Financial intermediaries brace for legislative onslaught
Financial services intermediaries are going to have to brush up on their legal knowledge if they hope to survive the next decade. The implications of the Consumer Protection Act (CPA) have barely registered, and already Conflict of Interest and the Insura
Loyalty schemes under fire
Christine Rodrigues, associate at Deneys Reitz sets the ball in motion with her 23 March 2010 paper: Can Loyalty Schemes Fall Foul of Insurance Legislation? The piece begins: In the ever competitive insurance industry insurers have realised that in order to maintain and attract new policyholders or members, they need to offer a package of benefits that no other competitor offers, to make their policy more attractive. Insurers reward loyalty with specified retailer discounts or direct inducements to policyholders. But there are fears innovation in this space could contravene insurance legislation. Rodrigues notes that “the anti-inducement section45 of the Long-term Insurance Act, 1998 (LTIA) and section44 of the Short-term Insurance Act, 1998 (STIA) may apply.”
Section 45 of the LTIA states that “no person shall provide, or offer to provide, directly or indirectly, any valuable consideration as an inducement to a person to enter into, continue, vary or cancel a long-term policy, other than a reinsurance policy.” How will courts view a relationship where an administrator receives a discount, deducts an administration fee and applies the remainder to obtain additional benefits for the member, asks Rodrigues. We get some answers in Momentum Group Ltd v Registrar, Long-term Insurance 2009 (5) SA 336 (T).
The court found that section 45 of the LTIA is very wide and that the legislature intends to cast the net as wide as possible. It found that although Momentum’s scheme was efficiently and effectively managed and policyholders were provided with good benefits and returns, the fact that the major portion of the discount was paid into the assets forming part of the foundations of the policy, did not make the benefits part of the policy. The benefits were extraneous (not part of the actual policy) and this was an inducement in terms of the LTIA and STIA, even though the benefits were paid back into the foundations of the policy. “Insurers need to investigate whether the benefits payable are part of the foundation of a policy, or are extraneous to the policy,” concludes Rodrigues.
Courts confirm disclaimer rights, but…
The way in which the CPA deals with disclaimers and indemnity clauses is of particular concern to both short and long-term insurance companies. In his article Disclaimers, the Court and the Consumer Protection Act Donald Dinnie, director at Deneys Reitz concludes: “The Supreme Court of Appeal has again debunked the myth that remains prevalent that our courts do not uphold disclaimer clauses.”
Judgement in Jacobs v Imperial Group was handed down in December 2009. Mr Jacobs entered into a contract of service with Imperial for repairs to his motor vehicle. The repair centre had a prominently displayed sign – repeated in two official languages – reading: “Vehicles are left at owners’ risk.” Jacobs’ brother-in-law, who dropped him at the repair centre, also signed a contract containing the same disclaimer. The vehicle was stolen while in Imperial’s custody. Jacobs felt he wasn’t bound by the notice board because he hadn’t seen them. It’s interesting to note that Imperial relied only on the risk notice when arguing the case. The Court, found that Jacobs’ brother-in-law could contract on his behalf. “The Court applied the trite principle that ‘The law, as a general rule, concerns itself with the external manifestations, and not the workings, of the minds of parties to a contract,’” observes Dinnie. They also ruled that the disclaimer notice was “prominently displayed in clear and unambiguous terms and on notice boards at Imperial’s passenger vehicle office, at the entrance to the reception and at the cashier’s window” and confirmed Imperial’s right to rely on the disclaimer notice.
How will the Court position change when the new disclaimer and indemnity clauses in the CPA come in force at the end of October 2010? Dinnie says that apart from the prohibition of disclaimers and indemnities in respect of gross negligence the CPA doesn’t forbid their use. But there is room for consumers to “challenge the use of disclaimers and indemnities both in respect of the substance thereof and form.” The consumer has a case if he can prove any of the contract terms are unfair, unreasonable or unjust... “The Act will not kill off the successful use of disclaimer or indemnity clauses or notices but will make the successful reliance on such clauses and notices more difficult,” concludes Dinnie, adding that on the facts presented the Jacobs v Imperial case would probably have concluded similarly under the new Act.
Editor’s thoughts: Goods and services providers plying their trade in South Africa will have to tread carefully from November 2010. Once all sections of the Consumer Protection Act are in force they could struggle to enforce certain terms and conditions in their sales agreements and disclaimers. Do you believe existing short and long-term policy documents will run foul of the ‘unfair, unjust and unreasonable’ test in the Consumer Protection Act? Add your comments below, or send them to [email protected]
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