CR367 Conclusion of contract Policy correctly issued?

Conclusion of contract

Policy correctly issued?

Surrender of policy – did applicant for surrender have authority to act?

A complainant wrote to us complaining about the fact that her insurance adviser had partially cashed in her policy. She stated that the adviser had owed her money and to redeem his debt he paid the premiums on the policy he sold her. The insurer countered the complainant by stating that the complainant was merely the insured life and the adviser was the owner of the policy. The application form indicated that the adviser was the complainant’s brother and premium payer. The insurer had a practice of making the premium payer the policyholder even though this is not clearly indicated on the application form. (The insurer had changed this practice subsequent to the issue of this policy).

The insurer suggested that the complaint was a private family matter between the parties and that they should settle it between themselves. The insurer did not comment on the complainant’s allegation that she had received all the notifications, updates etc, during the eleven year term of the policy which correspondence had reinforced her belief that she was the owner.

The insurer subsequently, after we raised certain questions, interviewed the adviser who conceded that the complainant was his half-sister, not his sister. He also said that the complainant had signed the encashment form together with him. The complainant denied both these allegations and stated that her signature was a forgery done by means of a “cut and paste” process and that the adviser was not related to her.

We contacted the insurer and pointed out that there was a factual dispute in the case. We suggested a hearing and predicted that whoever was not telling the truth would probably not be willing to attend. The adviser “blinked first”, he refused to attend and after some pressure from the insurer agreed to repay half the surrender value. The complainant refused to accept the offer. The adviser then offered the full amount which was accepted by the complainant.

The adviser then reneged on his promise and said he could only pay in instalments as he was short of cash. The insurer paid the complainant and recouped the money from the adviser who was also investigated by the insurer’s compliance department.

April 2016

CR302 Conclusion of Contract-Reliance theory – credit life policy covering bond

Conclusion of Contract CR302
Reliance theory – credit life policy covering bond – insured relying on information provided by insurer to bank that cover in place – such information in turn furnished by bank to insured – no cover in fact granted.

Mr and Mrs G applied for a bond at a bank, and at the same time completed application forms for a loan protection policy from the insurer to cover the bond. After the bond was approved they received a letter from the bank informing them what the amount of the monthly bond repayments and loan protection premiums would be, the information about the premiums having been formally furnished by the insurer to the bank. Two similar letters from the bank were written to Mr & Mrs G over the next two years, again conveying premium information furnished by the insurer to it. Premiums were duly collected by means of deductions on their bond account, the bank then paying the premiums over to the insurer.

After the death of Mr G, Mrs G submitted a claim for payment of the outstanding bond in the sum of over R1m. In considering the claim the insurer discovered that an application for loan protection cover applied for by some other client had in error been linked to the bond account of Mr & Mrs G, that the application by Mr & Mrs G had never been accepted and that they had therefore never been granted the loan protection cover.

The insurer said, correctly, that Mr and Mrs G had never been provided with a quote for the premiums, and that they were never issued with policy documents. It added that the monthly premium of R102.62 incorrectly collected from them was the premium due by the other client and as such was in an amount obviously too low to be commensurate with the amount of their bond. The insurer therefore contended that the parties could not have been ad idem on the terms of the contract. Its case was that Mr & Mrs G should have realised that there was no cover in place or should at the very least have made the appropriate enquiries in that regard. To resolve the misunderstanding it offered to refund the premiums, but Mrs G complained to the office.

She pointed out that the bond agreement stipulated that life cover was a requirement unless otherwise advised by the bank. She and Mr G had relied on the information furnished in the bank’s letters that noted the existence of life cover, and in doing so believed that the bank, as bondholder, had duly arranged the life cover with the insurer. If they had not intended to take out loan protection cover, they would have objected to the insurance premiums being deducted from their bond account. Mrs G maintained that the insurer’s consistent conduct of retaining the premiums over a period of three years and at the same time issuing the bank with the information passed on to Mr & Mrs G, had led Mr & Mrs G to believe that cover was in place, and being under that impression they did not seek cover elsewhere.

In the office’s exchanges with both the bank and the insurer it was determined that the mistake had not been made by the bank, but by the insurer, and although it was clear that the bank had not been acting as the insurer’s agent, the insurer knew that information of the kind at issue would be furnished by the bank to the insured concerned.

The office considered whether on the facts of the case the so-called reliance theory could be applied. According to the theory, as stated in “CONTRACT – GENERAL PRINCIPLES” by Van der Merwe et al (at page 38), even if the parties are not ad idem, there can nevertheless be a contract
“…based on the intention of one party to an agreement and the reasonable impression or reliance on his part that the other party had the same impression”.
See also “LIFE INSURANCE IN SOUTH AFRICA” by Nienaber and Reinecke (at 10.4), and SHEPHERD V FARRELL’S ESTATE AGENCY 1921 TPD 62.

Before making a determination the office indicated to the insurer that there was room for applying the reliance theory. By taking and retaining premiums over a substantial period of time, by furnishing the bank with the information it did knowing that it would be conveyed to the insured concerned, and by failing in that time to inform the insured that there had been a mistake, the insurer had misled Mr & Mrs G, to their prejudice, into reasonably believing they had cover.

The insurer was asked to re-consider its repudiation, whereupon it agreed to meet the claim.
March 2011

CR297 Conclusion of contract- Quotations provided for joint life annuities

Conclusion of contract CR297

Quotations provided for joint life annuities – applications completed without details of second life assured – single life annuities issued – duty on insurer to compare applications with quotations.


1. The complainant’s financial adviser obtained two quotations for joint life annuities from the insurer, and provided them to the complainant. The first quotation indicated that if he invested R109 973 he would receive a monthly income of R555, and the second indicated that if he invested R355 655 he would receive a monthly income of R1 843.

2. In applications for two policies the complainant filled in the forms with his personal details, and the advisor filled in the figures as per the quotations, which were signed and sent in to the insurer along with the signed applications. Unfortunately the complainant mistakenly filled in his wife’s details in the space under “Nominated Beneficiary”, rather than under “2nd Life Covered”.

3. The insurer only had regard to the applications, and issued the policies as single life annuities, with monthly incomes of R765 and R2 520 respectively. It appears that the complainant did not notice this until about 8 months later, when his advisor picked up the problem on annual review. The complainant maintained that the insurer should have contacted him before they issued the policies with an income which was different to that on the applications, but the insurer refused to assist him.

4. The insurer insisted that the quote was simply a transaction between the client and the financial adviser, illustrating various options available so that the client could make an informed decision, and argued that the quote was not part of the contract and that it was the adviser’s responsibility to ensure that the application form was completed accurately and in accordance with the quote. The insurer only issues a contract in accordance with the information contained in the application form.

5. We pointed out to the insurer that, although it is the responsibility of the client and/or the financial adviser to ensure that the information on the application is correct, the insurer had been presented with the applications and the quotations on which the applications were based. The applications contained a reference to the quotation date, with the following words “I confirm that the QUOTE version 89 quotation date 13/10/2008 was used to generate the quotation following upon which this application was submitted”. The applications had the same income figures filled in as appear on the quotations. We noted that the insurer changed the income amounts from those reflected on the applications when issuing the policies, apparently without checking why the new income figures differed materially from those on the applications. In fact the reason they were higher must have been because they were calculated on a single life and not joint lives. This could have been cleared up by looking at the quotation, but the insurer failed to investigate the discrepancy. While one may have expected the complainant to point out that there may be something wrong as he was receiving a higher income than on the quotations and applications, in our view it could certainly have been expected of the insurer to investigate the reason for the discrepant figures.

6. The insurer insisted that the quotations did not form part of the legal contract with it. The welcome letter sent to the complainant referred, however, to his plan summary and terms and conditions, and thereafter stated that “These documents are important legal documents and together with your application form and quote, they form your contract with the insurer”.

7. We also noted that attached to the complaint was an email from the insurer to the financial adviser in which it was stated that the insurer had “since the latter part of 2009, started to compare the app with the quote, if present, and to defer should be there be huge discrepancies”. The insurer thus obviously acknowledged that it was good practice to compare the application with the quotation.

8. We pointed out that the annuity policies contained a non-variation clause stating that “no alteration or variation of this Plan shall be of any force or effect unless it is recorded in writing and signed by both the Contracting Party and an authorised Senior Manager of [the insurer]”. It was therefore contemplated that there might be variation of the plan, under the stipulated conditions. We asked the insurer, given the circumstances of this matter, why it could not change the annuity policies, with the necessary adjustments to take account of income already paid in order to give the complainant what he had wanted from the outset.

9. The insurer agreed to change the annuity contracts to joint life annuities from inception. Its actuarial department calculated that the complainant had received some R16 000 additional income. He could repay this as a lump sum, or he could sign a garnishee order for the insurer to deduct R500 per month from his annuities. He elected the latter, and the annuities were changed.

March 2011

CR130 Conclusion of contract

Conclusion of contract – Insurer acting on the unauthorised instructions of an adviser to alter the inception date of a policy


On 9 March 2005 the complainant applied for a policy with death, functional impairment, disability and core dread disease benefits. In the application form an inception date of 1 April 2005 was requested. The insurer asked for additional medical information which was only received during the week of 21 March 2005. Accordingly there was not enough time left for the insurer to lodge the debit order for 1 April 2005. The insurer asked the adviser (an agent of the insurer) to obtain instructions from the complainant about the payment of the first premium and a fresh inception date. According to the adviser the complainant’s wife gave them the instruction to move the inception date to 1 May 2005 and to deduct the premium on that date. (The adviser’s office provided the insurer with a letter that purported to originate from the complainant confirming this instruction. It later transpired that the adviser’s office generated this letter and that the complainant never sent it.)

On the instruction from the complainant’s adviser the insurer thereupon moved the inception date to 1 May 2005 with the first premium to be deducted on the same date. As misfortune would have it the complainant was seriously injured in a car accident on 9 April 2005

When a claim was instituted the insurer denied liability on the ground that the policy was only to commence on 1 May 2005. The complainant denied ever having given instruction or authority to his adviser to defer the inception date to 1 May 2005. According to him there was an instruction, via his wife, to the advisor to retain the inception date and to deduct a double premium on 1 May 2005.


We were thus confronted with a dispute of fact. What was not in dispute was that the complainant did not pay a premium on 1 April 2005 nor was a double premium deducted on 1 May 2005. Consequently there was no room for a claim on the policy itself. It was common cause that the policy could have been issued and the debit order could have been put into operation for 1 April 2005 after all the requirements were received, but due to production load it could not be issued in time. The insurer was willing to consider the claim if the complainant could provide proof that there was sufficient funds in his bank account to pay the premium of 1 April 2005. According to the complainant there was not sufficient funds in his account because the advisor informed them in late March 2005 that the premium for 1 April 2005 would not be deducted and therefore they did not make provision for it.


On the available evidence we could not make a decision on a balance of probabilities as to what the complainant’s instruction to the adviser’s office was. What concerned us was that the insurer failed to confirm the instruction it received from the adviser to defer the inception date with the complainant himself. We informed the insurer that it should not have acted on the adviser’s mere instructions. Had it referred the instruction to the complainant matters could conceivably have taken a different turn. We suggested to the insurer that they should consider settling the claim on a 50% ex gratia basis to which both parties eventually agreed.

April 2006

CR131 Conclusion of contract – cancellation and replacement

Conclusion of contract – cancellation and replacement of – “snatching at the bargain”.


Upon being widowed Mrs A took “life cover” as well as “dread disease cover” through a consultant/franchise employee of the insurer, who acted as her financial adviser. Some years later when her circumstances changed, Mrs A decided to replace these policies by increasing the “dread disease cover” as well as improve her “cost relationship to cover ratio”. In the process the financial adviser cancelled the old policies in anticipation that the new policy would be approved. However the insurer declined the proposed replacement policy.

It later transpired there was much confusion, uncertainty and misunderstanding between the insurer and the financial adviser regarding internal procedures. Consequently Mrs A was left without cover. Mrs A then tried to revive the cancelled policies without success.


Mrs A referred the matter to this office for relief. It was considered at an adjudicators’ meeting. The meeting took a unanimous prima facie view that the insurer’s action in refusing to reinstate the policy amounted to “snatching at the bargain”, as it were, and found it to be unreasonable and unlawful;

It is clear that the transaction at issue was a composite or holistic one; what was intended was in effect a novation of the existing policy. The policy holder sought to surrender one policy and replace it with another; obviously the surrender of the first was conditional on the replacement policy taking effect. When it became clear that the replacement policy would not be offered on standard terms, the transaction should have gone no further, and the erroneous “surrender” of the existing policy must fall away.


Following this provisional ruling the insurer proposed a replacement contract with similar benefits as the cancelled one, free of underwriting, at Mrs A’s current age and with a current date of commencement. Mrs A accepted this proposal.

April 2006

CR8 Conclusion of contract – telemarketing – terms of the contract


• Conclusion of contract – telemarketing – terms of the contract

The insurer’s agent approached the complainant by telephone. The complainant alleged that the parties came to an agreement in terms of which he took out whole life insurance on the life of his mother. The life insured died slightly more than a year afterwards. The insurer disputed liability on the grounds that the policy made it clear that death due to natural causes would only be covered 12 months after the insurer received an acceptable application form completed by the proposer. According to them, the policy and schedule were mailed to the complainant in the ordinary course of business. They explained that this class of policy required underwriting and that it was therefore necessary for the policyholder to complete and sign the application form which incorporated a health declaration. The complainant failed to return a signed application form despite having allegedly been reminded to do so. Consequently the insurer contended that there was no contract.

The telephonic conversation that took place was recorded. We listened to the tape. We found that the agent assured the client that there would be immediate cover for accidental death and cover for death by natural causes after a year. She informed the client that no medical examination was needed but that the life insured had to do a declaration of health indicating the status of her current health and all her pre-existing medical conditions. She made it clear that the plan did not cover pre-existing conditions. Thereupon the agent asked the client whether she might complete an application form and they proceeded to do so by noting certain particulars. They discussed and agreed on the amount of the premium and the sum insured. The agent then proceeded to provide some particulars of herself and in the course of this discussion she said that the phone call was being recorded “as we do a legal contract via the phone.” She assured the client that the cover would continue even though the insurer has not received the documents. She added that if the client did not receive these forms within 2 or 3 weeks, he should please give her a call so that they could be re-posted. She did emhasise that the documents must be signed and returned. Finally, she typified the policy in question as a whole life policy.


The policyholder was of the opinion that he had a whole life policy on his mother’s life and that full cover would be enjoyed after one year. He had been assured that the telephone contract was a legal contract. The agent filled in an application form on his instruction. It is true that he was told that the form had to be signed but he was also assured that there would be cover even though the documents had not been received by the insurer.

We came to the conclusion that a valid contract of insurance had indeed been entered into on the terms as discussed between the agent and the policyholder. There is after all no general requirement that a contract of insurance must be in writing and signed. The form in question had admittedly to be signed to confirm and record the details about the life insured, i.e. for proof rather than validity. It was not brought home that the returning of a duly signed application form was a prerequisite for the validity of the contract or for the purpose of extending the contractual benefits. It is true that the insurer needed these documents but in the light of the discussion that took place, the position simply was that the insured had a contractual duty to complete, sign and forward these documents to the insurer. It was therefore no more than an ordinary contractual obligation which the insurer could enforce as a breach of contract but it did not rob the insurance of its validity.

In the circumstances the policyholder’s contention was upheld.


CR9 Conclusion of contract of insurance

• Conclusion of contract of insurance – intermediary not authorised to act on behalf of insurer- estoppel


The complainant took out life insurance from X Life Insurance covering his own as well as his wife’s life. A dispute arose about the amount of the premium and the negotiations had to be reopened. The complainant wanted to deal with a senior person at managerial level. He asked for such a person but what he did not realise was that he was dealing with senior officials employed by X Advisory Services and not X Life. X Advisory Services was a separate company appointed by X Life to market their products and also to assist clients with financial advice. They had no actual authority to conclude or amend contracts.

The parties agreed on a discounted premium based on the complainant’s membership of a scheme affiliated to X Life. However, according to the house rules of X Life, the complainant did not qualify for such discount because his wife was not a member of this scheme. The complainant recorded the terms of the varied agreement by sending a fax to the representatives with whom he had dealt. He asked X Life to implement the agreement. To this X Life answered that they were not aware of the dealings between the complainant and X Advisory Services and that the latter had no authority to bind X Life.

The complainant was all along under the impression that he was dealing with senior officials representing X Life and he regarded X Advisory Services as a department of X Life. Various factors related to X Life, contributed to the complainant’s wrong impression. First, in its correspondence with him, X Life provided the contact details of X Advisory Service and was informed that if he needed any more information, he must contact his financial adviser. Second, the word “X” formed part of the name of both companies but the precise relationship between the two entities was never explained to the complainant. Third, a quotation received from X Life contained the following sentence: “In terms of the Long Term Insurance Act commission paid to financial advisors is regulated. However, since the application has been submitted to a salaried employee of X Life, no commission is payable.” Fourth, the email addresses of both companies were identical.


In the circumstances we found that as a result of the conduct of X Life the complainant reasonably came to the conclusion that the officials from X Advisory Service were entitled to contract on behalf of X Life. The complainant acted to his detriment and consequently X Life was estopped from raising absence of authority as a defence.