Beware this loophole when dealing with insurance claims in South Africa

A recent case involving a rejected insurance claim has exposed a legal loophole that all insured South Africans need to be aware of, says legal firm, Adams & Adams.

The case dealt with a claim being rejected by a South African insurer after the client in question did not provide the details it required for assessment.

The insured vehicle was involved in an accident causing damage, resulting in a claim made to the insurer.

“To validate the claim, as a norm in the insurance claiming process, (the assessor) requested certain information from (the client). They specifically requested consent to access their cell phone records,” the law firm said.

The insurer followed up with the client several times and offered extensions, but the client did not provide the requested data. After almost two months of following up, the insurer formally rejected the claim and informed the client that their policy would be cancelled.

After an unsuccessful complaint with the Ombudsman for short-term insurance, the client instituted legal action in the High Court to challenge the decision of the insurer to reject their claim.

While the client sought legal recourse for the rejection of the claim, the actual issue that ended up being handled by the court was whether or not the insurer had correctly and procedurally cancelled the policy.

“The court, after due consideration of the relevant policy terms and the relevant legal principles, found that (the insurer) had correctly and procedurally repudiated the claim. It also found that the cancellation of the agreement was lawful,” Adams & Adams said.

The critical issue at play in the case was that the contract had been legally cancelled due to the insured’s refusal to abide by the policy’s agreements. This created a neat loophole – the court did not look at the validity of the reasons behind the rejection like the insured wanted, as any recourse would be for a contract that did not exist.

“The insured had breached the terms of the contract by not ceding to the request of the insurer. As such, there had to be legal consequences for the breach, i.e., cancellation of the contract.

“The legal representatives of (the insured) had not argued that contract be reinstated and, therefore, the court felt that it could not look at the correctness of the rejection where the contract had been lawfully cancelled,” Adams & Adams said.

Because the insured focused solely on the rejection of their claim and not the continued validity of the contract, “this amounted to asking the court for specific performance on a non-existent contract,” the law firm said.

This was a costly missed opportunity for the courts to deal with the issue of repudiation of claims in South Africa, Adams & Adams said, noting that “in many instances, insurers frustrate the claiming process by making strenuous and burdensome demands, and requests with the intention to avoid their contractual obligations.”

“This would have been a great opportunity for the court to thoroughly deal with the nature and extent of the requests by the insurers to validate car insurance claims. Be that as it may, the court, in this case, was correct insofar as the law is concerned,” it said.

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