Trends in the Insurance Industry
Claims Litigation and Policy Interpretation Trends in Namibia’s Insurance Industry
Christo Potgieter
Director and Senior Litigation Attorney
Dr. Weder, Kruger & Haikali Inc., Windhoek
Introduction
Namibia has experienced an increase in claims litigation over the past few years, especially in respect of motor vehicle claims and repudiated claims. This trend has placed increasing pressure on insurers to review policy wording, claims handling procedures and dispute resolution strategies.
Concurrently, the Namibian courts have been progressively advocating for mediation and alternative dispute resolution in civil cases. This approach has certainly helped shorten court processes, but it also raises challenges for insurers in evaluating their claims.
These legal disputes normally take one of two forms:
- An insurance company sues a third party for causing damages to the property (motor vehicle) of the insurance company’s client; or
- The client of an insurance company sues his or her insurer for repudiating a claim.
Under the current High Court Rules in Namibia, litigating parties are required to refer most civil claims, especially those involving insurance disputes, to private or court-connected mediators to determine whether an amicable resolution can be reached before the matter proceeds to trial.
The mediation step forces parties around a table and affords parties the opportunity to reach a solution and to curb legal costs. It may cost an insurance company, with a strong case for repudiation, far less to settle a legal battle during the mediation stage, rather than to defend it’s right not to pay, to the last end in open court. Unfortunately, it creates a “fishing” opportunity for a person with a fraudulent or inflated claim or purely bad merits to defend a legal action from an insurer, simply to have his day around a mediation table to see if something in the form of cash comes his way.
This trend should cause insurers to become more cautious about inflated and fraudulent motor claims by paying more attention to the wording and detail of their insurance policies. Simple policy terminology used in common clauses may sometimes turn out to cause an insurer more pain than comfort.
The law dictates that when it becomes difficult to decipher and interpret an insurance policy or when something can mean more than only one thing, the outcome of the interpretation should rather favour the insured, than the insurer.
The importance of clear policy wording can be illustrated by the example below.
Illustrative Dispute Scenario
Mrs K was the owner of a vehicle and the client of insurance company IC Ltd. The dispute illustrates the difficulties insurers may face where policy wording does not expressly address unauthorised use of a vehicle. One evening, Mrs K invited a few guests to her house for dinner. Soon after dinner, Mrs K, being an elderly lady, went to bed while some guests remained at her residence. Mr L was the last guest to leave the house and took Mrs K’s vehicle keys from a table to use her vehicle without her knowledge and consent. During his excursion, Mr L lost control of the vehicle and caused considerable damage to the vehicle after colliding with a tree.
Mr L was charged with reckless or negligent driving, driving without a licence and using a vehicle without the owner’s consent, which is a criminal offence in Namibian Law. To her surprise, Mrs K was contacted by the Police the following morning and informed that her vehicle was involved in an accident. Mr L admitted to the Police that he took her vehicle without her consent. Mrs K requested the police to investigate and to prosecute Mr L. Mr L did not lay any formal charge of theft against Mr L. She recovered her vehicle and submitted a claim for the damage to her vehicle with her insurance company IC Ltd. She informed IC Ltd that Mr L drove her vehicle without her consent and caused damage to the vehicle. IC Ltd considered the claim for damages and found that Mr L was intoxicated at the time of the accident. IC Ltd rejected the claim based on two policy exclusions, namely that:
(i) The driver of the vehicle was unlicenced; and
(ii) The driver was under the influence of alcohol at the time of the accident.
After being notified of the claim rejection, Mrs K submitted a second claim to IC Ltd on the basis that the vehicle sustained damage whilst it was stolen and driven without her consent. IC Ltd considered the second claim on the basis of theft and rejected the second claim as well based on the fact that the vehicle was not stolen and no formal charge of theft was brought against Mr L. After extensive negotiations IC Ltd elected to settle the first claim rather than defend the repudiations in court proceedings.
Legal Position Under Namibian Law
Namibian Law does not automatically regard unauthorised use as theft. In this scenario, Mr L had no intention to permanently deprive Mrs K of the vehicle, although his use of the vehicle was unauthorised. Namibian Law requires the following four elements to be all present to constitute the crime of “theft”:
(a) An appropriation (taking) of a
(b) movable property in a manner that is
(c) unlawful (that belongs to another person without the consent of the owner) with the
(d) intent to deprive the true owner permanently of its property
If any one of these four elements is absent, Namibian Law does not recognise the action as theft.
The actions of Mr L clearly did not amount to theft in terms of Namibian Law.
Policy Interpretation Issues
Mrs K had a short-term personal insurance policy. In terms of the Motor Section, it covered loss of or damage to vehicles shown in the policy schedule. The type of cover provided, was comprehensive, which meant cover for the loss of or damage to the vehicle due to an accident. The policy specifically provided cover for theft of the vehicle. In other words, cover was provided also where the vehicle was lost or damage cause of theft. However, the policy remained silent on whether the exclusions would also apply in circumstances of unauthorised use.
The policy described the words total loss to mean written off or stolen. The Motor Section further contained a list of circumstances (also known as exclusions) in terms of which a claim may be rejected if, at the time of the occurrence of the accident, the driver of the vehicle was under the influence of alcohol or failed to have a valid driver’s licence.
Industry Implications
The policy indicated that comprehensive cover was provided for loss of or damage to the insured vehicle. By reading the policy, Mrs K could reasonably believe that she enjoyed comprehensive cover, unless a specific exclusion applied.
In other words, she could believe that she is comprehensively covered for any damage to the vehicle, whether it is used with or without her consent, or if the vehicle is stolen. She could further believe that any restriction of cover would clearly be spelled out.
The policy did not mention or describe an event of unauthorised use or borrowing at all. It simply provided that the policy would trigger if the vehicle was damaged due to an accident or a total loss. It was spelt out that the policy would not trigger if any of the exclusions would be present at the time of the occurrence of the accident. In the case of theft, the event that is covered by the policy, is theft. Any subsequent action by the intoxicated driver of the stolen vehicle, is irrelevant.
IC Ltd rejected the first claim by applying the exclusions in circumstances involving unauthorised use.
IC Ltd rejected the second claim on the basis that the vehicle was not a total loss and not stolen. It is clear that Mr L did not steal the vehicle but used it without authorisation.
The central question is whether the exclusions applied only to circumstances of authorised use Mrs K argued that the exclusions should not apply in circumstances of unauthorised use because the policy did not specifically indicate that the exclusions would also apply in the event of unauthorised use and therefore the claim should be paid.
Namibian courts, like in many other jurisdictions, hold the view that if an ambiguous insurance contract needs to be interpreted, an interpretation that favours the client (insured) rather than the insurance company (insurer), should be adopted.
It remains of utmost importance for short-term insurance companies to ensure that their intentions are clearly reflected in policy wording and that as little room as possible is left for uncertainty or interpretation. This will not only prevent cumbersome and costly litigation, but also foster a reputation of credibility and support, something that is much needed in our modern society.