FAIS Deputy Ombud determination: Both spouses must be made aware of insurance exclusions

A national home loans company has been advised by the FAIS Deputy Ombud to ensure that its credit life insurance consultants make proper disclosure to both the husband and the wife regarding exclusion clauses.

In dismissing a complaint against SA Home Loans (Pty) Ltd, Noluntu Bam (pictured right), the Deputy Ombud for Financial Services Providers, cautioned that in the interests of rendering proper financial services, the company should make it compulsory for its consultants make full disclosure to both spouses.

In a case brought against SA Home Loans, Catharina Elizabeth du Plessis of Polokwane said she and her late husband obtained a home loan from the Respondent and a Mortgage Bond was registered over their jointly-owned property as security. They were married out of community of property.

As further security, Credit Life Insurance was taken on both spouses’ lives on 29 August 2005 and the policy commenced on 1 November, 2005. The insurance cover was underwritten by SAHL Life Assurance Company (SAHL Life), an associate of the Respondent.

Complainant’s husband died on 13 May 2007 and Complainant duly submitted a claim. SAHL Life repudiated the claim on the grounds that the deceased died of a pre-existing medical condition within 24 months of inception of the policy.

Complainant said she and her late husband were “misled” when the life assurance was offered as she, as co-owner of the property, was not contacted by the Respondent. She alleged the deceased could not have agreed to “‘this kind of life assurance” on her behalf.

She also said that to her knowledge, no policy documents were issued as she did not see or receive any. Further, neither she nor her husband was made aware of the fact that due to his condition there was a possibility that the death benefits would not be paid out.

She was of the view that Respondent did not properly advise her late husband about the exclusions. Thus she wanted the Respondent to settle the balance outstanding on the bond as at date of her husband’s death.

The Respondent supplied the Office of the FAIS Ombud documents and, more importantly, a voice recording of the telephonic discussion between Respondent’s consultant and the deceased when the mortgage insurance was sold to him.

When asked by the consultant about the state of his health, the deceased disclosed that he had had a heart attack some three months before.

Respondent’s representative thereupon told the deceased that he would not be covered for that condition for a period of 24 months. The deceased said he understood and the policy was duly issued. He died almost 19 months later of a heart attack, that is, within the 24 months exclusion period.

Ms Bam found the insurer was correct in repudiating the claim as it was clear from the voice recording of the discussion between the Respondent’s consultant and the deceased that the latter was informed of the exclusionary clause which he accepted.

“No blame could be imputed on the Respondent or its consultant as there was proper disclosure in terms of the FAIS Act,” said Ms Bam.

She said it was also clear from the recorded telephonic discussion between the deceased and the consultant that the deceased had elected to receive the policy document by email. The deceased never complained in the subsequent 17 months that he did not receive it.

“In any event, the receipt or non-receipt of the policy document is irrelevant for determining whether the Respondent was entitled to repudiate the claim given that it was based on a pre-existing medical condition which caused the death of the deceased within the exclusion period,” Ms Bam said.

On the point raised by the Complainant whether the Respondent was correct in having insurance cover effected over both the Complainant and the deceased’s lives by consulting with and asking health questions of the latter only and in circumstances where they were married out of community of property, Ms Bam sounded some words of caution.

The Respondent said that in terms of the FAIS Act, it was not required to provide information regarding the exclusion clauses to each insured telephonically. It is sufficient for this to be done in writing.

Ms Bam said the Respondent was rendering the financial service through direct marketing. In her view, they simply cannot speak to only one party.

“Both Complainant and her late husband were covered under the policy. The policy terms and exclusionary clauses were disclosed to the deceased only. The question is what would have happened if she had any pre-existing medical condition of which she had died and her husband had survived?”

Ms Bam referred to an earlier determination in the matter Saroja Naidoo v SA Home Loans (Pty) Ltd where only the surviving spouse was informed of the exclusionary clauses.

The FAIS Ombud determined the issue in favour of the Complainant in that case. The matter was taken on appeal by the Respondent to the Board of Appeal.

Counsel for the appellant argued that disclosure made to the Complainant was equivalent to disclosure to her husband. The Board upheld the Ombud’s ruling on this aspect.

In dismissing the complaint brought by Mrs Du Plessis, Ms Bam said: “Fortunately for the Respondent, that issue does not arise in this case before me as Respondent’s representative had spoken to the deceased. He disclosed his health problem. He was informed of and accepted the clause relating to a 24-month exclusion period for his specific condition.

“However, Respondent would be well advised to change its stance on this point and ensure that its consultants make proper disclosure to both spouses.”

To read the full determination click here (PDF file 74kb)