Most insurance policies make cover conditional upon the insureds submitting their claims within specified times. One of the main rationales for this is that the insurer wants to be able to investigate the claim as soon as possible, while the evidence is available and the event is fresh in everyone’s minds.
The law, as it stands, provides that in circumstances where the notification provision contained in an insurance contract is made a condition precedent to the insurer’s provision of indemnity, strict compliance with the notification provision is required. Accordingly, where the insured has failed to give proper notice, the insurer is entitled to refuse the claim, irrespective of whether the insurer has suffered prejudice as a result.
What if the insureds are unsure about whether they have a claim?
In Thompson v Federated Timbers unreported (KZD) (2011), the plaintiff had sustained injuries after tripping over an electrical cord at a shopping centre owned by the first defendant, and had proceeded to issue summons against the first defendant. The first defendant had then joined the cleaning service contracted to clean its premises.
At this point, the cleaning service notified its insurer of the joinder, however, the insurer rejected the claim, alleging that the insured had failed to comply with the notification provisions of the policy. The relevant issue that had to be decided was at what stage was it reasonably possible for the insured to have notified its insurer of the event?
The policy’s notification provision required the insured to ‘on the happening of an event which may result in a claim under the policy, give notice to the insurer as soon as reasonably possible’.
In considering the term, ‘on the happening of any event/, the court stated that the test for reasonableness, while objective, necessarily had to consider certain subjective elements. Specifically, the court noted that the insured should have a subjective ‘appreciation’ of the possibility of a claim being made against the insured.
The court went further and held that, all that is necessary to trigger the notification obligation is an appreciation by the insured of the possibility of a claim arising from the incident. On this basis, the court upheld the insurer’s rejection of the insured’s claim, stating that the insured had, at the very least, appreciated that there was a small risk that the incident might result in a claim against the insured which would have in turn resulted in a claim against the insurer.
The Insurance Ombudsman deals with the issue a little differently
Unlike a court, the Ombudsman is called upon to apply principles of equity into its determinations. As such, the Ombudsman will not only consider the provisions of the policy and the existing law on the matter. The Ombudsman will also consider whether the insurer suffered any prejudice as a result of the late notification.
Recently, the Ombudsman made a determination precisely along those lines. The insured had a legal expenses insurance policy which covered the conveyancing costs of the purchase of a property up to a maximum of R6 000. The insurer rejected the claim on the grounds that the claim was submitted two years late. The insured said in her complaint that she was not aware that her policy covered conveyancing costs.
The insurer stated that the policy required an insured to inform the insurer of any insured event or cause of action that may give rise to a claim within 30 days of the event. The insurer argued that the significant delay by the insured in reporting the claim prejudiced its assessment of the claim as it would be unable to verify the event.
The Ombudsman found, however, that but for the late notification, the insured had a valid claim in terms of the policy. Since the insurer could not demonstrate what actual prejudice it had suffered by the late notification, the office requested the insurer to reconsider its stance and settle the claim based on the conveyancing tariffs applicable in 2016. The insurer agreed and settled the claim.
Not all claims can be considered by the Ombudsman. Insureds should not risk having their claims denied as a result of late notification. When it doubt, notify.
Jay Page is a Senior Associate at Bowmans
By Jay Page