Kelvin accidentally hit a wandering cow while driving home late one night. Kelvin’s car was written off in this accident, but the insurance company declined Kelvin’s claim for the cost of the car.
The insurance company argued that Kelvin had not disclosed previous traffic infringements when he applied for insurance cover. When applying for cover, Kelvin wrote on the application form that he had previously been convicted for drink driving. On his claim form after the accident with the cow, Kelvin wrote that he had received traffic infringement notices for speeding, failing to give way, and failing to wear a seatbelt.
The insurance company revoked the insurance policy and refunded Kelvin’s premiums. The insurance company argued that if it had known of all of Kelvin’s traffic infringements, it would not have covered him in the first place.
Kelvin explained that his mother filled in the insurance policy application form, and that failing to disclose his traffic infringements was simply an oversight by her. Kelvin also argued that other insurance companies would have covered him anyway, even with knowledge of Kelvin’s other traffic infringements.
The parties asked FSCL to resolve the complaint.
FSCL investigated the complaint and found:
- The insurance company’s application form asked about traffic convictions . The form did not ask about traffic infringements.
- The insurance company had not followed its internal underwriting guidelines in accepting Kelvin’s application for insurance. The guidelines required the insurance company to ask Kelvin for more details about his conviction(s), and it had not. If the insurance company had asked the question, the likelihood is it would have discovered Kelvin’s traffic infringements.
- Some (but not all) other insurance companies may have accepted Kelvin’s application, in full knowledge of his traffic convictions and infringements.
FSCL’s view was that although Kelvin acted innocently and in good faith, he had an overriding duty at law to disclose his traffic infringements. Further, Kelvin’s traffic infringements were material in that they would have influenced the judgment of a prudent insurance company when deciding whether or not to accept the risk. The insurance company was acting within its legal rights to decline Kelvin’s claim.
FSCL’s CEO recommended that the insurer pay Kelvin 30 percent of his loss. This recommendation was made because:
- there was evidence that Kelvin could possibly have found insurance cover with a different insurance company, in knowledge of all of his traffic convictions and infringements, and
- the wording on the proposal form could have been more specific about the need to disclose traffic convictions and infringements.
FSCL’s CEO also recommended that the insurance company should change the wording on its application form, to make it clear that the insurance company wanted to know about traffic infringements as well as traffic convictions.