FAIS Ombud: Proof of advice, so car dealer must cough up

A motor vehicle dealership which foisted a credit life policy onto a buyer on behalf of an insurance company which then refused to settle the bank loan after he died of cancer has been ordered by the Ombud for Financial Services to pay the outstanding amount.

Charles Pillai, the FAIS Ombud, has ordered Barons Bellville - wholly owned by Barloworld South Africa (Pty) Ltd - to compensate the widow of Cape Town restaurateur, Ivan Leighton, by paying the outstanding balance owing to Wesbank.

Michael Le Roux, executor of Mr Leighton’s estate, complained to the FAIS Ombud on behalf of Mrs Brenda Leighton after the insurance company rejected the claim on the basis of non-disclosure by Mr Leighton of a pre-existing medical condition.

The complainant claimed R66 270, being the total sum assured, on the basis that the respondent, Barons Bellville, had failed to inform Mr Leighton that the policy would only settle the amount owed to Wesbank. The complainant maintained that the respondent had led Mr Leighton to believe that the sum insured would be paid out to settle any monies owed to Wesbank and that the surplus would in fact be paid out to his estate.

According to the complaint to the FAIS Ombud, Mr Leighton purchased a new Volkswagen Chico from the respondent on 20 October 2004. Mrs Leighton was present at all material times when the financial service was rendered. The respondent was represented by Ms Denise Redelinghuys, an authorised representative of the respondent, and Ms Margot Williams.

The transaction was financed through an instalment sale agreement with Wesbank. The total amount financed was R79 492.32. The vehicle was delivered to his business premises by Ms Redelinghuys and Ms Williams, on the same day.

As the vehicle had been ordered telephonically and all information captured telephonically, this was the first time that Mr Leighton met Redelinghuys and Williams. Mrs Leighton and their son, Adam, joined Mr Leighton at this meeting.

Mrs Leighton alleges that during this meeting Ms Redelinghuys presented Mr Leighton with the finance agreement, bringing to his attention the portion dealing with “freedom of choice”.

Ms Redelinghuys indicated that the financier, Wesbank, required a cession of any of Mr Leighton’s life policies to cover the outstanding debt in the event of his death. Mr Leighton informed Redelinghuys that he had two long standing policies with an estimated value of R200 000, more than enough to cover the outstanding debt.

Ms Redelinghuys then allegedly informed Mr Leighton that the respondent “could offer him a product that would cover Mr Leighton in the same manner” and in the event of his death, would pay out the sum assured.

This policy was the Optimum Personal Debt Protection policy, underwritten by Guardrisk Insurance Company and administered through International Cover Administrators.

Mr Leighton was then presented with a one-page Optimum proposal form which was already completed and typed out by the Barons Quotemaster system and had all the relevant information pertaining to Mr Leighton.

Ms Redelinghuys then allegedly requested Mr Leighton to sign the proposal form thereby “confirming that his personal information on the proposal form was correct and that he [understood] that the policy would be ceded to Wesbank as security”.

Mr Leighton then signed the proposal form and the finance agreement. After Ms Redelinghuys confirmed that “everything was in order” Mr Leighton took possession of his new vehicle.

According to Mrs Leighton, no copies of the signed documentation or any other record of the transaction were left for Mr Leighton. No further communication was received by Mr Leighton from Ms Redelinghuys or Ms Williams regarding the transaction.

Mr Leighton passed away on 30 November 2007. The cause of death, as reflected on the death certificate, was “carcinoma thyroid” Mr Leighton had previously been diagnosed with thyroid cancer in July 1997 and after surgery and treatment, had been clear since February 1998. Mr Leighton had been re-diagnosed with thyroid cancer in October 2005 and was declared “medically disabled with no recovery”.

The claim was lodged with International Cover Administrators (ICA). On 14 December 2007, Mrs Leighton enquired from ICA when she could expect settlement of the outstanding debt owed to Wesbank. Mrs. Leighton also enquired when the balance of the insured amount would be paid into her bank account.

Mrs Leighton was informed that if the claim was honoured, ICA would only settle the outstanding debt and that there would be no other amount paid to her.

Mrs Leighton was then referred to the terms and conditions and declarations of the policy. When she informed ICA that they had not received these documents, ICA emailed an internet link for her to download same.

Upon perusal of the downloaded document, Mrs. Leighton realized that Mr Leighton would have not qualified for cover under Clauses 2 and 4 of the policy.

Clause 2 states:

“I have not received any treatment from any doctor during the past 12 months nor been hospitalised or undergone hospital treatment and, save for routine checkups, have had no specialist investigation during the past 5 years and have never suffered from any form of disability or heart disease, stroke, cancer or kidney disease.”

As stated previously Mr Leighton had previously been diagnosed with thyroid cancer in July 1997.

Clause 4 states:

“I am aware that a redundancy/retrenchment claim will not be paid during temporary or part-time employment and that self employment is excluded from cover under the policy.

At the time the vehicle was purchased, Mr Leighton was self-employed.

On 11 January 2008, Mrs Leighton was informed that the claim had been rejected on the basis that Clause 2 had not been complied with and that “an appropriate return of premium [would] be refunded.” Nothing was said about clause 4, which, according to complainant would also have rendered the policy inappropriate to Mr Leighton’s circumstances.

When asked by the FAIS Ombud to respond to the complaint, the respondent said where a transaction takes place at the offices of Barloworld, a needs analysis is undertaken and as each insurance policy is discussed and a recommendation made, this information is captured on the system. At the completion of the discussion, a full analysis and proposal is printed together with all the policy documents. The proposal and confirmation of understanding is signed and the policy documents handed to the customer.

When the meeting takes place away from the offices of Barloworld, the adviser will print the full compliment of documents for a variety of transactions and will make use of the documents which satisfy the needs of the customer.

In the case of Mr Leighton, it was this latter procedure that was adopted.

The meeting took place at Mr Leighton’s restaurant on the 20 October 2004. The respondent proceeded to offer various debt protector policies, including the policy which would provide benefits in the event of death. All relevant terms and conditions were explained, the respondent claimed.

Having discussed each policy cover in considerable depth, the customer asked the adviser to arrange certain cover.

In consideration of this, the adviser requested the customer to read and sign the declaration and proposal and took great care in ensuring that the customer properly read and understood what was in the document, which was prepared in plain language and printed in reasonably large font.

On completion of the transaction, the policy document was handed to the customer. The signed proposal and declaration was placed in the adviser’s file.

According to the respondent, based on the above, the complainant’s allegations were “groundless.” The respondent, however, did not attach any supporting documentation.

The FAIS Ombud requested the respondent proof that the material terms of the product were disclosed. Respondent was also requested to supply any other relevant documentation in their possession demonstrating compliance with the

FAIS Act.

In its response, the respondent advised it did not have a written record of advice.

In his ruling, Mr Pillai found that the financial services were rendered in violation of the FAIS Act and the General Code of Conduct for Authorised Financial Services Providers.

The Ombud said in his ruling that the respondent had not maintained a record of advice reflecting the basis on which the advice was given.

The respondent had not furnished any other document to show it had complied with the FAIS Act and the Code whilst rendering the financial service. The requirement to act with due skill, care and diligence includes the ability to seek from the client pertinent information which would justify the decision to recommend a particular product.

“The vehicle was purchased on credit, hence the recommendation for debt protection cover.

“Had Ms Redelinghuys applied her mind, it would have been clear that the income that Mr Leighton relied on for the application for credit comes from self employment.

Ms Redelinghuys delivered Mr Leighton’s vehicle at his restaurant, during which visit, the paperwork for the transaction was finalised.

It would thus be incorrect to say that Mr Leighton failed to disclose that he was self-employed as that information would have formed part of the credit application approval process, which Ms Redelinghuys herself handled.

What occurred here is that Ms Redelinghuys failed to apply her mind to the situation and, therefore, failed to advise her client appropriately. Had she done so, she would have immediately realised that the product was inappropriate to Mr Leighton’s circumstances.

“The insistence by the respondent that it acted in the interests of the client throughout the transaction and its belief that it complied with the provisions of the FAIS Act and the Code is not borne out by the facts,” the Ombud said.

“It is clear that the financial service was rendered in violation of the FAIS Act and the Code. The rejection of the claim by the insurer means that the estate was impoverished by the outstanding amount of the indebtedness to Wesbank.

Mr Pillai ordered the respondent to make compensation for the loss suffered. The respondent was ordered to pay to the estate the amount of R27265, 86 with interest.