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Flying Blind? What a Drone Claim Reveals About All-Risk Insurance

FAIS Ombud > Latest News > Flying Blind? What a Drone Claim Reveals About All-Risk Insurance

All risk cover, and specifically for our discussion today, Business All-Risk Policies are broad insurance covers protecting listed business assets (like laptops, phones, equipment, or stock) against loss, damage, or theft from any cause not specifically excluded in the policy, offering coverage for portable items and peace of mind for unexpected events, even away from the business premises.

The highlighted section is bold for a reason, as there is a widely held assumption among consumers that this type of coverage, which is more expensive than your standard coverage, will provide for any eventualities. However, there will be events that are excluded either specifically under the exclusions section of the policy wording or added as endorsement riders to the policy when it is issued.

Always ensure that you are aware of and understand the implications of any exclusions or endorsements placed on your policy to ensure that the policy you have in place meets your specific needs.

Background

  1. The Complainant purchased two drones for his agricultural business and requested comprehensive coverage with no excess in June 2024.
  2. The drones were added to the updated policy on 27 July 2024, but when one of the drones was damaged due to a power line crash while in flight mode, the insurer rejected the claim (valued at R244,700.00).
  3. The rejection was based on an exclusion in the policy that did not cover damage while drones were in flight. The Complainant stated the exclusion was never explained, and the policy did not suit his needs.
  4. The Respondent argued that its role was limited to administrative tasks, as the drones were added to the all-risk insurance policy at the explicit written request of the Complainant’s office, and that it had no obligation to provide advice or highlight exclusions.
  5. The Respondent maintained that all disclosures were made through the policy schedule and documentation shared with the client, which were sufficient for the Complainant to make an informed decision.
  6. Furthermore, the Respondent emphasised the Complainant’s duty to read and understand the policy terms.

Assessment of Evidence

  1. The issue relates to whether the broker provided advice or intermediary services regarding the addition of a new product (drone) to the Insured policy.
  2. The Ombud concluded that adding the drones to the policy constituted the introduction of a new product, and that the transaction fell within the definition of advice in terms of the Financial Advisory and Intermediary Services Act 34 of 2002, thereby obligating the broker to disclose exclusions and material terms.
  3. Section 7(1)(a) of the Code of Conduct stipulates that an FSP must provide a reasonable and appropriate general explanation of the nature and material terms of the relevant contract or transaction to a client and generally make full and frank disclosure of any information that would reasonably be expected to enable the client to make an informed decision
  4. Furthermore, Section 8 of the Code of Conduct states that a provider must take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objective and identify the financial product or products that will be appropriate to the client’s risk profile and financial needs, subject to the limitations imposed on the provider under the Act or any contractual arrangement.
  5. Additionally, Treating Customers Fairly (TCF) Principles 3 and 4 require that clients be properly informed about exclusions and that advice be suitable for their circumstances.
  6. The Respondent’s actions did not align with these regulatory provisions, nor did they meet the required standards of care and disclosure under the Code of Conduct and TCF principles, as when rendering any financial service, the Respondent is obliged to inform a client of the exclusions of the policy and any other material aspect that may influence the client’s decision to go ahead with such policy. The financial product must also be suitable for the client’s needs.
  7. The Ombud did, however, note that the Complainant did receive the updated policy schedule wherein the conditions and exclusions were clearly stated twice – in the main line and the exclusions. The Complainant reasonably should have read the schedule and noted the exclusion

Outcome

  1. Upon review of the evidence given, the Ombud recommended that the Respondent pay 50% of the claim amount, totalling R122,350.00, due to its omission to fully comply with the Code of Conduct and the TCF Principles.
  2. The Respondent accepted the recommendation, and the Complainant agreed to the settlement, closing the matter.

 Lessons Learnt:

  • All-Risk Cover, like any other type of cover, will contain exclusions as part of the policy wording or added as an endorsement to the policy when it is issued.
  • Your financial services provider has a duty to ensure that the cover recommended is appropriate to your specific needs and that you are made aware of any material terms such as exclusions and instances where cover will not be provided.
  • Empower yourself by familiarising yourself with the policy you are about to enter into, ensuring that you are aware of and understand the implications of any exclusions or endorsements placed on your policy, and that the policy you have in place meets your specific needs.