Should you report every scratch to your car insurer?

Last week, a judge ruled that insurance company OUTsurance had to pay out its client Sherwin Jerrier for a claim from two years ago, that the company had previously denied.
 
The basis for the denial at the time, which led to Jerrier pursuing legal channels, was that he had not disclosed two prior incidents that he had been involved in, having paid for the repairs out of his own pocket. As he had paid for the repairs himself, Jerrier did not think that he had to disclose them to his insurance company.
 
The judge pointed out that the insurance policy did not “stipulate any ongoing duty to report “incidents” which, because of their triviality, an insured person had decided to sort out themselves,” reported the Cape Times.
 
In a statement released by OUTsurance, the company’s CEO Ernst Gouws said: “We note and respect the High Court judgement in the Jerrier case.  We have not made any final decision on whether it is necessary to appeal the judgement or any part thereof.”
 
Gouws explained: “This specific ruling relates to a motor vehicle accident claim from January 2010.   At the time we believed we had firm evidence to reject the claim based on the client being under the influence of alcohol at the time of the incident.  During the initial legal proceedings, we also raised the defence of a material non-disclosure in that the client failed to notify us of two losses suffered, one valued at R15,000 and the other at approximately R200,000.  We believed these incidents to be material to the terms of cover and that the client had an obligation to notify us of these incidents in accordance with our policy wording.
 
“Our primary reason for rejecting the claim, i.e. that the client was under the influence of alcohol at the time of the incident, fell through because the witness who would have testified as to the intoxication of the client unfortunately died prior to the proceedings.  As such we continued with the defence of the non-disclosure of the incidents, and the court ruled in our favour.”
 
However on appeal, judge called into question whether or not the client (Jerrier) “clearly understood the need to report incidents (for which he did not claim) occurring during the existence of the policy.”
 
According to Gouws, the ruling has highlighted the importance of keeping clients properly informed about what their insurance require and expect from them.
 
Should you report every nick and scratch?
 
Natasha Kawulesar, head of client relations at OUTsurance, noted: “If the damages to the vehicle are less than the excess, we do not expect our clients to report this to us.  Even if they did report it, they would need to carry the costs themselves. We do consider the value and frequency of claims when determining a client’s premium.  However minor damage where the value of the damage is below the excess, would not be considered.”
 
Kawulesar added that if you simply inform OUTsurance about an incident, and do not claim from insurance for it, meaning that the insurance company does not have to pay out for any damages, you will not lose out on your OUTbonus.
 
Willem Smith, MD of personal lines at Hollard, pointed out that when a third party is involved in an incident, “irrespective of the damage to your car,” it should be reported to your insurance company. However, Smith revealed that at Hollard “if no third party is involved then anything below the excess does not need to be disclosed.”
 
This, however, generally applies to policies where the client has selected the “standard” excess. Smith stressed that where you have opted for a voluntarily higher excess, it is advised that you disclose all incidents to your insurance company.
 
“Irrespective of the above, policyholders should always check their policy wording carefully in order to understand both their rights and their responsibilities,” emphasised Smith.
 
Will this case change the insurance industry?
 
Smith noted that while the company cannot comment on behalf of other companies within the industry, Hollard does not believe that the ruling will affect the way that it deals with client claims.
 
“We do not believe that the judgement is a departure from the principles that Hollard has applied historically. Materiality has always been a key factor,” said Smith.
 
He added: “While the parties entering into a contract of insurance should do so in utmost good faith, they should also remember that the duty to disclose does not actually flow from this idea, but it is imposed by virtue of the conditions contained in the insurance policy contract.
 
“Our general advice is that it is actually quite tricky for an individual to assess what kind of losses or accidents would be considered material and to be on the safe side, it makes sense for existing policyholders (and those entering into an insurance contract) to disclose too much rather than too little.”
 
Dealing with claims
 
Smith explained: “It is worth noting that the way that claims are dealt with is highly dependent on how policies are taken onto the books.
 
“When insurers issue a motor insurance policy, they attempt to assess a customer’s risk profile as accurately as possible in order to determine what premium a customer should pay. If an insurer had access to data regarding the way a customer drives, this would be a fairly trivial exercise. However, such data rarely if ever exists, so an insurer must rely on information provided by the customer. Previous incidents, irrespective of whether or not they led to a claim, provide a proxy for such data, and form one part of the picture that the insurer must create in order to be able to accurately assess the risk.”
 
According to Smith, if information has been specifically requested, and a client knowingly withholds or falsifies this information, Hollard believes “that an insurer would be within its rights to consider a policy null and void or to repudiate any claim.”
 
He added: “At Hollard, we always consider the materiality that the lack of disclosures bears to the specific loss suffered. This means that we may end up paying a claim even though there has been non-disclosure, provided that the information that was not disclosed did not affect the risk.”
 
The case explained
 
 
“In order to ensure that we always treat our clients fairly we are certainly going to investigate our current processes and amend them to ensure we avoid any such confusion in future,” stated Gouws.
 
Smith added: “Regarding this particular case, the following needs to be remembered: One of the two previous losses that the insured had suffered took place after the policy with the insurer had commenced. The policy in question did not stipulate any ongoing duty to report “incidents” and was also not subject to annual renewal or annual risk assessment.
 
“The insured correctly argued that he should not be penalised if he did not want to lodge a claim in the hope of preserving his claims free bonus. The manner in which the particular policy is designed does discourage clients from claiming.
 
“In terms of section 53(1) of the Short Term Insurance Act non-disclosure is regarded as material if a reasonable, prudent person would consider that the particular undisclosed information should have been disclosed to the short-term insurer in order for it to form its own view as to the effect of such information on the assessment of the relevant risk. This provision embodies what may be termed a “risk-based approach” and the test of materiality in this way becomes an objective test,” said Smith.
 
The South African Insurance Association (SAIA) was contacted for comment, but was unable to do so at the time of publication.