Insurance Ombudsman on motor claims

The dramatic increase in the imports of motor vehicles from the past year (mainly due to the reduction in import duty) has naturally resulted in an increase in motor accidents. Some newspapers give an update of fatal accidents as well. Surprisingly, motor bicycles colliding with other vehicles and against stationary posts and walls constitute the largest number of fatal accidents.

In this article, as the Insurance Ombudsman of Sri Lanka, I refer to issues between persons who have motor insurance policies with insurance companies in connection with claims made by them.

My coverage relates to what are popularly called Comprehensive Cover, which includes the compulsory Third Party Cover. However, in this article I do not deal with injuries and damages caused to Third Parties but only to claims by the insured policy holder in respect of his or her own vehicle which was insured. I will deal with Third Party claims in another article.

Number of annual claims before the Ombudsman

For the record, the Insurance Ombudsman’s office receives a total of about 550 complaints/claims every year. On a 100% breakdown of such claims, motor claims are the largest, about 45%. Of the 45% about 15% are Third Party claims. What is outlined here is the balance 30% of the annual motor claims that come before me (other than third party).

Normally before a complaint is received or accepted by my office, the insured (policy holder) must do his best to contact the insurance company and get the claim settled. Only if that is not possible should the insured come to the Ombudsman’s office for assistance. This is the practice I follow.

Well-established grounds for rejection of motor claims

Over the years, insurance companies uniformly do not honour claims if certain grounds can be established. What are the grounds? I have formulated them in my own words avoiding as far as possible technical jargon. I list 15 grounds for a rejection of a claim related to a motor vehicle. The list that follows is not exhaustive. There can be more grounds, but I should inform the public of the following:  Evidence that the driver was drunk or had no licence or that the driver was switched because the true driver was intoxicated and/or had no licence.

The accident was not promptly reported to the insurer as required in the policy. Also, no entry was promptly made with the Police or the accident was reported to another Police station well outside the scene of accident. (These omissions also raise doubts as to the claim’s genuineness).

The accident/damage had not occurred in the way stated by the insured. When one looks at the photographs of the damage and compare them with the insured’s story of the accident, this becomes clear.

The insurance company asserting that the damages to the vehicle was prior to “alleged” accident (e.g. because of corrosion marks). I have suggested that all second hand vehicles be photographed by the insurer before the policy is issued. Most insurers do so.

A bad case of “under insurance” (where the vehicle was valued less to reduce the premium) and the insured is contesting the penalty imposed by the insurer.

Insured is contesting the insurer’s argument about the cost of replacement of parts to the damaged vehicle etc. The insured wants new parts from the vehicle’s main agent while the insurer directs him to similar parts from another importer.

Premium on the policy had not been paid at due date or within the 60 days grace period. Thus, the accident had occurred when the policy had lapsed and was not in force.

The “insured” did not have an “insurable interest” at that time of accident. For example, he had purchased the vehicle on “open papers” but the registration and the insurance policy had not been changed and were in the name of the previous owner. Such transactions are also contrary to the provisions of the Motor Traffic Act.

The vehicle was left overnight unprotected in a public place (highway) when it was damaged. This is, contrary to policy conditions and the statements in the proposal form as to where the vehicle will be normally parked/garaged.

The vehicle was damaged when parked in the car park of a hotel. The insurer is not liable. Nor is the hotel because most hotels have notices saying “You Park at Your Own Risk”. This applies to valet parking as well.

Total loss of vehicle by fire. Here there is evidence that the fire was not accidental.

While the cover was for “private” use only, there is evidence that at or before the accident the vehicle was “hired”/“rented”. A higher premium applies for vehicles for rent.

Non-disclosure in proposal form of material fact (e.g. insured or person driving had convictions for negligent driving and this had not been revealed).

Recently, about 10 cases have come to the Ombudsman notice where the vehicle has been damaged while at a repair garage or when undergoing a service on the hoist. Insurers have denied liability (in my view, justifiably) saying that such damage is a liability of the repair garage or service centre – which regrettably had not taken out any insurance cover.

Before May 2009 (when the war ended) several “leased” vehicles disappeared and “total loss” claims were made. In many such cases, the disappearance appeared to be “deliberate” and “planned”. Regrettably, it was the leasing companies (not the insurers) that suffered. Insurers (justifiably) refused to pay. The Riot/Strike and Terrorism Fund then with the Treasury also refused to pay.

I have listed above from real life experience, about fifteen instances where insurance companies will not honour a claim on a comprehensive motor cover. If the reasons stated above are given by the insurer for their rejection of the claim, as the Ombudsman I am also helpless.

Our general public must appreciate that the insurance policyholder’s money is public money. Some policy holders think that insurance monies are that of the shareholders of the insurance company. That is true only of a very small portion of the insurance company’s capital.

The bulk of the money of insurance companies comes from the monies of policy holders which are invested and earn by such investment. As a vivid example, if 100 people insure their motor vehicles, normally not more than 10 of them will meet with an accident. Then the premiums paid by all, including the other 90 policy holders (who made no claims), will form the insurance fund together with interest on investment. That is the real money of an insurer.

Hence, to pay any insurance claim that is legally or technically “not payable” is a fraud on the other motor policy holders who did not meet with any accidents! It is as simple as that although many disgruntled claimants refuse to accept this position.

Law applicable to motor claims

Interestingly, while Marine, Life and Fire insurance is governed in Sri Lanka by English Law principles (see the Civil Law Ordinance No 5 of 1852 and the Introduction of English Law Ordinance of 1866) all other insurance is governed by Roman Dutch Law which is the country’s common law. Only two countries in the world (193 countries with south Sudan as the latest) have Roman Dutch Law (South Africa and Sri Lanka).

When English law was introduced in the early 1850s and the mid 1860s by the British rulers, only marine, life and fire insurance was thought of. Transport was by cart (wagon) drawn by cattle or elephants. Hence, accident insurance was not an issue. The first motor car came in 1904.

Accordingly, it is well established that, motor claims are covered in Sri Lanka by statute law (Motor Traffic Act of 1951 (as amended) and by principles of Roman Dutch law, the country’s common law. The decided cases do not indicate any shortcomings or lacunae in the common law. Also there is no major difference between the principles of English law and Roman-Dutch Law on the subject.

Limitation periods (time bars)

The limitation of action in motor claims is important and is always raised. Motor claims are prescribed within two years of the date of the incident and hence action must be filed within two years. As Ombudsman, I have received complaints after this period has lapsed. I do not inquire into them. What a Court of law will not do, I should not do. The jurisdictional issue and the limitation period are well known to our lawyers and have not caused any practical issues.

Which court has jurisdiction in motor accident cases

Under English law, the debtor (insurer) has to seek out the creditor (insured). Under Roman Dutch Law the opposite rule applies. The creditor (insured) has to seek out the debtor (insurer). Hence, the claim can be filed where the insurance company resides (has its registered office).

Normally under our Civil Procedure Code (CPC), the claim is filed in the court of the area where the accident occurred. Under section 9 of the CPC the action can be filed in the court where the defendant (insurer) resides or where the cause of action (accident) arose.

These legal issues as to jurisdiction were raised in early times (see: Haniffa v Ocean Accident and Guarantee Corporation Ltd. (1933) 35 New Law Reports p. 216). However, in current times, such jurisdictional issues are not raised by insurers and it is commendable that they do not do so. Insurers should not, in my view, take up technical defences to avoid liability.

 Do rejected claimants litigate?

This is a good question to ask. When the insurer rejects a comprehensive or full cover, the claimant (insured) can come to the Ombudsman’s office. He can also go to the Insurance Board (IBSL) and the Consumer Affairs Authority under the Consumer Affairs Authority Act No 9 of 2003.If there is no satisfactory redress he can institute legal action.

If the rejected claim is large and if the insured is a legal entity for example, a company, the costs of litigation and the delay may be endured, but not if the claimant is an individual. Insurance companies will have statistics of judicial claims. I do not. The ones I have seen show very long delays well over ten years. Where the insurer loses in the trial court, as a matter of practice, the insurer appeals and the appeal process also takes time. When as the Ombudsman, I reject a claim, I always tell the aggrieved claimants that they have a right to go to court and even agree to speak to their lawyer if they are filing plaint. I do this not to encourage litigation but to apprise the lawyer of the pitfalls and the weaknesses of the case so as not to waste money. When I reject a claim, I always forecast the evidence which a normal litigant (claimant) must have to prove his case. In some cases, even the driver who drove the vehicle is not available or is unreliable as a witness. (I find this on my questioning him).

I also examine the files and investigation reports of the insurer (something that even a judge cannot do without a legal procedure called “discovery of documents,” etc). Having examined all this, I sometimes take the view that the claimant will fail in court. It is only then that I tell him that as the Ombudsman, I cannot help him and not to waste his time and money.

(The writer is the Insurance Ombudsman of Sri Lanka.)