Misrepresentation after the Inception of the Policy

Thasnim Dawood

Senior Assistant Ombudsman

"We may decline to indemnify or compensate You for Your loss, damage or any liability under this section if the risk is materially changed without Our written consent.”

Mr. V lodged a claim with his insurer for damage to his motor vehicle arising out of a motor vehicle accident. The vehicle was being driven by the insured’s daughter-in-law, Mrs. M. The insurer rejected the claim on the grounds of material misrepresentation/non-disclosure, on the basis that there was a material change in risk, of which it had not been informed.

The insurer advised that the regular driver of the vehicle on the policy was the insured’s son, Mr. M. In the insurer’s rejection letter the insurer stated that, when the cover for the insured vehicle was accepted, it was accepted based on the information and disclosures provided by Mr. V’s broker when adding the vehicle to the already existing policy. Mr. V signed a form which noted all the relevant and necessary details. The insurer advised that Mr. V was asked for the details of the regular driver of the vehicle and the risk address as this had a direct impact on the insurer’s decision to accept the risk. The insurer referred to the document where Mr. V stated and signed that Mr. M would be the regular driver of the vehicle. The vehicle had been bought for Mr. M.

During the investigation of the claim, the insurer found that Mr. and Mrs. M were separated from their marriage for approximately six to eight months prior to the accident and they were not living together. Mrs. M was living at a different address to the address noted on the policy. When they separated, Mr. M told Mrs. M that she could make use the vehicle for herself and their children. Mrs. M had been using the vehicle ever since.

Mrs. M was living at a different address to the address noted on the policy.
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people, men, discuss

The insurer advised that both Mr. M and Mr. V were aware that Mrs. M did not have a driver’s license and only had a learner’s license and they were aware that Mrs. M would be using the vehicle as the regular driver.

The insurer advised that it was not informed that the regular driver and risk address had changed. The insurer submitted that the failure by both Mr. V and Mr. M to disclose the changes in the risk resulted in a non- disclosure of material facts. The insurer submitted that, if it had been made aware that Mrs. M would be the regular driver of the vehicle, it would not have accepted the risk as the regular driver, in terms of the policy, is required to have a valid driver’s license.

The insurer referred to the following policy wording:

“information that affects and changes the risk:

    there is an obligation on you to advise us immediately on the happening of any event that may affect our decision to accept the risk or the terms on which we accept the risk or our continued acceptance of the risk. Should you not adhere to these obligations, we may void the whole or any part of this policy and the section as from inception or date of change” and for this general condition, the term “you” includes any person acting on your behalf.“

According to Mr. V, he did declare that Mr. M would be the regular driver, that Mrs. M would drive the vehicle and that she did not have a valid driver’s license.

Mr. V submitted that he informed his broker that Mrs. M had a learner’s license. He advised that he repeatedly asked his broker to confirm that Mrs. M was covered by the policy even though she only had a learner’s license. According to Mr. V, the broker confirmed that Mrs. M was covered. The insured argued that Mrs. M complied with the legal requirements of a holder of a learner’s license, especially with the condition that such person may drive a vehicle if another person, who has a valid driver’s license, accompanies him or her. Mr. V submitted that the policy contract did not define or describe the term “driver’s license” and that it did not make any mention of a learner’s license. He argued that, as a result, while the policy does not make reference to a learner’s license, there is no restriction on the term “driver’s license”. According to Mr. V, he informed his broker that Mrs. M only had a learner’s license and his broker assured him that she was covered under the policy.

The insured argued that Mrs. M complied with the legal requirements of a holder of a learner’s license, especially with the condition that such person may drive a vehicle if another person, who has a valid driver’s license, accompanies him or her.
The insurer submitted that the issue was not whether Mrs. M could lawfully drive a vehicle in the circumstances permitted by the relevant legislation. The issue was that Mrs. M had become the regular driver of the vehicle which was a risk that the insurer would not have accepted.

Mr. V then referred to the policy wording and stated that it did not define a “regular driver”. Mr. V said that his broker’s explanation was that “as long his son was declared the regular driver, then his wife was automatically included and covered by the insurer.”

Mr. V submitted further that the change in risk address was only material to the risk of theft and hijacking and that it was not material to the risk of accident. He argued that he had disclosed all the necessary information to his broker.

The insurer submitted that “license” means a valid driver’s license and that the reference to a learner driver is there to ensure that there is no confusion that a learner driver needs to comply with the legislation concerning learner drivers. The insurer submitted that the issue was not whether Mrs. M could lawfully drive a vehicle in the circumstances permitted by the relevant legislation. The issue was that Mrs. M had become the regular driver of the vehicle which was a risk that the insurer would not have accepted.

The insurer advised that the risk it underwrote changed fundamentally and that the insurer did not cover regular drivers who held only learner drivers’ licenses. The insurer submitted that Mr. V did not meet his disclosure obligations in terms of the policy in that the insurer was not made aware, at any time prior to the accident, that the regular driver of the vehicle and the risk address had changed.

The insurer did not view Mr. W and Mrs. M as being “one as the other”. The insurer submitted that factors such as age, driving experience and the number of years of holding a valid driver’s license, have a direct impact on the acceptance of a risk and, if the risk is accepted, the conditions and rates that are applied to the premium. The insurer referred to the regular driver clause in the policy which reads as follows:

Regular Drivers Cause

We use pertinent information about the stated regular driver to determine the premium we charge to insure each vehicle. This information includes the person’s age, driving history, driving ability and financial status. You have to advise Us immediately of a change in the following:

  1. The regular driver of a vehicle;
  2. The occupation of the regular driver;
  3. Change of use of the vehicle;
  4. The financial status of the regular driver (including information relating to any judgements or convictions, or if the regular driver has been declared insolvent or placed under administration);
  5. Change of address where vehicle is kept overnight.

We may decline to indemnify or compensate You for Your loss, damage or any liability under this section if the risk is materially changed without Our written consent.”

The insurer stated that, when considering a change in the risk address, the insurer assesses not only the new address but also the security of the premises and where the vehicle is parked at night.

The insurer submitted that Mr. V did not meet his disclosure obligations in terms of the policy in that the insurer was not made aware, at any time prior to the accident, that the regular driver of the vehicle and the risk address had changed.

The insurer advised that in this matter it had not been given an opportunity to assess the changes in the risk. The insurer submitted that Mr. V’s failure to disclose the change in the regular driver resulted in a material non-disclosure which entitled it to void the policy.

The issues that OSTI had to decide were whether there was a material change in risk and whether the insurer was entitled to reject the claim based on material non-disclosure.

When the policy was underwritten, the insurer was advised that the regular driver of the vehicle would be Mr. M and he was noted as such. It is common cause that Mr. M was in possession of a valid drivers license. It is also common cause that Mrs. M only had a learner’s license. In order for Mrs. M to have driven the insured vehicle, she would have needed to comply with the requirements of the relevant legislature, in particular, to drive the vehicle while accompanied by a person who had a valid driver’s license. At the time of the accident, Mrs. M had become the regular driver of the vehicle.

road, asphalt, sky
The insurer advised that in this matter it had not been given an opportunity to assess the changes in the risk.

This meant that there was a material change in the risk and the fact that Mrs. M only had a learner’s license was clearly material to the risk, if not to the loss. The insurer would not have accepted the risk had it know that Mrs. M was the regular driver. The insurer did not accept regular drivers who only had a learner’s license.

Under the circumstances, our office found that there had been a material change in the risk in respect of the regular driver and that the insurer was entitled to reject the claim on this basis. Mr. V did not inform the insurer of this change and, had the insurer been informed, it would not have continued to accept the risk.

As a result the insurer’s rejection of the claim was upheld and Mr. V’s complaint was dismissed.

Take care of yourselves,

Thasnim Dawood

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