Picture: THINKSTOCK
Picture: THINKSTOCK

Financial services providers have an obligation to place clients in a position to make informed decisions by providing all material information upfront.

Failure to do so could land you in hot water, as a financial services broker in Pinetown, KwaZulu-Natal, learned recently. The industry ombud ordered CDK Event Solutions, trading as CDK Brokers, to cover the full cost of a stolen Toyota Hilux after an insurance provider rejected a claim based on the vehicle being fitted with an incorrect tracker device.

Western National Insurance rejected an insurance claim of business owner Krish Moodliar as his Hilux did not have an early-warning tracker system installed — a condition of cover for that vehicle model. The insurance policy stipulated that all vehicles worth over R150,000 needed to have such a tracker system in place.

CDK Brokers, a duly registered financial services brokerage, had advised Moodliar of insurance coverage for his fleet of logistics vehicles. When the Hilux was stolen, and the insurance company rejected the claim, CDK advised Moodliar that the Vigil Lite Netstar tracking device that was installed in the vehicle was not approved by the insurer, and that the fault lay with Moodliar.

The brokerage claims that it had requested written proof of the tracker that was installed, but only received a verbal confirmation from Moodliar, who had chosen the Vigil Lite tracking device. Had Moodliar sent in the paperwork of the tracker he had installed, CDK claims it would have advised him that the device did not pass muster with the insurance policy.

CDK provided argument to the ombud that despite trying to obtain copies of the tracking certificate, it was only submitted during the claims process. As a result, CDK says that it was not aware of the device that had been installed and could “therefore not have insisted on the installation of the early-warning system”.

Financial services provider ombud Naresh Tulsie found this argument to be flawed.

In his determination Tulsie wrote: “The [General] Code [of the Financial Advisory and Intermediary Services Act] obliges a financial service provider to place his client in a position to make an informed decision.

“This can only be done if the client is provided with the required information upfront. This is further enforced by section 7 (1) (c) (vii) [of the Fais Act] which requires disclosure of any special terms or conditions where liability will be excluded, or where excesses apply.”

The ombud further noted that there is enough information to suggest that the respondent failed to appropriately apprise her client of the specific terms of the insurance contract that could affect his cover.

Consequently, because of the respondent’s failure to adhere to the code, the complainant did not install the early-warning system.

“The respondent’s conduct is the sole cause of the complainant’s loss,” Tulsie found.

The ombud ordered CDK to pay R310,227.44 to Moodliar and refund the commission received for this transaction.