CR16 Exclusions – fishing for information to support an exclusion

by Case ReportsExceptions, Exclusions And Waiting PeriodsTopics & Cases

CR16

• Exclusions – fishing for information to support an exclusion

Background

Mr A enjoyed life cover under his policy with Company X. When he died (due to natural causes), his wife instituted a death claim and provided Company X with all the necessary documents to prove it. Company X requested further medical information from her and when she failed to provide it, informed the executors of Mr A’s estate that until the outstanding information was received it could not assess the claim.

According to Company X it is common practice to obtain further medical records in the event of natural death. Medical records were requested from the hospital where Mr A had died in order to investigate the circumstances surrounding his death. Upon receipt of the records Company X noticed that it was incomplete and therefore endeavoured, but failed, to obtain a full set of copies of the medical records from the hospital.

Assessment

Because Mr A’s wife had already provided Company X with all the documents to prove the death claim it appeared to us that it required the additional medical records to rely on an exclusion clause (possibly a pre-existing condition). We informed Company X that if it wanted to rely on an exclusion clause, it had to prove its reliance and that it could not expect the claimant to provide them with such proof. We informed Company X that it was not allowed to delay payment of the claim because it was experiencing difficulties in obtaining the still outstanding medical information required in order to rely on an exclusion clause.

Result

The complaint was upheld.

AS

CR17 Delay – exclusions – late submission of claim

by Case ReportsDelayTopics & Cases

CR17

• Delay – exclusions – late submission of claim – is the insurer entitled to rely on the exclusion clause?

Mr A suffered a stroke on 29.07.2002. His doctor suggested that he wait “close to a year and only than (sic) it would be possible for him to say if damage is permanent or temporary.” He approached his brokers during mid July 2003, but they were no longer representing the insurer. He alleged that nobody informed him that the brokerage had changed.

On 15.07.2003 (before the expiry of 365 days) he wrote directly to the insurer, requesting claim forms. He received no response and approached another broker for assistance. Only after the intervention of this broker, did Mr A find out who the new brokers were that dealt with these policies.

His second letter was sent via registered mail and reached the insurer. However, the claim was declined due to late submission. Their decision was based on the following wording in their contract:

“notice must be given to Us in writing within 365 days of any occurrence which may give rise to a claim under this Policy.
…
All certificates, information and evidence required by Us shall be furnished in the form prescribed and without expense to Us and must be submitted to Us within 365 days following notification. After 365 days the onus shall rest with the claimant to prove that We were not prejudiced in any way as a result of the late notification.”

We requested details regarding the prejudice that the insurer may have suffered as a result of the late submission of the claim. The insurer informed us that the renewal date of the scheme was on 01.04.2003 and that “renewal terms are negotiated according to the loss ratio.” We concluded that the 365 day period in which Mr A had to notify the insurer of the claim only ended on 28.07.2003, so the renewal terms would not have been a factor, as he could still have submitted his claim after the renewal date of 01.04.2003. We also took into consideration that Mr A wrote to the insurer on 15.07.2003 regarding this matter, but it appears as if the letter got lost in the mail.

We suggested to the insurer that it should meet the claim, which it did.

HE

CR2 Cession – security cession – surrender by cessionary.

by Case ReportsCessionTopics & Cases

CR2

  • Cession – security cession – surrender by cessionary.

Policies often serve as instruments of security for loans.  Microlenders insist on the cession of a policy, be it an existing one or a policy newly created for that very purpose, be it as security for the policyholder’s own debt or for the debt of another i.e. when the policyholder has been induced to stand surety for the debt of a family member.

Once that happens the policyholder is locked into a situation from which an escape is not always easy to engineer

Thos most we can do in such a situation is to explain the legal position to the complaining policyholder.  In one such case we said to the policyholder who had stood surety for the debt of his aunt, and ceded his policy to secure that debt:

“(i)       On such a security cession you retain your interest in the policy;

  • Once the debt in respect of which the cession has been given is extinguished the policy reverts to you;
  • Until that debt has however been repaid you cannot enforce your rights under the policy;
  • Since the cession was given as security for payment of the debt it follows that the cessionary is entitled to apply the proceeds of the policy to the payment of your debt;
  • Since your debt (as surety) is dependent on the non-payment by your aunt of her debt to the cessionary it follows that is he is in default the cessionary was entitled to a surrender of the policy which the insurer was obliged to implement.”

Where the policyholder challenges the validity of the cession or insists that the secured debt has in fact been repaid our ability to help is limited:  we can badger the insurer, as debtor, but we cannot engage the cessionary, as creditor.  We lack the jurisdiction to do so.  On that issue policyholders are on their own.

PMN

 

 

 

CR19 Funeral Insurance – non-renewal of policy under dubious circumstances.

by Case ReportsFuneral InsuranceTopics & Cases

CR19

• Funeral Insurance – non-renewal of policy under dubious circumstances.

In a recent case a complaint, commencing as one about the cancellation of two policies, in time developed a completely different momentum. The complainant took out two funeral policies, the one in 1998 in respect of her brother and the other in February 1999 in respect of her niece. The policies were five-year term policies. The policy document in each case provided that the basic term was a five-year period with the option to the policyholder, within 3 months before or after the renewal date (being the date on which the basic term would end), to renew cover for another basic term provided that a new application form was completed. In addition waiting periods and limitations on cover due to natural causes would once again apply.

The complainant duly paid, and continued to pay, the premiums in respect of both policies even though both policies expired at the appointed time, the one in 2003 and the other in February 2004, without application having been made for their renewal.

The insurer thereupon issued cheques for the refund of the over-payment of premiums.

On 30 September 2004, long after both policies had expired, the complainant complained about their cancellations and in particular that neither she nor the lives assured were informed of the imminent expiry of the policies. She also complained about the amounts of the repayments. She asked that each policy should be renewed as from the previous expiry date, that is to say, in the case of her niece in particular, from 1 March 2004.

The insurer responded that in the light of the explicit policy wording it was under no duty to caution the lives assured or indeed the complainant to renew their cover prior to the contractual expiry date.

The insurer was, however prepared to “provide you with the opportunity to renew these benefits” and to “waive the relevant waiting periods.”

The complainant wrote back on 20 October 2004 to confirm that, inter alia, her niece’s policy was to be renewed, albeit at higher rates, as from 1 March 2004. She asked for the necessary application form to be forwarded to her. She also returned the two refund cheques and tendered payment of the amounts due on both policies, once renewed.

On 29 October 2004 she wrote to this office complaining that the insurer, contrary to her urgent request and its promise to her to do so, had failed to send an agent to her home with the required application forms.

It was only thereafter that it transpired that her niece had actually passed away the next day, 30 October 2004, from natural causes.

The complainant thereupon claimed payment on the policy in respect of the death of her niece. The insurer responded, “Prior to this information coming to light we were still prepared to have the Application Form completed. However, under the circumstances, signing an Application Form for an Assured Life that is no longer alive would prove futile.

In our view the client was well aware of the assured life’s medical condition, hence her persistence for someone to come to see her on 29 October 2004. She mentioned on several occasions that the matter could not be delayed. If indeed the client was not satisfied with this arrangement and was not prepared to delay the matter any longer, the responsibility to approach any in-house adviser rested with her. Also, from a contractual point of view, we were not obligated to make any claim payment since the Application Form was never completed.”

The insurer’s approach was, in our view, entirely correct. The completion of an application form in respect of her niece was clearly a prerequisite for the issue of a new policy. The problem that may well have arisen if an application form had been completed on 29 October 2004, with or without a full disclosure of the niece’s then medical condition, accordingly did not eventuate. The complainant failed to inform us whether she wanted the insurance in respect of her brother to be continued. In the circumstances our file was closed.

PMN

CR3 Cession – security cession – fraudulent surrender of policy.

by Case ReportsCessionTopics & Cases

CR3

  • Cession – security cession – fraudulent surrender of policy.

A policyholder, Mr A, ceded his policy to Mr B as collateral security for the payment of a debt owing to the latter.  He stated that his broker, Mr C, “during November 2002 was reviewing my portfolio and I agreed that he uplift this policy from” Mr B, the cessionary.  Mr C persuaded Mr B to sign a blank document which he fraudulently completed as an outright cession to himself.  Acting on this cession he persuaded the insurer to surrender the policy.  The proceeds of the policy were paid into the bank account of Mr C’s minor son.

When the above facts were revealed the complainant complained to the office.  This led to further investigations when the insurer discovered and confirmed the fraud.  The insurer offered the policyholder the choice of either reinstating the policy against payment of arrear premiums or accepting the cash value of the policy with interest.

The policyholder elected the latter.

It is arguable that even in the absence of proof of  fraud the insurer might have been liable to the policyholder in any event as the first cession was clearly stated to be a security cession.  There is much to be said for the view that there is a duty on an insurer, if perhaps not in strict law then in fairness, to inform the cedent of the fact that a claim had been made on the policy by the cessionary or another third party to enable the latter to protect his rights by challenging the proposed payment.

PMN

CR20 Funeral Insurance – potentially competing claimants

by Case ReportsFuneral InsuranceTopics & Cases

CR20
• Funeral Insurance – potentially competing claimants

Mrs A, many years ago, took out a policy for R3000 as a form of insurance for her then domestic servant, Mrs B. Mrs B was described in the policy as “a dependant assured”. That meant that on the death of either of them the survivor would be paid out R3000. The relevant clause of the policy provided: “Indien ek sterf en daar nie ‘n begunstigde(s) vir poliseienaarskap aangewys is nie, sal die eerste oorlewende versekerde uit die lys van versekerdes in die uiteensetting van voordele in die kontrak genoem, in die volgorde waarin hulle name van bo na onder gedruk is, die nuwe poliseienaar word”.
The insurer maintained that on a strict interpretation of the clause Mrs B, if she were alive at the time of Mrs A’s death, would have to be substituted as the nominee for ownership and would as such be entitled to payment.
The difficulty was that Mrs B had in the meantime left Mrs A’s employ and, despite all efforts, could not be traced. Nor was it possible to determine whether she was alive at the time of Mrs A’s death. If she was not alive at the time of Mrs A’s death the clause would not be operative; consequently the benefit that would otherwise have devolved on her would accrue to Mrs A’s estate.
The insurer proposed to keep matters in a state of suspense on the remote chance that Mrs B might come forward as a claimant. The office suggested as a practical alternative solution that the insurer enter into an arrangement with the estate that payment be made to the estate on condition, and subject to an appropriate indemnity, that should Mrs B surface as a claimant the status quo be restored until the completing claims had been evaluated.

Acting on this suggestion an indemnity form was prepared by the insurer and signed by Mrs A’s widower and sole heir. Payment was duly made and our file was closed.

PMN

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