CR393 – Guardianship/Payments to minor

by Case ReportsTopics & Cases

Guardianship/Payments to minor – insurer did not comply with own guideline – question regarding true guardianship

Background

  1. In 2009, a grandmother took out a single contribution investment for her granddaughter, at that stage about 6 years old. The aim of the policy was to provide for the minor’s educational needs.  The minor was noted as policyholder and life assured and her father as beneficiary, in the event she passed away before the expiry of 5 years.
  2. However, when the complainant, the minor’s mother, approached the financial adviser who set up the policy, she discovered that funds were withdrawn by the minor’s father.
  3. The minor’s parents were divorced prior to the commencement of the policy and the minor has, allegedly, had limited contact with her father since the divorce.
  4. The insurer confirmed that the funds in question were withdrawn and provided a copy of the payment request form and a letter signed by the father, stating that he is the legal guardian of the minor. The insurer accordingly paid the funds into the banking account of the father’s new wife, as requested, as the policyholder was still a minor and her father noted as beneficiary.
  5. Accordingly, the insurer was of the view that it followed its process and that all required documents were received

Discussion

  1. Minors have only limited contractual capacity, and as such, their interests have to be protected, as they cannot protect it themselves.
  2. As the insurer relied on its process, we requested its guideline pertaining to payments in minor owned policies.
  3. However, when we received the guideline, we noted several deviations therefrom, notably that the funds were paid into a third party account and that both parents’ signatures were not obtained, nor were reasons provided why the minor’s mother’s signature was not obtained.
  4. Taking the above in consideration, the insurer made an offer, to the value of what the policy would have been had no withdrawals been made, in full and final settlement of the matter.

Result

  1. The complainant provided her daughter’s banking details and the complaint was resolved.

CR392 – Non-disclosure matter re-opened; death occurred 18 years ago

by Case ReportsTopics & Cases

A. Background

  1. The policy commenced on 1 January 1998 covering the life of Ms T. She passed away on 1 October 2001 after an ear operation. The cause of death is noted as spontaneous cerebral haemorrhage. The death benefit claim was declined by the insurer on the basis that there had been material non-disclosure at application of Apert Syndrome, a genetic condition whereby bones are fused and causes the deformity in the skull, feet and hands.
  2. The relevant question that Ms T had responded to in the negative and on which the insurer relied to decline the claim, on the basis of non-disclosure, was as follows: “5. Do you have any form of disability, eg loss of use of any limb, impaired sight or hearing?”
  3. In November 2018, one of the two beneficiaries of the policy, the Late Ms T’s mother, contacted this office with the request that the case be re-opened on the basis that her late daughter had not suffered from a disability but a deformity and had in fact responded correctly to the health questions that were posed to her at application. She stated that the insurer should not have cancelled the policy and should have admitted the claim in 2001.
  4. Our office wrote to the insurer, and from the information provided to our office, pointed out:
    • Ms T had deformity of bones, which did not impact on her ability to occupy a position as a data capturer at a large organization.
    • She used her hands, which were deformed, to good use on the computer.
    • There was no loss of the use of a limb.
    • There was no evidence that she suffered any other kind of disability.
    • Ms T’s doctor advised that she could have expected to live a normal lifespan.
    • Medical information furnished indicated that the cause of death was not related to Apert Syndrome.
    • Ms T may have suffered from deformity but not disability and therefore it could not have expected from her to respond in the positive to the question set out in paragraph 2.
  5. We requested the insurer to consider the claim once again even though the claim event had occurred 18 years ago.

B. Conclusion

  1. It transpired that the matter had been dealt with by an insurer which the current insurer had taken over. The current insurer agreed to settle the matter on an ex gratia basis, without admission of liability.
  2. The life cover benefit was R199 195 at the time of death in 2001. The insurer increased the settlement amount to R555 274. Each of the two beneficiaries received 50% in April 2019.
  3. This office noted that the insurer showed distinction in service in this matter, having promptly and justly settled it after an extended period of time had expired from the date the claim arose.

CR391 – Alleged misrepresentation of allocation of duties

by Case ReportsTopics & Cases

A. Background:

  1. When Mr V, a self-employed builder, with three labour assistants, applied for his policy he stated his occupation as “Construction”.
  2. He allocated his tasks as follows in the application:
    • Admin – 40%
    • Manual labour – 40%
    • Supervision (manual labour) – 10%
    • Travel – 10%
  3. The policy was approved, covering life, comprehensive disability and comprehensive critical illness.
  4. One evening, about six weeks after the inception date of the policy, a neighbour asked Mr V if he would assist her to gain access to her house as she had locked her keys inside. He assisted her and upon leaving her house, her dog, a boerboel, bit him in the left lower limb and ankle.
  5. The medical reports showed that as three vital nerves were wholly severed, with “unquestionable severe traumatic neuropathy” and “serious trauma induced disability” said to be “irreversible”, Mr V was deemed permanently unable to follow his own occupation as a builder. Both the occupational therapist and the specialist vascular surgeon found that he was totally and permanently medically incapacitated to continue to work as a builder. Because of the low temperature of the affected limb and other test results, it had been assessed that he suffered from unbearable pain (and it is not only self-reporting), taking various pain relief treatments up to eight times a day. The specialist recommended amputation below the knee as soon as he lost about 40kg. Mr V also consequently suffered from depression, anxiety and fear of dogs.
  6. The disability benefit covers own occupation or any other occupation as well as impairment, that is, loss of or loss of the use of a limb or foot. The critical illness benefit covers loss of or the loss of the use of a limb.
  7. The insurer declined the claim on the basis of alleged misrepresentation of duties at application.
  8. Intheclaimformtheclaimantisrequestedtoallocatepercentagestocertaintaskstotalling 100%. The duties, other than manual, do not include administration or supervision, only “prolonged travelling”, “prolonged sitting” and “computing”. Mr V made the allocations within the framework of the functions mentioned on the claim form and the insurer responded that his duties now indicated 80% manual, contrary to the allocation of 40% in the application form.
  9. Mr V replied as follows:
    • It is so that he performed much of the manual duties himself, as his competitive edge in his home town was that he was a hands-on builder, working along his assistants, but it was impossible to be totally accurate as “each week brings its own new challenges”. He mainly did renovation of properties.
    • A year after the application of the policy his adviser suggested that he increases the manual component to 60%. At that time, although he struggled with his leg, he was still hoping that it would recover from the bite as he was undergoing treatment. As he was self-employed, he continued to work after the accident, to best provide an income for his family.
    • As his home town experiences very cold winters, up to – 6 degrees, they cannot do building, tiling, plumbing etc in winter. People do not employ him and his team as it is bitterly cold and workers moving in and out of homes add to the cold. Thus in the winter months he did a lot of his administration, sourcing materials, doing quotes, his accounts, planning etc.
    • When he completed the application form, the adviser stated that he must allocate percentages of his overall duties, averaging over a year. He noted that the supervisory duty refers to manual work, thus with the allocation of 10% to it and 40% to manual labour, it was his view that it accurately reflected his duties, spread over the year and taking the quiet winter months into account.
    • He said that he is just a normal person, with no insurance experience, and he completed the forms as best as he could and how he understood the requirements.
    • He did not ask to be bitten by a dog, rendering him incapable of performing his core duties as a builder, at a very young age, and he felt aggrieved that the insurer now denied disability cover based on his honest allocation of duties and that the disability claim was therefore also declined.
    • It was his view that the insurer did not ask the occupational therapist to assess impairment or the loss of the use of his leg – only the disability aspect. This may be because the insurer had indicated that its view was that he would recover the full use of his leg.
  10. The insurer advised that the percentage allocations, submitted by Mr V, of the manual duties varied in that the application reflected 40%, thereafter the policy was amended to reflect 60% manual and the claim form showed manual duties as 80%. The insurer advised him that they do not offer disability cover if the percentage allocation for manual duties is higher than 60% and the disability claim could not succeed and there had not been evidence at that stage that he had permanent loss of the use of his leg.
  11. Mr V approached this office and it was decided at an adjudicators’ meeting that a hearing be held with Mr V and the insurer. Before the claim could be addressed, it was important to establish if there had been misrepresentation of duties and whether the insurer could deny cover based on it.

B. Hearing

  1. Mr V arrived at the hearing, with a medical kit as he required injections into the leg regularly to relieve the pain and also with invoices of many years, meticulously setting out the client’s name, contact details, dates, work done and costs charged. He explained the work and physical component of it that he had performed, where he supervised, what administration was required, what travelling he had done and what his assistants’ duties were. He also explained that much of the supervision is done by him manually showing the assistants what was required. He added that being a large man, there was work that he physically was not able to do, such as climbing onto roofs and into confined spaces and where the assistants would take over. As the assistants became more efficient, he could divide his time on running the business but he was generally very much hands on.
  2. Mr V pointed out that the application form and the claim form do not refer to the various duties in the same manner and he reasonably completed these forms in view of his varied duties and how these fluctuate over a period in accordance with workload, weather conditions and his capabilities based on the type of work the client required. He noted that the percentage allocation request in the claim form does not cover the administration duties and as he had to allocate percentages up to a total of 100%, there is an explanation of the presumably skewed view of his duties in relation to the percentages allocated in the application form.
  3. The insurer had an opportunity to address some issues with Mr V at the hearing. The insurer explained that it was dependent on the applicant to provide accurate information to properly assess the risk and that the allocation of percentages to the various duties was of utmost importance to apply underwriting principles but concurred that variances existed in the type of work that Mr V performed as a self-employed person in construction and hence the allocations.
  4. Itwasthisoffice’sviewthatMrVhadprovidedasatisfactoryexplanationofhisduties, and with supporting documents on the work, he showed there had not been any intention to mislead the insurer and that in the instance of a self-employed manually- based occupation there may reasonably be variances of tasks over a period.

C. Conclusion

The insurer responded promptly after the hearing stating that they accepted that the declaration of tasks at claim stage was incorrect and the disclosure of the tasks at application was correct. They found that he had reflected the tasks of his business as a whole instead of focusing on his own particular tasks only, and that Mr V did not

misrepresent his duties in view of the explanations put forward by him at the hearing. With application of the reasonable man test, it was concurred that he had reflected his duties as accurately as possible and to the best of his ability. His disability claim was assessed by the insurer in accordance with the definition of disability and approved.

CR390 Pre-existing condition exclusion / causation

by Case ReportsCausationDisabilityExceptions, Exclusions And Waiting PeriodsPre-Existing ConditionsTopics & Cases

CR390

Pre-existing condition exclusion / causation

Exclusion clause – whether claim directly or indirectly attributable to pre-existing condition – test for legal causation

The exclusion clause in the policy read:

In the case of disability and severe illness benefits, [the insurer] will not pay a claim during the first twelve months of the life assured becoming a member if, in the opinion of [the insurer], the claim is directly or indirectly attributable to an injury or illness for which the member sought medical advice for or knew about (or could reasonably be expected to have known about) during the six months before joining the scheme.

The flow chart below details the sequence of events:

PRE-EXISTING CONDITION

During six-month period prior to 1 April 2014: complainant sought medical advice for symptoms of gastro-esophageal reflux disease and hiatus hernia

   → joined scheme on 1 April 2014

↓

FIRST OPERATION

9 June 2014: first operation – hiatus hernia repair with fundoplication

↓

COMPLICATION

Complication of the first operation: fundoplication too tight

↓

SECOND OPERATION

30 July 2014: second operation – second fundoplication to release the first fundoplication

↓

COMPLICATION

Complication of the second operation: perforation leading to intra-abdominal sepsis

↓

THIRD OPERATION

5 August 2014: third operation  – partial gastrectomy to correct perforation and to drain abdominal abscess

As per the timeline above, during the six months before joining the scheme, the complainant sought medical advice for a hiatus hernia and during the twelve months after joining the scheme, her claim based on septicaemia arose.

So the issue to be decided was whether or not the complainant’s claim based on septicaemia was directly or indirectly attributable to the pre-existing hiatus hernia.

There was little doubt that the requirements of factual causation had been met. The more difficult question was whether the requirements of legal causation had been met.

Legal causation requires cause and its consequence to be sufficiently or reasonably closely linked.

The phrase ‘directly or indirectly’ in this instance meant that the pre-existing hiatus hernia did not have to be the proximate cause of the septicaemia for the exclusion to apply.

However, it did not follow from this that any causal link at all would suffice. A line still had to be drawn somewhere. (In the English case of Arc Capital Partners Limited v Brit Syndicates Limited [2016] EWHC 141 the court gave the example of the birth of Captain Ewing, even though it may be said to have led in the chain of causation to his being in the position in which he was killed, could not be considered as causing his death).

Had the word ‘indirectly’ not been there, the line could conceivably have been drawn earlier, possibly after the first operation.

However, to give meaning to the word ‘indirectly’ the line had to be drawn further down the chain of causation.

But no matter how wide the ambit of the exclusion, legal causation requires the event in question to have genuine causative effect.

In this case the pre-existing hiatus hernia and septicaemia were separated by arguably five links in the causal chain, namely, (1) the first operation (to repair the hernia) leading to (2) a complication (the tight wrap) necessitating (3) the second operation (revision surgery to loosen the tight wrap) leading to (4) a further complication (perforation) resulting in (5) the complainant going into septic shock and requiring a third operation to repair the perforation and drain the intra-abdominal abscess.

So whilst the pre-existing hiatus hernia was undoubtedly the factual cause of the septicaemia, it was not sufficiently or reasonably closely linked to the septicaemia to be construed as the legal cause of it. 

Had the septicaemia occurred as a complication of the first operation, it may have been a different matter.  However the septicaemia occurred as a complication of the second operation and therefore the pre-existing hiatus hernia cannot be said to have genuinely formed part of the chain of causation. At best the pre-existing hiatus hernia constituted the context or background against which the claim event (septicaemia) eventually occurred.

It was decided in a provisional ruling that whilst the insurer had proven factual causation, it had failed to prove legal causation and could therefore not rely on the exclusion clause to repudiate the complainant’s claim.

The insurer accepted our provisional ruling and paid the claim.

LS

August 2022

CR385 Exclusion of psychiatric disorders; constitutional rights infringed?

by Case ReportsConstitutional RightsTopics & Cases

CR385

Exclusion of psychiatric disorders; constitutional rights infringed?

Background:

1. Mr X submitted a disability claim to the insurer based on a mental condition. It was declined by the insurer due to material non-disclosure at application for a history of this condition, supported by medical evidence. A psychiatric disorder exclusion was placed on the policy. He submitted a complaint to this office and the complaint was dismissed in a provisional ruling. Material non-disclosure was evident. Mr X was not happy with the outcome of the provisional ruling, stating that neither the insurer, nor this office, had taken his constitutional rights into consideration in that there ought to be no discrimination against persons suffering from a mental condition.

2. He stated that the imposition of a pre-existing condition to deny the benefit is a violation of his human rights, contending that the insurer’s risk analysis and imposition of the exclusion is illegal.

3. He added the policy contract does not stand above the Constitution.

4. His view was that the insurer did not apply TCF by the need of equal treatment for persons who suffer mental disorders.

5. The insurer responded:

  • The disclosure of previous diagnoses is vital for the insurer in the underwriting process.
  • The differentiation methods are applied equally and consistently to all applicants and does not amount to unfair discrimination.
  • Psychiatric disorders present with an increased risk to the insurer.
  • The complainant was duty bound to make disclosures to provide the insurer the opportunity to properly assess the risk; the contract of insurance is one of good faith and the insurer treats its customers in line with the contractual provisions and in the spirit of TCF.

6. As is the procedure at this office the file was re-allocated for review of the provisional determination since Mr X had made further representations. In the final ruling he was advised that in terms of our rule 3.3.4 our office does not intervene with the insurer’s legitimate exercise of its commercial judgement, and the fair application of the criteria. Mr X was informed that his proposition that insurers should, in any event, provide cover for persons where a condition had manifested, so as not to discriminate against that group of persons, was untenable and to add such persons to the risk pool would not make business sense and would not protect the rights of other persons in that pool.  The insurer therefore poses the underwriting questions to counteract adverse selection by limiting coverage, the basis of insurance.

7. The conclusion reached in the provisional ruling, covering the non-disclosure, was confirmed in the final ruling, and this final ruling also reiterated this office’s stance on complaints about the alleged infringement of constitutional rights.

 Conclusion:

8. We informed Mr X that our office does not have the power or jurisdiction to consider the question of the infringement of constitutional rights. This power vests in the High Court, more specifically when it sits as an Equality Court, for the purposes of the adjudication of matters relating to infringements of, inter alia, the right to equality and unfair discrimination. We could therefore not assist Mr X and the file was closed.

CR386 Termination of contract/ retrenchment claim

by Case ReportsRetrenchmentTopics & Cases

CR386

Termination of contract/ retrenchment claim

Termination of long-standing contract/retrenchment benefit claim/consideration of form of employment.

The background of the matter is as follows:

1. Mr W was employed at a State Department as an independent contractor, through a consulting agency, from 1 April 2010 up to 30 March 2017, at which time his contract was not renewed.  In a letter dated 6 November 2017 from the agency, addressed to Mr W, the contract was not renewed due to budget cuts.

2. He had taken out a Salary Protection policy: Retrenchment and Injury cover only, commencing on 1 October 2012, and terminating on 30 September 2021. The cover was R75 000 per month, at a premium of R1 141, which had escalated at 6% per annum.

3. In the sales call Mr W stated that as he was a contractor, he needed to cover himself if he loses his income. The consultant did advise him later on that he does not provide advice, only information. During the call the consultant informed him on the retrenchment cover as set out below in paragraph 6.

4. The complainant advised that he submitted a retrenchment claim later in 2017 which was eventually declined on 6 December 2017. He provided some details to our office on the liaison with the bank and unfortunate circumstances endured from the termination of the contract up to the time that he submitted his complaint to our office.

5. Mr W was aggrieved due to the insurer‘s stance that the claim cannot succeed as he was not considered a permanent employee and a formal retrenchment process was not followed in the termination of his contract.

6. The policy under the heading “Retrenchment” states:

“About retrenchment

 * Bank will provide a monthly payout for a maximum of six months, provided that the following conditions are met:

• Your employer must have followed a formal retrenchment process.

• You cannot be self-employed or employed by any of your family members in any capacity whatsoever.

• The salary protection insurance must have been in force for at least six months before the retrenchment process started.”

*Full name of Bank not provided

7. The retrenchment claim was declined as (a) Mr W was not permanently employed (b) the employer did not follow a formal retrenchment process in the termination of his services and (c) his contract came to a natural end.

8. We asked the insurer to consider that a contract that is renewed over several years creates the expectation of contract renewal and points to permanent employment and that one could not hold the insured to the fact that the employer did not follow a formal or legitimate retrenchment process. In this case, Mr W had stated that there had in fact been several consultations between him and the agency (effectively his employer), before the contract was terminated. The insurer responded that the claim could not succeed because:

  • The agency confirmed Mr W was an independent contractor and not an employee.
  • His contract came to a natural end.
  • He was paid an hourly rate and there were no deductions for UIF or employee benefits.
  • The nature of the budget cuts at the State Department, where Mr W was contracted to, was not stipulated and adverse conditions had not been confirmed.
  • There was no indication of a retrenchment process being followed by the employer.
  • The minimum criteria had not been met and the claim cannot succeed.

9. Mr W responded by emphasizing:

  • He cannot be penalised if there is no information about the reasons for the budget cuts, but he can inform that when the agency loses an income from a client, there are budget cuts and he and two other contractors were affected.
  • His contract was renewed over 12 years at the agency until budget cuts affected him.
  • He paid PAYE.
  • The agency extended his contract for (only) another month which indicates there was a consultation process when the company experienced adverse conditions.
  • At a minimum, he worked 8 hours a day times the number of workdays per month.

10. This matter was submitted to the adjudicators’ meeting.

Meeting’s consideration and decision:

11. The meeting considered the policy requirements, as set out in paragraph 6 above. The criteria do not include the requirement for the insured to be “permanently employed” as suggested by the insurer. The meeting focused on the exclusion of “self-employed” persons. The question that arose was whether Mr W, in the circumstances and taking cognisance of “employee” definitions and the understanding of the factual employment relationship, could be considered an “employee”.  An “employee” enjoys retrenchment cover as opposed to a contractor that offers his services through his own enterprise.

12. Section 213 of the Labour Relations Act, 1995 (LRA) defines an employee as:

“(a) any person, excluding an independent contractor, who works for another person or for the state and who receives, or is entitled to receive, any remuneration, and (b) any other person who in any manner assists in carrying on or conducting the business of an employer, and ‘employed’ and ‘employment’ have meanings corresponding to that of employee.”

13. However, the above must be read with Section 200A of the LRA and section 83A of the Basic Conditions of Employment Act, 1997 (BCEA), which provide that until the until the contrary is proved, a person who works for, or renders services to, any other person, is presumed, regardless of the form of the contract (emphasis added), to be an employee if any one or more of the following factors are present:

“i)The manner in which the person works is subject to the control or direction of another person;

ii)the person’s hours of work are subject to the control or direction of another person;

iii)in the case of a person who works for an organisation, the person is a part of that organisation;

iv)the person has worked for that other person for an average of at least 40 hours per month over the last three months;   

v)the person is economically dependent on the other person for whom that person works or renders services;  

vi) the person is provided with tools of trade or work equipment by the other person;

vii) or the person only works for or renders services to one person.”

 14. It is evident from the above provisions that our labour legislation presumes that a person is an employee notwithstanding what a contract may be called or the form it takes. The law effectively looks at the substance of the relationship/agreement.

15. Mr W’s contract had rolled over for a period of 12 years with the agency and he worked for at least 40 hours per week. He did not provide his services to any other entity and was under the control and instruction of this company. The factual employer/employee relationship between him and the agency had brought him within the four corners of the definition of “employee”. The meeting was of the view that he ought to enjoy the protection the policy affords to an employee in terms of retrenchment.

16. The other criterion in the policy relates to the requirement that the employer must have followed a formal retrenchment process. We reiterated that it was not Mr W’s fault that his employer did not provide details of the consultations or the “budget cuts”.  From the information at our disposal, the logical conclusion is that his position became redundant when his employer could not pay his salary due to budget cuts and that these followed from adverse, structural, economic or operational factors, suffered by the employer, and this impact, affected future work for him. He is adamant that he and two other contractors had formal consultations with the employer prior to termination, in any event.

17. The format of “a formal retrenchment process” may not necessarily mean the legislative process or documented by the employer. It may take the shape of meetings with the employer where the termination is considered. It was our view, from the information provided to us, that Mr W was dismissed due to operational requirements after consultations with his employer, and notice provided to him that his contract would not be renewed.

18. After due consideration of the factual employment relationship and the reason for the termination of the contract, the meeting concluded that a recommendation be made to the insurer to consider admitting this claim for the retrenchment benefit.

Insurer’s response:

19. The insurer responded that it had noted the recommendation by this office and that it had concluded that it was willing to make an exception to its business rules and pay the retrenchment benefit. They asked for Mr W’s banking statements to prove unemployment.

 Conclusion:

20. Mr W was paid the retrenchment benefit as set out in the policy. The file was closed.

CR387 Prescription

by Case ReportsPrescription / Time BarTopics & Cases

CR387

Prescription

Insurer mistakenly paying a cancer benefit in 2009 at a higher level than it should have been paid – insurer realising mistake when a claim for progression of cancer lodged in 2020 – insurer seeking to set off the new claim against the amount overpaid in 2009 – debt prescribed.

Background:

1. The complainant lodged a claim in 2009 under the insurer’s dread disease benefit following a lobectomy arising from Stage 1 lung cancer.  The claims assessor determined that this qualified for a Cancer Benefit, Severity D 25% benefit – Stage 1 Lung Cancer, and a Respiratory Disease Benefit, Severity B 75% benefit – Lobectomy.  As these two severe illnesses were related, only one benefit was paid, based on the higher severity level, in accordance with the policy.  The amount paid on the Severity B level for the Respiratory Disease Benefit was R463 476.82, 75% of the cover amount.

2. In April 2020 a further claim was lodged.  The lung cancer condition had progressed, and now qualified for a Cancer Benefit, Severity C benefit.  Severity C pays 50% but because this was an upgrade from a Severity D benefit the payment would be at 25% – the amount of R187 036.76.

3. At this point however (almost 11 years later), the insurer discovered that it had been wrong in assessing the claim as qualifying for a Respiratory Disease Benefit Severity B back in 2009.  The complainant had had an upper right lobectomy.  The claims assessor had apparently misread the criteria, one of which was “any disease or disorder requiring removal of >one lobe of lung”.  She had only had one lobe removed.  She should only have been paid R154 492.28 in 2009, so was overpaid by R308 984.54. 

4. The insurer decided to recover this amount by setting off the balance overpaid against the amount of R187 036.76 now due.  Because the overpayment exceeded the amount now due, it informed the complainant that no amount would be paid for her 2020 claim, and the insurer would, “as a gesture of good faith”, not recover the balance of the overpaid amount, R121 947.78, after the set-off was applied.

5. The complainant argued that the insurer’s claim for recovery of the overpayment had prescribed.  The insurer maintained that its claim had not prescribed, due to the insurer not having any deemed knowledge of the claim until the second claim was lodged in 2020, and the insurer having no ground to suspect an error by the assessor.

Discussion:

6. The matter was discussed at an adjudicators meeting.

7. In terms of section 10 of the Prescription Act, 68 of 1969 (“the Act”), a debt shall be extinguished by prescription after the lapse of the applicable period.  In terms of section 11 this is three years, in respect of a debt based on unjustified enrichment.  In terms of section 12, prescription shall commence to run as soon as the debt is due.  As stated in Contract – Principles (fifth edition) by Van Huyssteen, Lubbe and Reinecke: “A debt is due when the creditor has the right to institute action immediately for the recovery of the performance and the debtor is unable to raise a defence against the claim”. (p 536 and 537)

8. Section 12(3) of the Act provides that

“A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and the facts from which the debt arises: Provided that a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care”.

9. The insurer argued in this case that it only became aware of the debt when it considered the second claim in 2020.  According to the insurer, “once a claim has been approved and payment finalised, the matter is closed and no further consideration will be given to a claim”.  There would thus, the insurer argued, have been no way to determine the error until such time as a new claim was submitted: “Our audit processes at the time did not provide for re-assessment of authorised claims”. The insurer further stated: “We confirm that despite the fact that we knew who the debtor was and that the facts pertaining to the assessment was at our disposal when payment was made…we simply did not know that the claim was incorrectly categorised”; which the insurer submitted was an “excusable error”.

10. The complainant argued that she did not have to show that the insurer had knowledge that the debt was due, if she was correct that in light of the proviso to Section 12(3) the insurer should have known it by exercising reasonable care.  She submitted that it could and should have.

11. The meeting considered that in 2009 all the relevant facts were known to the insurer.  The claim was properly submitted, the insurer incorrectly assessed the claim and erroneously overpaid R308 984.54.  The insurer could have sued for the recovery of the overpayment immediately after it had been made, on the basis of unjustified enrichment (the condictio indebiti).  The complainant would have had no defence. Everything had happened which entitled the insurer to institute action and pursue its claim. 

12. In the view of the meeting, with reasonable care the insurer could have found out about its error.  Insurers can and do audit claims, and can be expected to check the decisions of assessors, within a reasonable period.  The insurer must therefore be deemed to have had all the knowledge it needed for the running of prescription to commence. 

13. On the insurer’s version the claim could remain enforceable for ever.  This would mean that in all cases where an insurer pays a claim, there is a risk that the insurer might at some future date review its earlier decision and claim repayment, without prescription coming into play.  This could not be in line with the purpose of section 12(3) or of rules of prescription generally.

14. As was stated in Minister of Finance and Others v Gore NO 2007 (1) SA 111 (SCA), “The statutory prescription periods are meant to protect defendants from undue delay by litigants who are laggard in enforcing their rights”.

15. In the view of the meeting prescription commenced to run on the date the debt became due, and the debt became prescribed three years after that, or at best for the insurer a reasonable period after the three years to allow an opportunity to review earlier assessments, which period must be much less than the ten years which have elapsed since the 2009 claim was paid. The insurer’s claim based on unjustified enrichment had therefore prescribed.

16. The meeting also considered the application of Treating Customers Fairly (TCF).  For more than ten years the complainant lived as if the payment was due to her and arranged her affairs accordingly.  In 2020 she had a medically valid further claim, but was told by the insurer that she had no claim, would be paid nothing, and in fact owed R121 947, which the insurer was prepared to waive.  In the view of the meeting this was not fair treatment.

Result:

17. The meeting concluded that the insurer must pay the 2020 claim for the Cancer Benefit to the complainant, together with interest from 18 June 2020.  A provisional ruling to this effect was made.

18. The insurer complied with the provisional ruling.

CR388 Retrenchment/ interpretation/ contra proferentum

by Case ReportsInterpretationRetrenchmentTopics & Cases

CR388

Retrenchment/ interpretation/ contra proferentum

Policy excluding any retrenchment claim “where the retrenchment was announced within the first 6 months” – on the specific facts of this case, employer letter giving notice of proposed restructure and inviting consultation not an announcement of insured’s retrenchment – his actual retrenchment announced after expiry of the six month period

Background:

1. The complainant had retrenchment cover commencing on 1 January 2019.  On 31 July 2019 he lodged a claim.  He attached relevant supporting documentation: an email from his employer dated 4 June 2019 with the subject Notice of Restructure; a Notice of Invitation to Consult in terms of Section 189, also dated 4 June 2019, copies of the proposed new organisational structure and proposed timeline (indicating names of those employees who could be affected, including the complainant’s name); and a Notice of Termination letter dated 4 July 2019 addressed to the policyholder specifically, stating that after consultation in terms of Section 189 of the Labour Relations Act, his employment would terminate on 31 July 2019.

2. The insurer declined the claim, invoking a clause in the policy which stated:

“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.

The insurer was of the view that the retrenchment was announced by the employer on 4 June 2019, within the six month exclusion period.

3. The complainant was unhappy, stating that he was only officially retrenched on 4 July 2019 (outside the six month period), and that the documentation dated 4 June 2019 related to a general notice of restructure in terms of Section 189, the very nature of which in his view was to protect the employee, and to do everything possible to avoid retrenchment, before it would legally be permitted to announce any specific retrenchments.  He stated his view that the insurer’s “decision to decline my claim is based on an attempt to interpret the company’s implementation of the Section 189 legislation, as an intention to retrench me specifically, which is not the case”.

Discussion:

4. We examined the policy and the retrenchment documentation.  The scope of the cover was set out in the following clause:

“The Retrenchment Protector benefit covers the Life Insured for an initial period if they are formally retrenched from full-time employment in terms of a legal process in accordance with labour legislation.”

5. As mentioned above, the policy had an exclusion clause reading as follows: 

“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.

6. “The retrenchment” in this clause, referring to the insured event, must refer to the formal retrenchment of a policyholder from full-time employment in terms of a legal process in accordance with labour legislation. 

7. The complainant had received a letter dated 4 June 2019 addressed to “Dear Employee”, giving him formal notice of the company’s “proposal of a restructure that may result in possible redundancies of positions and subsequent retrenchments as a result thereof”.  He was “invited to participate in a joint consensus-seeking consultative process in terms of section 189 of the LRA” for consultation on possible alternatives, including avoiding of retrenchments, minimizing the number of retrenchments, and changing the timing of retrenchments, and for the method of selecting employees to be dismissed in the event of retrenchment.  He was told at the conclusion of the letter that “the company wishes to advise that no final decision has or will be taken on the final structure and/or any possible retrenchments until input of all affected parties has been considered”.

8. In our view this was clearly not an announcement to the complainant of his formal retrenchment from full-time employment in terms of a legal process in accordance with labour legislation.  It was a letter informing various employees of possible restructuring, with an invitation to consult.  It was an announcement of an intention to start a process of consultation related to possible retrenchments, not an announcement of “the retrenchment” as a fact, ie the definite occurrence of the insured event, either on that date or in the future.  On 4 June 2019 there was no certainty that the complainant (or anyone else) would be retrenched.

9. The complainant’s retrenchment was in fact announced by letter on 4 July 2019.  This letter was addressed to him specifically by name, it recorded that the parties had “meaningfully consulted” and it was announced that his retrenchment would proceed, with his employment terminating on 31 July 2019.  Details of payments due to him, his retrenchment package, etc were provided.  The date of the announcement of the policyholder’s retrenchment, 4 July 2019, fell outside the 6-month period after commencement of cover on 1 January 2019.

10. An exclusion clause must be interpreted restrictively.  In our view there was no justification for an interpretation that “where the interpretation was announced within the first six months” must refer to the announcement on 4 June 2019 of the employer’s intention to restructure and retrench.  

11. Even if such an interpretation were possible, there was another interpretation that could be attributed to these words, as we outlined.  The meaning would therefore be ambiguous.  In such a situation, the principle of contra proferentem must apply, that is, the provision must be interpreted against the drafter (the insurer), in whose power it lay to draft the provisions clearly, and in favour of the policyholder. 

Result:

12. We recommended that the insurer reconsider the matter. The insurer agreed to pay the claim.

CR389 Compulsory life annuity; commutation of monthly income payments

by AnnuitiesCase ReportsTopics & Cases

CR389

Compulsory life annuity; commutation of monthly income payments

Compulsory life annuity – beneficiaries seeking lump sum payment instead of monthly income payments after death of annuitant before guarantee date  – insurer stating that policy could not be commuted – whether there was any legislative or contractual impediment to payment of lump sum

Background

1. The complainant lodged a complaint on behalf of himself and his three siblings.  Their mother had been the annuitant on a compulsory guaranteed income annuity policy, and they were the beneficiaries.  After the annuitant’s death, the insurer commenced paying the monthly income to the beneficiaries.  They each received about R110 per month, and this was set to continue for the next sixteen years, until the guarantee date.  The beneficiaries felt that this “makes no sense” and they wanted the insurer to pay each of them a commuted lump sum instead.

2. The insurer stated that “the annuity cannot be commuted and we are unable to pay the full lump sum due to the restrictions on this type of policy”. 

3. The insurer quoted a clause in the policy summary which stated:

“If the annuitant dies before the guarantee date, the annuity will be paid to the nominated beneficiaries until the guarantee date, after which the annuity will end”.

4. The insurer also stated that there were other restrictions indicated on the policy document.  The insurer referred to a clause, also in the policy summary, which read:

“Restrictions

This annuity cannot be surrendered, commuted, ceded or pledged.”

Discussion:

5. We pointed out firstly that there was no legislative impediment which prevented the benefit being paid as a lump sum, after the death of an annuitant (who dies before the expiry of the guarantee term).

6. We asked the insurer to provide us with a full copy of the actual policy terms and conditions, not just the policy summary.  The policy terms and conditions would apply if there were any discrepancies between it and the policy summary.

7. The clauses in the actual policy terms and conditions were not the same as in the policy summary on which the insurer was relying.

8. The policy simply stated, under “Beneficiary”:

“The Annuitant may at any time appoint a beneficiary to receive any proceeds that might be due on death of the Annuitant/s if death occurs before the Guarantee Date”,

9. We pointed out that this did not appear to preclude payment of the proceeds in the form of a commuted lump sum (which would of course be subject to tax). 

10. The policy further stated, under “Cession”:

“The Annuitants right to benefit in terms of this policy shall not be capable of surrender, commutation or assignment or of being pledged as security for any loan”. 

11. We pointed out that this applies to the Annuitant, stipulated in the policy by name; it does not apply to beneficiaries.

12. We mentioned to the insurer that in our experience if the contract did not prohibit the payment of a commuted lump sum, other insurers were prepared to offer a discounted lump sum instead of the annuity.  We asked the insurer to reconsider the matter.

Result:

13. The insurer agreed to pay each of the beneficiaries a commuted lump sum.