It is standard practice for insurers to make it a requirement that a motor vehicle is inspected for cover to commence. The insurer wants to confirm that the vehicle exists and to know the condition of the vehicle, to prevent claims being made on existing damage.
Two cases came before the Ombudsman for Short-term Insurance (OSTI) where the insurers rejected the claims because the insureds had not taken their respective vehicles to be inspected at the insurers’ designated service providers or conducted the inspections themselves using the insurers’ mobile apps.
The August 2023 edition of the Ombudsman’s Briefcase reports on why the OSTI ruled in favour of the insured in one case and in favour of the insurer in the other.
CASE 1
The insured’s vehicle was involved in an accident shortly after the policy began. The claim fell within the excess, and the insured paid for the repairs.
The insured subsequently submitted a claim for the theft of her vehicle. The insurer declined the claim because the insured had not taken the vehicle for an inspection when the policy was concluded. Therefore, there was no cover in force.
The insured said she was under the impression that the cover was in force because the insurer processed the theft claim.
The insurer submitted that the insured was advised telephonically and in writing to take her vehicle for an inspection. The insured was advised that until the inspection was completed, she would have only third-party liability cover, and her full premium would be deducted.
The insurer submitted further that communication was sent to the insured when the policy was amended. The insured was advised that the inspection was outstanding, and the insurer confirmed the details of the service provider where the insured could take the vehicle for an inspection.
The insured was also advised how to do the inspection herself using the insurer’s app.
The insurer relied on the following provisions in the policy to decline liability for the theft claim:
15. SPECIAL CONDITIONS – AGREE TO A VEHICLE INSPECTION
15.1. We may request that an approved party inspects the vehicle(s) at the start date of cover or at any other time. The vehicle must be submitted for inspection immediately after being requested to do so. Based on the outcome of the vehicle inspection, we also reserve the right to amend the terms and conditions of the policy, or to cancel cover with immediate effect. Should the vehicle not be inspected, we reserve the right to amend the terms of the policy or cancel cover for that vehicle.
POLICY REQUIREMENT/S WHY MUST YOU AGREE TO A VEHICLE INSPECTION?
It is a policy requirement for your vehicle/s to be inspected at […] our approved service provider. This inspection must take place before your policy start date or immediately if your cover has already commenced. Your cover is conditional upon inspection of your vehicle/s, and you will have ‘third party only’ cover until completion of the inspection.
It is your responsibility to take your vehicle/s for this inspection. Please note that your full premium as quoted will be collected on the agreed date irrespective of whether confirmation of inspection has been received or not.
The insurer argued that because the first claim fell within the excess, no payment was due to the insured and no claim validation was done. The insurer stated that it had not waived any of its rights in terms of the policy and, because that claim had not been covered, no indication was made that the policy was effective.
OSTI’s findings
The OSTI noted that during the validation of the first claim, the insurer appointed its service provider to conduct a digital assessment of the vehicle. The insured had submitted photographs of the damage to the vehicle to the insurer.
The existence of the vehicle could easily be verified by the assessment that was conducted by the insurer’s service provider shortly after the policy incepted. The photos submitted by the insured demonstrated that the vehicle existed and confirmed its condition before the second claim.
The insurer’s argument that the first claim had not been validated was not supported by any evidence. In fact, the insured provided evidence that the first claim was processed, and she was advised to carry the loss herself because the damage fell within the excess. The OSTI agreed with the insured’s assertions that the policy had been validated at that stage.
The OSTI stated that when the first claim was submitted, the insurer should have emphasised the significance of the inspection. If the insurer still insisted on an inspection, the insured should have been informed at that stage that she had to ensure the inspection was done, or she would not have cover under the policy.
If the insured’s first loss been handled properly, the insured would have been informed that the policy was not in force because of her non-compliance with the inspection requirement and not that the claim fell within the excess.
The insurer could not revert to the pre-inception sales discussion when subsequent developments had clearly overtaken that fact.
The OSTI found that the insurer had not demonstrated any prejudice by the insured’s non-compliance with the inspection requirement. The circumstances of the theft claim were not disputed. Therefore, the OSTI recommended that the insurer settle the claim.
The insurer did not agree with the recommendation and escalated the matter to the Escalation Committee.
The Escalation Committee issued a provisional ruling against the insurer, which agreed to settle the claim.
CASE 2
The insured’s vehicle was stolen from his home 10 months after the vehicle was placed on cover.
The insurer rejected the claim because the insured did not take the vehicle for an inspection.
In his complaint to the OSTI, the insured did not dispute that the inspection requirement was not met. The insured argued that the insurer was able to make use of alternative means to validate the claim, particularly because premiums were deducted monthly.
The insurer stated that the insured was informed telephonically that a condition for cover to commence would be for the insured to take the vehicle for an inspection at a service provider. Alternatively, the insured could conduct the inspection himself through the insurer’s app.
The insurer also provided proof of correspondence sent to the insured after the sales call that set out the same condition for cover.
The insurer advised that during the validation of the claim, a Hire Purchase Investigation was conducted on the vehicle based on the information provided by the insured. The insurer did not find any match on the make, model, colour, VIN, or engine numbers provided by the insured. In fact, the vehicle registration number belonged to another vehicle.
The insurer also noted the following:
- The vehicle was second hand.
- The vehicle was not recovered; therefore, there was no physical evidence to confirm the existence of the vehicle.
- There were no witnesses or third parties to the incident.
Having regard to the factors mentioned above, the insurer argued it was wholly material that an inspection was not conducted at the inception of the cover. The insurer submitted it could not confirm the existence or condition of the vehicle before the date of the loss and, more importantly, after the inception of the policy.
OSTI’s findings
The OSTI said the insured failed to meet a specific condition for cover, which resulted in the insurer not being able to validate the claim properly because of the discrepancies it noted.
Furthermore, the insurer successfully demonstrated it exhausted all avenues to ensure that the claim was validated despite the condition of cover not being met. It therefore considered it material that the vehicle was not inspected and that the condition for cover to commence had not been met.
The OSTI agreed that, based on the information available, it was impossible to establish whether the vehicle existed. The rejection of the claim was upheld.
