Is there a requirement for ‘double’ disclosure?
Credit life insurance is in the news again with another case making it to the regulator’s office for a determination. The facts of the case are similar to one previously covered by FAnews Online when Saroja Naidoo (the claimant) took on SA Home Loans Assurance Company (the respondent)… In that case, the deceased had not been apprised of certain exclusions relating to a policy taken out by the surviving spouse. Now the roles are reversed, with the surviving spouse not filled in on the exclusions in a policy taken out by the deceased.
SA Home Loans Assurance Company (SAHLA) makes another appearance as the respondent after refusing a claim on the basis of a pre-existing condition exclusion clause. The deceased had telephonically concluded a contract for credit life insurance (to cover a mortgage) with the respondent. He disclosed that he suffered a heart attack approximately three months earlier, to which the consultant responded he would not be covered in the event of a death related to this condition for 24 months. When the deceased succumbed to a ‘cardiac failure’ some 19 months later, the claim submitted by his surviving spouse was refused.
Saves by the voice recording
This prompted Catharina du Plessis (the claimant) to lodge a complaint with the FAIS Ombud. The claimant believes she was ‘misled’ at the time the policy was put in place as the respondent had not contacted her to discuss the terms of the exemption clauses. She also alleges that the policy document was not forwarded to her or her husband. The FAIS Ombud investigated the case to find answers to two key questions. The first was whether the respondent was correct in repudiating the claim having made disclosures to the claimant’s husband only. And the second was whether the clamant (or her late husband) had received the policy documents.
SAHLA had supplied the FAIS Ombud with a detailed response, documents and a voice recording of transaction. This voice recording was the key supporting evidence in the FAIS Ombud’s determination. The exclusion was clearly communicated to the deceased, who indicated he understood the implications and continued with the transaction. Noluntu Bam, the Deputy Ombud for Financial Services Providers ruled: “I am of the view that the Respondent was entitled to repudiate the claim in the circumstances and no blame could be imputed on it or its consultant as there was proper disclosure in terms of the General Code of Conduct for Authorised Financial Services Providers (the Code) promulgated under the FAIS Act.”
It was also clear from the voice recording that the claimant’s deceased husband had indicated his intention to receive the policy document by email. The deceased was advised by the telephone consultant that he had 30 days to consider the policy and decide if he was happy with the cover offered. Since there was no further communication from the deceased with regards the policy, it is assumed he was happy with the cover offered…
Deputy Ombudsman wants ‘double’ disclosure
This case opens a new line of thinking where credit life insurance is concerned. The claimant and deceased were married out of community of property – raising questions of the appropriateness of only advising one party to the transaction about the relevant exclusions. Bam believes the respondent, should take additional care because it is selling insurance by direct marketing. She states: “My view is that they simply cannot speak to only one party.”
The FAIS Act comes to the respondent’s rescue here. It does not require them to jointly disclose the exclusions when concluding the insurance sale. Bam was unable to fault SAHLA; but added: “Respondent would be well advised to change its stance on this point and ensure that its consultants make proper disclosure to both spouses.”
The Life Offices’ Association is still busy with an investigation into industry practices in the credit life arena. We hope the findings from this investigation (expected toward the end of March 2008) go some way to clarifying ‘best practices’ in this regard.
Editor’s thoughts:
The FAIS Act requires the insured to be advised in writing of the contract of insurance. The FAIS Ombud feels the direct insurer should communicate (verbally) with both parties to the credit life insurance contract, advising them of the policy and its relevant exclusions. And surely insurance brokers would be expected to do the same... Do you think there is a case for communicating with both parties prior to concluding such contracts? Send your comments to [email protected] – or add them below.
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