Fair, reasonable and necessarily incurred

Gareth Stokes, FAnews Online Editor

One of the many tasks performed by a short-term insurance broker is to assist clients with claims submissions. In most cases the claims payout runs smoothly beginning to end. But there are occasion when things become tricky and you have to step in as negotiator on behalf of your client. In the event an insurer unfairly refutes one of your clients claims a sensible recourse is to lodge a complaint with the Ombudsman for Short-term Insurance (OSTI). The OSTI resolves disputes between insurers and consumers in an independent, impartial, cost-effective, efficient, informal and fair way. And the Ombudsman enjoys the full support of members of the South African Insurance Association (SAIA) that conduct personal lines and commercial lines business, in that they voluntarily accept the office’s formal recommendations.

Short-term insurers pay out millions of claim each year, so it’s not uncommon for disputes between insurer and the insured to arise. In their 2010 Annual Report the OSTI makes mention of 8 778 formal complaints against insurers relating mostly to the rejection of claims. Over the period the OSTI recovered some R130 million for policyholders whose claims were unfairly rejected, including two record recoveries totalling R3.7 million and R2.6 million! Last year complainants achieved a degree of success through the referral of a complaint to the Ombudsman in 38% of cases. Relief includes the payment of a claim, the refund of premium or excess paid or the cost of rectifying defective services provided by an insurer’s service provider. The bottom line: If you have reason to believe your client’s claim has been unfairly rejected by an insurer, you shouldn’t hesitate to raise an objection with the Ombudsman.

You cannot win all of the time

The Ombudsman has to preside over a mixed bag of complaints as illustrated by the variety of case studies published in The Ombudsman’s Briefcase, Issue 3 of 2011. Last month we discussed an interesting repudiation involving a claim for accident damage to a vintage motor vehicle. This month we’ll look at a complaint which stemmed from an insurer’s refusal to compensate the insured for “clean up” damage following an accident. The complaint resulted from a commercial short-term insurance policy claim.

“The insured conducted business as a transport operator,” begins the OSTI. The transport operator’s commercial short-term insurance policy – a marine cargo policy covering multi-risks – included cover for goods in transit as well as legal liability insurance cover. After an accident involving two of the company’s vehicles the insurer settled claims for own damage… It also settled a subsequent claim from the supplier of the goods in transit representing the value of goods stolen from the accident scene. However, on the advice of the insurer’s loss adjustor it “declined liability for costs claimed by the insured in respect of salvage, security, the cost of debris removal and also the cost of cleaning the road surface after the accidents!”

Why was this liability declined? According to the Ombudsman “the insurer’s loss adjustor advised the insurer to reject liability for these elements of the claim because they were considered to be a bit inflated and exorbitant!” This case illustrates how quickly an accident scene (or loss event) diverts from the situation anticipated when the cover is initially written. In their complaint the transport company argued that they had incurred significant cost in their attempts to protect the goods from theft and vandalism after the accident. Apparently persons on the accident scene had become violent and unruly... “The insured also maintained that he had been directed by the local authority to clean up the scene of the accident and to remove debris from the accident scene,” continues the Ombudsman.

Make sure the paperwork is in order

The insured’s clean up claim is not unusual, and we’ve heard of cases where the municipality chases after drivers for knocking over lamp posts or traffic lights in motor vehicle accidents too. However, where they erred was in submitting the claim without acceptable documentary evidence. Part of the insurer’s response in this case was that there was insufficient documentary evidence of the claimed amount!

After reviewing the facts of the claim and the provisions in the policy the Ombudsman “drew the attention of the insured to the fact that the policy was underwritten on the basis of indemnity which required that the insured be indemnified for actual loss or damage, suffered as a result of a peril covered by the policy.” Short-term insurance cover exists to return the insured to the same position they were prior to the loss and does not, under any circumstance, allow for the insured to profit out of misfortune.

There is no implied cover for the cleaning up of or subsequent rehabilitation of an accident scene in standard commercial goods in transit policies. Had the insured wanted this cover it should have been written into the policy as a specific provision! As is often the case, a claim “denied” under one section of a cover could be paid under another. The Ombudsman observed that the if insured in this case “could establish that there was a legal liability on his part to reimburse the local authority or any other party for the cost of debris removal and cleaning up the scene of the collision he may be entitled to seek an indemnity in respect of such liability in terms of the liability section of the policy.”

The onus of proof lies with the insured…

In the event your client incurs costs related to post-accident clean up, security or other expenses they should keep complete and accurate documentary proof of the claims. On the facts available the Ombudsman said the insured had not established that he had any such liability, nor discharged the onus of establishing what cost had been incurred in this connection. Furthermore the insured had no documentary evidence to show that the amount to be recovered from the insurer was fair, reasonable or necessarily incurred. The Ombudsman consequently dismissed the insured’s complaint.

Editor’s thoughts: It pays to get an experienced short-term insurance broker to assist with commercial short-term covers… In the above case the insured would have been covered had the policy wording included “accident rehabilitation” under the Goods in Transit section of the policy (provided the insured could prove the monetary value of the claim). Have you encountered similar difficulties for claims relating to peripheral accident-related damages and clean ups? Please add your comment below, or send it to gareth@fanews.co.za