The Ombudsman for short term insurance emphasized in a recent judgement the importance of full disclosure when concluding an agreement to insure a vehicle:
No-Disclosure of Previous Losses
Mr Y submitted a claim for a single motor vehicle accident. The insurer rejected the claim on the grounds of non-disclosure by Mr Y of previous losses suffered by him, which according to the insurer, was a breach of the policy terms and conditions. In support of the rejection of the claim the insurer referred to the General Terms and Conditions of the Policy under “Your Responsibilities” which reads as follows:
4.1 You must check all the information you have provided to make sure it is correct, including material information. Material Information is information that a reasonable person would consider essential to iWYZE in order to properly assess your risk. In assessing your risk, we can decide whether or not to insure you, what premium to charge for your risk and whether to apply addition terms and conditions.
4.2 IMPORTANT: All information provided by you will be validated at claims stage. Example of material information: PREVIOUS burglaries, accidents or judgements against you. If you do not provide us with correct information, it would be interpreted as a misrepresentation, omission or non-disclosure and iWYZE may:
a) Reject your claim
b) Declare your policy invalid from the start date of the policy
c) Cancel your policy; And
d) Recover any compensation we have given you in settlement of previous claims.
4.4 You must inform us immediately if any information we have about you and/or the items you have insured changes or is no longer true and complete.” During the telephonic sale of the insurance policy,
During the validation of the claim, the insurer established that Mr Y had three more losses within this period, which were not disclosed at the inception of the policy. According to the insurer, had the losses been disclosed at the sales stage, the premium would have been calculated differently.
The insurer therefore suffered a prejudice of 23.6% in respect of the premiums. The insurer submitted that it had not considered a proportional settlement of the claim due to the fact that the misrepresentation was made intentionally by Mr Y. Mr. Y disputed this arguing that he disclosed what he could reasonably remember.
The Ombudsman pointed out that the losses which were not disclosed fell within the five year period on which the insurer’s questions were based and further, that the recorded sales conversation did not give any indication that Mr Y was uncertain about what the insurer required in order to correctly underwrite the risk.
The Ombudsman further stated that short-term insurance is a contract entered into on good faith and that there was no obligation on an insurer to verify the information at the sales stage of the policy.
The insurer had discharged its obligation in terms of the Policyholder Protection Rules in that it had created a clear duty of disclosure and that the insured should, in the position of a reasonable person, have known that he needed to disclose all losses suffered in the last five years to the insurer.
The Ombudsman therefore upheld the insurer’s decision to decline liability.