Unfair for insurer to decline claim purely because it was reported late – Osti

An insured filed a third-party liability claim with its insurer outside of the prescribed period because the third party only threatened to sue 60 days thereafter. The insurer rejected the claim, citing the requirement in the policy to report the event within 31 days. The insured complained to the Ombudsman for Short-term Insurance (Osti). The case and the outcome are taken from the Osti’s Briefcase of March 2023.

Background to the dispute

The third party was a former employee of the insured. After her employment ended, she went into the office when requested to assist.

On 19 December 2019, she fell at the insured’s premises. As a result, she broke her arm in two places, suffered a minor concussion, and had bruising and swelling on her arms and legs.

She claimed medical expenses and other financial losses from the insured.

The insured reported the claim to the insurer on 17 March 2020.

The insurer rejected the insured’s liability claim because the incident was not reported to the insurer within 31 days of the date on which it occurred.

The insurer relied on the following provision under the general conditions of the policy to justify its rejection of the claim:

“On the happening of an event or occurrence which may result in a claim, you must, at your own expense […] report your claim to us as soon as reasonably possible, but not later than 31 days after the event or occurrence. If you fail to do so, we may at our discretion reject your claim […]”

The insured’s challenge

The insured submitted the following:

• It kept in contact with the third party after the accident to find out how she was doing and whether she intended to sue the insured.
• The third party did not indicate that she wanted to claim from the insured. Therefore, the insured did not see the need to inform the insurer about the incident and concluded it would do so if the third party claimed.
• On 15 March 2020, the third party threatened to sue the insured. The next day, the insured contacted its broker to report the claim.
• It informed the insurer about the claim as soon as the third party indicated that she would be suing. Therefore, the claim was reported within the period stipulated by the policy.

The insurer’s defence

The insurer submitted the following:

• The insured became aware of the incident on the day it occurred.
• The insured knew the third party was injured to the extent that she required immediate hospitalisation.
• The insured should have foreseen the likelihood of a liability claim and consulted its liability cover.
• The insured would have known that a claim of this nature would require prompt investigation into what transpired for the purposes of the liability.
• The insured would have known that careful attention would have to be given to monitoring the third party’s medical bills and damages and to what costs, if any, the policy would respond. Instead, the insured engaged with the third-party for three months about her injuries.
• The insured was aware of the third party’s mounting medical bills and did not inform the insurer.
• In the case of Jerrier v OUTsurance Insurance Company Limited, the court referred to the 30-day notice period as a “guillotine provision” and said that where the appellant elected not to report the matter to the insurer within 30 days, it marked the end of the insurer’s liability.
• By deviating from the policy requirements, the insured elected not to enforce indemnification.
• The third party’s alleged failure to inform the insured of her intention to sue until 15 March 2020 did not detract from the insured’s failure to comply with the conditions of the policy.
• It was not equitable to the insurer to be compelled to indemnify the insured after the insured waited three months to report the claim.
• As a result of the insured’s delay, it was prejudiced in its ability properly to investigate the incident and its liability in terms of the policy. Over time, evidence becomes less available, and witnesses’ recollection of events diminishes.

The Osti’s findings

The Osti noted that, in terms of the policy, there was an obligation on the insured to report any event that may give rise to a claim against the insurer as soon as reasonably possible, but not later than 31 days after the event occurred.

Since the insured appreciated that the incident may give rise to a liability claim and was required to report the incident to the insurer as soon as reasonably possible, it was not necessary for the insured to be certain that a claim would be imminent or to know the quantum of the claim.

The Osti said although the policy gave the insurer the discretion to reject a claim if the insured failed to comply with the condition, the insurer’s discretion must be exercised reasonably.

Contrary to the insurer’s submission that it was prejudiced in its investigation of the claim, the insurer was able to investigate the incident properly. The loss adjuster was able to inspect the insured premises and interview the insured’s employees and the third party at the insured’s premises.

There was nothing in the loss adjuster’s report to indicate that the passing of time had impeded the investigation in any way.

The Osti said the facts and issues in Jerrier v Outsurance were different from those in this case.

It is also noted that, in arriving at its conclusion regarding the 30-day notice period, the court considered other factors, such as the insured’s intention not to claim from the insurer and his intention to absorb the damages himself.

In this complaint, the facts presented did not indicate there was any intention on the part of the insured not to claim. On the contrary, the insured had every intention to claim from the insurer once the third party claimed from the insured.

The Osti found that the insurer had not exercised its discretion reasonably.

Furthermore, the Osti’s Terms of Reference contain a requirement to deal with matters using “the criteria of law, equity and fairness”. The ombudsman is empowered to resolve complaints and disputes and make rulings “based on the law and equity”.

The Osti must have regard not only for the provisions of the policy but also to the circumstances of each case and what is fair and reasonable in those circumstances. Each matter is considered on its own merits.

In this case, the claim was reported about 60 days late. Nevertheless, the insurer was able to investigate the incident and the quantum.

There was nothing to indicate that the insurer would have done anything differently if the insured had reported the claim within 31 days after the incident.

The Osti found it would be unfair, inequitable, and unjust to decline the claim purely on the basis that the claim was reported some 60 days late and asked the insurer to reconsider its stance.

The insurer agreed to abide by the ombudsman’s decision.