Policies are written on two bases: “claims made” or “claims occurring” (sometimes also “claims arising” or “losses occurring”). The basis between the two simple terms, in policy wording, can be a determining factor of whether a claim gets rejected or not.
The case in point
The issue for determination in the Ombudsman for Short Term Insurance (OSTI) briefcase was whether Standard Bank Insurance was entitled to reject a claim for a vehicle accident, as the loss only occurred one month after the cancellation of the policy, due to an erroneous “stop order”.
Mr M submitted a claim to Standard Bank Insurance (the insurer) in respect of a motor vehicle accident which occurred on 8 October 2017. After validating the claim, the insurer noted that the premium had not been paid for the preceding month of September 2017 as the payment had been stopped by Mr M.
This meant that Mr M provided the bank with a “stop order” instruction on the debit order for his insurance premium.
The policy was cancelled, and Mr M therefore did not have cover for October 2017, being the month in which the accident had occurred.
Information relayed to the insurer
After investigating the matter, Mr M established that the bank had made an error and that the debit order collection by the insurer should have been successful, as he had not placed a “stop order” on his account. This information was relayed to the insurer.
After making contact with Mr M’s bank it was confirmed that Mr M’s premium was unpaid as a result of a bank error.
The insurer was willing to reinstate the policy in order for the claim to be considered, provided Mr M paid his premiums from October 2017 up to January 2018.
Mr M was not willing to pay all the premiums demanded by the insurer and a complaint was registered with OSTI in this regard.
OSTI’s stance on the matter
Having considered the matter, OSTI pointed out to the insurer that the policy was underwritten on a “losses occurring” basis and therefore the policy did not have to be in subsistence on the date that the claim was intimated or considered by the insurer.
Since the loss only occurred one month after the cancellation of the policy, due to an erroneous “stop order” notification received from the bank, the policy only had to be reinstated for one month.
The claim could therefore be considered on the receipt of one month’s premium from Mr M, in order for him to have cover for October 2017.
The insurer was not entitled to the payment of premiums up to the date of consideration of the matter in January 2018 before validating the claim, which arose in October 2017.
If the policy had been underwritten on a “claims arising” basis, the policy would have had to be in force at the time that the claim was registered.
This, however, was not the case. The insurer agreed to abide by OSTI’s recommendation and the claim was accepted by the insurer on receipt of one month’s premium only.
Editor’s Thoughts:
The case study highlights that a “claims made” policy will pay out for any valid claim made during the policy period, regardless of when the incident/accident occurred. With a “claims occurring” or “losses occurring” policy, the policy does not have to be in subsistence when claiming, as long as the loss occurred during the subsistence of the policy or period of insurance. There is a clear-cut distinction between the two which shows the importance of ensuring that clients understand the terms of their policies. What would have happened if the policy was underwritten on a “claims arising” basis and the claim was rejected? Surely the client would have blamed the bank for “stop order” error, so who would be at fault then? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za
Comments
Added by Liesl Ebersohn, 30 Aug 2018If the client refuse to pay premiums for Oktober, November, December and January - it was in the bank's right to reject the claim.
But
1. Was the client informed by the insurer or broker that the policy has lapsed? If the client was aware of the cancelled policy, he could have sorted out the problem with the bank. If he did not take it up with the bank, it was his intention to have his vehicle uninsured.
Maybe the insurer/broker did not inform the client.
Please include me in the feedback regardring the correct answer.
2. The client have not paid premiums for 4 months. That also make me think that is was his intention not to pay his premiums. He neglected his duty.
3. Normally a client have to submit his claim within a reasonable time. Was it reasonable to only submit his claim 3 months later? Report Abuse