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Setting aside incorrect settlements

31 October 2018Myra Knoesen
Myra Knoesen

Myra Knoesen

It is important that clients understand their policy wordings and are also made aware of all exclusions in a policy in order to understand what they are covered for and what will stand on grounds for a rejection of a claim. It is a case of constant education with clients. We summed up some case studies from the Ombudsman for Short-Term Insurance’s (OSTI) briefcase, which we thought would be interesting for our readers.

Defining the term insured

In the first case Mr D submitted a claim to Genric Insurance, his insurer, in respect of damage to his insured vehicle following a vehicle accident. At the time of the accident, the insured vehicle was being driven by Mr D’s friend, Mr S (incident driver). 

Genric Insurance rejected the claim on the grounds that Mr D did not take all reasonable steps and precautions to prevent the accident or loss. In this regard Genric Insurance submitted that the incident driver travelled at a minimum of 150km/h in a 100km/h zone. In arguing the matter, Genric Insurance had elected to use the words “insured” and “incident driver” interchangeably. The policy wording relied on by Genric Insurance stated that the insured must take all reasonable steps and precautions to prevent accidents or losses. Genric Insurance’s policy did not define the term “insured.” 

OSTI advised Genric Insurance that, as its policy did not define the term “insured”, the ordinary grammatical meaning of “insured” had to be attributed to this word in the policy. In this regard reference was made to another definition of “insured”.

Not entitled to decline liability

According to OSTI, there was no indication that the incident driver in this matter was a party to the policy or insured in terms of the policy. Mr D had entered into the contract of insurance with Genric Insurance. OSTI further advised that Genric Insurance had not reserved for itself the right to exclude liability, in terms of the policy, where a vehicle is driven by another party, who is not the insured on the policy. Thus, Genric Insurance had not discharged the onus of proving that Mr D, being the insured, had failed to take all reasonable steps and precautions to prevent the accident or loss. On this basis, it was OSTI’s view that Genric Insurance was not entitled to decline liability for the claim. 

Genric Insurance had also advised that Mr D had failed to disclose a change in the risk. According to OSTI, this rejection reason was not ventilated in the rejection letter nor had Genric Insurance discharged the onus of proving that there had in fact been a change in the risk, which had not been disclosed and that such change materially affected the risk. Genric Insurance agreed to abide by OSTI’s recommendation that the claim be settled. 

Non-payment of a premium

In the second case Mr L submitted a claim to his insurer, Old Mutual Insure, in respect of fire damage to his home. Mr L advised that he contacted his broker on the day after the fire to advise of the fire damage. Mr L indicated that he advised the broker that he would need to pay his premium manually as he needed to change banks and had not set up a stop order for the payment of the insurance premium. 

Old Mutual Insure advised that the claim could not be registered as the policy had been cancelled a month prior to the loss due to the non-payment of the premium. The insurer had attempted to deduct Mr L’s premiums for the months of June and July. The premiums were unpaid. Old Mutual Insure submitted that Mr L had not made any alternative arrangements to pay the premiums. 

As Old Mutual Insure had not received two consecutive premiums and in accordance with the policy provisions, the policy was cancelled. Old Mutual Insure submitted that neither it nor Mr L’s broker had been informed that Mr L had changed his banking details. Old Mutual Insure submitted that Mr L had no cover at the time of the loss. 

Not obliged to accept late payment

Mr L argued that he had requested to make an EFT payment to Old Mutual Insure to cover the June and July premiums. Old Mutual Insure responded that Mr L’s request to make payment of his premiums had however been done after the premiums were due and after the loss had occurred. The insurer, it argued, was therefore not obliged to accept the late payment of the premiums in this instance. 

Old Mutual Insure also stated that there was no indication that Mr L had intended to pay his premiums prior to the date of the loss. Failure to make timeous payment of the monthly premium entitled Old Mutual Insure to decline cover for that month. In this instance, due to the unpaid premiums the policy was cancelled. 

It was not Mr L’s contention that he had informed his broker of a change in his banking details prior to the loss nor had he provided any proof that he informed his broker or Old Mutual Insure to change his banking details. OSTI was unable to assist Mr L in his complaint and the matter was resolved in favour of Old Mutual Insure. 

In full and final settlement

In the third case Mr H claimed for home contents that were stolen during a break-in at his residence. Mr H intimated a claim with his insurer, Hollard Insurance, and a settlement offer was tabled by Hollard. OSTI noted that the offer tabled by Hollard was in full and final settlement and had been accepted by Mr H. 

The dispute arose, according to the insured, from the fact that the policy held with Hollard had effectively been cancelled by the insurer and a new policy had incepted. Mr H was not aware of the new policy or the new policy wording because notification of the new policy wording had been sent to an incorrect email address by Hollard. 

According to OSTI, Mr H would only be entitled to have the agreement set aside if he could show that Hollard’s factual statements of the claim, provided at the time of settlement, were wrong. In deciding to settle, Mr H had taken the risk that Hollard’s allegations were in fact untrue/ incorrect. Mr H could have referred the matter to OSTI or could have issued summons against Hollard to disprove any facts, but by settling he agreed to forego this opportunity and could not reserve the right to try again at a later stage. 

Quantum of the settlement

According to OSTI, an insured who has made an allegation of incorrect settlement against an insurer but decided in the end not to have it tested before entering into an agreement of loss, should not be allowed to revive the allegation as a basis for setting aside the settlement whenever he so chooses. There was no duress, undue influence or material mistake when Mr H entered into the agreement with Hollard and therefore the settlement agreement could not be set aside by OSTI. 

Where an insured requires urgent relief from the insurer, but where there is a dispute regarding the quantum of settlement, the insured is free to try to negotiate an interim payment with the insurer. Such a settlement is not in full and final settlement. It must be noted however that an insurer is not obliged to accept such an interim settlement offer from an insured. 

OSTI informed the insured in this matter that it could not set aside the settlement agreement. 

Editor’s Thoughts:
The first and second case remind us of the importance of brokers in helping clients understand their policies… policy provisions, terms and definitions make a big difference! In the third case Mr H accepted the final settlement. Perhaps he misunderstood the contents of the agreement or had an incorrect impression, but like OSTI says, it is in the public interest that disputes, once settled, stay settled and that settled disputes are not easily reopened by a party who has second thoughts. Do you agree with this? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za.

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