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Commercial Insurance
Monday, September 1, 2008
Debit disorder

When a mechanical horse and trailer was badly damaged after it had overturned, the owner lodged an insurance claim of R477 425.30, only to be told the policy had been cancelled since inception because no premiums has been received.

The truck owner alleged it was his brokers’ duty to collect the premiums on time and that they had neglected to do so, which resulted in the policy being cancelled and the insurance claim being subsequently rejected. When the brokers refused to accept responsibility the owner took legal action.
The FAIS Deputy Ombud found the Respondents had failed to act with the care and diligence required of financial services and ordered them to compensate Rungatrans CC of Hillary, KwaZulu-Natal, in the amount of R362 050.55.
Ms Noluntu Bam, the Deputy Ombud for Financial Services Providers, ruled that the Respondents had been negligent in not processing the payment timeously which resulted in the Complainants’ policy being cancelled. The First Respondent was Counterpoint Trading 328 CC, an authorised financial services provider trading as Policy Provider, of Umhlanga Ridge, Kwa-Zulu Natal, and represented by its Managing Director, Sean Botha.
The Second Respondent was Fusion Properties 268 CC, an authorised financial services provider trading as Brokers Choice, also of Umhlanga Ridge, Kwa-Zulu Natal, and also represented by Mr Botha.
The Complainant represented by Lisa Anne Reddi alleged that in March 2007, Adrian Gengan, a representative of the Second Respondent approached the Complainant offering services as a broker. Mr Gengan subsequently prepared a quotation for insurance of the Complainant’s vehicles and presented it to Ms Reddi. On or about 20th April 2007, the Complainant accepted the quotation and submitted the signed application forms for the insurance to Gengan.
At the same time, Gengan asked the Complainant to choose a preferred debit order date from the options of 1st, 7th or 15th of each month. It is not in dispute that, the 15th of the month was chosen as the preferred debit date. On 24th April 2007, Gengan put in place commercial insurance for two heavy vehicles with trailers for the Complainants’ transport business.
The insurance was placed with Wheels Underwriting Managers with the risk carrier being Constantia Insurance. On 4th May 2007, the Complainant received the policy schedule. On 10th May 2007, a mechanical horse and trailer was in an accident when a tyre burst on the way to the Western Cape. The driver lost control and the vehicle overturned.
Ms Reddi contacted Gengan who agreed to assist her in lodging the claim. On the same date, the Second Respondent confirmed in writing that the insurers had been made aware of the claim. However, on 21st June 2007, the Complainant was informed by Second Respondent that its policy had been cancelled but that it had subsequently reinstated the policy.
However, on 28th June 2007 the Complainant was advised by Wheels that as it had not received premiums, the policy had been cancelled since inception.
The Complainant then wrote to the First Respondent requesting an explanation. On 29th June 2007, the First Respondent wrote to the Complainant and confirmed that the policy had indeed been cancelled with effect from inception due to the fact that Wheels had not received a premium within the first 15 days of inception.
In order to rectify this, the First Respondent collected the outstanding premiums from the Complainant’s bank account on 15th June 2007 and instructed its finance department to reinstate the Complainant’s policy.
However, the First Respondent was subsequently advised by Wheels to cancel Complainant’s policy as Wheels did not accept instructions to reinstate cancelled policies. The First Respondent then undertook to refund the collected premiums.
The Complainant was not satisfied with the First Respondent’s explanation and decided to lodge a complaint with the Office of the FAIS Ombud.
When asked by the Office of the FAIS Ombud to respond to the complaint, Mr Botha said the premiums had not been collected and paid to the insurer due to pre-programmed premium collection dates. He said the First Respondent’s business month ends on the 20th of each month. As the Complainant’s policy was incepted on 24th April 2007, that is, after First Respondent’s month end, its system did not generate a premium.
The accident occurred on 10th May 2007 at which time a premium had still not been collected from the Complainant. The First Respondent then generated its May 2007 month end, which collected the pro rated premium for April 2007, as well as the whole premium for May and June 2007 via debit order on the 15th June 2007, as the 15th was the date the Complainant had elected.
Mr Botha added this was an “unforeseen/unknown factor” and that this system driven program was recognised by many other insurers and collection agents where premiums are held in trust.
The Office of the FAIS Ombud then wrote to Wheels and requested clarification regarding the process of collection of premiums. According to Wheels, in the case of the Respondents’ book, the First Respondent is responsible for collecting the premiums and for paying such premiums to Wheels. Where the policy is incepted after the Respondent’s close-off, a pro rata premium must be collected and paid over to Wheels within 15 days.
According to Wheels’ records, in the case of the Complainant, no pro rata premium for April 2007 was provided to it either by debit order or cheque. Furthermore, no premium was debited from Complainant’s account on the 15th of the following month even though a debit order authorisation had been signed by the Complainant.
In her determination, Ms Bam found that the First and Second Respondents’ actions amounted to a contravention of the FAIS Act and this had resulted in the Complainant’s financial loss.  “An examination of the documents submitted by the Respondents reveals no evidence that the Complainant was informed in advance of the possible problems with processing payments after the 20th of the month.
“There is also no evidence on record that the First or Second Respondent made any effort to secure payment of the premiums within 15 days to ensure that the policy was fully effective.
“No explanation was furnished as to why First Respondent could not generate a premium for 15th May 2007.
“By not informing the Complainants of their difficulty in processing payment and by not making alternative arrangements to collect the premium by cheque, the Respondents failed to act with the care and diligence required of financial services providers. This is further exacerbated by the fact that the first deduction from Complainant’s account was only made on 15th June 2007 – approximately 52 days after the policy incepted.”
Ms Bam added the First Respondent had failed to put in place such procedures to guard against what must be a common occurrence i.e. new business after the 20th of the month.
Both Respondents should have systems in place for the timeous collection of pro rata premiums from new clients who take cover after the Respondent’s month end. Had that been the case, the premium would have been collected timeously and the policy would not have lapsed as a consequence of non payment of premiums.
In finding that both Respondents had failed to render appropriate financial services in terms of the FAIS Act, Ms Bam ordered them to compensate the Complainant for its loss in the amount of R362 050.55, after deduction of excesses and unpaid premiums from the original claimed amount of R477 425.30.
 

Copyright © Insurance Times and Investments® Vol:21.8 1st September, 2008
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