Another side effect of tough regulation

Government's continued tough stance on questionable practices in the financial services industry seems to be opening the way for clients to take legal action against the companies in question.

The numerous regulatory rulings against firms operating in the life insurance space will inevitably create opportunities for future civil claims. One major 'opportunity' for litigation can be found in the recent statement of intent between government and the pensions industry. The proposal to remedy 'harmful' practices in the retirement industry imposes various cut-offs for restitution. There are many individual retirement savers who have been harmed and not compensated.

A further opportunity arises from the bulking scandal that played out between Alexander Forbes and other retirement fund administrators and the Financial Services Board (FSB). Pension fund administrators guilty of benefiting from illegal bulking windfalls agreed to pay the money back to the retirement funds concerned. The problem is that members who left these funds prematurely may have been financially harmed by these bulking practices and may have valid claims for compensation.

With complex Acts covering the operating environments of banks and insures it comes as no surprise that possible contraventions occur from time to time. One such contravention could cost South Africas largest private healthcare company dearly.

A R450 million claim against SA's leading health insurer

Discovery Health might be facing a legal claim of R450 million relating to illegal charges to members of its Discovery Medical Health Scheme (DMHS). A R39 per month "ancillary fee" was levied on the accounts of 244, 000 clients between 2001 and 2005.

Wynsam Wealth, a Pietermaritzburg based health consortium has taken legal advice to determine if it could petition the courts for a refund on behalf of all the schemes members. Wynsam claims that members were unable to opt out of the services and that these services were not legitimate in terms of the Medical Schemes Act.

Wynand Venter, owner of Wynsam, is investigating court action on behalf of his 25 clients - and hopes other affected members will join the action. It remains to be seen if this is another opportunistic attempt at getting a big company to back down in the face of allegations of consumer abuse.

Wynsam is basing its proposed court action on the outcome of a case taken to the Randburg Magistrates court by Nafeesa Sediba in October of 2004. In this case the claimant sought a refund from Discovery Health for charges levied on her medical aid fund for various benefits. These benefits were identified as Discovery Rapid Response, Discovery World and access to Express Claims. Her contention was that if these benefits were voluntary benefits, she should have been given the opportunity to decline the monthly charge. Discovery settled the claim without admitting liability.

Discovery will contest further claims

General Manager for Research and Development at Discovery, Alan Pollard said: "It's disappointing when brokers make unfounded allegations like this against us. We pride ourselves as having good relations with brokers. There is no basis for this claim. We will contest it in court."

Pollard further indicated that Discovery had not created any provision in its books against the possibility of a claim of this nature.

We will have to wait to see if Wynsam goes ahead with legal action against Discovery. Often these David versus Goliath cases turn out to be little more than posturing - with the claimant having no real intention of taking the matter to further.

If the matter does go to court Discovery Health may be in for a tough time. Whether or not members received a service for the R39 per month might become a mute point. The real issue will be whether or not members were advised that the R39 per month deduction was voluntary. And if it was not voluntary, Discovery might face a ream of additional problems relating to specific provisions in the Medical Schemes Act.

Editor's thoughts:
In recent times courts and regulatory bodies have taken a hard stance on company actions which might be viewed as infringements on consumer rights. Given this tendency is there any reason for Discovery Health to be concerned? Send your thoughts to [email protected]