CR31 Imputation of knowledge – dread disease claim

by Case ReportsDread DiseaseTopics & Cases
[vc_row][vc_column][vc_column_text]CR31

• Imputation of knowledge – dread disease claim submitted due to multiple sclerosis – claim repudiated on grounds of non-disclosure of material information – claimant alleges that the material information was verbally conveyed to the agent – could the doctrine of imputation of knowledge come to the assistance of the insured?

Background
The complainant applied, on 29 March 1993, for an endowment policy with occupational disability benefits. The application was made via an agent of a bank, X and was accepted by the insurer, Y. The complainant applied for a second whole life policy including dread disease benefits on 16 June 1993. This was a special offer available only to existing policyholders and issued at standard rates.

The insured, who was diagnosed with multiple sclerosis, submitted a dread disease claim under the second policy during February 2003.

The insurer rejected the claim and cancelled both policies from inception, because it believed that the insured had not disclosed information that was material to the assessment of the risk.

The insured alleged that he verbally informed both agents of his full medical history at each application stage.

Assessment
It was clear from the application forms that no medical information was recorded.

The insurer uncovered medical reports confirming that the insured was diagnosed with tranverse myelitis (an acute attack of spinal cord inflammation involving both sides of the cord) in 1986.

In the insured’s initial correspondence with this office, he chronologically and comprehensively outlined his medical history from 1984 until a second diagnosis of multiple sclerosis was confirmed in 2002. These disclosures were not made on the application forms. The office initially and provisionally upheld the insurer’s decision to reject the claim due to non-disclosure of material information.

The insured consistently and fervently alleged that he had informed both the bank’s agent and the insurer’s agent of his full medical history.

The question, which arose in the assessment by the office, was whether the doctrine of constructive knowledge (imputation of an insurance agent’s knowledge to his principal) could assist the insured.

In respect of the first contract, the fact that he allegedly told the bank’s agent that he was diagnosed with transverse myelitis would be irrelevant because the agent’s knowledge could not be imputed to the insurer and we, as an office, did not enjoy jurisdiction over the bank.
In respect of the second contract, the question of “imputation of the agent’s knowledge”, did, however, arise because the information was disclosed to an agent of a subscribing member. There was, however, uncertainty as to exactly what was told to the insurer’s agent by the insured and in particular whether he disclosed that he was diagnosed with tranverse myelitis in 1986. This issue had to be clarified before the question of imputation of knowledge could be addressed.

The insurer’s agent reported that:

“In the course of our discussion he was clear as to the status of his health at that time and discussed his medical history. When asked if he had disclosed all the information to Standard Bank (who applied for the policy) he answered in the affirmative and showed me a copy of a letter from [the insurer] accepting his application for inception date 1/4/1993.

I would then have queried if his health had changed in any way or if he had been declined or loaded on any other policy. He answered in the negative and was proud of the fact that he was living a healthy life and was very fit, being a triathlete. I would then have presented him with the special offer form and asked him to read through it and sign where indicated. Which he did.

The application was submitted in good faith by [the insured] and myself.”

When the insurer was pressed as to whether the insured specifically mentioned the tranverse myelitis to him, no further clarity was forthcoming.

Result
The insurer, notwithstanding being invited to do so, did not specifically deny the complainant’s direct allegations; the probabilities were neutral; and the office accordingly had to accept that the information was indeed conveyed to both the agents concerned. The office thus made a provisionally ruling that:
• the non-disclosure was, objectively speaking, material;
• the disclosures made to the bank’s agent could not be imputed to the insurer;
• the disclosures made to the insurer’s agent could be imputed to the insurer, as he acquired such knowledge in the normal course of his activities as the insurer’s agent. Consequently there was a duty on him to convey such information to the insurer which he failed to do;
• the knowledge that he thus obtained had to be imputed to the insurer; and
• the insurer was entitled to repudiate liability under the first but not under the second contract.

The insurer challenged our provisional ruling but its counter arguments, although considered, did not persuade the office to deviate from it first ruling. Nevertheless, all efforts were made to find a pragmatic solution to the problem. The insurer very fairly agreed. The matter was finally resolved by agreement that the first policy would be reinstated and that the disability benefit would be paid under this policy. All premiums under the second policy were refunded from inception because, at the time the insured was first diagnosed with multiple sclerosis in 1995, this condition had not been included as a major dread disease under the second policy; it was only added during October 1996.

AR[/vc_column_text][/vc_column][/vc_row]

CR32 Interest on late payments – funeral policy

by Case ReportsFuneral InsuranceTopics & Cases
[vc_row][vc_column][vc_column_text]CR32

• Interest on late payments – funeral policy – late payment of benefit to the nominated beneficiary.

The complainant was the beneficiary under a policy where his daughter was the life assured. She died in December 2001, but payment was only made by the administrator in November 2004.

We referred the insurer to an arrangement between the office and the LOA in respect of interest on late payments: “If the Life Assured died on 11 December 2001 but payment of the capital sum was only made on 10 November 2004, should interest on the capital sum not be calculated and paid?
Prima facie it appears to us as if interest on the capital sum should be calculated from the date 60 days after 11 December 2001 to the date of payment at the Standard Bank’s rate for 12 months deposits.”

The insurer responded by confirming that it had calculated the interest on the lines suggested and had paid the amount so calculated into the beneficiary’s account.

PMN[/vc_column_text][/vc_column][/vc_row]

CR33 Interpretation – payment of a cancer claim

by Case ReportsInterpretationTopics & Cases
[vc_row][vc_column][vc_column_text]CR33

Interpretation – payment of a cancer claim dependent upon the opinion of the company’s Chief Medical Officer.

Background

The policy provided a death benefit and a dread disease benefit. The two benefits were free standing, that is to say that dread disease benefit was not an acceleration of the death sum assured. The complainant who was a 50 year old female was seriously ill, suffering from Acute Myeloblastic Leukaemia. The prognosis was poor and it was quite likely that the insurance company would be paying both a life claim and a dread disease claim in the comparatively near future.

The definition of “Life Threatening Cancer” which featured in the contract read as follows:

“A Malignant tumour supported by histological diagnosis showing spread of malignant cells with invasion and destruction of normal tissue for which interventionist treatment or surgery is necessary.

The staging of the cancer will use an appropriate medically acceptable staging system acceptable to the Company’s Chief Medical Officer. (our italics)

Stage 1 20%
Stage 2 50%
Stage 3 75%
Stage 4 100%

Non-Life threatening cancers: 5%

• “Prostate Cancer, histologically described as T1 in the tumour, Nodes < Metastasis(TNM) classification.
• Papillary Micro-carcinomas of the thyroid of bladder.

Specific Exclusions

• All skin cancers including malignant melanomas of less than 1.5mm maximum thickness using the Breslow method unless there is evidence of metastases.
• Stage 1 Hodgkins Disease
• All conditions histologically described as pre-malignant as cancer in-situ including CIN 1 CIN 2 and CIN 3 of the cervix
• Kaposi sarcoma and other AIDS related tumours
• Chronic Lymphocytic leukaemia”

The insurance company’s Chief Medical Officer regarded the cancer as a Stage 2 and 50% of the benefit was paid. The complainant was of the view that her condition was such that a 100% benefit was justified.

Assessment

The contract specified that the benefits paid depended on the stage of cancer ranging from Stage 1 to Stage 4. These stages are not defined which means that conventional cancer staging is used. Distant metastases, regardless of the site of origin of the tumour indicate a Stage 4 disease. Various hematologists whose opinions were obtained also expressed the view that Acute Myeloblastic Leukaemia was a Stage 4 disease.

The insurance company’s Chief Medical Officer, whose opinion was decisive so far as the insurance company was concerned, took the view that there was a possibility of complete remission following aggressive therapy involving ablation of the bone marrow and marrow transplantation. But in terms of the policy provision this was not a factor. As defined in the contract the complainant was suffering from a Stage 4 cancer and qualified for 100 percent benefit.

Result

The complaint was upheld and the insurance company agreed to pay 100 percent benefit.

DM[/vc_column_text][/vc_column][/vc_row]

CR34 Interpretation – loan protection insurance

by Case ReportsInterpretationTopics & Cases
[vc_row][vc_column][vc_column_text]CR34

Interpretation – loan protection insurance – retrenchment cover – interpretation of term “retrenched” and date of retrenchment – exclusion where person had knowledge of retrenchment prior to commencement date or retrenched within three months of retrenchment date.

This case required an interpretation of the term “retrenched” and a determination of the date of retrenchment, with reference to labour law.

The complainant had a housing loan protection policy which included retrenchment cover. The policy stated that “The insurer will regard the insured person as retrenched if termination of employment complies with the legal termination of the insured person’s employment by reason of retrenchment, provided for in the Basic Conditions of Employment Act and the Labour Relations Act”. No retrenchment benefit would be paid to “any person who had knowledge of retrenchment prior to the commencement date, or who is retrenched within three months of the commencement date”.

The policy commencement date was 29 April 2003. On 23 June 2003 the employer gave the complainant a letter headed “Notice to terminate employment”. The letter indicated that the company was under financial strain and that certain staff positions needed to be reduced. The complainant was invited to make representations about her position, and told that options short of retrenchment would be discussed and considered. It was stated that, should no suitable vacancy or other alternative exist, her last working day would be 31 July 2003.

As it turned out, no alternative was found and her last working day was indeed 31 July 2003. The insurer declined the complainant’s claim for the retrenchment benefit on the basis that her retrenchment date was 23 June 2003 (the date of the letter), which fell within the three month period from commencement of the policy.

Establishing the date of retrenchment is a matter of fact and law; the date must be determined with reference to the relevant provisions of the Labour Relations Act.

A retrenchment is a type of dismissal, known as a dismissal for operational requirements; for reasons related to the needs of the business, employees’ positions have become redundant. Section 190 of the LRA fixes the date of dismissal as being the earlier of the date on which the contract is terminated, or the date on which the employee left the service of the employer.

When termination is on notice, the contract ends on the last day of the notice period, since this is the date on which the parties’ obligations under the contract cease.

Section 187(3) of the Labour Relations Act requires an employer contemplating retrenchment to issue a written notice inviting the other party to consult and to disclose in writing all relevant information. The proper procedure would be to go through a process of consultation and then, once a decision has been made to retrench, to give notice of dismissal.

The notice given in this case to the complainant on 23 June 2003 does not constitute a retrenchment. It is an attempt to afford prior notice of retrenchment to the employee, while at the same time giving notice that, if alternatives fail, the contract of employment will terminate on 31 July 2003. The fact that these stages were collapsed into one here does not alter the fact that the date of dismissal for operational requirements (retrenchment) was, in terms of section 190(1), 31 July 2003, since this was the date on which, alternatives having failed, the contract terminated, and it was the date on which the employee left the service of the employer.

We advised the insurer that, since the complainant had no knowledge of the retrenchment prior to the commencement date of the policy, and since the date of retrenchment fell outside of the three month period stipulated, no exclusion applies and she qualifies for the retrenchment benefit in terms of the policy. The insurer settled the claim.

SM[/vc_column_text][/vc_column][/vc_row]

CR35 Jurisdiction – if an investment product is “wrapped”

by Case ReportsJurisdictionPolicyholder Protection RulesTopics & Cases
[vc_row][vc_column][vc_column_text]CR35

Jurisdiction – if an investment product is “wrapped” in a life assurance policy any complaint would fall within the Ombudsman’s terms of reference

Background

Most major life assurance companies have associate organisations which are “in house” linked investment companies. This is an area where the Ombudsman’s jurisdiction is questionable but if a life assurance contract forms part of the financial package, if the linked investment product is “wrapped” in a life assurance policy, then the complaint would usually fall within the Ombudsman’s terms of reference. This can lead to complications because the two financial organisations, the life assurance company and the associated LISP do not always speak with the same voice.

In the case under review the complaint was governed by the Policyholder Protection Rules and the complaint revolved around the cancellation of the contract within the thirty-day cooling off period.

Assessment

The LISP who was responsible for the packaging and marketing of the product incorrectly took the view that the Policyholder Protection Rules did not apply. The Ombudsman stated that this was a matter which the life assurance company and its associate had to resolve between themselves but the Ombudsman’s position was quite clear. The rules which catered for policy cancellations did apply.

Result

As a life assurance product was involved the Ombudsman adjudicated the complaint from this perspective. The outcome was a decision in favour of the complainant and as the request to cancel the contract was made within the thirty day period the complaint was upheld. This resulted in a refund of premiums paid together with interest. This decision in favour of the complainant was accepted by the insurance company. The difference of view with the LISP was up to them to resolve.[/vc_column_text][/vc_column][/vc_row]

CR36 Jurisdiction – lapsed policy – premium part of bond repayment

by Case ReportsJurisdictionTopics & Cases
[vc_row][vc_column][vc_column_text]CR36

Facts

The policyholder had taken out a bond from a bank.  The bank required a policy on the life of the house owner to be ceded to it as security.

The premiums for the policy were included in the total bond payment made every month.  As interest rates vary this payment amount changes from time to time and the complainant was, therefore, used to fluctuating amounts being deducted.  The premium for the policy was deducted on an annual basis from the bond bank account and paid over to the insurer.  When there was a take-over of the bank the bondholder decided to move her bond.  At the time of the transfer the arrangement with the premium fell by the wayside.  The premium was not paid over to the insurer and eventually the policy lapsed.

When the bondholder (and life assured) died the insurer did not pay out the claim as there was no policy in force.  The wife of the deceased complained to our office.

Decision

We could not assist the complainant as the insurer had been justified in declining the claim.  It appeared to us that the bank may have been at fault at the time of the transfer of the bond to a new bank.  We contacted the Ombudsman for Banking Services who confirmed that he had jurisdiction in the matter and we, therefore, requested the complainant to complete the necessary forms in order to submit the claim to his office.

Comment

It is a concern that when a premium forms part of a bond instalment on a policy ceded to the bank the original policyholder loses control over the policy premium payments.  When premium payments are not made for whatever reason the policyholder is “out of the loop” and will be unaware of the premium arrears and the possible lapsing of the policy.

As far as this issue is concerned we wrote to the Banking Council in 2003:

“We are writing to you in the hope that you can assist with the following problem.

As you are doubtless there is a widespread practice of life insurance policies being ceded to banks as security for loans, mortgage loans in particular.  When such a cession is no longer operative, because the loan has been repaid, there is a need for the bank to advise the policyholder of that fact and return the policy document to the policyholder.  It has come to our notice that policyholders are not, unfortunately, always advised of the cancellation of the cession.

This is particularly important where the insurance premium has been remitted by the bank to the insurer.  This occurs where the bond repayment amount includes the cost of the insurance premium.  In the absence of such advice the policyholder may in all innocence omit to pay the premium directly to the insurer and the policy could lapse or become paid-up.  The policyholder could thus lose valuable policy benefits.

We would request you to please bring this problem to the attention of your members and in particular that it is essential that their clients be duly notified and that the policy document be returned to the policyholder as soon as the secured loan has been repaid.”

We have had no response to this letter and as far as we are aware no standard practice, however desirable, has yet developed in this regard.  Equally desirable would be a practice that insurers, as debtors, should inform their policyholders, the cedents, whenever a claim is made on a policy by an outsider, such as a bank as cessionary.  This would enable the policyholder to contest the payment, if there are good grounds for doing so.  (See, too, “Cession”).

JP[/vc_column_text][/vc_column][/vc_row]

CR4 Cession – effect of cession on rights of nominated beneficiary.

by Case ReportsCessionTopics & Cases

CR4

• Cession – effect of cession on rights of nominated beneficiary.

The policyholder, who was also the life assured and premium payer nominated his business partner as the beneficiary and, thereafter, for good measure, ceded the policy to him as well, “as sekuriteit vir finansiële hulp aan die versekerde lewe.”

The policy itself provided: “Wanneer ‘n polis gesedeer is, sal die regte van die persoon aan wie die polis gesedeer is, terwyl sodanige sessie van krag is, voorkeur geniet bo enige regte wat ‘n genomineerde Begunstigde mag verkry.”

When the debt for which the security was given was repaid the policy was receded to the policyholder but the nomination was not retracted or changed.

The policyholder died unexpectedly and the insurer paid the proceeds of the policy to his estate. The beneficiary challenged this payment.

The insurer argued, in support of its decision to pay the estate, that on the recession of the policy the policyholder became a new cessionary whose rights prevailed over those of the beneficiary.

We expressed our doubts over this position. Upon repayment of the secured debt the policyholder was, after all, entitled as a right to the reversion of the ceded rights. His position could therefore not be equated to that of a subsequent cessionary. The better view is that the policy provision meant that the rights of the beneficiary were merely suspended during the currency of the initial cession; the implication being that upon payment of the debt for which the cession was given, the rights of the beneficiary revived in full.

In the result the insurer was encouraged to explore a settlement as between the beneficiary, itself and the estate over which the office in any event had no jurisdiction.

EdB

CR21 Funeral Insurance – competing claimants

by Case ReportsFuneral InsuranceTopics & Cases

CR21
• Funeral Insurance – competing claimants

Insurers sometimes find themselves in the position of stake-holders faced with competing claims from different claimants, e.g. the deceased policyholder’s current and former wives. In such situations the office has advised the insurer:

(i) that it would be unwise for it to effect payment to one spouse unless it had first canvassed the views of all the other potential claimants;

(ii) that when any claimant lodged a complaint with this office the consent of all the other potential claimants should be obtained permitting this office to adjudicate the dispute as between all the competing claims. This would require from parties other than the complainant and the insurer a form of submission to the jurisdiction and orders of the office. If such an agreement is reached it would in effect amount to a procedure akin to interpleaded proceedings recognised by the rules of court;

(iii) that the office would thereupon make a ruling based on what the policy provided and on what it regards as fair and practical as between all the competing parties;

(iv) that, as far as the future is concerned, the insurer should redraft its policy provisions so as to cater explicitly and clearly for the ranking of claims in eventualities where such competing claims could arise.

PMN

CR5 Cession – policy procured with a view to securing a bond on house

by Case ReportsCessionTopics & Cases

CR5

• Cession – policy procured with a view to securing a bond on house – by mistake the proposed cession was never implemented – effect of failure to do so.

The office was asked to express a view on the following set of facts:

“S and her fiancé R purchase a property. The Bank finances the purchase. The bond confirmation letter contains a clause which requires S and R to take out life cover and cede the policy to the bank as security for the bond amount.

The life cover is take out on the lives of both S and R. Both parties are alternately the beneficiaries of the proceeds of the policy should one of them die.

S dies. It is discovered that – in error – the policy had never been ceded to the bank.

The bank decides to sue S’s estate for the balance due on the bond (Joint and several liability). The estate settles the amount owing on the bond.

R, as beneficiary inherits the proceeds of the policy.

The complainant – S’s mother – submits that the bank acted unjustly in claiming only from the estate and not from R. She further submits that the bank acted incorrectly in not having the policy ceded to the bank.

The complainant does not wish the estate to claim half the bond amount paid from R (R is allegedly a very difficult person).”

We responded as follows:

“The legal position seems to be reasonably clear:

i) R, as the nominated beneficiary, was entitled to the proceeds of the policy.

ii) The bank was entitled to sue S’s estate for the full amount of the debt because S and R were jointly and severally liable to it; S’s estate was accordingly obliged to meet the claim in full even though R was not joined when the Bank made its demand for payment.

iii) S’s estate may well have a right of recourse against R for repayment of his proportionate share of the debt. There may be some uncertainty whether this follows as a matter of law (cf van der Merwe et al: Contract General Principles 2nd edition 230) but it would be highly unlikely if this would not in any event follow from the express or tacit terms of the underlying agreement between R and S.

iv) The cession of the policy (the principal debt) was contemplated as security to cover S and R’s indebtedness to the Bank (the secured debt) should the secured debt not be paid.

v) The fact that the contemplated cession was never executed had no effect whatsoever on the secured debt as such; it simply meant that the Bank did not enjoy the potential additional security of being able to proceed against the insurer on the principal debt should S and/or R renege on the payment of the secured debt.

vi) Since the bank would in any event only have been permitted to invoke the cession in securitatem debiti if the secured debt was not paid and since it was, the issue of the cession on the facts of this case is really irrelevant.”

Two further questions were posed, namely whether the Bank can be criticised (a) for not having insisted that the cession be executed and for not acting in terms thereof and (b) for proceeding against S’s estate only.

As to (a): As stated earlier, the Bank’s failure to insist on a cession of the policy to it, did not prejudice S and R; it only prejudiced the Bank which thereby forfeited a security which it would otherwise have had if S and R’s debt had not been repaid. Even if the cession had been executed it would not have affected the situation since the Bank would only have been able to invoke the cession if the secured debt had not been paid which, in the event, it was.

As to (b): It was the Bank’s prerogative to decide from which of the two joint debtors it would demand payment. Unless there are extraneous circumstances affecting the equities of the situation, arising from the correspondence or negotiations between the Bank and the co-debtors, it does not seem to us that the Bank can be criticised for acting in terms of its rights.

In our opinion there is accordingly no basis in fairness for making a ruling against the Bank.

Far from the Bank acting inequitably, it seems to us that S’s mother’s attitude is unfair: she appears to blame the Bank for the failure of the estate to have called upon R to pay his share of the debt when a call was made upon the estate to pay the full debt. On the face of it the estate has a perfectly legitimate claim against R for claiming one half of the debt it paid. The estate’s hesitancy to proceed against R is no reason for visiting the estate’s payment of more than its proportionate share on the Bank. PMN

CR22 Funeral Insurance – confusion about the identity of the insured

by Case ReportsFuneral InsuranceTopics & Cases

CR22
• Funeral Insurance – confusion about the identity of the insured.

The identity of the policyholder is one of the essential aspects of a policy. Uncertainty about the identity of the true policyholder or the failure by the intended policyholder to agree to be a party to the policy document would obviously affect its validity. In a recent case it was not apparent from the application form whether it was the complainant, Mr A, or the late Ms B who intended to be the true “policy owner”; and if it was Ms B, it was probable that it was not she, but the complainant, who signed the form. That being so, the insurer took the view that an application form, signed by someone who was not the apparent policyholder, did not bind it and it tendered to refund to the complainant all the premiums received from him. We invited the complainant, if he disagreed with that approach, to provide us with the answer to the insurer’s concerns. In the event he was unable to do so and the file was closed.

PMN