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Five insurance determination smackdowns

04 July 2023 Gareth Stokes

The third joint Annual Report of the Ombudsman for Long-term Insurance (OLTI) and Ombudsman for Short-term Insurance (OSTI) included five insurance complaint ‘smackdowns’ against the country’s life insurers, and one against the short-term players. If you want detailed accounts of these determinations, you will have to trawl through the 100-page Insurance Ombudsman 2022 Annual Report. Alternatively, a quick-and-easy overview follows in today’s newsletter.

It always comes back to the contract

The five final determinations against life insurers are summarised in Case Reports 49-53, on pages 23-32 of the aforementioned report. Here we offer some basic comment on 49 and 50 before unpacking the remaining determinations in more detail. Case Report 49 deals with the interpretation of exclusion clauses, with the OLTI determining that “the insurer’s reason for declining the claim was not supported by the wording of the contract, and that the insurer should therefore admit the claim”. The insurer agreed to do so, and paid the beneficiaries their shares of ZAR300 000,00. 

The Case Report 50 write-up was chock full phrases like ‘no consensus’, ‘premium refund’ and ‘compensation for poor service’. This complaint was brought after an insurer declined a death claim on the basis that the life insured did not pass away of non-natural causes. In its initial investigation, the OLTI was concerned that the phrase ‘non-natural’ had been glossed over during the telesales call, and that the insured was never asked if he understood the terms cover. Concerns also raised over whether there had been ‘a meeting of minds’ during the application process. These concerns featured strongly in the OLTI’s provisional ruling, which the insurer rejected. The OLTI then had no choice but to issue a final determination to uphold its provisional ruling, and the insurer was instructed to refund all the premiums contributed and to pay an amount of R30 000 in compensation. 

Case Report 51: Unusual term of policy

It is rather unnerving how many complaints, and in this case determinations, are grounded in miscommunication / misunderstanding at policy application stage. In this matter, the insured took out what she believed to be a funeral policy on her uncle’s life. When her uncle passed away, the claim against the policy was rejected on the basis that the complainant had in fact purchased an “accidental (natural death) and hospital cash benefits product” and that the deceased “had been added to the policy as an additional dependant” despite not residing with the main policyholder at time of his death. 

An adjudicators’ meeting presided over by then ombudsman, Judge McLaren, noted that this ‘funeral versus accidental life’ confusion was fairly common and offered five reasons why the complainants assumption that she had purchased a funeral policy was fair. Further to this, the meeting felt that the insurer had not done enough to communicate that financial dependence on the policyholder was necessary to qualify as an additional dependent, and that this requirement could be considered an unusual ‘term’ contained in the policy. PS, anyone who relies on reading glasses to read the small print will enjoy this Case Report’s brief comment on Barkhuizen v Napier 2007 (5) SA 323 (CC). 

In that judgement, Judge Sachs was scathing of onerous terms, couched in obscure legalese, being incorporated as part of the ‘fine print’ of a contract. The OLTI made a provisional ruling that the claim against the policy be paid, and that the insurer had erred in not drawing attention to an unusual term in its contract… “The insurer objected to the ruling on the basis that the contract wording should be upheld and that the assumption that this was a funeral policy had no basis,” writes the OLTI, before explaining why it decided to issue a final determination in the matter. “The adjudicators’ meeting was of the view that even if contractually the insurer was entitled to decline the claim, the benefit should be paid on the basis of equity and fairness”. The insurer agreed to admit the claim and paid the benefit of R40 000,00. 

Case Report 52: Insurer may not benefit from its error

It will come as no surprise to FAnews readers that principles of equity and fairness prevent an insurer from benefiting from its own error… In this matter, a joint policy that provided cover for spouses and commenced in 2009 was lapsed “due to a technical error” by the insurer, on 1 August 2017. PS, the lapse followed a missed premium dated 25 June 2017, which was paid within the insurer’s 31-day grace period, on 25 July 2017. It took almost two years, and many interactions with the insurer and its internal arbitrator, to have the policy reinstated. Sadly, the reinstatement led to another administrative blunder. “There was a misunderstanding between the call centre agent and the complainant,” writes OLTI, “[and] only the husband’s cover was reinstated”. 

The husband subsequently died, and his death claim was paid by the insurer; but the insurer outright refused to reinstate the wife’s cover. It was this matter that the wife brought to the ombudsman’s office. After considering the complaint, the OLTI recommended full revival of the cover, without underwriting, subject to the complainant paying the arrear premiums of ZAR12 272,00. The insurer refused to accept this recommendation, arguing that the complainant had been diagnosed with diabetes in 2010. A provisional ruling was then issued, which the insurer elected to challenge. And thus, a final determination: “Relying on that doctrine and in the exercise of our equity and fairness jurisdiction, we issued a final determination that the insurer should reinstate all benefits, without underwriting, and that the outstanding premiums should be written off in lieu of further compensation for distress and inconvenience caused by the insurer’s errors”. 

PS, this writer enjoyed the short-and-sweet version of the determination, which reads: “The insurer’s erroneous lapsing of the policy was the ‘trigger’ for the reinstatement call and all that followed. It was only as a result of the lapse that the insurer became aware of the complainant’s diabetes which had been diagnosed some time before then”. Those among you who enjoy case law might dig up the Appeal Court judgment of Scott and Another v Poupard and Another 1971 (2) SA 373 (A), in which Judge Holmes expanded on the equitable doctrine: “Where a party to a contract, in breach of his duty, prevents the fulfilment of a condition upon the happening of which he would become bound in obligation and does so with the intention of frustrating it, the unfulfilled condition will be deemed to have been fulfilled against him”. 

Case Report 53: Consensus ad idem

The above was an odd case rooted in a claimed misunderstanding over the type of policy sold. According to the complainant, he was not informed at application stage that the policy he had purchased was an accidental life policy. He requested that the insurer refund all premiums paid from date of inception. The insurer felt it had adequately communicated the type of policy, stating in its response that “the complainant had been advised a number of times that it was an accidental life policy”. Upon reviewing six telephone recordings, an OLTI adjudicators’ meeting held that the “policy had been sold in a rushed manner”. 

A provisional ruling was made in which the insurer was encouraged to refund the premiums on the basis that there had been a lack of consensus at application stage. The insurer made a last-ditch attempt to settle the matter for 50% of the premiums paid, which offer was refused by the policyholder. The impasse was decided upon return to the adjudicator’s meeting, where the OLTI declared that there had been no consensus ad idem (meeting of the minds) between the insured and insurer. This meant that the contract had not been concluded. Per the OLTI Annual Report, the insurer was ordered to refund the complainant all the premiums he had paid. 

Writer’s thoughts:

The five determinations against life insurers contained in the Insurance Ombudsman 2022 Annual Report share a common thread: they all featured policies sold via banks’ or insurers’ call centres. Is it time for us to rethink telesales of life insurance policies? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

Comments

Added by Gareth Stokes, 04 Jul 2023
Noted @Brian, thanks for sharing your insights. Agree that SA's unsophisticated consumer paradigm presents challenges that must be addressed.
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Added by Brian Oxley, 04 Jul 2023
telesales are part of our current business world and will, no doubt remain so. However it should be a requirement that the "seller" is qualified to do so. It is not acceptable that a product that, if incorrect can mean financial problems, is sold by persons who are unaware of the details of what they are selling. Commission based sales are inherently open to misuse. We have an unsophisticated population. The potential for an unfair result is too great
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