Giving your insurer false info is sure to come back and bite you
● If you misled your insurer when you took out your short-term insurance policy, your insurer can cancel your policy and claim back all claims paid out to you.
The Short-Term Insurance Act gives your insurer the right to void your policy from inception if you have misrepresented something material, says Darpana Harkison, senior assistant ombudsman at the Office for the Ombudsman for Short-Term Insurance.
If your policy is voided, the insurer has to refund all your premiums but, depending on the extent of your claims relative to your premiums, you may find yourself out of pocket.
According to the ombudsman’s 2018 annual report, material misrepresentation was the second-biggest reason for insurance disputes in the category of household contents and motor vehicle claims.
Martin van Wyk, the head of customer experience at Auto & General Insurance, says all contracts, including insurance contracts, are labelled “contracts of good faith”. In insurance, the duty of good faith means you, as the insured, must make full disclosure so that the insurer can calculate the risk.
Insurance premiums are determined by the risk you pose to the insurer. If you do not disclose all the relevant facts relating to an insured item, it could affect your cover and the premium you are charged.
Harkison says an example of material misrepresentation would be if you said you had not been in any prior accidents, despite the fact that you have a history of accidents.
But, if the questions you are asked by a sales agent or insurer are not specific enough to trigger a memory of, for example, driving over a pothole 20 years ago, the insurer will have difficulty proving you misrepresented facts. A lot depends on how the underwriting questions were asked and how you answered them, says Harkison.
If an insurer asks you to disclose if you have been in any vehicle accidents and you fail to mention that you reversed into another vehicle at the mall even though you did not claim because the damage was minimal, you are misrepresenting facts.
If you are unsure what information to provide, rather mention all incidents involving your motor vehicle, Harkison advises.
Van Wyk says the most common forms of intentional misrepresentation at Auto & General are about who drives a vehicle most often, the address where the vehicle is parked at night and whether a vehicle is used for personal or business purposes.
An example of an intentional misrepresentation would be when you call your insurer to add your adult child, who has recently acquired a licence, to your policy as the person who drives the vehicle most often (the regular driver). Then, when the insurer informs you the premium will be higher for the new driver, you intentionally provide false information saying that the child will no longer be the regular driver.
Auto & General assesses each matter on its merits, and the principles of fairness and equity are always observed, says Van Wyk.
Christelle Colman, Old Mutual Insure’s insurance expert, says there may also be misrepresentation at the claims stage, when a policyholder may state that a licensed driver was driving a vehicle when an unlicensed driver was driving.
In the current year, just less than 5% of matters at Old Mutual Insure involved misrepresentation of some sort.
The number may appear small, but these are some of the most testing matters to assess, she says. Old Mutual Insure has to assess if there was an intention to misrepresent, whether the facts misrepresented were apparent or known to either party, whether the facts are material to the risk covered or loss suffered and what the action of the insurer would have been had the true facts been known beforehand.
Harkison says besides having your claim rejected, once you have had a policy cancelled you have to disclose this fact when you apply for cover with a new insurer. This disclosure may jeopardise your chances of obtaining a new policy and, if you fail to disclose it, you risk future claims being turned down, she says.
Insurers cannot simply turn down your claim because you misrepresented something — the misrepresentation must be material to the risk that the insurer took on when it entered into a contract with you, says Harkison.
This means the insurer has to demonstrate that, had you notified it when you took out the policy about information that later comes to light, it either would have charged a higher premium or would not have accepted the risk.
The relationship with your insurer is based on a contract, so any recourse that either party might have against the other is based on civil, not criminal law, says Harkison. Under civil law, the onus is on the insurer to show on a balance of probabilities that you misrepresented information if they reject your claim on this basis.