While it is admirable that insurers are making their policy documents easier for you to read by drafting them in plain English rather than mind-boggling legalese, there is the danger that simpler, less precise wording can result in clauses being open to more than one interpretation.
In such instances, an adjudicator in the matter may invoke the contra proferentum rule against the drafter of the policy (the insurer).
Under this rule, if a term or clause in a contract is ambiguous, the party not involved in the drafting of the contract – in other words, the policyholder – is given the benefit of the doubt.
A good example is in a case study in The Ombudsman’s Briefcase, April 2017, the latest newsletter from Deanne Wood, the Ombudsman for Short-Term Insurance.
While on a holiday trip, Mr X parked his vehicle and trailer in a parking area at a coffee shop, where he met members of his family. When he came out of the shop, the trailer, with contents to the value of R200 000 had been stolen.
Relying on a limit of R20 000 in the policy for “loss of contents from a vehicle”, the insurer, Western National Insurance Company, offered to pay out a maximum of R20 000 for the contents.
Mr X challenged the insurer’s decision and complained to the ombudsman.
Under a section on all-risks cover for contents, the policy read: “Compensation under this cover is specifically excluded per the following: … Loss of contents from a vehicle (including caravans and trailers) in excess of R20 000.”
The issue was whether the clause limiting liability in respect of goods stolen from a vehicle was applicable in circumstances where the goods were stolen in conjunction with the vehicle.
Mr X argued that, as a layman, he found the wording of the exclusion unclear. He said that “a loss from a vehicle” has a different meaning from “a loss of a vehicle with its contents.”
He believed the exclusion did not apply to the loss “of a vehicle with its contents” and understood it to mean that it would apply only where a loss occurred from the trailer. He said the fact that the contents were later removed was irrelevant, because the initial loss happened with the theft of the trailer, and that such loss was not excluded or dealt with in the policy document.
The insurer, in its response to the ombudsman, stated that, to enhance legibility, the policy had been written in plain English. It referred to the Oxford English Dictionary, which defined the word “from” as a preposition indicating the point in space at which a journey, motion, or action starts. It argued that the loss had indeed occurred “from” a trailer and that the exclusion applied.
The ombudsman raised the point that the word “from” does not only indicate the point in space at which an action starts, but also means separation or removal, such as in the sentence “the party was ousted from power after 16 years”. In the ombudsman’s view there was no separation of the stolen contents from the trailer; the contents were stolen together with the trailer and therefore the exclusion relied on by the insurer did not apply.
As Mr X had cover under the all-risks section of the policy up to 25 percent of the sum insured for contents, Mr X’s claim was payable under this section of the policy.
The ombudsman said that because the word “from” was open to more than one interpretation, she was entitled to invoke the contra proferentum rule.
She held that the insurer was therefore not entitled to apply the exclusion and recommended that it pay the claim in full, which it agreed to do.
COMPLAINTS AND OUTCOMES
The Ombudsman’s Briefcase, April 2017, details two further recent cases to come before the Ombudsman for Short-Term Insurance, Deanne Wood.
Non-disclosure of losses
Mr Y submitted a claim for damage to his car in a single-vehicle accident.
The insurer, Mutual & Federal (it was an iWyze policy, and iWyze is the direct insurance arm of Mutual & Federal, owned by Old Mutual) rejected the claim because, when he took out the policy, Mr Y had not disclosed previous losses, in breach of the policy terms and conditions.
When he bought the vehicle policy over the phone, Mr Y was asked to disclose losses suffered within the previous five years. He told the insurer that he had suffered one loss.
When it came to validate the claim, Mutual & Federal established that Mr Y had three more losses. Had the losses been disclosed at the sales stage, the premium would have been calculated differently.
The insurer submitted it had not considered a proportional settlement of the claim because Mr Y had intentionally misrepresented the facts.
Mr Y disputed this, arguing that he disclosed what he could remember.
The ombudsman pointed out that the losses that were not disclosed fell within the five-year period on which the insurer’s questions were based and 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 also stated that short-term insurance is a contract entered into in good faith and there was no obligation on an insurer to verify the information at the sales stage.
She said the insurer had created a clear duty of disclosure and Mr Y should, in the position of a reasonable person, have known that he needed to disclose all losses suffered in the last five years.
The ombudsman upheld the insurer’s decision to reject the claim.
One claim or two?
Mr P filed a complaint after Infiniti Insurance Company, with which he had a car maintenance warranty, settled only a portion of a claim for damage to the engine of his BMW X5.
The issue facing the Ombudsman was whether two separate claims with the same components under a limited-liability provision in a policy should be treated as two claims or as one, with a single application of the limit.
The policy schedule stated that the insurer’s liability for the repair or replacement of any vehicle part was limited to a specified amount. In this case, the component was the engine, on which the limit was R70 000.
Ten months after buying the BMW, the engine failed as a result of a specialised unit on the camshaft, the Vanos unit, being faulty. The quotation for repairs was about R60 000 and the insurer paid R41 345 in terms of the policy’s limit of liability for an engine.
About two months later, the oil pump failed. This led to a bearing failure which resulted in the engine seizing. The quoted cost for these repairs was about R135 000.
According to the assessor appointed by the insurer, the repairing dealer was asked to strip the oil pump for inspection. It was observed that the oil pump gears were worn, limiting the pump’s ability to function. The lack of oil pressure resulted in bearing failure.
In its responses to the complaint, Infiniti advised that, based on the assessor’s findings and having considered the vehicle’s engine repair history, the oil pump failure was already imminent at the point of the previous engine repair and the damage to the pump and bearings would not have occurred in the 880km the vehicle had covered since the first failure.
It was Infiniti’s opinion that the first engine failure was a contributing factor to the second. For this reason, the insurer was prepared to pay out only the balance of the engine benefit limit. It was prepared only to pay the balance of R28 655, both amounts totalling the maximum engine limit of R70 000.
Mr P wanted the insurer to pay R70 000 towards the costs of the second repair and of the opinion the second failure was unrelated to the previous failure. He stated if the second failure was related, then the dealer should have picked this up at the time and its failure to do so amounted to negligence.
The insurer maintained its stance that the current failure was related to the previous claim and was not liable to pay another R70 000.
The ombudsman pointed out that nowhere in the report did the assessor state that the existing damage was related to the previous problems with the car. To support this, Mr P obtained a report from the dealer stating that the repair had no relation to the previous repair carried out on the vehicle when the Vanos unit was replaced.
The ombudsman was of the view that the insurer had not proved that the two incidents were related. She also stated that the insurer could not rely on the final decision of its claims department, as its technical expertise could not be viewed as independent.
Infiniti was requested to settle the claim in terms of the limit of liability for the engine component, being R70 000, which it agreed to do.
The office of the Ombudsman for Short-Term Insurance resolves disputes between insurers and consumers. It offers a free service to consumers whose claims have been rejected wholly or in part by their insurers, and its mission is to resolve complaints fairly, efficiently and impartially.
If you have a complaint, before contacting the ombudsman’s office, first complain to your insurance company, in writing. Make sure you keep copies of all correspondence between you and your insurer.
If you are not happy with your insurer’s decision, you can complete the ombudsman’s complaint form. Contact the office on 011 726 8900 or 0860 726 890 or download the form at www.osti.co.za
Note: Each matter is dealt with on its own merits and no precedent is created by the findings in the case studies published here, which are intended to provide insight into how the ombudsman deals with complaints.