The 2020 annual report from the Office of the Short-term Ombud (OSTI) shows some very interesting trends which developed during the year under review.
Reasonable Precautions claims
Refuted claims under the “reasonable precautions” clause showed a substantial increase over the previous three years. This refers to the insured’s obligation to exercise due care concerning the insured vehicle and to prevent loss. Essentially, the clause excludes the insurer’s liability for a claim arising from loss or damage caused by the insured’s own actions. In many of the matters considered in 2020, the insurer’s decision to decline liability was based on allegations that the insured was driving over the regulated speed limit.
Motor vehicle insurance disputes
At 73%, accident-related claims remained the highest number of complaints considered by OSTI in this category. Warranty and mechanical breakdown claims comprised 11%, theft and hijack claims 7%.
The number of complaints relating to motor vehicle claims rejected on the reasonable precautions clause increased substantially. In 2018 these types of complaints increased by 48% when compared to 2017. OSTI considered close to 300 complaints on the issue and this number has remained more or less constant in 2020.
In previous years, some insurers relied on insufficient circumstantial evidence to justify rejections based on driving under the influence (DUI), in which case OSTI would overturn the insurers’ decisions. The upward trend in insurers relying on the reasonable precautions clause, in the view of the OSTI, may have, in some measure, been influenced by this. When the OSTI reviews the merits of such a dispute, there is frequent mention of a suspicion that the incident driver was under the influence of alcohol, however, the assessment of the claim by the insurer may not have yielded sufficient evidence to sustain a rejection on this ground.
The insurers’ reliance on the reasonable precautions clause has, in some cases, been incorrectly applied and/or unsubstantiated. In adjudicating these matters, OSTI has adopted the courts’ approach. It generally recognises that the clause must be restrictively construed to ensure that it does not undermine the very purpose of having a policy of insurance, which is to cover an insured’s negligence. An insurer may only successfully rely on the clause if it can prove that a driver acted recklessly, in a specific legal sense. Speed alone, for instance, does not amount to recklessness. Therefore, a claim cannot be invalidated by the insurer if it is, at best, established that the insured drove negligently at the time of the collision.
Homeowners’ insurance disputes
54% of complaints considered by OSTI under this category related to claims for damage caused by acts of nature, largely storm-related damage. With changes in the weather patterns, we anticipate that catastrophic storm-related claims will become prevalent.
OSTI considered a total of 2 100 homeowners’ insurance disputes in 2020, 15% more when compared to 2019. The primary cause for the complaints, at 47%, was the rejection of claims based on policy exclusions for damage caused by defective design, construction or workmanship, wear and tear, and lack of building maintenance.
This cause for complaints increased by 17% in 2020 and continues to be the main basis for consumer dissatisfaction in homeowners’ insurance coverage.
One aspect that needs mentioning concerns homeowners’ insurance policies issued under a home loan with the bank. Often, an evaluation of the building is conducted by the bank at the time of the purchase to establish whether the property is of sufficient value to act as security for the loan. The evaluator does not inspect the property for insurance purposes. As such, the assessment does not warrant that the property is free from underlying structural defects, wear and tear or other maintenance-related issues that may affect the outcome of a future claim. Generally, an insurer is under no obligation to inspect the property before the commencement of an insurance policy since insurance contracts are entered into in good faith. It is the insured’s responsibility to ensure that the building is properly maintained and structurally sound.
Household content insurance disputes
Theft and burglary claims comprised 55% of complaints considered by OSTI under this category. This was a 17% decline compared to last year’s figure. Complaints relating to damage caused by power surges increased from 3% in 2018 to 6% in 2019. Last year 11% of household contents disputes related to power surge claims. This cause of damage will remain a concern for consumers during periods of load-shedding. This event is excluded from the cover in some household content insurance policies.
Commercial insurance disputes
The total number of commercial complaints considered by OSTI in 2020 surged by 62% when compared to 2019. Motor vehicle complaints comprised 21%. This was a 12% decline when compared to 2019. Building complaints also declined from 23% in 2019 to 18% in 2020.
In its 2019 Annual Report OSTI predicted an increase in complaints related to COVID-19, particularly around business disruption and travel. In 2020, 22% of commercial insurance complaints related to business interruption claims. The majority of these, 15%, concerned COVID-19-related business interruption.
