SA Home Loans wins its appeal
One of the first stories we covered in 2007 (17 January) was the landmark case between SA Home Loans (Pty) Ltd and Saroja Naidoo. The FAIS Ombud Determination was published on 26 December 2006.
The facts of the case are fairly straightforward. Mr and Mrs Naidoo bought a bond protection plan from SA Home Loans Insurance to cover an additional bond taken over their fixed property. The policy was sold to them by direct telephone marketing. Mr Naidoo died six months after taking out the policy at which point SA Home Loans rejected Mrs Naidoo’s claim sighting a two year exclusion period on deaths caused by pre-existing conditions.
The original ruling centred on proper disclosure
Saroja Naidoo, widow of Subramoney Naidoo, complained to the FAIS Ombud in her capacity as the surviving spouse, and joint life insured under the policy. She claimed the details of the two year exclusion had not been properly explained to her – and that she would never have purchased the policy if they had been.
In his determination the FAIS Ombud stated:
“Clearly the disclosures relating to the exclusion was not properly communicated to Complainant [Mrs Naidoo]. Critically no communication was made to the deceased [Mr Naidoo] who, as the first Assured on the policy was a party to the contract. The disclosures made to the complainant were in any event, not provided in plain language, created uncertainty and was certainly not comprehensive enough. Additionally, it was confusing and misleading.
“It is clear that Complainant has and continues to suffer financial loss, as a result of the failure on the part of the Respondent [SA Home Loans] to render a financial service compliant with the FAIS Act.”
In summary, the determination in this case hinged on two key findings. The first was that SA Home Loans did not communicate important facts relating to the policy to both parties insured. The bond protection plan was a joint policy in which both Saroja and her husband’s lives were insured. The policy exclusion clause was only communicated to Saroja. And the second was SA Home Loans did not take proper care to ensure the key exclusion clause was clearly explained, brushing past the clause in a mere 14 seconds of telephone conversation.
Pre-existing condition not in question
Although the deceased’s death certificate lists ‘natural causes’ as the cause of death – the pre-existing condition was never in question. SA Home Loans introduce two witnesses in support of their appeal. The first, Dr Kayle, testified that Mr Naidoo suffered “from a cardiac condition dating back to 2003 for which he had been hospitalised several times.” The condition was made worse in that Mr Naidoo also had diabetes. Dr Kayle further stated that due to these conditions, the only insurance respondent’s husband could have obtained would have been what is called a “lean policy”. Such policies exclude death benefits (except accidental) for the first three to five years. This evidence was corroborated by Mr Hoffeldt, a senior underwriter.
This evidence was led to demonstrate that the Naidoo’s would not have been able to obtain another insurance product without a similar exclusion at the time. In other words, the respondents claim that had she known of the two year exclusion on the SA Home Loan policy she would have declined the policy and taken insurance with another would not have put here in a better financial position.
Determining the extent of the damage
The initial ruling ordered SA Home Loans to pay the outstanding indebtedness on the bond with effect from the date of death of the deceased, refund all bond instalments paid by the Saroja Naidoo since the date of death of the deceased until settlement of the claim and interest in the amount of 15.5% per annum on outstanding amounts. SA Home Loans also had to pay R1 000 to the Ombud’s office for case fees.
The appeals board subsequently determined that the FAIS Ombud had incorrectly assessed the financial loss suffered by the respondent. They ruled that the only loss incurred by Saroja Naidoo amounted to the insurance premiums the she (and her husband) had paid over on an insurance policy they (by her own admission) would not have taken out had proper advice been given.
The appeal was upheld and the order changed. SA Home Loans has been ordered to pay Saroja Naidoo half of R3 956.73, being her share of the insurance premiums paid. This is “equivalent to the share of the joint estate of her husband and herself to which she became entitled on the death of her husband. SA Home Loans will have to pay interest on this amount at 15.5% per annum from the date of the Ombudsman Determination on 21 December 2006. The R1 000 awarded to case fees is still in place.
Editor’s thoughts:
Half way through 2007 we carried another article on the case. At the time SA Home Loan’s right to appeal had been denied, prompting many to question whether the FAIS Ombud should have carte blanche to refuse cases he determined. SA Home Loans persisted – and this case proves that even when the facts of a case remain largely unaltered, the determination of damages can change significantly. Do you think the appeal ruling is fairer than FAIS Ombud Determination? Add your comments below, or send them to [email protected]
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