The Financial Services Tribunal (FST) has set aside a determination by the FAIS Ombud that dismissed a complaint brought against Old Mutual Insure (OMI) for rejecting a third-party liability claim.
In its decision, the tribunal said it was unclear precisely what the ombud had determined, and it was uncertain of the reasons on which the determination had been based.
In addition, the FST said it was disquieting that the ombud had failed to respond to questions from the deputy chairperson of the tribunal.
A key issue addressed by the FST was whether the time that lapsed between the incident and the lodging of the claim – three years – entitled OMI to reject the claim. Similarly, whether this time lapse meant the ombud was precluded from considering the complaint.
The tribunal also considered various other exclusions in the policy that OMI cited as grounds for repudiating the claim.
The applicant was Million Dollar Farms (Pty) Ltd, the owner of a farm in Douglas Valley, Bloemfontein, which had an Agriplus policy with OMI. The farm was occupied by a tenant.
On 13 January 2016, the tenant’s fiancé and a visitor sought cover behind a wall during a windstorm. The wall collapsed, seriously injuring both women. The tenant’s fiancé died because of her injuries.
On 10 January 2019, the visitor issued summons against Million Dollar Farms and the tenant, claiming compensation of R1.308 million for her injuries. Million Dollar Farms submitted a liability claim to OMI the following month.
In April, OMI repudiated the claim on three grounds:
- The claim was reported almost three years after the incident. This was a breach of clause 7(a) of the policy’s General Conditions and Exceptions, which required Million Dollar Farms to notify OMI of the incident “as soon as reasonably possible” after it happened.
- Million Dollar Farms failed to inform the underwriters of the incident when the policy was renewed.
- The buildings on the farm were not maintained, and the wall that collapsed did not comply with the National Building Regulations.
Million Dollar Farms complained to the FAIS Ombud in July 2019. (The complainant forewent the amount of its claim in excess of R800 000 to bring it within the ombud’s jurisdiction.)
The ombud rejected the complaint in a determination dated May 2021.
Material dispute of fact
One of the reasons the ombud rejected the complaint was that she was not in a position to resolve a material dispute of fact: had Million Dollar Farms failed to maintain the wall in a good state of repair, thereby breaching clause 4 of the General Conditions and Exceptions?
The FST said the ombud’s determination referred to section 27(3)(c) of the FAIS Act, which empowers the ombud to determine that it is more appropriate for a complaint be dealt with by a court and decline to entertain the complaint.
If the ombud had declined to entertain the complaint on this basis, that would have been the end of the matter, the FST said. “But the ombud does not seem to have done so (although this is not clear). The ombud went on to state further reasons for its ‘decision’.”
The FST’s decision addressed the further reasons. This article will highlight some of them.
Insurer must prove the insured could have given notice earlier
The tribunal said although “it is far from clear” from the determination, the ombud seems to have accepted OMI’s argument that Million Dollar Farms breached clause 7(a) of the General Conditions and Exceptions (by not reporting the claim “as soon as reasonably possible”) and it was therefore entitled to reject the claim.
The FST said OMI bore the burden to prove that Million Dollar Farms had acted in breach of the clause. But it had not done so. Click here for a summary of the tribunal’s findings in this regard.
Three-year period refers to an act or omission by an FSP
The FST said section 27(3)(a)(i) and (ii) of the FAIS Act did not provide the FAIS Ombud with grounds for rejecting the complaint on the basis that the three-year lapse between the incident and the claim precluded her office from investigating the complaint.
It said both the ombud and OMI had incorrectly identified the “act or omission” referred to in section 27(3)(a)(i) with the event that may result in a claim, whereas it referred to an act or omission by the FSP. Click here for an elaboration of this point.
The claim had not prescribed
The FST said it seemed that OMI had relied on the Prescription Act in its submission to the ombud that Million Dollar Farms’ claim had prescribed on 10 January 2019.
This assertion was the result of its failure to identify that prescription starts to run when the debt falls due. Million Dollar Farms’ claim did not arise (and the debt did not fall due) on the day the wall collapsed, as OMI seems to contend. It will arise only once its liability to the third party in a fixed amount has been established.
Notification of the state of the wall
OMI submitted that Million Dollar Farms breached clause 2 of the General Conditions and Exceptions, which required the insured to notify OMI immediately in writing “of all alterations in the risk and variations in sums insured and any other changes and obtain [OMI’s] acknowledgement of such notification and confirmation of cover under this policy”.
The FST said OMI has not shown that the breach of the clause resulted in Million Dollar Farms forfeiting the right to claim compensation or an indemnification.
In addition, the tribunal said it was not persuaded that clause 2 imposed upon the insured the obligation to notify the insurer that the wall was in a state of disrepair. OMI had not shown that the state of the wall changed since the policy was issued or renewed from time to time.
Fiancé’s death not relevant to the claim
OMI submitted that Million Dollar Farms was in breach of clause 7(d) of the General Conditions and Exceptions, which obliged the insured to notify OMI of an impending inquest “in connection with the event giving rise to the claim”.
The FST said OMI has not shown that the breach of the clause results in the applicant forfeiting the right to claim compensation or an indemnification.
It was questionable whether this clause even applied. The claim arose from a bodily injury sustained by a third party, not the death of a third-party. An inquest is aimed at determining the cause of death. The cause of the death of the tenant’s fiancé was irrelevant to the third party’s claim for bodily injury. It was coincidental that the same event also resulted in the death of a person, the tribunal said.
Ombud’s failure to respond to the tribunal
After summarising its findings, the FST said one issue remained that it had to mention:
“In his ruling granting to the applicant leave to apply for the reconsideration of the ombud’s determination, the deputy chairperson of the tribunal invited the FAIS Ombud to explain (a) why it took two years to finalise this matter; (b) whether section 211 of the FSR Act was considered*; and (c) what does the death of the deceased […], who is not the complainant, have to do with the matter? Additionally, an assurance was sought by the deputy chairperson that the full record has been filed,” the tribunal said.
“None of this happened, nor has the tribunal been afforded the courtesy of an explanation for the ombud’s failure to respond to the questions put by the deputy chairperson. It is disquieting, to say the least, that the FAIS Ombud did not consider it necessary or important to respond to the questions posed by the deputy chairperson. The questions in paragraph (b) and (c) relate to the merits of the ombud’s determination and may have assisted us in the adjudication of this application.”
The tribunal set aside the determination and referred it back to the FAIS Ombud for further consideration.
* Section 211 of the Financial Sector Regulation Act came into view because of the ombud’s assertion that the Ombudsman for Short-term Insurance does not have jurisdiction over complaints relating to public liability claims; therefore, the matter should be dealt with by a court.
