Insurance claims and the failure to disclose

The court was asked to adjudicate upon an insurance claim that was repudiated by Outsurance in Jerrier v Outsurance Insurance (Pty) Ltd. Briefly, the facts in this case were that Jerrier had taken out an insurance policy with Outsurance to cover his household goods and motor vehicle. In terms of his policy, Outsurance offered a cash reward for not claiming. If there was no claim against the policy for the first three years of the policy, Jerrier’s cash reward was a reimbursement of 10% of the value of the premiums that he had paid. This reward increased to 20% for the following two years, and 25% for every year thereafter. The intention behind this incentive is clear: the customer is motivated to not lodge claims, specifically for minor incidents. After all, claims are bad business for an insurance company that has to foot the bill for the insured’s losses.

In 2009 Jerrier hit a pothole, damaging the rim of his vehicle. Shortly thereafter he made the mistake of reversing his vehicle into another car. In both instances the repair costs were not exorbitant. The costs were less than the amount of his no-claim bonus payout, and so he decided to bear these repair costs personally and accordingly did not lodge any claim under his insurance policy. In 2010 Jerrier’s vehicle was involved in a collision which resulted in a claim being submitted to Outsurance. Outsurance found out about the previous two incidents, and repudiated his claim. The reason for their repudiation was that the terms of the policy required that:

• Jerrier notify Outsurance of any change in his circumstances that could influence the cover given; and
• Jerrier was obliged to report any claim, or any incident that could lead to a claim, within 30 days of the incident occurring.

Outsurance maintained that Jerrier’s failure to notify them of the previous two incidents constituted a breach of the insurance policy, entitling Outsurance to reject the claims against the policy. Naturally, Jerrier was dissatisfied with this state of affairs and took action against Outsurance. When the court held in favour of Outsurance he took the matter on appeal.

In due course, the High Court in KZN held that the insured was only obliged to report incidents if he intended for the insurer to bear the losses incurred. In instances where the insured intends to bear the cost of the loss himself, there is no reason why the insurer should be notified of the incident. It was also pointed out that if the insured doesn’t report the incident within 30 days and the third party wished to pursue a claim related to the incident, the third party would still have a valid claim – against the insured, and the insurer could legitimately reject the claim and deny any liability. The court accordingly held that Outsurance had to accept the claim against the policy.

Note also that the court drew a distinction between the duty of an insured to disclose at the beginning of the contract versus the duty to disclose during the contract. In this case, the insured had no duty to disclose incidents for which he shoulders the liability during the course of the contract. Presumably, then, the duty to disclose such incidents would be higher at the beginning of the contract.

Please note that this information is supplied for general information and does not constitute legal advice. It is advisable for you to contact a legal practitioner for guidance in respect of your unique requirements.