The first case, on which I will not dwell, concerns a claim for business interruption following water damage to a sound system, televisions, camera system, a computer system and a point of sale.
The loss in respect of the damage to the items was accepted by the insurer. The insured also claimed for loss of sales, and the insurer offered the insured three days’ worth of lost sales.
The insured declined the offer and argued that the business was only restored to its original operations after 13 days. Although the shop was opened for trade, it could not provide its patrons with the “vibe” that they were accustomed to. The financial statements showed that the insured continued to trade, and there was no evidence to support a nexus between the water damage and an interruption or interference to the business.
Late notification of public liability claim
This case offers some valuable insights into the importance of clear, recorded communication between the insured and the insurer.
The insured is the owner of a game farm. On 28 December, the foreman’s girlfriend (the third party) visited him at the farm. She stuck her hand through the fence of an enclosure where a tiger was held. The tiger bit the third party, amputating the tips of her fingers and lacerating her hand.
On 14 April the following year, the third party’s attorney addressed a letter of demand to the owner of the insured farm. The summons was subsequently served on the insured on 15 June. The insured sent a copy of the letter of demand and summons to the insurer on 17 June. The claim was rejected by the insurer on 23 July. The primary rejection reason was the late notification of the claim to the insurer.
The insured disputes the rejection
The insured’s attorney alleged that the broker notified the insurer of the incident by telephone in December, one day after the incident occurred. The insurer said that it had no record of receiving any notice by telephone or in writing until 17 June.
The insured’s attorney also argued that the insured could not reasonably have been aware of a potential liability claim, because the third party was not a paying customer or visitor. It was submitted that the visit occurred without the insured’s knowledge or consent because the farm was closed for the festive season.
The insurer’s response
The insurer submitted that it would have attended to the following immediately if it had been timeously notified of the incident in December:
- Sent an assessor to the insured premises to investigate the matter and to interview and prepare statements while the events were fresh in the memories of witnesses.
- Conducted an investigation as required by the Occupational Health and Safety Act in respect of the area where the incident occurred while the area was still in exactly the same condition it was when the incident occurred.
- The cages, as they were at the time of the incident, would have been inspected by a specialist to confirm they conformed to the relevant statutory requirements for the keeping of wild cats in captivity.
- Photographs would have been taken of the scene to reflect the scene as at the time of the incident.
- Medical personnel at the hospital where she was treated would have been interviewed while the incident was fresh in their memories.
- Photographs would have been taken of possible indemnities displayed at the premises.
- Established from the relevant authorities at the time whether the necessary licences or permits were in place to keep wild cats in captivity.
- Established from staff employed at the insured at the time what the standard operating procedures to avoid incidents were and what the procedures are in the event of an incident, and whether those procedures were followed and whether they were adequate.
The insurer argued that the insured’s failure to comply with clause 6 of the policy prejudiced its right to investigate the incident and validate the claim. The insurer submitted it was not able to carry out the above steps six months after the incident occurred. It said that valuable information that may form part of a defence is usually obtained directly after an incident.
The Osti’s findings
On a proper interpretation of the policy, it can be accepted that a breach of the policy condition under clause 6 may entitle the insurer to decline liability, subject to the application of the Ombudsman’s equity jurisdiction.
The Ombudsman for Short-term Insurance (Osti) found the allegation of the incident being reported by the insured’s broker one day after he event irreconcilable with the subsequent argument that the insured had no reason to anticipate a liability claim.
The Ombud concluded that the outcome in the matter was dependent on the credibility of this allegation. If it is true, it demonstrates a real appreciation of the need to report the incident in accordance with clause 6. Also, if this was proved, and the insurer did not take the steps listed above to validate the incident, it would not be entitled to decline liability.
Clauses 5.1 and 7.3 of Osti’s Terms of Reference state that the Ombudsman may, at his discretion, decide that a matter be referred to a court or a more appropriate forum, and the Ombudsman does not have the jurisdiction to deal with material disputes where it is unable to establish the facts on a clear balance of probabilities.
In light of the above, the parties were informed that the matter would be best suited for determination by a court of law, and the case was closed.
