Background
Sarah’s car insurance policy excluded cover if a driver is suspended from driving. Sarah’s partner Scott was not at fault in the accident; it was caused by a third party driver. Sarah argued that Scott being a suspended driver did not cause or contribute to the accident.
Sarah said she did not know that Scott was a suspended driver at the time of the accident. Scott was suspended because he had driven unaccompanied while on a learner driver’s licence.
The sum insured was $9,600 with an excess of $750.
FSCL reviews Sarah’s claim
Sarah complained to us about the decline of her insurance claim by her insurer, Vehicle Insure.
We reviewed the complaint and found that section 11 of the Insurance Law Reform Act 1977 (section 11), applied.
We firstly had to look at whether there is an exclusion clause in the policy which:
a) excludes cover for a loss resulting from a certain event or circumstance, and
b) is in the policy because the insurer’s view is that the excluded event or circumstance increases the risk of a claim.
If these two steps are satisfied, the insurer can only rely on the exclusion if, on the balance of probabilities, it was the specific event or circumstance in the exclusion clause which caused or contributed to the loss.
We found the circumstances of Sarah’s claim were a classic section 11 scenario. That is, the exclusion clause for suspended drivers was in Vehicle Insure’s policy, because a suspended driver is ‘riskier’ in terms of causing or contributing to a car accident. However, because Scott did not contribute to or cause the accident in question, Vehicle Insure could not rely on the exclusion clause.
Sarah said Scott was following the speed limit and took the usual route home. Sarah said that if she had been aware Scott was a suspended driver, she would have driven, but regardless of who was driving, the accident would very likely still have occurred.
State Insurance Limited v Chit Ki Lam
We referred to a Court of Appeal case, State Insurance Limited v Chit Ki Lam (Unreported, CA, 10 October 1996 CA159/96). In that case Ms Lam’s policy said there was no cover if the vehicle was under the charge of anyone under 25 years.
Ms Lam loaned her car to a friend who was under 25 years. When the car was legally parked on the side of the road, it was damaged when a drunk driver drove into the car. The Court of Appeal said that the exclusion in State Insurance’s policy did not apply because Ms Lam’s friend’s youth and inexperience did not cause or contribute to the loss. We said this was a very similar situation to Sarah’s claim.
Disclosure
Vehicle Insure argued that if it had known that Scott may be driving the car and that he was a suspended driver, it would have included an exclusion saying that cover was excluded for any loss or liability whilst the vehicle was being driven by him.
We said that on the evidence before us, Sarah did not know Scott was a suspended driver and she could not disclose what she did not know. The suspension had occurred in 2011, before Sarah met Scott.
We also said that although the Fair Insurance Code is not yet in force, the Code signals to the industry that it needs to act fairly when an insured does not disclose a relevant fact/circumstance. We said that Vehicle Insure’s response had been unfair – it could have concluded its investigation of the claim once it knew that Scott had not caused or contributed to the loss. Vehicle Insure had inconvenienced Sarah and we said that Vehicle Insure should waive the $750 excess.
Vehicle Insure also argued that if it had been made aware that Scott was a suspended driver, it would have imposed a condition, recorded as a policy endorsement, that the policy would not respond in relation to Scott, whether he caused or contributed to the accident or not. However, we reiterated that Sarah did not know about the suspension, so she could not disclose this.
FSCL’s formal Recommendation
We formally recommended that Vehicle Insure pay Sarah’s claim and waive the $750 excess in light of the inconvenience caused. Both Sarah and Vehicle Insure accepted our recommendation.
