Introduction

Car Insurance is not supposed to be the field of battle for fights between policyholders and big insurance companies. It is rather an agreement reached through mutual understanding whereby an insurance company agrees to provide cover for specified risks in return for the payment of monthly/ yearly car insurance premiums.

Both parties agree to clearly specified clauses and warranties in the car insurance policy and both undertake to abide by these clauses. If a party to the contract does not abide by these clauses – he is in breach of contract and the Law or Ombud has to ensure that justice and fairness prevail.

Exclusions/ Breach of Warranty and having your claim rejected

Most often the rejection or dismissal of a car insurance claim will be motivated and identified by the car insurer as a serious breach of contract – and usually manifests itself in conduct from the insured clients that amounts to an aspect excluded by the policy or a breach of a warranty provided!

We would like to refer briefly to a few examples:

Car insurance cover will be excluded if:

-          The driver of the vehicle is not a licensed driver

-          The driver of the vehicle is found to be intoxicated

-          The vehicle is stolen and did not have the specified alarm system or tracking device

-          The vehicle damaged in an accident is found to be non-roadworthy etc.

The insured client basically provides a “Warranty” that the vehicle will be operated and kept under certain circumstances.

But are these Breach of Warranty exclusions in car insurance policies fair?

This very important question will lead us closer to the importance of establishing a causal link. To answer this question we would have to reflect on the basics of car insurance and the obligations of both parties to make a complete and truthful disclosure of all aspects pertaining to the policy.

It is recognized that there are some facts which only falls within the field of knowledge of the vehicle owner. These are the very important facts on the disclosure of which the insurance company is able to calculate risk and decide on a premium.

Aspects to be disclosed by the vehicle owner/ client will include detail with regards to the driver, the vehicle, security features, where the vehicle will be driven etc. It is only fair to expect that a quote can only be provided and an agreement reached if such disclosure of facts is done with complete honesty.

If the vehicle owner discloses and provides a warranty that the vehicle will be parked in a closed garage at night in a gated community in Bloemfontein and will be fitted with an alarm system, the car insurance company cannot be forced to make payment if it later appears that the vehicle was stolen after it was regularly left overnight without an alarm system outside a pub in Hillbrow.

The requirement of a causal link

It can be expected that every insurance company will pay close attention to all accident claims. It makes business sense not to make payments where the client has acted outside of the scope of the agreement and where such conduct or breach of warranty excludes their duty to make payment.

It would however not be fair if the insurer is allowed to search and use the finest “potential deviation” that could possibly help them to avoid making payment…

The principles of fairness should apply – and this is where we meet the requirement of causation!

What is causation or a causal link?

The simplest explanation would be that there is causation where the specific conduct “causes” or brings about a specific result. In our criminal law we use the “conditio sine qua non test” – or “the condition without which not “. We may ask – would the result still have occurred had it not been for the specific condition or conduct?

This is however not as simple as it might seem. There is sometimes a new intervening event between the initial conduct and the end result. A good example would be where you cause an accident and the occupant of the other vehicle is not badly injured. He is taken to hospital in an ambulance but the ambulance overturns on the way to the hospital and the injured person dies in this accident. It would not be fair to charge you with causing the death of the person even though without your initial conduct the person would not have been transported via the ambulance, would not have been in an accident and would still have been alive!

When we refer to the requirement of a causal link between the insured’s breach of a term in the insurance contract and the insured’s loss we apply the same questions and use the same test.

In the latest newsletter from the Ombud we find a very detailed discussion by Prof JP van Niekerk on this topic and he uses an excellent example from the Roman Dutch Law to explain why the principles of fairness should still apply:

Short Term Insurance Example

“Suppose… that in the case of insurance on a ship destined for some Mediterranean port it was agreed that she had to be armed with ten guns of war so that there would be protection against attacks and possible capture by the enemy or by pirates; and suppose further that this term of the contract was not complied with by the insured but that only six guns were placed on board.

If the ship was then captured by Turkish pirates, the insurer would clearly not be liable (there in such a case being the required causal link between the breach and the loss).

But if the ship, without encountering any enemy or pirate vessels, was lost in a storm (something which would in any case have occurred even if there had been no breach of the contract and, actually, something which would have been even more likely in that case, because of the fact that had there been no breach she would have carried a heavier load of guns and would have been more prone to getting caught in a storm) the insurer would certainly have been liable for that loss.

Therefore…even if there was a breach of an undertaking by the insured at the time of the loss, the insurer could only avoid liability for that loss if it was causally linked to that breach.”

Application to Car Insurance

What do we say when we require the existence of a causal link between the insured’s breach of a term in the car insurance contract and the insured’s loss?

This can best be described with the following example:

-If the insured vehicle is driven by a driver and the tyres are smooth, making the vehicle non-roadworthy, and the driver then veers off at a turn on a wet road and causes an accident  – the car insurance claim can be rejected if the car insurer can prove that there is a causal link between the smooth tyres, the driver losing control around the turn in the road and the resulting vehicle damage.

- If the driver is driving the exact same car and some speeding motorist smashes into the back of the vehicle – the car insurer cannot then on finding out that the tyres were smooth, dismiss the car insurance claim as there was no causal link between the smooth tyres, the accident and the vehicle damage!

What is the test to be used?

“The warranties provided are to be interpreted reasonably and equitably and for that reason, even if the clause itself does not so provide, an independent and substantial causal link between their breach and the loss should be required before the insurer would be entitled to rely on such breach. Thus, where the insured can prove that his non-compliance with the clause was not the cause or a (contributory) cause of the loss, the insurer would not be able to escape liability.”[ Prof JP van Niekerk]

Conclusion

We will strive to continue with our discussion on these and other aspects of car insurance that could help vehicle owners in gaining greater clarity of their obligations in terms of their car insurance policies.

The better we understand car insurance  – the greater the chances of finding the best car insurance to meet our needs!!