Formal Rulings

Formal Ruling No. 1

(Ombudsman’s Reference D14/97)

Comprehensive motor vehicle insurance – Repudiation by insurer of claim on basis that insured’s negligent driving which resulted in damage to the insured vehicle, constituted a breach of a term requiring the insured to exercise reasonable precautions to maintain the safety of the vehicle.

The insured tried to negotiate a freeway offramp at too high a speed in wet weather conditions and this resulted in damage to his insured vehicle.  The insurer repudiated the insured’s claim, alleging that by driving negligently, the insured was in breach of a clause in the policy which provided that ‘[t]he Insured and/or any person enjoying cover under any section of the policy must exercise all reasonable precaution to maintain the safety of the property and to prevent loss, damage and accident’.

In debate the Ombudsman referred to the South African cases of Nathan NO v Accident Guarantee Corporation Limited (1959 (1) SA 65 (N)) and  Paterson v Aegis Insurance Company Limited  (1989 (3) SA 478 ©) and to the statement contained in Gordon & Getz on the South African Law of Insurance 4 ed (1993) at 183 that ‘one of the objects of insurance [is] to protect the insured from loss due to his own or his servants negligence…even if such negligence constitutes a crime’.  Reference was also made to the comments of Lord Denning in Marles v Philip Trant & Sons Ltd (No 2) [1953] 1 All ER 651 (CA)).

The Ombudsman made a formal recommendation that since the interpretation of the clause in the way suggested by the insurer frustrates one of the major purposes of the insurance cover, it was not applicable in the circumstances of this case.

Comments

Whilst the insurance contract does certainly afford cover for the insured for loss due to his own or his servant’s negligence , this must be distinguished from circumstances where the claim is rejected as a result of the insured having been convicted of reckless and negligent driving , or circumstances where the claim is rejected as a result of for example the insured vehicle’s  tyre / s being in an unroadworthy condition and the condition of the tyres playing a material part in the causing of the collision .

These are specific exclusions in the policy wording requiring different consideration on the merits of each individual matter . Furthermore it must be borne in mind that when the Ombudsman does consider a ruling , the following will be taken into account :

a.      prevailing case authorities , legislation and legal principles ;

b.      the Policy Holder  Protection Rules ;

c.       fairness and equity ;

d.      proper insurance practice ;

e.      the facts of each individual matter .


Formal Ruling No. 2

(Ombudsman’s Reference T41/97)

Comprehensive motor-vehicle insurance – Avoidance of contract for breach – No prejudice to insurer from breach – Waiver by Insurer of right to avoid contract.

By virtue of a clause obliging the insured, within fourteen days of inception of the policy, to furnish the insurer with a certificate to the effect that the insured vehicle in question was equipped with an approved immobiliser, the insurer could avoid theft cover on the policy in question.  The insured had the vehicle equipped with the required immobiliser, obtained the required immoboliser certificate from the dealer and arranged for it to be sent to the insurer.  The Insurer allegedly did not  receive the certificate within the required time but continued to accept premiums in terms of the policy from the date when the certificate should have been supplied.

Subsequently, when the insured vehicle was stolen, the insurer refused to accept the insured’s claim and avoided the policy on the ground that the immobiliser certificate had not been furnished with the required period, although it was in fact furnished when the insured submitted his claim and although it was not in dispute that the vehicle was equipped with the immobiliser at the time of the theft.

The Ombudsman made a formal recommendation that the claim should be met because there was no prejudice to the insurer whatsoever, and in addition to that because the insurer had waived its rights to rely on a technicality of this nature by continuing to accept monthly premiums and not advising the insured that the certificate had not been received within the required period.

Comments

It is common practice for most Insurers to require of new client’s that certificates proving the vehicle’s compliance with security requirements be  furnished within a specified period.

However very little or no steps appear to be taken  to draw the Insured’s attention to the consequences of his failure to comply within the stipulated period . Furthermore upon expiration of the stipulated period , and the insured having not complied , very few Insurers/Intermediaries  appear to notify the Insured of the non-compliance and the effect that it has on his/her  policy . In most complaints of this nature the premiums continue to be deducted , or remain unaltered .


Formal Ruling No. 3

(Ombudsman’s Reference E13/98)

Travel insurance – Emergency dental treatment during travel – Repudiation by insurer on the ground that the teeth were not ‘sound natural teeth’, the teeth treated having been previously filled

The insured claimed under a travel insurance policy for emergency medical and related expenses which included ‘the reasonable cost of medical emergency dental treatment to sound natural teeth’ and also other treatment given and authorised by a member of the medical profession.

During the trip, the insured required emergency dental treatment to her teeth but the insurer repudiated the claim on the ground that the teeth were not sound or natural because they had had previous fillings.  The insurer relied on the definition of the words ‘sound’ and ‘natural’ in the Chambers Dictionary, quoting ‘sound’ as meaning ‘safe, whole, uninjured, unimpaired, in good condition, healthy, wholesome and natural, and pertaining to, produced by, or according to nature, finished by, or based on nature…, not the work of man…, not interfered with by man’.

The Ombudsman expressed the view that a tooth, which had been filled and thereby restored into proper and healthy condition, fell within the definition of ‘sound’ and quoted by Chambers Dictionary.  In regard to ‘natural’ he referred to the new Oxford Dictionary for the view that one of principle meanings of ‘natural’ is the opposite of ‘artificial’, and that a natural tooth which had been repaired and restored to sound condition, even by the hand of man, did not lose its natural character.  After debate, the insurer accepted the Ombudsman’s recommendation.

Comments

Insurers often advise in these sort of circumstances that this was not the risk / property intended to be insured / underwritten . If this is the case the policy wording should spell out sufficiently clearly as to exactly what is covered, and what is excluded . Any doubt in interpreting the policy terms and provisions , has to be interpreted in favour  of the insured in accordance with the contra proferentem  rule.


Formal Ruling No. 4

(Ombudsman’s Reference S29/98)

Proportionate refund of premium for comprehensive motor-vehicle policy paid annually in advance – Whether any portion of the premium is refundable by the insurer if the vehicle insured is completed destroyed prior to the end of the insurance period.

The insured claimed he was entitled to a refund of one half of an annual premium paid in advance where, after six months, the vehicle insured had been completely destroyed in an insurable event.  The insurer contended that in the absence of any specific provision in the policy, the insured was not entitled to any refund.  The insurer had agreed to hold the vehicle covered for a specific period, and the insured had paid a premium for that specific period, so the question of when any actual total loss took place during that period, was irrelevant.

The Ombudsman upheld the insurer’s view, pointing out that many comprehensive policies issued contained residual cover (for example, when the insured was driving another vehicle).  This ruling was in accordance with a ruling some years ago by the British Short-term Insurance Ombudsman in similar circumstances, but the British Ombudsman mentioned that there was a very frequent practice amongst insurers that if the insured took out insurance for another vehicle with the same insurer, the insurer immediately gives credit for the period outstanding on the original policy.  The Ombudsman approved of this practice.  He noted, though, that the position might be different if, after the happening of the event and the payment of the claim, the insurer took steps to cancel the policy.

Comments

It must be borne in mind that insurers in furnishing annual policies do so at a discounted rate , hence the benefit to the insured . But this does not then mean that should the subject matter of the insurance , eg the motor vehicle insured be a total loss , or is stolen or hijacked during the period of insurance , that the insured be entitled to a refund of premium for the remaining period of the insurance policy after the loss .


Formal Ruling No. 5

(Ombudsman’s Reference B129/98)

Motor insurance contract providing for refund of excess and reinstatement of ‘no claim bonus’ where motor accident not due to any fault of insured – Insured to provide ‘complete and absolute proof’ of absence of such fault – Meaning of expression

A motor-vehicle insurance contract contained the following clause:

‘No Claim Bonus

In the event of a motor vehicle accident provided the Insured provides complete and absolute proof that the driver was totally free of negligence without contribution to the cause of the accident, then the application of the No Claim Bonus shall not be effected and the FIRST AMOUNT PAYABLE shall not be payable by the Insured’.

The Insurer repudiated a claim for a refund of an excess and for reinstatement of the bonus where the insured could not provide an admission of liability by the other motorist or a sworn affidavit by an independent third party not a passenger in either vehicle.  The insured provided an affidavit by himself supported by an affidavit  by a passenger in his vehicle.  In addition, the other party failed to defend civil proceedings instituted by the insurer under subrogation rights claiming damages, and a default judgement was obtained.

The Ombudsman held these facts constituted ‘complete and absolute proof’ of the absence of negligence, and formally recommended the refund of the excess and the reinstatement of the ‘no claim bonus’.

Comments

Surely it could not have been the intention of the parties that in order for the Insured to be entitled to a refund of the excess and reinstatement of the no claim bonus , that the insured should meet what is in effect an onus of proof to the Insurer which is not only more stringent and demanding than the civil standard of onus of proof ( ie . on a balance of probabilities ) , but also more demanding that the criminal onus which requires proof beyond a reasonable doubt . Lawyers , parties to litigation have enough difficulties satisfying these onuses and to expect of an insured who in the majority of cases are laymen to meet such an onus is in our view “Mission Impossible .”


Formal Ruling No. 6

(Ombudsman’s Reference M42/98)

Policy requiring vehicle to be equipped with a certain type of immobiliser – Insured submitting certificate by manufacturer as to immobiliser fitted to broker appointed as ‘werwings-agent’ or canvassing agent to the insurer, and obtaining confirmation that certificate is in order – Insurer subsequently repudiating claim on ground that immobiliser not the model required and that broker not authorised to give assurances on its behalf.

In taking out comprehensive motor-vehicle insurance, the insured dealt with a broker who also acted as ‘werwingsagent’ or canvassing agent for the insurer.  The broker issued the policy on behalf of the insurer after completion of the proposal form.  A certificate by the manufacturer as to the details of the immobiliser fitted to the vehicle was confirmed in writing by the broker as complying with the policy specification.  The insurer repudiated a subsequent claim arising from the theft of the vehicle some months later on the grounds that the immobiliser did not in fact comply with the policy specifications, and it submitted to the Ombudsman a copy of the agreement under which the broker was appointed as ‘werwingsagent’ and which specifically prohibited the agent amongst other things from making any representations which bound the insurer.  It submitted that in any event the broker was the insured’s agent.

The Ombudsman held that the normal rule that the broker was the agent of the insured did not apply in the case where the broker had specifically been appointed as the insurer’s agent; that the insured could not be expected to be aware of any limitations to the agent’s authority contained in the agreement with the insurer; and therefore that the written confirmation by the agent in regard to the adequacy of immobiliser bound the insurer.

The insurer complied with a formal recommendation by the Ombudsman that the claim be met.

Comments

Commonly the insurance practice of late would involve inter alia the following parties to an insurance contract:

INSURER
UNDERWRITING MANAGER
CLAIMS / POLICY ADMINISTRATOR
SUB-BROKER
BROKER
INSURED

To the above the following has to be added: collecting agent, coverholder , canvassing agent  etc. This when added to the fact that a large number of “brokers” appear to act with two (2) hats simultaneously i.e. as agent for the insured and agent for  the Insurer , and the fact that a large proportion of the complainants to this office are not able to identify accurately the actual insurer / underwriter , or in fact to distinguish between who is the broker and who the Insurer is . This has been addressed to a certain extent by the Policyholder Holder Protection rules , and the regulations thereto , but has not removed all uncertainty in the minds of the (unsuspecting?) insured as to who the actual insurer is , who acts as his agent , or the insurer’s agent and where such “ broker” acts as both his and the insurer’s agent .  


Formal Ruling No. 7

(Ombudsman’s Reference G22/99)

Cellphone insurance – Repudiation of claim on ground of failure to take proper care of the instrument – Cellphone left temporarily on table in restaurant occupied by friends of insured

A policy insuring cellphone amongst others against loss by theft excluded the insurer’s liability if ‘the insured failed to take proper care’ of the instrument. The insured and two friends were dining in a restaurant. The insured left the table temporarily to answer a call of nature, leaving his cellphone on the table. On his return the instrument had vanished. The insurer repudiated liability.

Applying the principles and referring to the decisions in Formal Ruling No. 1 , (as contained in Newsletter 1 of 2003), the Ombudsman held that the duty to take proper care had not been breached by the insured, and formally recommended that the insurer should pay the claim.

Comments

The repudiation by the Insurer on the grounds of a failure to take proper care leaves the Insurer in the position where it has to discharge the onus of proving not only that the insured should have foreseen the possibility of damage or loss occurring in the manner that it did, but also that the insured having such knowledge and appreciating the fact that in the event of such loss his / her insurance policy would cover such loss, and nevertheless proceeded, requires proof by the insurer almost tantamount to intention on the part of the insurer . Not only is this a very difficult onus to discharge, but scrutiny of the case authorities in this respect reveal that a court is only likely to uphold the repudiation of such a claim in only very exceptional circumstances.


Formal Ruling No. 8

(Ombudsman’s Reference D61/00V)

Motor vehicle insurance – Insured’s vehicle stolen – Repudiation based on no insurable interest – The insured was a bona fide possessor of a stolen vehicle.

It was accepted by the insurance company that their insured innocently purchased a vehicle that was already stolen.  The insurer argued that that being the case no insurable interest in the vehicle existed.  The insurer was referred to the unreported judgments of Foster vs Mutual & Federal Insurance Company Limited, case number 3239/95.  It was pointed out to the insurer that the learned Judge on similar facts held that a bona fide possessor would have an insurable interest.  It was also pointed out to the insurance company that they might have difficulty in proving on a balance of probabilities that the vehicle was in fact stolen prior to the inception of the policy.

The Ombudsman initially only made a ruling on the merits of the matter leaving the quantum to be negotiated between insured and insurance company.  It was however suggested that the market value could be reduced as the true owner may at any time have appropriated the vehicle.  It was suggested that a fair settlement should be two thirds of the market value.

After further discussion the insurance company accepted this view and the claim was duly settled.

Comments

This matter was also raised in the matter of Pienaar v Guardian National , where on similar facts the court held the insured to have an insurable interest in such vehicle . The Ombudsman’s office adopts the view that Insured’s in such circumstances do have an insurable interest, provided that they are in fact bona fide possessors. If it becomes apparent that the insured is not in fact bona fide, or that he in fact purchased the item knowing it to be stolen, then the insured could not be said to have insurable interest in such property.

As regards quantum, in both of the abovementioned cases the issue of quantum had been agreed to by the parties and the matters had proceeded on the merits only. Differing propositions suggest that

• tainted property surely cannot have the same value as an untainted item of property; alternatively
• that a stolen item of property has no market value; alternatively
• that the property’s value is reflected by market value as determined in the ordinary course e.g. in the case of a motor vehicle being the average of trade and retail values with appropriate adjustments being made for condition, mileage, extra’s.

• Despite repeated requests, the Insured was not placed in possession of a fully claused Policy wording showing the applicable Excesses.
• The Insured was not given the opportunity of either accepting or rejecting the terms of the Policy, as these were not explained at the time of the taking out of the Policy.
• It is probable that a lower Excess would have been applicable had the Insured been given the opportunity of sourcing a Policy with some other Insurer on better terms.