Short-term insurers cannot refute on negligence alone
If you thought short-term insurance decisions were simple, then the following case study, reported on in The Ombudsman’s Briefcase: Official Newsletter of the Office for Short-term Insurance (OSTI) December 2009 will help change your mind. This case reveals the complex legal precedents that often swing the balance of a particular case in favour of either insurer or insured... The case also demonstrates why the average consumer – and in some cases experienced insurance brokers – are left ‘up in arms’ by their insurer’s decision to refute certain claims.
Due care and precaution
In August 2008 the insured ran into trouble while crossing a drift on a dedicated 4x4 route on a farm. His vehicle stalled some distance into the water – which was reportedly 75cm deep – and had to be towed to a place of repair. A claim was lodged with the insurer to cover the cost of repairing the engine (which had seized) and water damage to the vehicle interior. “The insurer rejected liability of the insured’s claim for damage to the vehicle on the grounds that the insured had failed to exercise due care and precaution to prevent loss or damage,” reports OSTI. Was the insured’s behaviour ‘reckless’ as alleged by the insurer? And did he ‘wilfully’ expose the vehicle to circumstances that could cause damage?
Before we discuss the legal aspects of this case we should consider the insured’s behaviour in the run up to the loss. The OSTI says the insured had been on a number of specialised 4x4 driving training courses since 1998. At the time the incident occurred the insured was travelling in convoy with a friend who drove an identical vehicle. And both drivers carefully inspected the drift before concluding it could be “easily traversed.” The insured also took additional steps to traverse the obstacle safely, by setting his vehicles suspension as high as possible.
The Ombudsman concluded that an element of recklessness was required for the insurer to refute the claim. In other words, the insurer had to prove that the insured acted recklessly, and in addition, this recklessness had to be shown to be “by reason of the insured being covered by a policy of insurance and with that knowledge refraining from taking measures which he knew ought to be taken to prevent loss or damage from arising.” Had the insured recognised the dangers and then deliberately courted them by failing to take measures which he himself knew were inadequate to avert the danger from arising, the insurer would have had a leg to stand on.
Setting legal precedence
One way to test the merits of an insurance decision is to consider previous court rulings. For this the Ombudsman turned to Santam Limited versus CC Designing cc 1999 (4) SA199 (C). In this hearing the court held that “the test to be applied was whether the insured had deliberately courted a danger, the existence of which he recognised, by refraining to take any measures to avert harm.” The court further stated that the insurer couldn’t refute a claim based on negligence alone. “It was not enough that the insured’s failure to take any particular precautions to avoid the danger should be negligent, as the insured was entitled to be indemnified against the consequences of his negligence.” The Ombudsman decided that the insured in this case had taken the relevant precautions to cross an obstacle on a recognised 4x4 trail. In addition, the insured had both the experience (having attended numerous courses) and equipment (a sophisticated vehicle) to tackle the obstacle. Upon further deliberation the insurer agreed to accept liability for the insured’s claim.
What can we learn from this case? The most important lesson is never to accept an insurance decision that seems unreasonable. The insured was paying an insurance premium to comprehensively cover his vehicle in the event of damage or loss. Had he accepted the initial decision and let the matter stand he would have been severely out of pocket. Insurance consumers should approach the OSTI if they have the slightest doubt about the fairness of their insurance company’s initial decision.
Editor’s thoughts: The various financial services Ombudsman were established to resolve disputes between consumers and financial services companies, and protect consumers from unscrupulous practices. In the event an insurer’s decision seems unfair it makes sense to progress the case to the Ombudsman for a possible favourable outcome. Do you think it fair to seek assistance from the short-term insurance Ombudsman with a 50:50 (where the decision could go either way) insurance decision? Add your comments below, or send them to [email protected]
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