffered and may be the trigger for a D&O claim.
More concerns
We have looked at the issue from a liability perspective. But what about insurers, how are they approaching the situation? How are Kuga owners engaging with insurers?
FAnews spoke with John Melville, Executive Head of Risk Services at Santam, to get some reaction from the coalface.
“Santam’s priority and course of action at this stage, is to advise affected policyholders to take the necessary steps as soon as possible to have their vehicles inspected by Ford. This will ensure that all corrective measures are taken to address any existing or potential risks concerning their vehicle,” says Melville.
Possible repercussions
Melville added that Santam wants to ensure that its clients are safe, once their vehicle has been checked and declared safe by Ford, the company will continue to provide cover.
He explains that this simply means that duty of care needs to be focused on. “If policyholders do not take the necessary steps to ensure that their vehicles have been assessed per the instructions by Ford, it constitutes non-compliance with the general terms and conditions of the policy. The policy condition of duty of care requires the policyholder to take all reasonable steps to prevent or minimise loss, damage once they know about the problem,” says Melville.
He concluded by adding that if policyholders take these steps, there will be no impact on their premiums or cover by way of exclusions.
Editor’s Thoughts:
It will be interesting to see how Ford moves on from this issue and how they approach the now difficult task of rebuilding trust with the consumer. However, can one have sympathy for a company that allowed the situation to escalate to this level before preparing any kind of response? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
Comments
Their handling of this debacle has turned a respected brand into a something badly tarnished.
Two points to add, if I may.
The first is the plummeting market value of the Kuga. I have heard reports of its value having dropped some 40% - 50%. Even Ford dealers don't want to take it as a trade in, as they themselves cannot sell them on. This may have already had a material impact on the insurance value of the Kuga. In this regard, there is also a credit shortfall risk if the outstanding value of finance exceeds its market value.
The second is the potential of Ford's ultimate liability cost being increased by their failure to act swiftly or in reasonable time. Dithering over an appropriate response could have increased the cost of losses and claims against the company (e.g. claims for destroyed vehicles, class action suit/s and brand reputation). Surely it would be better for Ford to cut their losses and do whatever it takes to rectify the situation. As a liability insurer, would you not be trying to minimise the escalating bill by pushing Ford to take action?
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