(Newsletter of the Ombudsman for Short-Term Insurance)
(011) 726-8900 Apr/May/Jun 2003 – Issue no. 04/06
Developments in the Ombudsman’s Offices …………………………………………….. 2
FAIS & FSOS Update ………………………………………………………………………….. 2 - 3
Ombudsman’s Advice …………………………………………………………………………. 3 - 8
Mutual & Federal v Gouveia - Comments …………………………………………… 8 - 11
Formal Rulings …………………………………………………………………………………. 11 - 13
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The Ombudsman for Short-Term Insurance.
Developments in the Ombudsman’s Offices
Subsequent to the Annual General meeting held on 27 March 2003 , the following
comprises the members of the Board and Council respectively of the Ombudsman’s
BOARD MEMBERS COUNCIL MEMBERS
Theuns Kotze Ronald Napier
Herman Schoeman Isabel Jones
Ronald M Gordon Lillibeth Moolman
Howard Cohen Adam Samie
Gail Walters Pinky Madladla
Angelo Haggiyannes Deon van Staden
For more information contact Mr Helm van Zijl
email@example.com / firstname.lastname@example.org
FAIS and FSOS Update
The appointment of the FAIS Ombud and Deputy Ombud has not been formally announced as at date
hereof and developments in this respect are eagerly awaited .The Advisory Commmittee at present is still
being consulted with regard to the Fit and Proper requirements. In addition the FSB has subsequently
released a consultative paper, “Ombudschemes in South Africa” in which, very briefly, the following inter
alia is posited :
The proliferation of alternative dispute resolution schemes, presents a problem for the
consumer whose interests are to be served.
All the existing schemes have limited jurisdiction;
The Financial Services Ombudschemes (FSOS) Bill makes provision for a “catch-all”
ombud (the FAIS Ombud operating under a different jurisdiction) to deal with complaints
which otherwise would have fallen between the cracks (jurisdictions of the existing
alternative dispute resolution schemes ). How this Ombud will in practice interact
jurisdictionally with the other schemes, still needs to be resolved.
At the FSB, a call centre became functional on 1 August 2002. It cannot resolve
consumer complaints but can assist in directing complaints or in bringing matters of
regulatory interest to the FSB’s attention. The call centre is a consumer facility and, in
addition, an aspect of the FSB’s consumer education drive.
What needs to be addressed, is to help the public through the maze of schemes
designed for the benefit of consumers, so that the very essence of alternative dispute
resolution, namely the quick and easy resolution of complaints, can come to full fruition.
In this regard the various Ombudsman Schemes / Adjudicators have met and jointly prepared
a written response to the paper which has already been submitted to the FSB .
FSB - Financial Services Board
FSOS - Financial Services Ombudschemes Bill
FAIS - Financial Advisers & Intermediary Services Bill
For more information contact Mr Helm van Zijl
email@example.com / firstname.lastname@example.org
Alteration of the risk
On 16 November 2001, the Insured acquired a Tazz for his son and quite correctly noted his son as the
regular driver of the vehicle. Three and a half months later the Insured contacted the Insurer to add a
further vehicle on to the Policy. He then also enquired as to why the premium on the Tazz was so high. He
was informed that it was because of the fact that his son was the regular driver. The Insured instructed the
Insurer to change the regular driver of the vehicle to himself. The Insured accordingly paid a premium of
R222.56 per month on the Tazz, but had his son been recorded as the regular driver, the premium would
have been R715.15 per month. Eight months later the Tazz was stolen while parked outside a Club. The
Insured’s son was the last person to use the vehicle and both the Insured’s wife, who submitted the claim,
as well as the son confirmed that the son used the vehicle most often and more frequently than any other
person for the last nine months. The Insurer repudiated the claim and in the Ombudsman’s view it was
entitled to do so.
Written notification of claim within 30 days
The Insured’s motorbike was damaged in a collision on Thursday, 20 th June 2002. The following day, i.e.
on Friday, 21st June, he gave telephonic details of the collision to his Broker which telefaxed to him on
Monday 24th June, claim forms. The motorbike was taken on a trailer to Linex Yamaha during that week,
and he was only able to collect the quotation from Linex Yamaha the following Tuesday, i.e. 2nd July 2002.
On Friday, 12th July 2002, his 79 year old father fell and was placed in Universitas Hospital, Centurion. The
Insured being a single parent and between his responsibilities with his father, son and work, only managed
to get to Linden Police Station on Tuesday, 23rd July 2002, to get them to stamp and sign off the motor
accident claim form. On Thursday, 25th July 2002, he faxed the claim form together with the quotation to
the Insurance Broker. The Insurer repudiated liability because the claim was not reported in writing within
thirty days of the event. The Insured was five days late within giving written advices to the Insurer of the
In view of the strict conditions of the Policy, requiring written notification of the claim within thirty days of
the event, the Ombudsman could not make a ruling against the Insurer.
Failure to activate security requirement
A lady who was a Safety Officer at Secunda, had called upon another lady’s house on a Wednesday night to
get the other lady to sign a contract. The Insured returned home at approximately 21 h05 and stopped in
front of her house. She locked the doors of the car (but did not engage the gearlock) and went inside her
house to give her husband the car keys so that he could open the garage doors and lock the car in the
garage. Her husband was however busy packing the caravan, as they were going camping for the weekend.
She met her husband at the front door and spoke for about four to five minutes. Her son went out of the
gate to unlock the garage so that his father could park it in the garage. He then said “Dad, Mom is pulling
your leg. She has already locked the car away”. As he said this, he passed the garage window, looked in
and shouted “Oh hell, they have stolen the car, phone the Police”. The Insurer repudiated the claim on the
basis that the Insured did not activate the gearlock at the time of the theft.
It was a requirement of the Policy that the vehicle be fitted with a VESA Level 3 or 4 or SAIA approved
Immobiliser, or VESA or SAIA approved lockable gearlock. Although the Insured did have a gearlock, she on
her own admission did not activate the gearlock at the time of the theft. The Insurer was accordingly
entitled to maintain its repudiation.
Non payment of premium
The Insured acquired a second hand Nissan Hard Body valued at R85,500.- with the assistance of Wesbank
and took out Comprehensive cover as required. The monthly premium was R544.54. After four months
the Insured omitted to pay the premium on 1st March 2002 and when the Debit Order was returned unmet,
a double Debit was done on 1st April 2002 only to be returned as a result of insufficient funds. On 28th April
2002, the Insured, who was driving the Nissan Hard Body in Tembisa, was hijacked. Two days later the
Insured deposited R530, which was in any event not sufficient to cover the outstanding premiums. The
Insured’s claim was repudiated and he was faced with a claim from Wesbank for the balance due under the
The Ombudsman could not assist the Insured because at date of the loss, two months’ premium had not
been paid, and the 15 day grace period in terms of the Policyholder Protection Rules having expired , and
in any event, the payment two days after the loss was insufficient to cover the arrear premium payments.
Failure to advise the Insurer of an increase in risk
The Insured resided in a secure complex, and on a Friday night between 23h00 and 10h00 on Saturday, he
visited his girlfriend who did not live in the same complex. When he returned to his house on the Saturday,
he found that he had been burgled. The Insurer paid out for his Laptop Computer which was covered by
All Risks Insurance, but refused to pay out the balance of the claim covered under the Household Risk.
At the time when the Insured took out the Insurance, he enjoyed a discounted premium because he resided
in a secure complex. The complex decided to do away with the 24-hour guard and it was during this
period that the theft took place. During this same period at least three thefts took place from units within
the complex and as a result the guards were reinstated. The Insurer stated that in the absence of the
security guards at the time of the theft, the risk was dramatically altered and this change was not notified to
The Ombudsman could not assist the Insured because it is an integral principle of Insurance that if the risk
changes during the period of Insurance, the Insurer is to be informed hereof. The Insurer was accordingly
entitled to stand by its repudiation.
The Insured purchased a three-piece Lounge Suite from a furniture store in terms of a Hire Purchase
Agreement. He took out an Insurance Policy to cover the balance due in terms of the Hire Purchase
Agreement in the event of his losing his work.
The Insured had described himself as a contract worker at the time of the inception of the Policy. Five
months after the purchase the Insured lost his work and he claimed in terms of his Policy.
The Insurer repudiated liability on the basis that the Insured worked on a contract basis and accordingly did
not qualify for cover. The Insured applied to the Ombudsman for assistance and as a result of one letter
written to the Insurer, the latter reversed its previous decision and settled the balance due in respect of the
account, amounting to R6,631.
Average In Motor Vehicle Insurance
The Insured’s 1992 Toyota Conquest was insured for R26,800.
On 3rd June 2002, and at approximately 07h25 the vehicle was extensively damaged whilst the Insured was
on his way to drop his son at school. The cost of repairs amounted to R28,953.39. The Insured decided
that it would be more economical for him to have his vehicle repaired. The Insurer however, gave the
Insured two options -
To be paid an amount of R26,800 less excess and the salvage (vehicle) becomes the property of the
To be paid an amount of R26,800 less 25% less excess and t he wreck could be retained by the Insured.
Patently, it emerged that the Insurer did not realise that no Average applies with regard to motor vehicle
Ultimately, the Insurer saw the light and the Insured was paid out his full amount of R26,800 less his
The Insured was involved in a collision on 12th October 2001. Damage was done to the left and front sides
of his vehicle as well as to the engine. The Insured was concerned about mechanical damage to the
engine, but the Insurer insisted in having the repairs done at a workshop of its choice and an Assessor of its
choice to verify the work.
He collected his vehicle on 16th November 2001 and whilst driving the vehicle from the panel beaters to his
house, the vehicle started to shudder and he then noticed a red warning light which had come on. He had
first thought that it was the handbrake light. Because of the fact that it was raining heavily he decided to
stop at the first garage, but before he could get to this turn-off, smoke came out of the engine hood. He
The Insurer refused to pay for additional repairs on the basis that the Policy does not compensate for
consequential loss. The argument was also advanced that the cracked cylinder head could have been
avoided had the Insured stopped when the warning light came on.
After one letter to the Insurer it tendered to pay two-thirds of the repair costs. The repair costs amounted
to R50,719.49. The Insurer tendered to pay R36,032.87.
There is an increase in the number of complaints which arise from the declinature of Motor claims due to
the alleged lack of insurable interest. The Ombudsman’s Office cannot arbitrarily accept a declinature on
In the matter of Phillips versus General Accident Insurance Company (S.A.) Ltd 1983 (4) SA 652W the
following appears at 659 -
“I am of the view that the author places too much emphasis on the insurable interest, and loses
sight of what the real inquiry is, namely whether the contract, having regard to all the surrounding
circumstances and especially the intention of the parties, amounts to a betting or wagering
agreement. If there is any doubt, the benefit should n my view be given to the insured, having
regard to the fact that normally the company has throughout the period of insurance accepted the
insurance premiums and that such a defence is really a technical one”.
The underlining is ours.
General Principles of Insurance Law : Reinecke van der Merwe, Van Niekerk and Havenga Page 38 reads as
“In Australia and New Zealand it was deemed necessary for the legislature to free insurable interest from its
so-called legal basis. Such a step is not necessary to facilitate the insurance of expectancies in South African
The problem arises from the insurance of motor vehicles which are not owned by the Insured and where
there is no direct financial loss to the insured person. A number of complaints arise because of a lack of
understanding and the insured person sees no problem when insuring his son’s motor vehicle under his
Policy for convenience sake. Provided it is clear that there is no element of a wager, and no other defence
for example misrepresentation or non-disclosure of material facts do not apply , the approach which will be
adopted by this office is as follows :
If the details of the true owner are disclosed to the Insurer or its representatives, then the claim should
be accepted without any reservations.
If the details of the true owner are not disclosed, then subject to certain facts, the Insurer will be
approached to settle the claim (some of the facts are):
that no ulterior motive is evident in arrangement of the Insurance on this basis -
that the Insurer would have accepted the insurance of the true owner on similar terms and conditions
which do not differ to any great degree to those arranged -
that the insured person is prepared to sign over all the rights to the proceeds of the claim to the true
that the insured person suffers a financial loss if the vehicle be lost or damaged.
The foregoing is a generalised approach and should not be seen as the only way of dealing with this
problem. Needless to say, should other circumstances prevail, then a different approach may be adopted.
We confirm that in terms of our jurisdiction, we are entitled to make a ruling that is to be based on the law
and proper insurance practice, which includes fair dealing and equitv. At the risk of stating the obvious, a
persistent and narrow view of insurable interest would be inconsistent with equity.
The stepson of the Insured was 19 years old at the time of the loss. He was not in fixed employment, only
had a temporary salary of R 1,200 per months and was still living with his stepfather and biological mother.
Under threat of a ruling did the Insurer ultimately admit the claim.
At the time of acquiring the vehicle for his daughter, the Insured had made a full disclosure that his
daughter would be the regular driver of the ultimately stolen vehicle. The facts abundantly showed that the
Insured’s daughter, who was working as a Social Worker with the Roman Catholic Church, was by no means
financially independent and was heavily subsidised by her father. Only under threat of a ruling did the
Insurer ultimately admit the claim.
Failure to deliver policy documents
The insured and her fiance stopped near an ATM. The insured’s fiance’ got out of the drivers
seat and on his way to the ATM was overpowered by two individuals, pummelled and kicked and asked for
the motor vehicle keys, which were still in the car. The insured was summarily pulled out of the car by a
third thief. They got into the car and sped off. The insured and her fiance then ran to the police station,
which was close by. Fortunately, the police had heard the insured shouting, immediately set off and located
the stolen car in fewer than five minutes. In the chase that followed the driver lost control of the vehicle
and was apprehended.
The insurer repudiated liability for the necessary repairs on the basis that the vehicle should have had a
tracking device fitted. It contended that the insured had the benefit of a 25% reduction on her premium.
The Ombudsman then pointed out to the insurer that no policy document had been furnished to the insured
within 30 days in terms of Section 47 of the Short-term Insurance Act, No. 53 of 1998, and that the Policy
Schedule, which had been furnished after the hijacking, also did not refer to a tracking device. The
Ombudsman accordingly argued that the insured was never aware of the requirement of a tracking device,
which would in any event, would not have avoided the loss. Under threat of a ruling, the insurer honoured
Incorrect year of manufacture
The insured purchased a Toyota Hilux double cab from Imperial Car Rentals in Namibia. Although the
vehicle was manufactured in 2000, it was imported into South Africa for the first time in 2001. The broker
advised the insured to insure the vehicle as a 2001 model because this was the year appearing on the
registration documents. The vehicle was stolen and the insurer repudiated the claim, relying upon the
decision in Labuschagne versus Fedgen Insurance 1994 2 SA 228W where the insured misrepresented the
year of manufacture of the vehicle.
The Ombudsman’s office pointed out to the insurer that the Labuschagne case referred to a 1986 vehicle
that was insured as a 1989 model (three years difference). In the aforementioned case, the
Judge inter alia had stated the following:
“In my view, fairness (as opposed to law) would dictate that defendant should pay the plaintiff
the true value of his car when it was stolen. This is a matter to which the defendant will, I
hope, give earnest consideration”.
Having regard to the Terms of Reference of the Ombudsman, which include “fair dealing and equity”, the in-
surer was advised that a formal ruling would be made if the claim was not admitted by a stated day. The
complainant’s claim was then admitted.
Non-payment of premium
On 6 April 2002, a husband and wife jointly purchased a BMW 316 and signed a debit order. Two days
later, on 8 April, the insurer cancelled the insurance pursuant to a telephone conversation between a clerk
and the insured. On 26 April the vehicle was taken for a Netstar fitment. A collision occurred on 2 June
and the insurer repudiated liability because no premiums had been paid subsequent to the first
It was pointed out to the insurer that the cancellation of the policy on 8 April was more than likely a
bureaucratic bungle on the part of the insurer, because the probabilities indicated that it was most
unlikely that a person would buy a new car and two days later cancel the insurance, and yet two weeks
later incur the expense of a Netstar fitment. Furthermore, the insureds, at all material times, had
sufficient funds in their bank account to pay the premium, if debited. The insurer agreed to admit the
A 63-year-old lady travelling on her own, took a taxi from Sydney to the International Airport. She had
four items of luggage, and on her arrival at the airport, the driver assisted her with the offloading of three
of them. He then drove off with the one remaining item.
The insurance company repudiated the subsequent claim on the basis that the policy wording excluded
“any loss of personal baggage stolen from an unattended motor vehicle if the items concerned have not
been locked out of sight”.
The Ombudsman pointed out that the facts giving rise to the claim fell within the terms of the policy. The
original reasons given by the insurer for repudiating the claim are irrelevant and were, in any event, not
contained in the documentation received by the insured when she took out the policy. Under threat of a
ruling the insurer honoured the claim.
For more information contact Mr Naresh Tulsie
email@example.com / firstname.lastname@example.org
Mutual and Federal Insurance Limited v Manuelle Gouveia
2003 Supreme Court of Appeal
This concerned an appeal from a judgement in the Witwatersrand Local Division concerning the proper
interpretation of an exception clause in a policy of insurance .
A motor vehicle belonging to the insured and comprehensively insured under a policy of insurance was
hijacked , whilst it was driven by a Mr Eduardo Cumbe with the plaintiffs permission. At the time of the
incident the plaintiff ( insured ) was aware that Cumbe was not licensed to drive.
He claimed indemnity arising out of the loss and the claim was repudiated. The Insurer relied for its
repudiation on an exception clause the effect of which was that liability would not follow if the loss occurred
whilst the vehicle was being driven by an unlicensed driver. The plaintiff instituted action, for compensation
against, the Insurer for the loss of the vehicle. The Court a quo ruled that the exception clause was
inapplicable and found the Insurer liable. The appeal was against that decision .
The following facts are common cause and formed the foundation of the stated case in the Court below:
1 .1 At the time the loss occurred there was in existence a valid insurance agreement (policy) ;
1.2 in terms of the said agreement of insurance the insurer undertook to indemnify the insured against
the risks stated in the agreement of insurance;
1.3 The risks included inter alia the risk of loss in respect of a Isuzu KB 230 (‘the vehicle);
1.4 The vehicle was hijacked on 9 June 2000;
1.5 At the time of the hijacking the vehicle was being driven by one Eduardo Cumbe with the general
knowledge and consent of the insured ;
1.6 At all times material hereto and in particular at the time of the hijacking to the insured’s
knowledge Mr Cumbe was not in possession of a valid driver’s licence ;
1.7 The insurer repudiated the claim on the basis that Cumbe was not in possession of valid driver’s
In Section 1 of the policy the insurer agreed to indemnify the insured against loss of or damage to the
The obligation was subject to a number of exceptions the relevant one being :
“The Company shall not be liable in respect of
Any accident, injury, loss, damage or liability caused, sustained or incurred whilst any
vehicle insured under the policy is being:
(b) driven by the insured or with his general knowledge or consent, by any person;
(i) unless he is licensed to drive such vehicle in accordance with the legislation of the
territory’ in which it is being used.”
In repudiating the claim the Company invoked the exception clause which, it claimed, entitled it to
avoid liability on the ground that at the time of the hijacking the vehicle was driven by Cumbe who was, to
the plaintiffs knowledge, not licensed to drive the vehicle in accordance with the laws of the territory in
which it was driven.
The insured’s s riposte was that the absence of a drivers licence, was irrelevant where the vehicle was lost
in a hijacking because the absence of such licence was not the cause of the loss, he maintained that the
Company would only be able to avoid liability where the loss was causally related to the driver having
been unlicensed, it was contended in the alternative that the loss had not occurred at the time of the
hijacking, but only after the thief had driven away with the vehicle. This latter argument was rejected by
the Court a quo who held that “ once a hijacking incident occurs, loss is occassioned thereby”.
According to the learned Judge the real issue in the case was whether the loss was causally connected to
the lack of a driver’s licence on the part of the person who was driving the vehicle. After examining certain
exceptions referred to in the policy , he came to the conclusion that liability would only be excluded if the
loss is “caused” by the situation set out in the exception .
The specific situations mentioned are where the loss was caused by wear and tear, mechanical or electrical
breakdowns, failures or breakages’ and cases where death had occurred or personal injury sustained, He
held that what was contemplated in the exception clause was a ‘loss’ occassioned by or directly attributed to
the lack of a valid drivers licence on the part of the person driving the motor vehicle. Because the hijacking
had nothing to do with, the lack of a valid drivers licence on the part of the driver, he found that the
exception clause was inapplicable. .
The Supreme Court of Appeal did not agree . “ I fail to see how the instances cited by the judge a quo
provide a basis for reading causation into the exception clause. This approach is not borne out by the c1ear
words used in the clause which, in the courts view; connote a temporal connection rather than a causal
connection . This is especially if regard is had to the introductory conjunction “whilst”’ used in the clause.
The clause speaks of a ‘loss’ which is incurred ‘whilst’ the vehicle is being driven. If during that time.
(hence the use of the word ‘whilst’) the driver is unlicensed, the exception applies. The proper approach to
be adopted in interpreting a policy of insurance has been authoritativelv stated to be the following :
‘The ordinary rules relating to interpretation of contracts must be applied in construing a policy of
insurance. A court must therefore endeavour to ascertain the intention of the parties. Such intention is,
in the first instance, to be gathered from the language used which if clear , must be given effect to .
This involves giving the words used their plain, ordinary and popular meaning unless the context
indicates otherwise (Scottish Union & National Insurance Co Ltd v Native Recruiting Corporation
Ltd 1934 AD 458 at 464—5) . Any provision which purports to place a limitation upon a clearly
expressed obligation to indemnify must be restrictively, interpreted (Auto Protection Insurance Co
Ltd v Hanmer-Strudwick 1964 (1) SA 349 (A) at 354 C—D); for it is the insurer’s duty to make clear
what particular risks it wishes to exclude… . –‘
There can be no question that if the ordinary meaning of the words in the exception clause is given effect
to, the plaintiff and Cumbe fell squarely within the terms of the exception clause . Reading causation into
the exception clause is not justified by its wording . I agree with the submission that such an approach may
have the effect that even in the case of an accident involving an unlicenced driver the insurer would still
not be able to rely on the exception clause because it would have to prove, not only the absence of the
licence but also that the lack thereof caused the accident. The practical effect would be that the company
would only be exempted if the unlicensed driver’s lack of skill in driving the vehicle caused the accident.
That would mean that not only causation but also negligence on such a driver’s part is required and that
clearly, is not the intention conveyed in the clause It is true that the exception clause in casu must be
restrictively interpreted but equally true is the fact that the ordinary meaning of the words must be given
The clause must then be applied to the facts agreed to by the parties in the stated case. At the time of the
loss the vehicle was being driven by Cumbe, with the plaintiff’s general knowledge and consent. Cumbe
was, to the plaintiffs knowledge, not licensed to drive such vehicle in accordance with the legislation of the
territory with which it was being used. It does not assist for the plaintiff now to say that the loss occurred
only after the vehicle was driven away by the thief. The agreed facts in the stated case stand in the way of
that argument. When the stated case was formulated it would appear that the parties regarded hijacking as
a composite process involving both the hijack arid the theft. That much is clear from paragraph 1 .5 of the
stated case which refers only to the vehicle being driven ‘at the time of the hijacking’. Nowhere in the
stated case is there reference made to ‘at the time of the loss’. On an overall conspectus of the terms of
the policy and the agreed facts in the stated case , I do not think it is open to the plaintiff now to argue that
the ‘loss’ was not caused by the hijacking’ and thereby unilaterally enlarge the scope of the stated case.
The loss post-hijack approach on which the plaintiff now seeks to rely appears to be an afterthought. In the
context of this case there is no merit in the argument and it was correctly rejected by the judge a quo
Accordingly the appeal succeeds with costs.”
The Court’s decision is legally correct in that it is clear that in interpreting the policy this was the cover being
afforded to the insured subject to the stated exceptions . However one cannot help but feel unease at the
outcome. Surely the argument that the fact that the driver of the insured vehicle was unlicensed , and that
this did not cause or contribute to the hijacking , or alternatively that the hijacking would have occurred in
any event had he been licenced or not , merits some attention and consideration . And surely the matter on
these facts are markedly different to that where the unlicensed driver is the cause of the loss , for example
where the lack of driving skills of the unlicensed driver results in him causing a collision , leading to the
inevitable claims for damage to the insured vehicle as well as damages to the other vehicles involved in the
By analogy most policy wordings contain exclusion clauses excluding liability whilst the vehicle is being
driven in an unroadworthy condition . However consider the situation where the insured vehicle, having all 4
tyres with tread depth below the legal limit , therefore unroadworthy is involved in a collision . Certainly the
mere fact that the vehicle was unroadworthy because of the tyres should not by itself warrant a repudiation
of the claim . Taken an extreme example where such “unroadworthy vehicle “ is stationery at a robot
controlled intersection and is rear ended by a third party vehicle which is unable to brake in time . Surely
the fact that the tyres tread depth had no bearing on the collision , and the insured should be able to claim
? This office on such occasion and faced with such facts has used such argument and convinced insurers to
paying such claims . Whilst it cannot be used as a hard and fast rule for any claim with similar
circumstances , the materiality of non-compliance with the provisions of the policy in relation to the claim
must be taken into account , and inflexible / rigid approaches should be avoided , failing which insured’s
might find themselves , after having paid a number of years of premiums ( as we are often reminded of by
complainants ) , without a valid claim , even though such “indiscretion”/non-compliance on their part had
played no part in the loss actually occasioned .
In the event of this matter having been referred to this office for adjudication [ and bearing in mind that
this office is empowered to deal with matters on a legal basis and in addition to look at fairness and equity ]
, we would hold the view that the fact that the vehicle was being driven by an unlicenced driver had no
bearing on the loss actually suffered by the insured , and that the insured is entitled to be indemnified in
terms of the policy . The fact that the court a quo sought to found means in favour of the plaintiff ( insured)
is a clear indication of the reluctance of that court to deny an insured a claim in the circumstances of this
matter . Whilst the conclusion was to be welcomed , the reasoning , it is our respectful submission , does
not stand up to legal scrutiny , as pointed out by the Supreme Court of Appeal .
Perhaps reform of this aspect of South African Insurance law , in addition to the issues of insurable interest,
non-disclosure and misrepresentation , materiality and the tests thereof , would be the most appropriate
means of resolving these ‘controversial’ aspects of our insurance law where the experiences of foreign
jurisdictions especially in England , Australia , America , Canada could be taken into account .
For more information contact Mr Naresh Tulsie
email@example.com / firstname.lastname@example.org
Formal Ruling No. 1
(Ombudsman’s Reference S29/98)
Proportionate refund of premium for comprehensive motor-vehicle policy paid annually in advance – Whether any
portion of the premium is refundable by the insurer if the vehicle insured is completed destroyed prior to the end of
the insurance period.
The insured claimed he was entitled to a refund of one half of an annual premium paid in advance where,
after six months, the vehicle insured had been completely destroyed in an insurable event. The insurer
contended that in the absence of any specific provision in the policy, the insured was not entitled to any
refund. The insurer had agreed to hold the vehicle covered for a specific period, and the insured had paid a
premium for that specific period, so the question of when any actual total loss took place during that period,
The Ombudsman upheld the insurer’s view, pointing out that many comprehensive policies issued
contained residual cover (for example, when the insured was driving another vehicle). This ruling was in
accordance with a ruling some years ago by the British Short-term Insurance Ombudsman in similar
circumstances, but the British Ombudsman mentioned that there was a very frequent practice amongst
insurers that if the insured took out insurance for another vehicle with the same insurer, the insurer
immediately gives credit for the period outstanding on the original policy. The Ombudsman approved of this
practice. He noted, though, that the position might be different if, after the happening of the event and the
payment of the claim, the insurer took steps to cancel the policy.
It must be borne in mind that insurers in furnishing annual policies do so at a discounted rate , hence the
benefit to the insured . But this does not then mean that should the subject matter of the insurance , eg the
motor vehicle insured be a total loss , or is stolen or hijacked during the period of insurance , that the
insured be entitled to a refund of premium for the remaining period of the insurance policy after the loss .
Formal Ruling No. 2
(Ombudsman’s Reference B129/98)
Motor insurance contract providing for refund of excess and reinstatement of ‘no claim bonus’ where motor
accident not due to any fault of insured – Insured to provide ‘complete and absolute proof’ of absence of such fault
– Meaning of expression
A motor-vehicle insurance contract contained the following clause:
‘No Claim Bonus
In the event of a motor vehicle accident provided the Insured provides complete and absolute
proof that the driver was totally free of negligence without contribution to the cause of the
accident, then the application of the No Claim Bonus shall not be effected and the FIRST AMOUNT
PAYABLE shall not be payable by the Insured’.
The Insurer repudiated a claim for a refund of an excess and for reinstatement of the bonus where the
insured could not provide an admission of liability by the other motorist or a sworn affidavit by an
independent third party not a passenger in either vehicle. The insured provided an affidavit by himself
supported by an affidavit by a passenger in his vehicle. In addition, the other party failed to defend civil
proceedings instituted by the insurer under subrogation rights claiming damages, and a default judgement
The Ombudsman held these facts constituted ‘complete and absolute proof’ of the absence of negligence,
and formally recommended the refund of the excess and the reinstatement of the ‘no claim bonus’.
Surely it could not have been the intention of the parties that in order for the Insured to be entitled to a
refund of the excess and reinstatement of the no claim bonus , that the insured should meet what is in
effect an onus of proof to the Insurer which is not only more stringent and demanding than the civil
standard of onus of proof ( ie . on a balance of probabilities ) , but also more demanding that the criminal
onus which requires proof beyond a reasonable doubt . Lawyers , parties to litigation have enough
difficulties satisfying these onuses and to expect of an insured who in the majority of cases are laymen to
meet such an onus is in our view “Mission Impossible .”
Formal Ruling No. 3
(Ombudsman’s Reference M42/98)
Policy requiring vehicle to be equipped with a certain type of immobiliser – Insured submitting certificate by
manufacturer as to immobiliser fitted to broker appointed as ‘werwings-agent’ or canvassing agent to the insurer,
and obtaining confirmation that certificate is in order – Insurer subsequently repudiating claim on ground that
immobiliser not the model required and that broker not authorised to give assurances on its behalf.
In taking out comprehensive motor-vehicle insurance, the insured dealt with a broker who also acted as
‘werwingsagent’ or canvassing agent for the insurer. The broker issued the policy on behalf of the insurer
after completion of the proposal form. A certificate by the manufacturer as to the details of the immobiliser
fitted to the vehicle was confirmed in writing by the broker as complying with the policy specification. The
insurer repudiated a subsequent claim arising from the theft of the vehicle some months later on the
grounds that the immobiliser did not in fact comply with the policy specifications, and it submitted to the
Ombudsman a copy of the agreement under which the broker was appointed as ‘werwingsagent’ and which
specifically prohibited the agent amongst other things from making any representations which bound the
insurer. It submitted that in any event the broker was the insured’s agent.
The Ombudsman held that the normal rule that the broker was the agent of the insured did not apply in the
case where the broker had specifically been appointed as the insurer’s agent; that the insured could not be
expected to be aware of any limitations to the agent’s authority contained in the agreement with the
insurer; and therefore that the written confirmation by the agent in regard to the adequacy of immobiliser
bound the insurer.
The insurer complied with a formal recommendation by the Ombudsman that the claim be met.
Commonly the insurance practice of late would involve inter alia the following parties to an insurance
CLAIMS / POLICY ADMINISTRATOR
To the above the following has to be added : collecting agent , coverholder , canvassing agent etc. This
when added to the fact that a large number of “brokers” appear to act with two(2) hats simultaneously ie.
as agent for the insured and agent for the Insurer , and the fact that a large proportion of the complainants
to this office are not able to identify accurately the actual insurer / underwriter , or infact to distinguish
between who is the broker and who the Insurer is . This has been addressed to a certain extent by the
Policyholder Holder Protection rules , and the regulations thereo , but has not removed all uncertainty in the
minds of the (unsuspecting?) insured as to who the actual insurer is , who acts as his agent , or the
insurer’s agent and where such “ broker” acts as both his and the insurer’s agent .
For more information contact Mr Naresh Tulsie
email@example.com / firstname.lastname@example.org