No Commission after Cancelling Policy During Cooling-Off

Mmakgantsi Mafojane

In the midst of the consumer protection revolution, the Supreme Court of Appeal has once more affirmed the rights of consumers, this time against insurance brokers still hoping to receive commission arising from an insurance agreement cancelled by the insured within the legislated cooling-off period.

In Maree v C Booysen t/a Beleggings & Versekeringsadviseurs [2010] ZASCA 44 (31 March 2010) the Respondent, Booysens, conducted business as an insurance broker and had provided advisory services to the Appellant, Maree for approximately 20 years. Maree was a successful businessman who had an agreement in place with Booysens. The catalyst to this dispute and the eventual termination of their lengthy relationship occurred when Booysen advised Maree to pay up an existing Sanlam annuity policy and replace it with a Momentum Life Policy. Maree agreed to do so and Booysens proceeded with the transaction.

Several days later, Sanlam sent Maree a document setting out the implications associated with causing a policy to be paid up. This, evidently a cause for concern, prompted Maree to carry out further enquiries with another broker, leading him to the conclusion that he had been incorrectly advised by Booysen. He was further of the view that Booysen had been motivated by the commission which he would earn on the Momentum Life Policy. Booysen denied this and testified that his advice had been based on his view that continuing premiums on the Sanlam policy was not tax-effective. This particular dispute was not placed before the court and therefore not considered.

Based on the information obtained, Maree wrote to Momentum Life cancelling the policy procured by Booysen and subsequently sent a letter to Booysen informing him of his intention to replace Booysen with ABSA brokers. Maree’s cancellation of the Momentum Life policy lead to the inevitable forfeiture of the commission he would have been entitled to in terms of the agreement. As a result of this, and following an exchange of acrimonious correspondence between the two, Booysen instituted action against Maree for the commission, which in his view amounted to the compensation he was entitled to for his efforts in advising and procuring the new policy for Maree.

Much like the Consumer Protection Act, the Long-term Insurance Act, in its Policyholder Protection Rules provides for a period in which a new policyholder is entitled to cancel the policy without being penalised or exposed to contractual liability. This period, commonly referred to as the cooling-off period was applicable in Maree’s case, as he had effectively cancelled the Momentum policy procured by Booysen within the cooling-off period.

Section 49 of the Long-term Insurance Act gave rise to much contention between the parties. In terms of this provision, “no consideration shall be offered or provided by a long-term insurer or a person on behalf of the long-term insurer or accepted by any independent intermediary for rendering services as intermediary as referred to in the regulations, other than commission contemplated in the regulations and otherwise than in accordance with the regulations”. Equally important, and provided for in both the Act as well as the Policyholder Protection Rules is that any long-term policy entered into, or agreement between an insurer or intermediary with an insured, inducing such insured to waive any right or benefit conferred to the insured by the Act or Rules, is void.

Booysen submitted that these provisions were designed to regulate the relationship between the insurer and the intermediary and did not go as far as intruding on the relationship between the insured and intermediary, whose relationship was regulated by the common-law right entitling intermediaries and insureds to enter into separate agreements for consideration. He was of the view that interpreting the provisions to include this relationship would give rise to the ‘absurd’ position of intermediaries being deprived of their commission notwithstanding the fact that they had expended time in procuring policies for the insureds.

The court considered the purpose of the Policyholder Protection Rules which are to ensure that intermediaries and insurers conducted their business honestly, fairly and with due care and diligence. Based on this, the cooling-off period was held to afford a policyholder proper time to consider the “full implications and impact” of the policy without incurring financial penalty.

The Court thus came to the conclusion that s49 is not ambiguous. Section 49 seeks to limit the consideration that can be accepted by an intermediary for rendering services as contemplated in the regulations and any agreement to provide consideration other than in keeping with the regulations is void. In the circumstances Booysen was not entitled to claim commission from Maree after Maree had cancelled the policy within the cooling off period, as Momentum Life was not entitled to pay Booysen commission. The court further stated that s49, read with the Regulations prohibits the kind of agreements that Booysen attempted to rely on. The claim for commission was dismissed.

If such agreements were given effect to, a policyholder would be penalised for exercising their statutory right to cancel a policy within the cooling-off period. This position would render the purpose of the protection partly ineffective, which is never the intention of the Legislature. The principles espoused in this case should be born in mind, not only in the realm of insurance but in specific transactions. The effect of the cooling-off period may extend beyond the agreement in question and may in certain circumstances render any ancillary agreements unenforceable and leave optimistic brokers and others out in the cold.