Police Health Plan gets tick

The Police Health Plan which is administered by the Police Welfare Fund, has been awarded the Consumer NZ People’s Choice Award for 2019. The award is the result of Consumer NZ’s customer satisfaction survey of health insurance providers, in which the Police Health Plan achieved a 98% satisfaction rating from its customers.

Chairman of the Welfare Fund, Police Association President Chris Cahill said the PHP rating is at least 5% better than that of the next health insurer and is based on customers rating us between six and 10 on Consumer NZ’s satisfaction rating scale.

"Responses for the PHP were 89% ‘very satisfied’ and 9% ‘somewhat satisfied’, and the plan achieved a rating of zero per cent dissatisfaction," he said.

In presenting the award, Consumer NZ general manager business Derek Bonnar told the association that no other health insurer had ever achieved a response of zero dissatisfaction. "You knocked it out of the park," Bonner said. Cahill said it was an extraordinary achievement for a small team and was the result of true dedication to the health and welfare needs of members throughout the country.

"The team really cares about the members it serves and the Welfare Fund is very proud of the trust members have clearly shown in our health plan."

The endorsement allows PHP to display the Consumer People’s Choice tick of approval icon on its promotional material.

WHEN IS YOUR VEHICLE NO LONGER YOUR VEHICLE?

In August 2016, through a broker, the insured arranged insurance on her vehicle. The vehicle was endorsed on to her existing farm package with her insurer. There were no nominated drivers added to the policy.

In August 2017, the vehicle was stolen from where it was parked overnight. The vehicle was later found burnt out. The woman made a claim for the loss. The insurer investigated the claim and discovered that ownership of the vehicle had been transferred in March 2017 to the woman’s grandson.

He was the main driver of the vehicle, and had a number of criminal and traffic convictions. Based on this, the insurer believed that the insured had failed to disclose material information. The insurer avoided the policy from March 2017, the date on which the vehicle ownership was transferred, and declined to consider the claim.

The client disputed the decision, on the basis the broker was aware that her grandson would be one of the main drivers of the vehicle. Therefore, the change in ownership was not material. She also said the broker was aware of his traffic convictions. THE CASE MANAGER’S ASSESSMENT

The information provided when an insurance application is completed is the basis of the policy, which is a legal contract.

Both the insurer and the insured must tell each other about all of the important information relating to the proposed insurance.

That means the insured must tell the insurer about material facts such traffic and criminal convictions, vehicle modifications, previous claims history, or bankruptcy. This is called the duty of disclosure.

Information is material if it would influence the decision a prudent insurer would make about whether or not to accept an application and, if so, on what terms. Whether a particular fact is material depends upon the circumstances of the case and is a question of fact. The insurer is

responsible for showing information is material.

The duty of disclosure exists when the application is completed. The duty also applies on the annual renewal of the policy. This means the customer must tell the insurer about anything which has occurred since the last renewal date.

At law, the insurer is entitled to rely on its legal rights to avoid the policy (or treat it as if it had never existed) if the insured does not tell it about material information. The IFSO cannot make a decision that ignores those legal rights, even if it does not seem fair, or has harsh results, in all of the circumstances.

The insurer did not hold a record of the application that the insured should have completed when the farm package was arranged. The insurer also confirmed that the woman did not complete an application when she arranged the policy in 2016. Instead, the insurer relied on her general obligations on renewal as well as the change of circumstances condition in the policy.

However, if she had completed the farm package application, which included vehicle cover, or a standalone vehicle cover application, she would have been asked specific questions about her criminal history, and the criminal history of anybody who would drive the vehicle. The case manager had discussions with the insurance company about the credibility of the broker, given his inconsistent recollections of the telephone call when the policy was arranged. In addition, concerns were raised about the endorsement process for adding vehicles to an existing policy, without a requirement for underwriting questions to be asked on each occasion, and the lack of process requiring any answers given in response to be provided to the insured on renewal

Following the discussions with the case manager, the insurer accepted that there had been issues with how the policy was arranged. Therefore, it agreed to reverse its decision to avoid the policy, and accepted the claim.

BROKER, CLIENT DISPUTE PHONE CALL

In September 2006, through the broker, a company arranged cover for a refrigeration truck.

In or about September 2009, the company’s director had a telephone discussion with the broker, about adding an endorsement to the policy. He believed he had said the company wanted what is called loss of use cover, which would provide a temporary rental vehicle, if the truck was damaged. However, the broker understood that he wanted commercial vehicle cover for any rental vehicles the company may hire.

An endorsement for rental vehicles was added to the policy without altering the premium. In July 2014, the truck was involved in accident. The company made a claim to insurer for the damage. The insurer accepted the claim and paid the repair cost. However, a dispute arose about cover for the cost of a temporary rental vehicle. at the time of the complaint and there was no telephone notes which assisted. Therefore, there was a direct conflict of oral evidence. However, even if it were established that the client had requested loss of use cover in 2009, and this was not undertaken appropriately, the company would still have to show it suffered a loss as a result.

In bringing the complaint, the man said that the cost of the rental was $954.30 per week, for a total of $7,634.44. The insurer had also made an ex-gratia contribution of $3,000.

The case manager looked at what position the company would have been in, if it had loss of use cover from 2009. From the case manager’s research, the company was paying low premiums at the time of the complaint, for the loss of use. Therefore, in order to fully consider the complaint, the case manager used the company’s current cover to

The man raised concerns with the broker, stating that he had requested loss of use cover and requested compensation.

The broker disputed that the client had requested loss of use cover in 2009. The broker said that he had been offered loss of use cover on a number of occasions, but declined it due to the high cost.

Instead, the broker believed that the man had requested commercial vehicle cover for rental vehicles. THE CASE MANAGER’S ASSESSMENT

When assessing complaints, the IFSO Scheme takes the available evidence into account.

Unlike a court of law, however, the IFSO Scheme does not hear oral evidence on oath. For this reason, documentary evidence is usually more persuasive.

Where the parties present conflicting oral evidence, the IFSO Scheme may not be able to establish what happened if there is no documentary evidence to assist.

The recording of the telephone call in 2009 was no longer available

determine the position it would have been in.

When arranging loss of use cover, an insured needs to select the length of time they want cover for. The company had five weeks’ loss of use cover. If it had had that level of cover in 2014, there would have been cover for about $954.30 times five weeks, for a total of $4,771.50. This did not take into account possible deductions, including excess. In addition, if the loss of use cover were in place from 2009, the company would have been required to pay additional premiums for the loss of use cover between 2009 and September 2013; five years of premiums.

The company was paying about $481.56 for loss of use cover. As such, it would have paid an additional $2,407.80 in policy premiums. That was a saving that would need to be deducted from any calculation of loss. Therefore, the total claimable, of five weeks’ hire, less policy premiums ($4,771.50 less $2,407.80) was $2,363.70. Finally, the company also recovered $3,000 from its insurer. This means that, even if it were accepted that the client asked for loss of use in 2009, the company has already been sufficiently compensated for the potential loss.

TWO INSURERS FACE LITIGATION BECAUSE OF POOR POLICY DRAFTING

By Crossley Gates

We look at two recent court decisions, one in the Court of Appeal of Western Australia and the other in the High Court of New Zealand, where poor policy drafting led to policy interpretation disputes.

In both cases, the courts applied the law of contract interpretation to determine the dispute. However, clearer drafting by the insurers would probably have avoided the cost of fighting the court cases in the first place. We summarise the two cases below.

TOKIO MARINE & NICHIDO FIRE INSURANCE CO LTD V HANS BO KRISTIAN HOLGERSSON [2019] WSSCA 114

The head contractor on a residential construction site subcontracted the painting work to Holgersson. The head contractor held a construction policy with the insurer, Tokio Marine.

While Holgersson carried out the painting work, a fire broke out that caused substantial damage to the contract works.

Tokio Marine met the head contractor’s claim under the construction policy. It then pursued a subrogation action against the painter, Holgersson. Holgersson argued that it was insured under the construction policy also as a subcontractor, precluding Tokio Marine’s subrogation action against it. The court considered as a preliminary question in the proceeding whether, properly interpreted, the policy insured Holgersson as a named insured or not.

The definitions section of the policy defined ‘named insured’ as follows (underlining added): a)You b) …

c)Additional Insured(s): i. … ii. … iii. … iv. all contractors and sub-contractors … not being You but being a legal entity with whom You have entered into a Contract and provided their interests are required to be insured jointly by You, and then only to the extent required by the terms set out in the Contract … d) … e) … ‘You’ was also defined as follows (underlining added):

… the Person(s) or legal entity named in the Schedule.

The parties agreed Holgersson did not qualify as Additional Insured(s). This was because the proviso did not apply; the terms of the head contract did not require the head contractor to insure the interests of Holgersson as sub-contractor.

If the matter had rested here, the contractual position would have been clear: objectively, the parties intended that a sub-contractor such as Holgersson was not to be covered because the terms of the head contract did not require it.

However, the schedule to the policy stated the persons defined as "you" included:

This created a clear contradiction within the policy about whether Holgersson was a Named Insured’ the definition of You said it was, and the definition of Additional Insured(s) said it wasn’t.

The Court of Appeal resolved this by applying established contract law that says the terms of a contract that are specific to the parties override the terms of a contract that are in standard form. Here, the schedule was completed with the specific parties in mind whereas the definition of Additional Insured(s) was a standard part of the policy. This meant Holgersson was a ‘Named Insured’ and Tokio Marine could not subrogate and sue it.

NC MATHIESON AND OTHERS V TOWER INSURANCE LIMITED [2020] NZHC 136

The insured’s house suffered significant damage in three successive earthquakes in the Canterbury sequence during 2010/2011. The policy contained a warranty that said:

Warranted that the maximum sum insured is $455,000.

After the third earthquake, the house was still repairable but experts estimated that the cost to repair it, as at August 2, 2017, was slightly over $3 million plus GST.

While there were some issues about the basis of the insured’s entitlement under the policy, the primary dispute was whether the insured could claim the maximum sum insured of $455,000 once over the policy period or for each of the three earthquake events.

Another way of asking this is whether the maximum sum insured was available per event during the policy period or in the aggregate during the policy period.

A policy is for a fixed term of 12 months. By implication, a monetary limit in the policy is only available over that 12-month period. In order to overcome that implication, clear words are required. The usual way of stating this is to apply the sum insured ‘per event’. The court noted that those two words were missing and so the objective intention of the parties must have been to apply the sum insured in the aggregate during the policy period. COMMENT

Both decisions apply conventional contract interpretation law to determine arguments created by poor drafting.

In the Tokio Marine case, it appears whoever completed the Schedule did not appreciate that naming the sub-contractors in it potentially clashed with the standard definition of "Additional Insured(s)". In the NC Mathieson case, the addition of the words "in total during the period of insurance" after "$455,000" would probably have avoided the whole dispute.

Both decisions demonstrate the cost to insurers of not taking sufficient care with their policy drafting.

Crossley Gates is a partner at Keegan Alexander. Email: cgates@keegan.co.nz Direct Dial: (09) 308 1809

FINANCIAL ADVISERS ARE KEY TO MANAGING CLIENT EXPECTATIONS

Karen Stevens, Insurance and Financial Services Ombudsman, says the best time for consumers to undersand insurance is before they need it.

“It’s both our message to consumers, and to financial advisers who belong to the IFSO Scheme. Advisers should ensure their clients understand what they are signing up to, what their obligations are, and how to avoid getting caught without cover,” she said.

“Many of the complaints we investigate at the IFSO Scheme could have been better managed from the beginning, with clear communication and information. Managing client expectations up front is the only way to avoid disappointment later.”

“Disappointment often leads to complaints,” Stevens said. “If people know what to expect from the beginning - the limits of their cover or what they will need to do for a successful claim - complaints can be avoided.

“Some people have unrealistic expectations that insurance will cover any and every unexpected loss. Many don’t understand how the claims process works, and what they need to do to prove they have suffered a genuine loss.

“In the same way as we urge consumers to check their policy and keep asking questions, we also encourage advisers to provide good information to guide the process from inception to renewal, and during claims.”

Common misunderstandings are highlighted in the following complaint inquiries and complaints received by the IFSO scheme. “Complaint inquiries are any questions we receive on our 0800 number, our info email, or online, whereas complaints have been accepted for investigation, and go through our disputes resolution process.”

“By sharing real examples of when and how things go wrong, our hope is to give you the opportunity to get it right first time - by understanding the issues and engaging with your clients.”

REAL LIFE CASES

1. Excess Excess is a common issue in complaint inquiries and complaints to the IFSO Scheme. At inception and at renewal, advisers could help clear up misunderstandings by explaining what an excess is, why it exists, and how and when an excess would apply to a claim.

Complaint Inquiries Not my fault Colleen’s* car was hit by a van and damaged. The party at fault in the accident wouldn’t respond to her calls. Colleen didn’t want to pay an excess upfront when she is not at fault. Two excesses? A rat chewed through two ends of the one pipe over a few days in Chloe’s* house. The insurer applied two excesses to the water damage

claim, as it said the damage was caused by more than one event. Complaint Car accident, not “completely free of blame” Eric’s* car was damaged in an accident, which occurred when Eric and another driver reversed at the same time. The other driver said Eric reversed into the door on the driver’s side of his vehicle. Eric disputed this. The insurer accepted Eric’s claim, but didn’t believe Eric was “completely free of blame” (as required by the policy for the excess to be waived), as there were two different versions of the facts. The excess of $400 applied. The IFSO scheme case manager said there was no independent evidence available. Therefore, the insurer’s decision (that they couldn’t confirm Eric was “completely free of blame”), was reasonable in the circumstances. To show he was “completely free of blame”, so the excess could be refunded, Eric could have taken the matter to the Disputes Tribunal or provided more evidence.

2. Prima facie claim At claim time, advisers can assist clients to understand, and have realistic expectations about, the claims process and about their obligations and options. The mystery of the prima facie claim is the cause of up to 20% of general insurance complaints. “We break it down for consumers by explaining that, to make an insurance claim, they need to show they have suffered a loss, and that loss must be covered by the policy,” says Karen. “This is the prima facie claim. If the insured has no proof to demonstrate these points, the claim can be declined. Financial advisers can really help by explaining what the requirement to prove a prima facie claim involves, including explaining how to prove the loss and prove ownership.”

Complaint Inquiries Burst pipe, not sudden, no cover Colin* noticed water damage in his house. He said it was from a burst water pipe inside a retaining wall. Colin said he cannot access inside the retaining wall to see exactly what happened as it is too expensive. The insurer declined the claim on the basis that Colin had not proven the damage was sudden and unexpected.

Earthquake claim, not earthquake damage Kim* made a claim for damage to her house following the Kaikoura earthquakes. The insurer declined the claim on the basis that the damage did not occur as a result of an EQ.

No receipts for jewellery Tim’s* home was burgled twice, but he didn’t have receipts for the stolen jewellery. The insurer said the photos Tim provided weren’t sufficient proof and declined part of Tim’s contents claim. Boat engine damage Sam’s* boat engine was damaged when a bag got stuck, causing water to spill into the motor. Sam had an engineer’s report to support this view, but the insurer had two reports supporting mechanical damage, which was excluded under the policy. The insurer offered to cover 50% of the claim. Complaint Linda* claimed several items of jewellery had been stolen from her home during a number of burglaries. Her insurer appointed a loss adjuster who reported there was no evidence of forcible entry and no proof of ownership. Linda had claimed the jewellery had been stolen by a carer employed by her healthcare provider. The healthcare provider investigated and reporter it had been unable to establish a loss had occurred.

The insurer then appointed an investigator. Based on his enquiries with Linda’s family members and the healthcare provider, he reported there was no evidence to support the claim.

Linda’s policy covered “accidental loss” of contents where “loss” was defined as “[p]hysical loss”, and “accidental” as “[u]nexpected and unintended”. On the claim form, Linda stated the thefts occurred “several times … about two weeks ago” and, to the question “Do you think that any other person is responsible for the loss or damage?”, Linda answered she suspected the carer.

The police report contradicted the information in the claim, as it stated the jewellery had been taken from the house “over a period of two years”. The healthcare provider reported Linda had “noticed items being missing over the last few years … [and Linda had] said … ha[d]n’t seen them in months”.

There was no evidence of burglary or forced entry and the carer had been an invited guest to the house. There was no information or evidence of “[p]hysical loss”.

The insurer informed Linda it was unable to accept the claim, because she had not proven she had suffered a loss at the house during the period of insurance.

3. Gradual damage Of all the general insurance complaints to the IFSO Scheme, 12% relate to gradual damage. “We hear from many people who don’t understand that insurance is there to cover you for damage which happens suddenly and accidentally, and not for damage that happens gradually,” says Karen. “Water damage is a recurring issue, especially when the damage is discovered suddenly, but has been happening over time. We explain it is not the discovery, but the cause, of the damage that must be sudden.”

Complaint Inquiries Slow leak from washing machine Jane’s* tenants did not tell her the washing machine had leaked, causing significant damage. Jane wanted her insurer to contribute to the cost of repairing the damage.

Flooded basement, sinking driveway Sue’s* basement cupboard flooded in a sudden rain event, and months later she discovered the driveway sinking in the middle. The insurer declined the claim as it said it was gradual damage caused by the basement, but Sue said the damage was caused by the rain event.

4. Market v Agreed Value “The difference between market and agree value in vehicle insurance is another really common complaint area,” says Karen. “Financial advisers could make a big difference by taking time at inception to explain to clients the type of vehicle insurance policy they are signing up to and what to expect if their vehicle is written-off in future.”

Complaint Inquiries Both Bill and June disappointed by payouts Bill* understood he insured his car for $8,000. After the car was written off in an accident, he was paid out $3,500 by his insurer.

June’s van was written off and the insurer offered a $4,000 payout. June said vans of the exact same year, condition, and kms were selling on Trademe from $6,000 to $9,000. June said the insurer was valuing her van low on purpose to drop its payout figure. The insurer asked June to get three valuations of the van. June said that was the insurer’s job. She said finding out what cars sell for is easy on the internet and using a valuer paid by the insurer is not independent. *Not real names.