Ombudsman orders insurer to pay interest on delay it did not cause

Judge Ron McLaren, Ombudsman for Long-term Insurance.

Insurance company Liberty Life’s attempt to avoid interest charges on a delayed payment has been dashed by the Ombudsman for Long-term Insurance following a complaint received.

The claim of R1 million was paid out on 17 August 2015. Initially the insurer advised that interest for only one month would be paid for the period 13 July 2015 to the date of the claim payment.

After coming under pressure from the complainant, Liberty Life amended the date from 13 July 2015 to 23 January 2013.

However, the Ombudsman, Ian Middup, instructed the insurer to pay interest from 60 days after the date of the claim. Thus interest totalling R178 601.86 was paid for the period between 8 April 2012 and 17 August 2015.

The case involved a policy which commenced with effect from 1 September 2010 with cover of R1 000 000. The insured passed away on 27 January 2012 at the age of 46.

The Liberty Life policy in question, like most others, contained a suicide clause that allows the company to deny benefits if the insured commits suicide during the first two years of the policy.

The circumstances surrounding the insured’s death were as follows:

• The deceased was alone at the time of her death and there was no forced entry into the house.
• The deceased was found in the bathroom by her fiancé.
• The deceased was not breathing.
• The deceased was being treated for depression.
• The police docket contained photographs of numerous medications that appeared to have been found near the deceased.

The claimant submitted a death claim on 6 February 2012.

Toxicology tests were to be done for the purpose of the post mortem report and Liberty Life had been advised that it could take up to seven years to obtain the results. The claim was deferred as Liberty Life required the results to determine the exact cause of death.

In view of the expected delay in finalisation of the claim, the claimant’s attorney submitted a complaint to the Ombudsman.

It was subsequently established that the medications had not been found near the deceased, but on discovery by the police, had been placed on a kitchen counter for photographing.

Following discussions between the office of the Ombudsman for Long-term Insurance, Liberty Life and the claimant’s attorney, Liberty Life agreed toexpedite the toxicology test results with the assistance of a professor from a provincial forensic pathology service.

The toxicology tests were completed in June 2015. Liberty Life received the reports on 13 July 2015, the findings of which were inconclusive. Thus the claim was paid on 17 August 2015.

Liberty Life advised that interest would be paid from 13 July 2015 to the date of the claim payment. However, following an enquiry from the complainant’s attorney, the date was amended by Liberty Life from 13 July 2015 to 23 January 2013, it being the date on which the last requirement in terms of the claim form, i.e. the police statement, had been received by Liberty Life.

The claimant’s attorney did not accept the calculation date of 23 January 2013. Liberty Life was requested by the Ombudsman to consider paying interest from 27 March 2012 - two months after the date of death.

Liberty Life maintained that interest was only due from 23 January 2013.

The matter was discussed at an adjudicator’s meeting and the office of the Ombudsman made a provisional determination on, among others, the following points: the complainant proved the death of the deceased with the submission of the death certificate; the police statement was not a requirement in terms of the policy; interest was not being levied as a result of fault on the part of Liberty Life; and the complainant/deceased’s estate was deprived of the use of the funds for the time that it was in Liberty Life’s possession.

The meeting agreed that interest was payable from 8 April 2012 to the date of the claim payment in terms of the industry’s60-day period protocol.

Liberty Life disputed the provisional determination and submitted that it had to receive all the requested information and evidence, which it considered necessary to determine the admissibility of the claim.

The insurer said that it had followed up on numerous occasions between March 2012 and February 2013 with the complainant to obtain the outstanding police report.

It submitted that its practice is to pay interest only from the date of receipt of its last claim requirement. As the complainant was aware of the outstanding requirement, it was reasonable that interest would only be due from 23 January 2013.

The matter was again discussed at an adjudicator’s meeting on 29 January 2016 and the provisional determination was unanimously upheld.

It was accepted that Liberty Life was entitled to receive information and evidence which it deemed necessary to assess the admissibility of the claim. This, however, dealt with the question of the admissibility of the claim and not with the question of when the claim payment was due.

The payment was due when the event giving rise to the claim, i.e death, occurred. Death was proved with the submission of the death certificate on 6 February 2012.

The Ombudsman said Liberty Life had not provided a persuasive argument to convince him that it was entitled to benefit from the proceeds to the prejudice of the complainant/deceased estate.

He said: “Fairness demands that as the complainant/estate was deprived of the use of the proceeds of the policy for the time that it was in Liberty Life’s possession, interest was payable from the time that the claim payment was due, despite the absence of fault on the part of Liberty Life.”

Taking into consideration the industry’s suggested guideline of 60 days, Liberty Life was instructed to pay interest from 8 April 2012.

• Liberty Life paid the full amount of interest, amounting to R178 601.35, from
8 April 2012 as instructed.