The ombudsman for short-term insurance (OST) recently published the case of a South African who lost out on his insurance after moving homes.
Mr N insured his household contents and submitted a claim to his insurer following a burglary at his home in April 2018, said assistant ombudsman, Regina Chindomu.
The insurer rejected the claim and in its rejection letter noting: ‘During the claim’s validation it was established that Mr N’s loss occurred at a different risk address to that noted in his policy schedule’.
Mr N advised the insurer that he had changed his address in December 2017, but had failed to inform the insurer of this change.
“The insurer argued that household contents cover is a ‘premises-based’ cover and therefore Mr N was only covered at the noted risk address,” said Chindomu.
“In this regard, the insurer submitted that the household contents cover provided to Mr N was for the risk address in Klipfontein View, Midrand, whilst the loss occurred in Sagewood, Midrand.”
The wording of the policy
Despite the rejection reason noted in its own rejection letter being ‘Material change in Risk’, the insurer maintained that it did not view this as a change in risk, but simply as an issue of no cover, said Chindomu.
It argued that the insured’s new address is a completely new risk which it needed to underwrite before assessing acceptability, she said.
“According to the policy wording, the policyholder has a responsibility to inform the insurer immediately of any information about the risk that has changed or that is no longer true and complete,” said Chindomu.
“The insurer argued that Mr N had a duty to inform the insurer of the change in risk address as soon as it happened to enable the insurer to assess the risk and determine its acceptability.
“The insurer maintained that it was not provided with an opportunity to underwrite Mr N’s new address and assess its acceptability on cover, and therefore there could be no cover.”
Whilst the OSTI agreed that Mr N was under a duty to notify the insurer of the change to the risk address, there was no evidence presented to suggest that Mr N intentionally failed to disclose this information to the insurer in order to pay a lower premium, it said.
There was also no evidence on record that suggested that the insurer would not have accepted the risk had it been advised of the new address, said Chindomu.
“In light of all the submissions made by the parties to the dispute, OSTI was of the view that the insurer’s response to this office was disingenuous as its rejection letter acknowledged this to indeed be a change in risk due to Mr N’s failure to notify the insurer that he had changed the address where his contents were kept,” she said.
“The OSTI’s view was that essentially the insured failed to notify the insurer of a change in the risk.”
Chindomu said that section 53 of the Short-term Insurance Act precludes an insurer from declining a claim as a result of a nondisclosure or failure to disclose unless the insurer can establish that it would ‘have materially affected the assessment of the risk under the policy concerned at the time of its issue or at the time of any renewal or variation thereof’.
“The insurer has a duty to prove that a policy holder’s non- disclosure is material and the insurer needs to show how it has been prejudiced by the policy holder’s breach,” she said.
“Further, the ‘Didcott principle’ states that if the insurer would still have issued the policy, albeit at a higher premium – even if the information withheld materially affects the assessment of the risk by the insurer – then it would not be fair for the insurer to repudiate the claim.”
The OSTI therefore recommended that the insurer settle this claim on a proportionate basis if it could show that it suffered a premium prejudice, alternatively, if it could not, then it had to settle the claim in full.
The insurer accepted this recommendation and settled Mr N’s claim in full.