CR58 Cession of insurance policy as security for a debt to a bank


Cession of insurance policy as security for a debt to a bank – bank redeemed debt – – insurer erroneously overpaid the bank as cessionary which credited the account of the insured with the excess payment – question whether insured was unjustly enriched at the expense of the insurer or the bank


The complainant had ceded her life assurance policy to a bank in order to secure an existing debt. The bank surrendered the policy, as it was entitled to do, and requested payment from the insurer. The insurer erroneously paid to the bank the proceeds of the complainant’s policy together with the proceeds of another policy not belonging to her. The bank compounded the problem by deducting the amount required to cover the debt from the combined proceeds of the two policies and thereafter crediting the complainant with the balance being an amount of R14 150. When the insurer realised the error the insurer claimed from the complainant repayment of the overpaid amount alleging that the complainant had been unjustifiably enriched. The complainant alleged that when she discovered the amount with which she had been credited she had enquired from both the insurer and the bank whether the amount was correct and both had confirmed the correctness thereof. The complainant alleged that she had in the meantime spent the money. The insurer and the bank both denied that any of their employees had assured the complainant that the amount as paid into her bank account was a correct payment.


An enrichment action would only lie against the actual recipient of the monies wrongly paid. Our office took the position that the insured had paid the bank, as cessionary of the policy, the proceeds of the policy on the bank’s instruction with the result that the bank was the real recipient of the payment. The fact that the bank had thereafter credited the complainant’s bank account with an incorrect amount was the fault of the bank and a matter between her and the bank. The insurer therefore had to reclaim any overpayment from the bank and not from the complainant. The insurer contended that the bank had received the amount paid by the insurer as agent for the complainant and that the complainant was therefore the recipient of the excess money paid by the insurer. For this proposition we could not find any authority. We made a provisional ruling that the insurer had no claim based on unjust enrichment against the complainant because she could not be regarded as the actual recipient of the money paid by the insurer to the bank as cessionary. We suggested that there was a possibility that once the insurer had successfully reclaimed payment from the bank the bank in turn would have a claim against the complainant.


The insurer was initially not disposed to accept our ruling, but eventually, albeit reluctantly, it accepted our ruling, whereupon the bank ceded to the insurer its right of action against the complainant, to recover the overpayment.

October 2005

CR301 Cession- Cedent married in community of property failing to obtain spouse’s consent

Cession CR301

Cedent married in community of property failing to obtain spouse’s consent – cession in ordinary course of business –effect of section 15 of the Matrimonial Property Act.


In terms of a written employment agreement the complainant’s employer undertook to pay him an additional amount of remuneration, and in return he agreed that the extra amount be utilized for payment of the premiums on a policy held by him on his own life. The policy was one with a ten year term, and it was a term of the agreement that the complainant would remain in the employ of the employer for ten years and that for this purpose he would cede the policy to the employer as security for the fulfilment by him of his obligation to remain with the employer for ten years.

A further term of the agreement was that the employer was to cancel the security cession within one calendar month of the expiration of the period of ten years provided that the complainant remained in the employer’s full time service throughout that period.

The policy was duly ceded to the employer, and ten years expired. Due to internal changes and restructuring the complainant was thereafter unable to obtain confirmation of the cancellation of the cession from the employer, and the insurer was not prepared to release the maturity benefit to him without confirmation by the employer that it no longer had an interest in the policy.

The complainant contended that the insurer was not entitled to the confirmation it demanded. His reason was that the cession was invalid because he had been married in community of property and that at the time of the execution of the cession his spouse had not provided her written consent as required in terms of section 15 (2) (c) of the Matrimonial Property Act.

Section 15 (6) of the Matrimonial Property Act provides, however, that “the provisions of paragraphs (b), (c), (f), (g) and (h) of subsection (2) do not apply when an act contemplated in those paragraphs is performed by a spouse in the ordinary course of his profession, trade or business”. In our view the relevant provision in the agreement was one contracted for in the course of his profession, and that as such the cession fell within the exclusion in subsection (6).

Our determination was that the insurer’s requirement of confirmation from the employer had been justified.

March 2011

CR257 Cession – of life policy after sequestration of insured’s estate


Cession – of life policy after sequestration of insured’s estate – to what extent policy protected against creditors of the insured in terms of section 63 of the Act.

The insured took out a life policy. After the sequestration of his estate he ceded it to the complainant, his former wife, in terms of a divorce settlement. The trustee in the insured’s estate demanded a surrender of the policy from the insurer and was paid the surrender value of R58323. The insurer allowed the complainant, as cessionary, to continue with the policy at a value less the amount paid to the trustee, but she contended that under section 63(2) of the Long-term Insurance Act (LTIA) the sum of R50 000 of the policy enjoyed protection from the insured’s creditors and to that extent should not therefore have been paid to the trustee.

Two issues were involved. First, had the trustee been entitled to the full surrender value of the policy; and secondly, was the cession of the policy to the insured’s former wife valid in spite of the insured’s insolvency?


The first question, leaving aside the cession, was whether the policy in principle fell into the insolvent estate. The trustee contended that it did. He relied on section 20 of the Insolvency Act of 1936 which provided that all of an insolvent’s assets vest in his trustee upon sequestration.

Section 63(1) of the LTIA protects certain policies, to the extent of R50 000, from the creditors of the insured. It provides that a policy qualifying for protection shall to the extent of R50 000 “… not be liable to be attached or subject to execution under a judgment of a court or form part of his or her insolvent estate.” Section 65 goes on to limit and define the rights of the trustee in respect of a protected policy. It lays down that if the trustee is in possession of such a policy, he may deliver it to the insurer liable under it for the purpose of payment to the trustee of the sum to which he is entitled. If the trustee is not in possession of the policy, the person in possession of it shall deliver it, at the request of the trustee, to the insurer involved; the insurer must thereupon pay to the trustee the sum he is entitled to and deal with the balance of the proceeds in accordance with section 52(2) of the LTIA, which provides that the insurer must inform the policyholder of the policy’s remaining value and notify the policyholder that it will remain in force. This procedure ensures that the trustee and insolvent each receives that which he or she is entitled to.

The insurer also contended that, by virtue of section 63(3) of the LTIA, the protection provided by section 63(1) only applies in the case of the insured’s death. The office pointed out, however, that section 63(1)(a) expressly provides for protection during the insured’s lifetime.

The office’s conclusion was therefore that the policy did not fall into the policyholder’s insolvent estate but had to be dealt with in accordance with the provisions of section 65 of the LTIA.

The second question was whether the insured could validly have ceded the policy to his former wife in spite of his estate having been sequestrated. The office took the view that the insured was entitled to cede the policy but that he could not thereby of course transfer more rights than he himself had. The cession was therefore subject to the provisions of section 63 of the LTIA. The effect of such a cession would be that the insured’s creditors could not lay claim to any remaining benefits of the policy after the trustee’s claim has been satisfied. A cessionary will of course not enjoy any protection as far as his or her creditors are concerned.

In the result the insured’s former wife, by virtue of the cession, was regarded as the policyholder even though the cession was effected after the sequestration. There was after all nothing against upholding the cession, because the insured’s creditors could not be prejudiced by it. The cession entitled her to have the policy dealt with in terms of sect 52(2) of the LTIA.


The realisable value of the policy at the time of the sequestration was R58323.00. The insurer’s duty had been to pay to the trustee only the unprotected portion of the policy viz R8323.00. The remaining portion of the value of the policy had to be dealt with in accordance with sect 52(2) of the LTIA (read with section 65(3) (b)).

In the circumstances the insurer had overpaid the trustee to the prejudice of the complainant, the insured’s former wife. The insurer had therefore to top the value of the policy up to R50 000.

(For the purpose of this case it was assumed, and the parties accepted, that the current LTIA was applicable; and, although the trustees indicated that they would adhere to our determination, whether or not the insurer would have had recourse against the trustee was not considered.)

January 2009

CR238 Cession of Policy


Cession of Policy

Cession of policy to bank in securitatem debiti – by virtue of cession, bank took a loan from the insurer in the name of the insured -invalidity of such loan.


The complainant ceded his life policy to his bank as security for his present and future debts. Money had been illegally withdrawn from the complainant’s cheque account by his employee resulting in his account becoming overdrawn. In terms of a decision of the Ombudsman for Banking Services the complainant was liable to his bank for this debt.

In an attempt to recover the debt, the bank took a loan from the insurer. Purporting to act in terms of the cession it did so, not in its own name, but on behalf of and in the name of the insured. The insurer co-operated by advancing the loan to the bank. The bank thereby discharged the complainant’s overdraft, and thereupon returned the policy to the complainant.

In the course of time interest accrued on the loan and the insurer claimed the loan debt plus interest from the complainant. The issue to be decided was whether the insurer could recover the loan debt from the complainant.


We accepted the decision of the Ombudsman for Banking Services that the complainant was liable to his bank for the money illegally withdrawn from his account. This meant that the overdraft debt was secured by the cession.

The insurer contended that the cession agreement empowered the cessionary to deal with the policy in rem suam. The insurer therefore submitted that the bank had authority to conclude the loan on behalf of the complainant.

The cession was indeed couched in broad terms. It declared for instance that the cessionary could do anything necessary for the enforcement of the policy. It thereby empowered the cessionary to enforce it, surrender it, alienate it, etc. Indeed nothing prevented the cessionary, being the rightful owner, from applying for a loan in his own name in terms of the policy conditions. In the final analysis, however, the cession was by nature nothing more than a transfer of the insured’s entitlement to the policy benefits. Its purpose was to enable the cessionary to enforce the rights under the policy in order to achieve payment of the secured debt. It did not purport to authorise the cessionary to enter into foreign transactions, such as a loan, in the name of the insured. Subsequent to the cession the insured was after all no longer the owner of the policy and could therefore not take out a loan in his own name under the terms of the policy.


We came to the conclusion that the cessionary had no authority to conclude a loan in the name of the insured, and we therefore regarded the loan as void and unenforceable. The insurer accepted our decision.

CR134 Estoppel – double cession


Estoppel – double cession – policy ceded to a bank in securitatem debiti – insurer records the cession but by mistake informs the complainant, when he enquired, that no pre-existing cession was in place – complainant takes outright cession of the policy “as an investment” – whether the insurer is estopped from denying the legal effectiveness of the second cession.

The policyholder, who is also the life assured, ceded his policy to a bank as security for the repayment of a loan. The insurer was notified of the cession and duly recorded it as such. For some or other unexplained reason the insurer “mistakenly altered our records to the effect that the security cession was cancelled”. In the meantime the policyholder submitted a “lost policy affidavit” to the insurer, stating that the original policy had been lost when he moved office. A duplicate policy was issued to the policyholder who, shortly thereafter, purported to cede it outright to the complainant “as an investment”. According to the complainant the policyholder assured him, and the insurer on request confirmed to “them”, that there was no pre-existing cession in place. On the strength of that assurance, so he stated, he purchased the policy, nominated his wife as the beneficiary and thereafter paid all the premiums due on the policy. It was only then, so the complainant alleges, that the insurer sought to rectify its records to the effect that the security cession was still in place.


The insurer’s difficulty was that “we are regrettably not in a position to confirm or deny whether the complainant was informed that there was no pre-existing cession in place”. It denied the validity of the cession on the basis that it was a double cession and sought to suggest that the complainant only took cession of the policyholder’s “reversionary interest”. None of these “defences” stood up to scrutiny.

The crucial issue was whether the insurer was estopped from denying that the complainant was entitled to exercise all the rights of a cessionary to the policy.

It is of course true, as the insurer has pointed out, that the cession to the complainant was legally ineffective. That is because the policyholder had previously ceded the policy to Standard Bank in securitatem debiti and that cession is still in place.

But that fact is no answer to the complainant’s rebuttal that he was induced by the insurer’s conduct to believe that the previous cession had been cancelled and that he was accordingly free to take an outright cession of the policy; and that he acted on that believe to his detriment.

The insurer’s conduct in question consisted of mistakenly altering its record and in informing the complainant that the security cession had previously been cancelled when in fact that was not the case.

The complainant acted to his detriment by taking cession of the policy at a price and by paying the premiums.

In the circumstances all the requirements for a successful reliance on estoppel had been met.


We accordingly made a provisional ruling that the insured was estopped from denying that the complainant was entitled to exercise all the rights of the cessionary to the policy.

The insurer replied: “I wish to confirm that we abide by the ruling on the understanding that we do not admit the findings of fact or the interpretation of law of the Honourable Long-Term Insurance Ombudsman and we reserve our right to contest same in legal proceedings to recover any damages that the insurer has, or may in future, suffer due to the purported cession of the
policy by the original owner to the complainant.”

We responded as follows: “Nothing in our ruling, which now becomes final, will prevent the insurer from taking any further action it may be advised to take against the cedent.”

On that note we closed our file.

April 2006

CR124 Policy converted to paid-up without notice to the cessionary

Security cession – policy converted to paid-up without notice to the cessionary- reinstatement of the policy

The life insured took out a life policy in order to secure the repayment of a loan he owed to the complainant. The policy was then ceded in terms of a security cession to the complainant by means of the insurer’s own cession form signed by both parties, submitted to the insurer and recorded by it. The document stated: “Please note: ownership of the policy does not change. Ownership remains with the cedent, subject to the security interest of the cessionary.”

The life assured who was also the premium payer defaulted and eventually the status of the policy reduced to paid-up. No notice of any default or of the change in status was ever given to the cessionary since all the statutory and contractual notices were sent to the cedent. The complainant only learnt of the change in the status of the policy when at a later stage he made enquiries.

When the complainant complained to the insurer he was informed by the insurer that “The contract [a reference to the abovementioned document] between Messrs A [the cedent ie life insured] and B [the cessionary ie the complainant] was concluded in their personal capacities and had nothing to do with the [insurer] since they [the insurer] did not loan any money to the cessionary.”


The effect of a security cession is indeed that “ownership” of the ceded right remains with the cedent but such ownership is not “true” or “full” ownership. It has variously been described as “bare dominium” or as a “reversionary interest.” In all other respects the cessionary is the new holder of the ceded right with all the privileges and attributes pertaining to the holder of such a right, except that the cessionary cannot enforce the right until the cedent is in default with the secured debt. Until such time as the ceded debt had been redeemed neither the cedent nor the cessionary is accordingly entitled to enforce or “deal with” the ceded right on its own.

The security cession was intended to secure repayment of the life insured’s debt to the cessionary. But since the obligation to pay the premiums remained with the life insured, the security as such was inherently flawed if the life insured should breach the underlying obligationary agreement by not meeting his premium obligations, thereby causing the policy to reduce in value or lapse.

A cessionary’s only protection against that eventuality is to monitor the payments. One way of doing so would be to receive and to react to notices from the insurer that payments were not being made. Thus, the complainant in his letter of complaint stated:
“Indeed the cessionary letter gave me a sense of assurance that all was in order, as once again there was no mention that anything was amiss and if there was I the owner/cessionary would surely be the first to be informed and not merely ignored which is what happened in this instance.”

And again:

“Obviously had I been aware of this situation I would have immediately taken over the premium payments as I was prepared to then and I am still prepared to do. This actually goes without saying as it was I who insisted on the policy in the first place.”

We suggested to the insurer that since the requisite notices were to be given to the policyholder, they should have been given or at least copied to the cessionary as the policyholder’s successor-in-title.


The insurer did not disagree and the matter was eventually settled on the basis that full cover on the policy was reinstated with a new policy commencement date; that the insurer would write-off the premium debt from the time the policy was made paid-up; and that the cessionary took over the duty of paying the premiums in future. In addition the insurer agreed to pay R2 000 to the complainant as compensation for the poor service he received from the insurer after he initiated his complaint with them.
April 2006

CR127 Cession in securitatem debiti – who is to enquire about an alleged phantom


Cession in securitatem debiti – who is to enquire about an alleged phantom cession?


Security cession – policyholder denies the insurer’s statement that she had agreed to the cession of the policy as security for a loan – insurer unable to obtain proof from the cessionary about the existence of the loan and the cession – cession on insurer’s books cancelled.


When the complainant wished to take out a loan on her endowment policy she was informed that the policy had been ceded to X Bank as security for a loan; consequently, that a loan could not be granted to her on the strength of her policy. She complained first to the insurer and thereafter to us that she had never taken out a loan from the bank and in fact was unaware of its existence. She denied that she was ever a party to a cession of her policy to the particular bank as collateral security for any loan. The insurer responded that it had received notice from the bank that the policy had been ceded to it as collateral security and that it recorded the cession in its books and had notified the complainant accordingly. The complainant reiterated her denial that she had ever applied for or taken out a loan from the bank in question, that she was a party to a cession of her policy to the bank and indeed that the insurer had ever notified her to that effect. “I would have enquired long ago if I was informed” she said.

We wrote to the insurer that, in the particular circumstances of this case, “there is a duty on you (rather than on the complainant) to make further enquiries from the said bank’s successor in title about the existence or not of the alleged cession.”

The complainant in the meantime demanded that her policy be cancelled and that all premiums be refunded to her on the basis that she was sick and tired of being told about a non-existing loan from and cession to a bank of which she was unaware.


As far as the complainant was concerned we pointed out that if in fact there was no cession it simply meant that the insurer was misled by the bank concerned; that that, in itself, does not invalidate the policy or entitle her to a refund of all the premiums paid. The best that can be achieved for her was to restore the status quo as if no cession had ever been recorded against her policy.

As far as the insurer was concerned we asked it to approach the successor of the bank concerned for confirmation or not that the complainant had in fact applied for and was granted a loan on the security of the said policy and that the complainant was a party to a collateral cession of such policy.

The insurer eventually responded copying us with their enquiries from the bank. The telephonic enquiries could elicit no information about the existence of such a loan or cession and when there was no written response by the date stipulated by the insurer for such information, the insurer confirmed to us that the cession recorded on their books would be removed and that the status quo would be restored.


The status quo was accordingly restored.

April 2006

CR119 Cession – claim by cessionary – duty of insurer as debtor


Cession – claim by cessionary – duty of insurer as debtor – buy and sell arrangement.


Insurers, being debtors under the policies they issue, are at risk if they pay out to the wrong party e.g. to a third party who claims to be a cessionary (when he is not) or to a cessionary who claims to be entitled to payment (when he is no longer). An insurer is thus fully justified in satisfying itself that the claimant for payment is truly entitled to the proceeds of the policy. But if an insurer is too meticulous or pedantic in requiring proof it can redound to its disadvantage. One such case was the following:


The complainant was a director, shareholder and employee of Company X. Company X took out a life policy on his life in 1997 with the complainant as the life assured and the company as the policyholder to provide for the eventuality that he should die while in service and the company should become liable to compensate his estate for his interest in the business, a so-called “buy and sell” arrangement. The company paid the premiums.

In February 2003 the complainant left the company’s employ. According to him the policy was “signed off” to him by the then Managing Director, Mr V. Since the complainant was no longer employed he could no longer afford the premiums on the policy and, so he said, he asked the insurer in February 2003 to cancel his policy and pay him the proceeds thereof. The insurer, however, had no record of this initial request prior to April 2003 when it received an application from the complainant for a cash withdrawal on the policy.

Since this application was not counter-signed by Company X itself the insurer could not give effect thereto. It forwarded certain documents for the complainant to complete, being a cession by the company to him and a corresponding application for the surrender of the proceeds of the policy.

This document, duly completed by two office-bearers on behalf of the company, Mr V, the Managing Director and Mr P, the Operational Director, were received by the insurer on 12 May 2003.


And this is where the problem became even more complex. By this time the company no longer existed or at least was no longer operational. Yet the insurer insisted on “a copy of the registration of the company to determine the directors who can sign and a company letterhead or stamp”.

The complainant informed the insurer both by letter and by personal visit, that he was unable to locate the signatories to the document and that the company never had an official stamp. But this did not satisfy the insurer who informed the complainant that the policy would continue unaltered and that the premium debt would be deducted from the cash value of the policy.

It was only in December 2003, after the complainant managed to obtain a further document signed by Mr D that Mr V was authorised to act on behalf of the company, that the insurer relented.

A new surrender form was requested, since the previous one had expired in the meantime (according to the company’s own internal procedures). An amount reduced by the premiums that had been deducted was paid to the complainant.

It was then that the complainant complained to us. After much toing and froing we ruled that the insurer’s insistence on additional formalistic proof of authorisation was unreasonable in the circumstances of this case and that the surrender value should be recalculated with reference to the date in May 2003 when it received the cession and application forms for surrender.


The insurer accepted this ruling and, after some further debate about the correctness of the deduction, paid the sum to the complainant for which he duly thanked us.

April 2006

CR123 Cession of policy to third party

• Cession of policy to third party – policy to revert to policyholder after five years – insurer ignores the term of which it was aware


On 1 March 1988 the complainant took out life cover with the insurer. On 22 July 1988 he ceded the policy to his employer and informed the insurer of the terms of the cession. The cession agreement specifically stated that “in terme van diensvoorwaardes word die polis my eiendom na 5 jaar diens”. He remained in service for the five years but in April 1997 the employer’s business was sold and the complainant left it.

On 23 September 1997 the insurer received an application to surrender the policy. In the application the policyholder/cessionary is indicated as the erstwhile employer and the reason given for the surrender was “life assured not in employment”. The insurer complied with this request and issued a cheque to the employer, oddly enough not in the name of the employer but in the name of the complainant. The cheque was deposited into the account of the employer.

In December 1997 the complainant applied to have the policy re-ceded to him. The insurer informed him that the policy had already been surrendered and that it was not willing to accede to his request. Seven years later, on 7 April 2004, the complainant again enquired about the policy and it was then that he found out that the cheque had been paid into an account of which his former employer was the account holder.


The term in the cession agreement referred to above (that the policy would become his property after five years) can either be construed as a cession subject to a resolutive condition or as a re-cession subject to a suspensive condition; the effect was that the policy revested with the complainant after the expiry of five years in service, ie. 1993. The insurer was aware of this provision and was therefore at risk when it made payment under the policy without first contacting the cedent. When the five year period expired the complainant was entitled to either surrdender the policy or to continue with it. While he remained in the business the premiums were deducted from his salary and paid to the insurer. Thereafter, and until the policy was surrendered, premiums were apparently paid by the new owner of the business. Therefore, the instruction from the erstwhile employer to surrender the policy in 1997 was unauthorised and wrongful. Accordingly the insurer was at fault when it acted on these instructions and surrendered the policy. Such action by the insurer amounted to a repudiation of the contract by the insurer which the complainant was entitled to ignore.

After the surrender of the policy in September 1997 the insurer received no further premiums for this policy but the policy would still have had a surrender value of R27 411.37 in September 2005 if the insurer had not surrendered it in September 1997.

The insurer argued that the complainant’s claim against it had prescribed, and that there was in any event a duty on the complainant to mitigate his loss. We disagreed. Since this was a claim on the policy and not a claim for damages for breach of contract the principles relating to prescription and mitigating of damages were not relevant.

But, it was also our opinion that the complainant was not free of blame. In December 1997 he was aware that he had a lawful claim to payment under the policy but that the insurer did not acknowledge it. By not enforcing his claim and by not paying any premiums after April 1997 he brought the insurer under the impression that he acquiesced in this state of affairs. This wrong impression continued until April 2004 when he reopened enquiries about the policy. As a result of this wrong impression the insurer was not afforded the opportunity of taking steps to try and recover the monies wrongly paid out.


In our opinion both the insurer and the complainant were to blame for the current situation: the insurer for making payment to the wrong party and the complainant for his delay in pursuing his claim under circumstances where it could reasonably have been expected of him to know that such delay would be to the detriment of the insurer. A reasonable and fair solution to the problem, we believed, required a substantial reduction of the amount to which the complainant would otherwise have been entitled. We suggested that the insurer pay an amount of R12 000 to the complainant. Both parties accepted this solution and payment was made accordingly.

April 2006

CR56 Cession – security cession to bank


Cession – security cession to bank – bank wrongly instructs insurer to surrender the policy – insurer not to blame for giving effect to the instructions – complaint referred to the Ombudsman for Banking Services.


Mr A ceded his policy with insurer X to a bank as security for a mortgage loan. Neither his premiums on the policy nor his instalments on the loan were in arrears. Having applied to the bank for a further loan on the security of the policy, he discovered that his policy had in the meantime been surrendered and that the proceeds of the surrender had been applied against his loan indebtedness to the bank. Mr A insisted that the policy be reinstated, against repayment by him of the amount credited to his loan account, but the insurer was not prepared to accede to the request for reinstatement particularly since it was aware that Mr A was contemplating a disability claim on the policy. Mr A complained to us.


1. The policy in question was ceded to the bank as security for the debt. The bank, as cessionary, would only be entitled to apply for the surrender of the policy, in the absence of consent from the policyholder, if the policyholder, as cedent, were to be in arrears with the repayment of the secured debt which, in this case, was not so.

2. The issue, therefore, was whether Mr A was a party to the bank’s instruction to the insurer to surrender the policy.

3. Mr A denied that he had ever instructed the bank to apply for the surrender of the policy. According to him someone in the bank must have converted his application for a further loan to an application for the surrender, which the bank in turn forwarded to the insurer and which the insurer had implemented.

4. Neither the insurer nor the bank at the request of the insurer, could produce any convincing evidence to contradict Mr A’s emphatic denial that he had ever asked that the policy be surrendered and the proceeds be applied to his loan debt.

5. The probabilities favoured Mr A’s version. His request for a further loan was altered in a different handwriting and a further instruction to surrender the policy was inserted. These changes could have been made after Mr A had initially signed the document.

6. The bank eventually conceded that it may have erred in asking the insurer to surrender the policy. The very fact that Mr A contemplated instituting a disability claim on the policy was a further probability militating against any consent on his part for the policy to be surrendered at that stage.

7. On the facts it followed that:

(a) the bank committed a breach of the obligation of the agreement underpinning the said security cession;

(b) if the policy was not reinstated the bank could face a substantial claim for damages inasmuch as a claim by the insured on the policy would certainly have been “within the contemplation” of the parties.

8. Viewed from the insurer’s perspective it had received a legitimate instruction to surrender the policy from the actual creditor of the right, being the bank as the cessionary.

9. The fact that the insurer did not inform Mr A of the application for surrender was not fatal to its case inasmuch as the law, as it currently stands, does not oblige an insurer to inform the cedent in securitatem debiti, before paying out on or agreeing to a surrender of the policy, that a claim had been made on the policy by the cessionary (cf “Some problems involving security cessions of life insurance policies” 2004 16 SA Merc LJ par 8.3 and 8.6).

10. In the circumstances it was not possible for the office to make a ruling against the insurer, either as a matter of law or equity, that the policy should be reinstated against repayment by Mr A of the amount deposited into his account.

11. Since the insurer was not prepared to reinstate the policy on Mr A’s terms, we had no option but to refer the matter to the Ombudsman for Banking Services.

12. The Ombudsman for Banking Services in due course informed the office that Mr A accepted payment of a substantial sum of money in full and final settlement of a claim against the bank. The policy, however, remained surrendered.

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