What are our obligations to ensure the safety of our insured items against loss?

A recent decision by the Ombudsman dealt with a number of issues pertaining to the loss of insured items. Perhaps the most important of these is our obligation to protect our belongings from harm and our obligation to report any loss as soon as possible to a broker/ insurer and submit the claim. We would like to share this in a rather comprehensive discussion via the Ombudsman for Short Term Insurance:

The Claim referred to the Ombudsman

The issue for determination in this matter is whether the insurer, was entitled to reject a claim for the loss of Mrs. R tennis bracelet on any one of the following four grounds set out in the insurer letter of rejection:

(i) late notification of the claim;

(ii) the failure to take reasonable precautions and care to prevent or minimise the loss;

(iii) the item not being in a safe; or

(iv) the failure to have the condition of the jewellery checked and a valuation certificate obtained within 24 months.

Background facts

On 24 November 2016 Mrs. R wore her tennis bracelet to work. While at her desk, she realised that one of the links of the bracelet had broken and that the bracelet might easily fall off. Fearing that she might lose the bracelet, she removed it from her wrist, wrapped it in a tissue and placed it in her handbag.

During the course of that afternoon, she had to go shopping for medication for one of her children. When she got home and opened her handbag she realised that the bracelet was missing.

Mrs. R contacted her broker on 8 December 2016 to inform him of the loss. On that same afternoon, she received news that her grandmother, who lived in Durban, had passed away. As a result immediate plans to leave Johannesburg to attend the funeral in Durban had to be made.

After the funeral, the insured did not return to work but instead took her annual leave.

Mrs. R only formally filed her claim on 29 December 2016 when she returned to work following her annual leave.

The insurer’s version

In the insurer’s first answer to the complaint, the insurer confirms that Mrs. R lodged a claim for her tennis bracelet on 29 December 2016. The bracelet was specified on the policy schedule, under the All Risks Section, for an amount of R119,990.

The insurer referred to an endorsement on the policy schedule, under the All Risks Section, which read as follows:

“It is hereby warranted that all jewellery must be secured in an approved safe when not being worn and loss to such jewellery must be consequent on forcible entry to such safe. It is a condition of the policy that jewellery must be checked every 24 months and that a current valuation certificate is provided at the time of loss.”

The policy schedule also referred to:

“Your specific responsibilities – Provide us with jewellery certificates – for items valued above R5,000 Keep jewellery in a safe – when not in use or worn, above the value of R10,000.”

The insurer also referred to a general condition in the policy titled “Prevention of Loss” which read:

“You must take all reasonable precautions and all reasonable care to prevent or minimise loss, damage, death, injury, liability and accidents and may affect emergency repairs to your property to prevent further damage.”

Under the heading “Claims Procedure” the insurer referred to the requirement that the policyholder needed to “notify us of your claim within 30 days after the event…” via the channels listed in the policy wording.

Reasons why the claim was rejected

Relying on these extracts from the policy, the insurer sought to justify its rejection of the claim on each of the four grounds of rejection as follows below.

(i) Late notification of the claim: Under this heading, the insurer argued that it was entitled to reject the claim on the grounds that Mrs. R was late in notifying it of the claim and because the insured did not report the loss to the police.

The insurer argued that the late notification of the claim only allowed the insurer’s assessor to interview Mrs. R on 11 January 2017 which was well over a month after the loss. The insurer asserted that had the insurer or the police timeously been notified of the loss, appropriate resources could have been used to attempt to recover the lost item.

(ii) Failure to take reasonable precautions and care to prevent or minimize the loss: The insurer argued that the obligation placed on an insured “to prevent or minimize loss” has the effect of limiting the insurer’s liability in the event of the insured not complying with this obligation.

The insurer was of the opinion that a reasonable person in the position of Mrs R would have acted differently and in so doing would have avoided the loss altogether. The insurer suggested that the insured should have placed her bracelet in the locked cabin/compartment of her vehicle and that, by placing it in her handbag, she increased the risk of losing the item. The insurer concluded that the insured’s conduct was not only negligent but was also reckless.

(iii) Item not being worn or in a safe: The insurer argued that it was only liable, for the loss of jewellery when it was being worn or when it was in a safe. At all other times, the risk was transferred to Mrs. R.

The insurer expanded on its initial argument under this heading and raised that the endorsement on the schedule requiring jewellery to be secured in a safe when not being worn, was a promissory warranty and absolute in nature.

The insurer asserted that, as there was a breach of the warranty, there was no obligation on the insurer to accept liability for the loss. The insurer further raised its view that the warranty was absolute, as opposed to a relative warranty, and that, if Mrs. R was of the opinion that the warranty was unreasonable, this should have been discussed with the insurer prior to the inception of the policy and not at claims stage.

(iv) Failure to check jewellery and obtain a valuation certificate: The insurer did not advance any argument of how Mrs. R’s non-compliance with this condition was material to the loss or how it was prejudiced by the non-compliance.

Mrs. R’s version

Mrs. R stated that, as the item of jewellery was broken, she could not wear it and she could not put it in a safe as she was not at home. She could therefore not comply with the endorsement whilst at work. She believed that the safest place for her to keep her bracelet was in her handbag.

She further stated there was no locked compartment in her vehicle in which she could have placed her bracelet.

Although she submitted her claim on 29 December 2016, the investigator only set up a meeting with her on 11 January 2017, which was 13 days after she submitted the claim, said Mrs. R.

She stated that any chance of the bracelet still being found, after she submitted her claim, would have long been lost whilst waiting for the investigator to contact her for an interview.

Mrs. R also advised that she did not know that the police had to be notified of the loss as the bracelet was not stolen but was lost.

OSTI’s determination

OSTI rejected the insurer’s reliance on all four of the reasons provided by it to substantiate its refusal to satisfy the claim. OSTI’s response to each of the rejection reasons was dealt with in turn as follows:

(i) Late notification of the claim It was not in dispute that Mrs. R notified her broker immediately following the loss of the bracelet.

The policy provided the channels through which an insured must notify the insurer following a loss.

The policy clearly states, under the heading “Claims Procedure” that an insured must “notify [the insurer] of [a] claim within 30 days after the event, via the following channels: … calling your broker.” This is precisely what Mrs. R did on 8 December 2016, well within the 30 days.

Under the heading “Claims Procedure” for non-motor claims, a SAPS reference number is required for “theft from [the insured’s] house, flat, holiday home or anywhere else” [our emphasis]. Lost items did not bear a requirement to provide a SAPS reference number.

Mrs. R had therefore properly complied with the notification policy provision. There was accordingly no merit in the insurer’s rejection of the claim on this basis.

(ii) Failure to take reasonable precautions and care to prevent or minimize the loss

The purpose of this condition in insurance policies seeks to ensure that an insured will not refrain from taking precautions which he or she knows ought to be taken simply because he/she is covered against loss by the policy (see: Diplock LJ in Frazer v. BN Furman (Productions) Ltd (Miller Smith & Partners, third parties), [1967] 3 ALL ER 57 (CA) at 601).

In the case of Santam Limited v. CC Designing CC 1999 (4) SA 199 (C) the court held that to escape liability on the ground of such a condition, the insurer must show that the insured acted recklessly. In order to discharge this onus, the insurer must demonstrate that the insured recognised a danger, which she deliberately courted by failing to take measures which she knew were adequate to avert it. The insured must therefore have recognised that a danger existed and not cared whether or not it was averted.

In the matter under discussion, Mrs. R elected to remove the bracelet for fear that it would fall off if she continued to wear it. In the circumstances, by removing the bracelet, she attempted to avoid the loss. Had she continued to wear it, it may well have fallen off. Instead, the insured took the precaution of wrapping the bracelet in a tissue and placing it in her handbag, which she would have taken with her when she left her office. She further advised that there was no lockable compartment in her vehicle to leave the bracelet in.

On the facts presented to OSTI by Mrs. R, it would appear that proper steps were taken to prevent the loss from occurring. In the given circumstances OSTI was of the opinion that Mrs. R did not act unreasonably or recklessly.

(iii) Failure to check jewellery and obtain a valuation certificate

With regards to Mrs. R’s failure to comply with the condition that the jewellery be checked and a valuation certificate obtained within 24 months, Mrs. R stated that, at the time of the loss, the 24 months had only been exceeded by two months. The insurer had not provided proof of any actual prejudice as a result of Mrs. R’s failure to comply with this provision of the policy. OSTI also did not agree that had both of these provisions been complied with that it may have prevented the loss from happening, as stated by the insurer. The insurer had, again, provided no evidence to substantiate this statement.

(iv) Item not being worn or in a safe

With regards to the insurer’s argument that the requirement, that the item either be worn or kept in a safe when not being worn for it to be covered, is a promissory/absolute warranty, which renders the failure by Mrs. R to comply a strict breach of the policy entitling the insurer to reject the claim, OSTI referred to the case of Farnham v. Royal Insurance Co Ltd (1976) 2 Lloyds Rep 437 at 441, where the court, in essence, held that the insurer only accepted the risk provided the warranty was fulfilled.

As the non-fulfillment of the warranty by Mrs. R , for whatever reason, in the matter before OSTI, was material to the loss, the insurer was within its rights to decline liability for the insured’s loss.

The risk of loss or damage to the insured item only transferred to the insurer when the item was either worn or in a safe. When the item is neither worn nor in a safe, the risk of loss or damage remains with the insured.

Conclusion

In the circumstances, OSTI upheld the rejection of the claim on the basis of only the non-compliance by the insured of the promissory/absolute warranty.