Consumer Protection Initiative

 
1. Introduction

If the Department of Trade and Industry has its way, the new Consumer Protection Act will come into full effect in March next year. The Act seeks to level the playing fields between consumers and suppliers, ensuring that the general public not only get what they pay for but also are protected from potentially dangerous or harmful products.
The Camargue Broadform offering is built around the Consumer Protection Act with the wording and the risk management services having been tailored to respond to the changing liability environment.
The Consumer Protection Act is due to be implemented at the end of March 2010. The Act is heralded as the most progressive piece of Consumer Protection legislation seen globally.
Much of the Act is simply a codification of the Common Law (CL) position but there are numerous departures from the CL that produce a widening liability and trade risk exposure for the South African business:

1. Strict (no fault) Liability applicable to products that have the potential to cause harm
2. Stringent labelling and warning provisions on products (along with Strict Liability as above)
3. Strict Liability applicable to negligent advice around products that have the potential to cause harm
4. Joint and several liabilities for all parties in the supply chain of a product or service, including product liability for retailers who do not manufacture the products.
5. Various contractual liability issues such as mandatory cooling off periods, stringent refund and replacement conditions and the prohibition of inequitable cancellation and general contractual clauses
6. The introduction of fines and penalties for failure to comply with the Act.
7. Clear and inexpensive channels of dispute resolution without approaching the High Court
8. And others to numerous to mention in this document. More detailed info can be obtained from our CPA risk manager, Adv. Louis Nel.

Many liability underwriters have chosen to ignore the legislation or to remain silent on its impact. Camargue, on the other hand, has actively been researching and preparing for the legislation since March 2008. The Camargue team consists of a blend of experienced insurance professionals and qualified legal practitioners who are well versed in general liability and the CPA.

2. The Consumer Protection Act and Risk Management

Product retailers, service providers, suppliers and manufacturers (although no industry will escape the Act entirely) are likely to be the most affected by the legislation. Proper risk management and consumer complaint handling will be pivotal in running a successful enterprise. It is for this reason that we have put together a risk management team to deal with the new consumer playing field:

1. Advocate Louis Nel – Louis is a High Court Advocate who has been involved with the Act since 2004 when it was still a Green Paper. He has worked extensively with the Department of Trade and Industry. He specialises in assisting businesses to manage legal risk compliance. Louis is in the process of populating our CPA Website for the major industries in South Africa. Each Camargue client gets access to the specialised CPA website and larger clients have access to Louis and his team to handle specific queries.
2. Legal Ex Call Centre – A national call centre has been set up by the team at Legal Ex. Qualified attorneys, consultants and former magistrates staff the call centre. They are in the process of being trained on the CPA by Adv. Nel. They will all be well versed in the Act. Their function is to:
   1. Assist with CPA queries from Policyholders
   2. Be the first line of defence regarding CPA type claims
   3. Investigate and defend our clients when a claim is actually submitted. This is possible through a panel of attorneys across the country who work at preferential rates.
3. Cunningham Lindsay Loss Adjusters – more of a loss mitigation tool but we are in the process of negotiating on-line and desk-top adjusting facilities that will ensure expedient and effective claims management.
4. Netcare 911 – All Camargue clients have access to emergency medical services provided by South Africa’s largest emergency service and private clinic group.

3. The Multimark vs. Broadform debate

There can be no argument that broadform liability is superior to the MM type policies. The major differences relevant to CPA are:

1. The trigger is “non-accidental”
   1. The trigger on MM type polices is commonly referred to as “accidental” with the word appearing many times in the operative clauses of such wordings.
   2. Broad-form wordings are commonly referred to as “non-accidental” in that the insured does not have to prove that an accident has occurred to gain benefit under the policy.
   3. Under the CPA it is suspected that the word accident will be caused into question frequently especially where negligent advice or inadequate instructions/warnings have brought about the loss. Further debate over which incidents are accidental is also anticipated where Absolute Liability has been applied.
2. The definition of damage includes “loss of use”
3. The definition of injury includes “mental anguish”
4. There is no contractual liability exclusion
5. Pollution cover is non-accidental and includes noise, smell and light pollution
6. Statutory Defence costs can be used to cover defence against CPA fines
7. Custody and control cover is broader
8. Limited product inefficacy cover is automatically included under the product liability section
9. Loss or damage caused by design faults in products is automatically covered.
10. Employers Liability with “employee to employee” liability is automatically included.
11. A further strength of the broadform policy is its vast list of extensions ranging from errors and omissions and product recall to inefficacy and pure economic loss.

4. The inadequacies of MM3 and Umbrella covers

It has been suggested that the current combination of MM based liability and the Commercial Umbrella provide the same protection as the broadform liability. To some extent this is true as the Umbrella policies traditionally have Difference in Conditions (DIC) cover. This cover should effectively drop down when a claim is excluded by the primary by virtue of it being “non-accidental”. At Camargue we believe this is where the major claims disputes will arise, due to:

1. The primary policy and the umbrella are placed with different underwriters. The primary covers are placed with the traditional insurers whilst the umbrellas are placed in the specialist liability sector.
2. As happened in the USA in the early 90’s, many disputes arose over what could be perceived as being an accident. The Umbrella’s have not been priced to become primary insurance policies and those underwriters are likely to advise brokers that it is the MM primary that should pick up the claims.
3. The primary underwriters of course will conversely argue that the Umbrella should pick up the disputed claims.
4. It is the broker however that will be caught in the centre of the dispute with a potential Professional Indemnity claim.

By simply replacing the MM policy with Broadform the broker immediately gains confidence that no claims disputes will arise between primary and umbrella underwriters. The triggers on the Broadform and Umbrella are the same and the Umbrella policy reverts to its prior “excess of loss” status.

With such glaringly obvious benefits to conversion, one needs to ask why this has not yet happened in South Africa. The answer of course is price related. Historically, only larger organisations have been able to afford the broadform premiums. Broadform liability policies are on average 500% more expensive than their MM3 counterparts. A lack of liability claims frequency makes switching covers for an increased premium, practically impossible.

This is problematic in the context of the CPA as the more litigious environment will warrant the purchase of wider cover but at the same time brokers may have to wait for the uninsured losses to roll in before the sale can be made. This could of course lead to an unwanted professional liability exposure for intermediaries and should obviously be avoided.

5. The Blend of wide cover and risk management

Camargue uses its M3 principle to Manage, Mitigate and Migrate risk. This principle forms the backbone of the organisation with well over R10,000,000 being spent on integrated risk services. These services not only compliment the broad insurance coverage but also provide policyholders with a number of tools that minimise trade risks and enhance the business generally.