Interesting Recent Ombud Insurance cases and court rulings from South Africa

Danny Joffe

One of the strongest guidelines we have when determining cover for claims, as claims administrators or even the more senior executives of insurers, is the precedent that is handed down by court judgments and Ombud cases.

We’re fortunate to have a professional Ombudsman’s office, now the National Financial Ombudsman, providing clear dispute resolution. Recent court judgments offer crucial guidance on sensitive issues, as discussed in this article.

POLICIES AND BLACKLISTED PHONES

Cell phone theft is very common, currently, in South Africa. Cell phone service providers allow owners to blacklist the phone once it has been stolen. Once this takes place, the phone can no longer connect to any of the cell phone networks for voice calls or data usage. It can be used, though, if it has Wi-Fi reception for emails and WhatsApp, so the phone still has some value.

In a recent case, a client submitted a claim for a cell phone that had already been stolen and blacklisted. The insurer voided the policy, given that the client had not disclosed the fact that the phone was blacklisted, which is material to the insurer’s underwriting of the risk. The client maintained they were not aware the phone was blacklisted and made good use of the phone from the office and home where there was Wi-Fi. The Ombudsman stated that the insurer bears the onus to prove the client would have known the phone was blacklisted and it is not sufficient to simply state the underwriter would not have accepted the risk had they known the true facts. To protect against this, insurers are advised to have a specific exclusion in their policies which excludes blacklisted phones from cover.

PARTIALLY FRAUDULENT CLAIMS

Another recent legal judgment from the Supreme Court of Appeal (SCA) provided much-needed clarity on issues insurers faced regarding partially fraudulent claims. Previous ambiguous decisions from the Ombudsman’s office and past court cases failed to delineate which parts of a claim were material. This led to debates on whether non-material parts of a claim could be excluded. Policy wordings have been updated by all insurers now to include the exclusion of partial fraud and also to state the policy is cancelled from the date of the fraud.

In this specific case, the insured filed a flood damage claim exceeding R1 million, along with a fraudulent alternative accommodation claim. The court ruled that upon submission of the fraudulent claim, the policy was immediately cancelled, and there was no entitlement to payment for either the main flood claim or the alternative accommodation. This clarifies that if any part of a claim is fraudulent, the entire claim is forfeited, provided the policy wording is properly drafted.

PROVING RECKLESSNESS

Finally, there was a recent court decision that clarified the lack of due clause of the duty to take reasonable precautions to prevent a claim. Insurers often invoke this clause where the insured is reckless in terms of not looking after property or going at an excessive speed on the road. One needs to bear in mind that one of the main objects of taking insurance is to protect oneself from one’s own negligence. For example, all liability insurance is based on this premise. To succeed in this defense, insurers need to prove the insured actually foresaw the possibility of having an accident or suffering a loss to property.