In May 2017, Hinewai was purchasing a car and applied online for a $25,000 loan through a financial advice firm which arranged loans for clients. The next day, the firm emailed Hinewai saying she had to arrange her own comprehensive car insurance cover.
A few days later, Hinewai went to the firm’s office and signed documents for a loan the firm had arranged for her. Hinewai borrowed $17,000 to buy the car. She also borrowed a further $2,700 to cover the firm’s fees and some credit-related insurance – Guaranteed Asset Protection (GAP) cover, and Credit Contract Indemnity cover. The loan’s interest rate was 12.95% per annum, and the total cost of borrowing was $25,300.
Hinewai said that during the meeting she asked her adviser firm to arrange all the insurance. She left the meeting thinking that the adviser had put vehicle cover in place, as well as the credit-related insurance. However, no car insurance was placed by the adviser firm. In addition, the adviser firm did not check there was car insurance in place (which the lender had asked them to confirm), before the loan was granted.
Around 2 and a half years later, Hinewai was involved in an accident and her car was written off. She contacted the adviser firm to lodge a claim and discovered the car was uninsured.
Hinewai complained to FSCL that the adviser had given her the impression she had car insurance cover in place. She said the firm should pay her the car’s market value (approximately $15,000), to resolve her complaint.
The adviser firm said they did not need to compensate Hinewai. They said it was up to Hinewai to obtain the car insurance cover, and that they’d made this clear from the outset. Also, the firm said it was highly unlikely that Hinewai could have obtained car insurance cover anyway. This was because, in early 2016, she had pleaded guilty to a serious driving offence. Despite the firm’s views on the complaint, they offered to compensate Hinewai for the interest and fees she’d paid on the loan over the years ($8,500).
The adviser firm was required to exercise reasonable care, diligence, and skill, under section 33 of the Financial Advisers Act 2008 when providing advice to Hinewai. We considered the adviser firm had breached section 33 because:
- They did not ensure there was car insurance in place, which the lender had asked them to do before the funds were released to Hinewai.
- The adviser made no record of the advice they provided Hinewai, and there was no evidence they enquired into her circumstances or insurance needs.
- There was no discussion about Hinewai’s duty of disclosure and the need to disclose any prior convictions and how these may affect her obtaining cover.
We also asked an independent vehicle insurer whether Hinewai’s conviction would have prevented her obtaining insurance cover, and they confirmed it would.
We told Hinewai that we thought the adviser firm had made a reasonable offer to resolve her complaint by offering to pay her the $8,500 in fees and interest she’d paid on the loan. Under FSCL’s rules we can decline to continue investigating a complaint if we consider there’s a reasonable settlement offer on the table.
We thought that the adviser firm’s offer was better than any resolution we could impose by issuing a formal decision. Our starting point may have been a compensation amount of $8,500, but we would have reduced that amount because of Hinewai’s contribution to her loss, and some other factors:
- There was no evidence that the adviser specifically told Hinewai they would arrange car insurance cover.
- Even if Hinewai thought that the firm had placed car insurance for her, she should have noticed that she wasn’t paying any regular premiums, and that she wasn’t contacted by the insurer each year upon policy renewal.
- Even if Hinewai had been able to obtain cover (which it appeared her conviction would have prevented), we would need to consider the premiums Hinewai would have had to pay to have the insurance in place, when calculating compensation.
- Hinewai had benefited from having use of the vehicle and this needed to be factored into any possible compensation payment.
Hinewai accepted our view that the adviser firm’s settlement offer was reasonable, and they paid her the $8,500 to resolve her complaint.
Insights for consumers
Criminal convictions are relevant when you apply for any type of insurance, particularly motor vehicle insurance. If you don’t disclose convictions and take out an insurance policy, you may find you don’t actually have any cover if you later have a claim.