The recent judgment in the Jerrier vs Outsurance case dealt with whether short-term insurer Outsurance was entitled to reject Mr Jerrier’s claim for accidental damage to his insured Audi R8 sports car. The reason for the initial rejection of the claim was the non-disclosure of two previous incidents involving the car for which Mr Jerrier had not claimed. The appeal court, overturning the earlier ruling in this matter, held that OUTsurance was not entitled to reject the claim.
The previous incidents involved a pothole collision which caused damage to a rim as well as a collision with a bakkie. Mr Jerrier’s version was that he elected not to claim for what he regarded as two low-value incidents in order to preserve his “OUTbonus”.
The court held that Jerrier’s failure to report the two previous incidents did not entitle OUTsurance to avoid liability for loss sustained in a later, unrelated incident. His intention by not notifying was to preserve the reward of a refund through his OUTbonus. The non-disclosure was not material and did not entitle OUTsurance to reject.
The court affirmed the principle that an insurance contract does not require a higher standard of good faith. The duty of disclosure hinges on materiality and the distinction between good faith and bad faith. There is no special category to be applied to insurance contracts.
The lower court was mistaken in placing emphasis on the policy requirement that the insured immediately report a change in circumstances and any accident within 30 days, even if he did not intend to claim in future.
The OUTsurance “plain language” wording was found not to be as simple or worded in plain language as the insurer may have believed. The OUTsurance policy is not similar to other conventional policies, which are subject to annual renewal and the completion of an annual questionnaire. The OUTbonus incentive is a distinguishing feature from other policies and its effect cannot be ignored.
This judgment must give insurers cause for reflection on the policy wording. Innovative and differentiating features such as no-claim bonuses could influence the application of insurance law.
Santam’s view
Santam’s internal arbitrator, Judge Brian Galgut says that the above-mentioned policy imposed on the insured the obligation to report to the insurer any “changes to your circumstances”, as well as any “incident” that may lead to a claim.
The court held that the two earlier incidents had not been material for the purpose of section 53(1) of the Short-term Insurance Act, so that he had not been obliged to report either of them as a change in his circumstances.
The court also held that the insured had not breached the policy stipulation requiring him to report any “incident” that may lead to a claim, the relevant part of the wording being that – “You need to report any incident that may lead to a claim to us as soon as possible, but not later than 30 days, after any incident. This includes incidents for which you do not want to claim but which may result in a claim in the future.” The court pointed out that the word “incident” was not defined in the policy, and said that – "the obligation to report “incidents” is not set out with any particularity and is bound to lead to uncertainty as to what should and should not be reported, especially where the insured has no intention of lodging a claim.”
The court concluded that on a proper interpretation the above provision, when also considered in the light of the Outbonus and express encouragements addressed to the policyholder elsewhere in the policy not to claim, did not compel the insured to report the two earlier incidents if he did not intend to make a claim in order to protect his Outbonus.
This illustrates how vitally important it is that the policy contract must be clearly worded so as to accurately reflect exactly what it is that the insurer intends, and that as such it is easily understandable to a policyholder.
The conclusion reached by the court was based, as stated above, on what it considered to be the proper interpretation of the policy contract.
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