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Failure to comply strict breach entitles insurer

07 December 2017Myra Knoesen

The simple act of failing to keep jewellery in a safe or taking reasonable precautions to care for an item can be grounds for an insurer to reject a claim. The issue for determination in the Ombudsman for Short-Term Insurance’s (OSTI) briefcase was whether the insurer, was entitled to reject a claim for the loss of Mrs. R’s tennis bracelet on any one of the following four grounds set out in the insurer letter of rejection.

Background facts

On 24 November 2016 Mrs.R wore her tennis bracelet to work. While at her desk, she realised that one of the links of the bracelet had broken and that the bracelet might easily

fall off. Fearing that she might lose the bracelet, she removed it from her wrist, wrapped it

in a tissue and placed it in her handbag. During the course of that afternoon she had to go shopping for medication for one of her children. When she got home and opened her handbag she realised that the bracelet was missing. 

Mrs. R contacted her broker on 8 December 2016 to inform him of the loss. On that same afternoon she received news that her grandmother, who lived in Durban, had passed away. As a result, immediate plans to leave Johannesburg to attend the funeral in Durban had to be made. After the funeral the insured did not return to work but instead took her annual leave.

Mrs. R only formally filed her claim on 29 December 2016 when she returned to work following her annual leave. Mrs. R stated that, as the item of jewellery was broken, she could not wear it and she could not put it in a safe as she was not at home. She could therefore not comply with the endorsement whilst at work. She believed that the safest place for her to keep her bracelet was in her handbag.

She further stated there was no locked compartment in her vehicle in which she could have placed her bracelet. Although she submitted her claim on 29 December 2016, the investigator only set up a meeting with her on 11 January 2017, which was 13 days after she submitted the claim, said Mrs. R.

She stated that any chance of the bracelet still being found, after she submitted her claim, would have long been lost whilst waiting for the investigator to contact her for an interview. Mrs. R also advised that she did not know that the police had to be notified of the loss as the bracelet was not stolen but was lost.

The insurer’s version

In the insurer’s first answer to the complaint, the insurer confirms that Mrs. R lodged a claim for her tennis bracelet on 29 December 2016. The bracelet was specified on the policy schedule, under the All Risks Section, for an amount of R119,990.

Relying on these extracts from the policy, the insurer sought to justify its rejection of the claim on each of the four grounds of rejection as follows below.

(i) late notification of the claim;

(ii) the failure to take reasonable precautions and care to prevent or minimise the loss;

(iii) the item not being in a safe; or

(iv) the failure to have the condition of the jewellery checked and a valuation certificate obtained within 24 months. 

OSTI’s determination

OSTI rejected the insurer’s reliance on all four of the reasons provided by it to substantiate its refusal to satisfy the claim. OSTI’s response to each of the rejection reasons were dealt with in turn as follows: 

(i) Late notification of the claim - It was not in dispute that Mrs. R notified her broker immediately following the loss of the bracelet. The policy provided the channels through which an insured must notify the insurer following a loss. The policy clearly states, under the heading “Claims Procedure” that an insured must “notify the insurer of a claim within 30 days after the event, via the following channels: … calling your broker.” This is precisely what Mrs. R did on 8 December 2016, well within the 30 days.

Under the heading “Claims Procedure” for non-motor claims, a SAPS reference number is required for “theft from the insured’s house, flat, holiday home or anywhere else”. Lost items did not bear a requirement to provide a SAPS reference number. Mrs. R had therefore properly complied with the notification policy provision. There was accordingly no merit in the insurer’s rejection of the claim on this basis.

(ii) Failure to take reasonable precautions and care to prevent or minimize the loss -In the matter under discussion, Mrs. R elected to remove the bracelet for fear that it would fall off if she continued to wear it. In the circumstances, by removing the bracelet, she attempted to avoid the loss. Had she continued to wear it, it may well have fallen off. Instead the insured took the precaution of wrapping the bracelet in a tissue and placing it in her handbag, which she would have taken with her when she left her office. She further advised that there was no lockable compartment in her vehicle to leave the bracelet in. On the facts presented to OSTI by Mrs. R, it would appear that proper steps were taken to prevent the loss from occurring. In the given circumstances OSTI was of the opinion that Mrs. R did not act unreasonably or recklessly. 

(iii) Failure to check jewellery and obtain a valuation certificate -With regards to Mrs. R’s failure to comply with the condition that the jewellery be checked and a valuation certificate obtained within 24 months, Mrs. R stated that, at the time of the loss, the 24 months had only been exceeded by two months. The insurer had not provided proof of any actual prejudice as a result of Mrs.R’s failure to comply with this provision of the policy. 

(iv) Item not being worn or in a safe -With regards to the insurer’s argument that the requirement, that the item either be worn or kept in a safe when not being worn for it to be covered, is a promissory/absolute warranty, which renders the failure by Mrs. R to comply a strict breach of the policy entitling the insurer to reject the claim. As the non-fulfilment of the warranty by Mrs. R, for whatever reason, in the matter before OSTI, was material to the loss, the insurer was within its rights to decline liability for the insured’s loss. The risk of loss or damage to the insured item only transferred to the insurer when the item was either worn or in a safe. When the item is neither worn nor in a safe, the risk of loss or damage remains with the insured. 

In the circumstances, OSTI upheld the rejection of the claim on the basis of only the non-compliance by the insured of the promissory/ absolute warranty. 

Editor’s Thoughts:
This brings us back to the very essence of policy wording and the importance of understanding endorsements in a policy. A stark reminder to make complicated principles easier to understand in a clear, concise and effective manner. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

Comments

Added by Jerome Schofield, 07 Dec 2017
In my opinion, it could be argued that, in these circumstances, an item carried in a hand bag was, in a way, being worn.
However the requirement "to check jewellery and obtain a valuation certificate" could also be regarded as a promissory/absolute warranty, reason being that the insurer requires this as a recent proof of ownership and value.
Although either way, the outcome would have been the same.
Report Abuse
Added by Myra, 07 Dec 2017
Hi Professor Vivian in the determination it states:

The insurer expanded on its initial
argument under this heading and
raised that the endorsement on
the schedule requiring jewellery
to be secured in a safe when not
being worn, was a promissory
warranty and absolute in nature.
The insurer asserted that,
as there was a breach of the
warranty, there was no obligation
on the insurer to accept liability
for the loss. The insurer further
raised its view that the warranty
was absolute, as opposed to a
relative warranty, and that, if
Mrs. R was of the opinion that the
warranty was unreasonable, this
should have been discussed with
the insurer prior to the inception
of the policy and not at claims
stage.

Hi Steve it mentions that in relying on the extracts from the policy, the insurer sought to justify its rejection of the claim on each
of the four grounds. It also states OSTI rejected the insurer’s reliance on all four of the reasons provided by it to substantiate its
refusal to satisfy the claim. However, as the non-fulfilment of the warranty by Mrs. R , for whatever reason, in the matter before OSTI,
was material to the loss, the insurer was within its rights to decline liability for the insured’s loss. The risk of loss or damage to the insured item only transferred to the insurer when the item was either worn or in a safe. In the circumstances, OSTI upheld
the rejection of the claim on the
basis of only the non-compliance
by the insured of the promissory/
absolute warranty.
Report Abuse
Added by Robert W Vivian, 07 Dec 2017
I must also be missing something. The insured is at work. She realises the bracelet is missing a link making it risky to wear. In terms of the policy she must take reasonable precautions to safeguard the bracelet. She take it off. Wraps it in a tissue. Places it her handbag. Goes shopping. Gets home find the bracelet to be missing. When was she supposed to place it in the safe? In the office; at the shop? It could be argued that she should have gone straight home but then the question then is not was it locked up, because it could not be locked up until she got home, but did the insured fail to take reasonable precautions. So it is the reasonable precautions term in the policy and not the warranty.
Report Abuse
Added by Ahmed Khan, 07 Dec 2017
the insurer should pay - it was unavoidable that the item be kept somewhere before it could get to the safe. what would be the reasonable thing to do under the circumstances? Armed guards? Specified All Risks items should have a wider scope to safeguard the insured, for which the rate is higher. The bigger breach would have been the valuation certificate despite which, the insured paid the matching rate for the sum insured
Report Abuse
Added by Steve Walters, 07 Dec 2017
Unless I'm missing something the OSTI rejected only 3 of the 4 - not all 4 - otherwise the OSTI would not have found in favour of the insurer
Report Abuse

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