Determination: Building bridges that last

Some people cannot admit failures and mistakes so they blame others in order to escape from their responsibility. But in the end, the truth always prevails.

This was the issue in the recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud).

The burning bush

Dawid Martinus Adlen, the complainant, on the advice of the respondent (Herman Coertzen Brokers and Herman Bernardus Coertzen hereafter collectively referred to as the respondent) applied for a life insurance policy with an insurer. 

The policy was to replace an existing policy that commenced in 2010 and which had been previously recommended by the respondent. 

The respondent recommended the new policy for better cover and benefits, for approximately the same premium as the existing policy. Adlen was the contracting party, with the lives assured being himself and his spouse. 

The notification of acceptance of this policy was sent to Adlen on 16 November 2012 and the commencement date thereof was to be 1 January 2013. As for the inception date of the new policy, Adlen states that this was decided by the respondent who later filled in this date, on the proposal form, at his office.

The previous policy was cancelled with immediate effect by notice dated 6 December 2012. The premium deduction for the 7 December however, did take place and was subsequently refunded on 8January 2013.

With the previous policy having been cancelled and the new policy not yet in place, Adlen's spouse was uninsured at the time. Tragically, his spouse passed away on 21 December 2012. On this basis, he submitted a claim to his new insurer, and unsurprisingly the claim was rejected on the basis that cover had not yet commenced.

At the heart of Adlen’s allegations is the appropriateness of advice dispensed by the respondent. He sustained a loss. In this regard, Adlen’s claim against the respondent is thus the amount which would have paid out, had his spouse been insured.

One wrong move

Adlen stated that there were sufficient funds in his account for the policies for December and January; therefore both debits should have gone off. He took out the life cover to ensure that they were covered at all times, irrespective of the company involved. Now he faces a situation where a claim has been rejected. In his opinion, one policy should have replaced another. 

Accordingly, the respondent stated that at an appointment with Adlen and his spouse on 7 November 2012, the necessary application forms were completed. Adlen and his spouse informed the respondent that should the new policy be accepted, the existing debit order in favor of the previous policy be cancelled in time. They were planning on going to the coast for their annual leave and did not want to pay two premiums.

In cancelling the old policy on 5 December 2012, the respondent was merely carrying out Adlen’s written instructions to ensure that premiums were not paid on both policies.

Key to the respondent's defense is the assertion that Adlen’s usual debit order date for all policies was the first day of each month. The respondent argued that Adlen amended the date in respect of the old policy without informing him.

In support thereof, the respondent submitted that had the debit order date not been amended, the cancellation of the policy on 5 December would have been of no consequence. The December premium would then have been deducted on 1 December, thereby allowing the policy to remain in force until the end of the December, with the premium having been paid in advance.

Without informing the respondent of the amendeddate, Adlen causedhisownloss,soargues therespondent. 

Dire consequencesCritical to making an informed decision about the replacement of a life policy is the need to be imbued with the knowledge as to the risks of cancelling the old prior to the start of the new policy. There was a duty on the respondent to not only discuss this with the client, but also to guide him on how to avoid such risks. 

Clearly, from his own version, the respondent neither satisfied himself as to the actual date of the debit order of the previous policy, nor did he advise his client on the appropriate way of cancelling the policy. 

As a professional, the respondent ought to have been aware that merely acting as a conduit and cancelling complainant's old policy without ascertaining the facts round the debit order would be detrimental to the complainant's interests. 

The respondent's failure to exercise due skill, care and diligence in rendering financial services to the complainant directly led to the complainant sustaining a loss, as the policy failed to pay out on the passing of his spouse. 

Accordingly the complaint is upheld and the respondents are ordered to pay the complainant the amount
of R800 000. 

Editor’s Thoughts:
One can easily say that the complainant was to blame. However, when we consider the requirements for FSPs you cannot help but think what the respondent was thinking. Had he carefully followed protocol and ensured the right measures were in place, all this would have been avoided. What do you think? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]

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