An insured’s request to modify his policy to cover his vehicle for business use materially changed the nature of the policy, and the financial services provider should have obtained additional information to ensure the cover was appropriate to his needs.
This is according to a case study published last month by the Ombud for Financial Services Providers.
The Ombud’s Office used the case to inform consumers about why it is important to ensure the correct usage of the vehicle is recorded on the policy. If a loss occurs when the vehicle is not being used in accordance with the specified usage, the insurer may reject the claim.
The Office says that if consumers use the services of a broker or intermediary, the broker or intermediary must adequately appraise them of the different classes of use, so they can make an informed decision that ensures they are adequately covered.
The three classes of use are private use, business use, and commercial use.
Private use, which applies when a vehicle is used only for private and social purposes, which includes driving to and from one’s place of employment. Business use applies when a vehicle is used as part of one’s work, such as seeing clients. Commercial use covers vehicles used to generate an income, such as carrying fare-paying passengers or transporting goods.
It is apparent from the case study that not all consumers understand the difference between business use and commercial use.
The complainant’s policy for comprehensive cover for his motor vehicle was incepted in December 2023. The vehicle was insured for private use. The complainant wanted to use the vehicle to operate as an Uber driver, so after registering the vehicle on the Uber platform, he approached the FSP to modify his policy to cover the vehicle for business use. In January 2024, the complainant received the amended policy documents confirming that the vehicle class of use was now business.
In February 2024, the vehicle was damaged in an accident, and the insured lodged a claim for the repairs. The insurer rejected the claim, referring to the exclusion for commercial travel or the transportation of fare-paying passengers. The insured submitted he was unaware of the exclusion.
In response to the policyholder’s complaint, the FSP confirmed the change from private to business use. The FSP was of the view that because the complainant received the policy contract, he had diligently perused it, and the complainant knew that cover would not extend to commercial use.
In addition, the FSP did not believe it had a duty to provide advice in this instance, because effecting the changes in accordance with the complainant’s requests could not be considered anything more than executing an instruction.
Material change
The Ombud’s Office disagreed. It said the changes requested by the policyholder materially changed the nature of the policy and the cover provided. Therefore, the FSP had a duty to act with the required due skill care and diligence and to have obtained additional information from the policyholder to ensure that the cover provided was appropriate to his needs. In other words, there was a duty to comply with the requirements of section 8 of the General Code of Conduct for Authorised Financial Services Providers and Representatives.
If the FSP had done so, it would have discovered that business use would not have provided cover once the complainant registered the vehicle with Uber, because fare-paying passengers are specifically excluded from business use, and the complainant could have been correctly advised to have applied for commercial use cover.
“By simply actioning the instruction received, the respondent fell short of its duty of care and missed the opportunity to place the complainant in a position to make an informed decision as to the appropriate class of cover, as required in terms of section 7(1)(a) of the General Code of Conduct,” the Ombud’s Office said.
The Office asked the FSP to resolve the matter with the complainant, and the respondent confirmed that the claim would be settled. The settlement amount was not disclosed.
