The grand 'ex gratia' gesture

The Office of the Ombudsman for Long-Term Insurance was established to receive and consider complaints against subscribing members who are registered insurers conducting business in South Africa. In the event the Ombudsman is unable to resolve a dispute through mediation with the affected parties it makes a determination.

The likely success of a complaint is established by considering a number of points. These include probabilities, onus of proof, legal principles and the concept of equity and fair play. It is this final consideration which the Office of the Ombudsman for Long-Term Insurance discusses in their latest newsletter, "Ombuzz Issue 5."

While fairness and equity are simple enough concepts for the layman to understand, insurance companies often require an amount of guidance. In this regard, the Ombudsman acknowledges that the concept of 'fairness' is quite difficult to define. "Our office has often been asked how we exercise our equity (fairness) jurisdiction. It is not an easy question to answer because equity or fairness cannot readily be defined," reads the article

In Ombuzz Issue 5 three cases are presented to provide insight into how the principal of fairness and equity is applied to speed up complaint resolution. In each of these cases the Ombudsman had strong grounds to persuade the insurance companies concerned to compensate the claimant.

When not to follow policy wording to the letter

We have included a link for those of you wanting to read the cases in full. The summary in this section of the article contains enough information for you to judge the Ombudsman's 'fairness' jurisdiction.

The first case involved a dispute over the treatment allowed in terms of the insurance policy document wording. The claimant received a combination of radiation treatment and oral chemotherapy to combat cancer. "The insurer paid for the radiotherapy but refused to pay for the chemotherapy on the basis that the policy was restricted to intravenous chemotherapy." Despite the oral chemotherapy route resulting in substantial costs savings the insurer refused to pay until the Ombudsman advised they were taking the case to a determination hearing. "This case demonstrates that in certain circumstances a strict adherence to policy wording can have an unfair outcome."

Case number two involved the payment of hospitalisation benefits to an insured who had donated a kidney to a family member. This case clearly outlines how easily disputes develop over the intention of policy wording. The ombudsman believes that "although it was not entirely clear, the exclusion is stated to be applicable where there is a self-inflicted or self-induced "illness", and that because the complainant's condition was an injury rather than an illness, the exclusion did not appear to apply." The insurer refused the Ombudsman's request for an ex gratia payment. Ultimately the Ombudsman made a provisional ruling that the claim be paid, stating: "In our opinion this was a clear case where our equity jurisdiction should come into play and that the normal rules of the law did not necessarily provide a satisfactory solution."

And in the final case, an insurer refused payment of a claim because the insured had been hospitalised for 25 days instead of 30 days as stated in the policy wording. The insured's hospital visit was cut short on the instruction of the physician, who discharged the insured from hospital to 24-hour nursing care at home. "The matter was discussed at an adjudicators' meeting and the unanimous view was that the insurer's repudiation of the claim was akin to "snatching at the bargain" and was unreasonable." Once again fairness came into play, and the insurer agreed to an ex gratia payment.

Without liability or legal obligation

What interests FAnews Online is that in two of the cases described in Ombuzz Issue 5 the insurer pays the complainant 'ex gratia.' In case your Latin is about as good as ours we provide a quick definition of the term. Ex gratia (sometimes written ex-gratia) is a Latin term which is most often used in a legal context. An Internet website describes the term rather nicely with: "When something is done ex gratia, it is done voluntarily, out of kindness or grace. Thus an ex gratia payment is a payment made without the giver recognising any liability or legal obligation"

All things being equal, an ex gratia payment can be viewed as an acknowledgements of wrongdoing. The insurance company makes the payment after a set of initial meetings in which they are able to determine the likely outcome of the case should the Ombudsman be forced to make a determination. To avoid the negative impact of such a determination on future cases, the insurer then chooses to settle the matter ex gratia in an attempt to divert attention from practices which run foul of the Ombudsman's fairness jurisdiction.

One cannot fault the Ombudsman for applying his mind to each case in line with his mandate. What is alarming is that insurers appear to be riding the complaint resolution process as far as possible before dodging the negative connotation of an Ombudsman determination by making last minute ex gratia payments.

Editor's thoughts:
Cases like the ones highlighted in the Ombuzz Issue 5 newsletter cause many consumers to view long-term insurance companies in a negative light. These stories fail to convey the emotional pain and suffering that the individuals involved had to endure before the insurance company paid the claim. Should insurance companies apply their own 'fairness and equity' policies before denying claims? Send your comments to gareth@fanews.co.za