CR353 Credit insurance / Retrenchment / Equity

by with No Comment Case ReportsCredit InsuranceRetrenchmentTopics & Cases

CR353
Credit insurance / Retrenchment / Equity

Credit insurance – claim under credit life policy for retrenchment benefit – insurer repudiating on grounds that termination for misconduct excluded – reason appeared to be incapacity rather than misconduct – whether termination in these circumstances amounted to retrenchment – equity

Background

1. The complainant took out a credit protection policy in July 2011. She worked as a systems manager at an analytical laboratory from December 2007 until her employment was terminated with effect from 31 March 2013. The insurer rejected her claim for a retrenchment benefit, stating that the employer documentation showed she had been “dismissed due to non-performance”.

2. The employer termination letter addressed to the complainant was headed “Incapacity Consultation”. It stated that the employer had met with her on several occasions to discuss her responsibilities and performance. It had been explained to her that “with the implementation of the quality systems we are of the opinion that you will not be able to cope with everything”. The employer stated that it had tried to explore the possibility of transferring her to another business unit within the group but had not been successful; it therefore “had no choice but to terminate your service as a result of incapacity in your current position”. She was told that she would receive 2 weeks’ pay for each completed year of service, and that her CV would be kept on file in case a suitable vacancy came around.

3. The complainant’s final payslip included a lump sum stated as being for “Retrenchment”, and her retirement fund withdrawal notification had the box ticked for “Retrenchment” as the reason for withdrawal.

4. The insurer’s repudiation letter quoted a policy exclusion to the effect that no retrenchment benefit would be paid where “Resignation, normal or early retirement, voluntary retrenchment or dismissal by reason of the Life Insured’s misconduct applies”. The letter then simply stated that as she was dismissed due to non-performance, no claim was payable.

5. In responding to our office the insurer expanded its reasoning. It quoted the policy wording stating that a retrenchment benefit (minimum monthly instalment of the finance agreement for a maximum of three months) would be payable “In the event of the Life Insured suffering loss of employment resulting from the implementation of a staff reduction program by his employer prior to his 69th birthday”. There is no further definition of “retrenchment” anywhere in the policy. The insurer stated: “We submit that the customer did not suffer a loss of employment from the implementation of a staff reduction program but rather that her contract was terminated due to non-performance”.

Discussion

6. We wrote to the insurer arguing that the dismissal was for incapacity, which does not amount to misconduct and there is “no fault”. We suggested that the ultimate reason for the complainant’s incapacity dismissal was the operational requirements of the employer, as they could no longer afford to retain her.
7. The insurer accepted that the termination was “no fault” and not misconduct, but replied that it did not believe the complainant was retrenched, as her loss of employment was not as a result of the implementation of a staff reduction programme. It argued: “The complainant could not fulfil her duties and she was dismissed and the company would employ another to fulfil those duties. The complainant’s service was terminated based on incapacity. Retrenchment is seen as the forced lay-off of employees by a company, usually to cut down its payroll. It is something akin to downsizing. In this case the company was not downsizing or cutting down on their payroll”.

8. The matter was discussed at an adjudicators’ meeting. The meeting took into consideration the fact that there was no definition of retrenchment in the policy beyond “loss of employment resulting from the implementation of a staff reduction program by his employer”. We did not know for certain whether the company would employ another person to fulfil the complainant’s duties, or whether these duties would be subsumed under those of existing employees. It was accepted, however, that the probabilities were that subsequent to the reduction of staff occasioned by the complainant’s dismissal, someone else may well have been employed in her place.

9. The meeting then considered the matter from the point of view of equity, as the office’s Rules enjoin us to do. The meeting took into account the fact that this was a no fault dismissal which took place nearly two years after the policy was taken out; that part of the reason for the dismissal was a change in operations (the implementation of quality systems with which the complainant was not able to cope); that she received a retrenchment-type package from her employer, labelled “retrenchment” on her payslip; that her withdrawal from the provident fund was classified as being for the reason “Retrenchment”; and that the termination of her employment was an unforeseen event, not within her control.

10. The view of the meeting was that in light of these considerations, the claim should be paid, on grounds of equity.

Result

11. A provisional ruling was made to this effect. The insurer agreed to pay the claim.
SM
September 2014

CR354 Credit insurance / Retrenchment

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CR354
Credit insurance / Retrenchment

Credit insurance – complainant dismissed from employment for alleged misconduct – insurer’s liability excluded in case of “fair dismissal” – complainant proving his dismissal was unfair – exclusion only came into play if policyholder retrenched, or lost income while self-employed or engaged in protected strike

Background

1. The complainant was dismissed from his employment on disciplinary grounds, and was without work for four months. He appealed internally against his dismissal, and the outcome of the appeal was that his dismissal was held to be unfair. He was reinstated in his job.

2. The complainant lodged a claim in terms of his credit protection policy, which covered a loan he had taken. The claim was turned down. The insurer told the complainant that he was not entitled to claim because he had not been retrenched, and had been reinstated.

3. The complainant referred to an extract from the contract which read: “No amount shall be payable in respect of unemployment occurring due to your resignation, retirement or the acceptance of a voluntary retrenchment, the expiry of a non-renewable fixed term contract or a contract of temporary or casual nature; any form of retirement or fair dismissal of your contract of employment.” The complainant stated: “It was therefore clear to me that should I prove my dismissal was unfair, then the insurer would be obliged to honour my claim… Now that I have proved that I had been unfairly dismissed, the insurer ducks the bullet and refuses to accept liability”. He maintained that he had suffered hardship, being without income for four months.

Discussion

1. The complainant’s policy provided a benefit to a policyholder on the happening of three, and three only, defined situations when employment or income was lost, other than for health reasons. These three situations or events were “Retrenchment”, “Loss of Income when Self-employed” and “In the event of a Protected Strike”. To qualify for a benefit the complainant’s situation would have to fall within the definitions of one of these defined insured events.

2. It was clear from the content of the appeal hearing documents that the circumstances of the termination of his employment did not constitute retrenchment as defined (it was a disciplinary matter). His involuntary unemployment was not “as a direct result of new technology being introduced by your employer, re-organisation by your employer or expectation of adverse conditions by your employer and resulting in staff reductions” (the definition of retrenchment in the policy). He himself stated that “it is common cause that I was not retrenched”. He was also not self-employed when he lost income, or involved in a strike. He therefore did not qualify for any of the benefits payable on the occurrence of the defined insured events.

3. The policy lists certain “Exclusions applicable to strike, retrenchment and/or loss of income when self-employed”. If any of these events had in fact occurred, liability would nevertheless be excluded , “in respect of unemployment occurring due to your resignation or the acceptance of voluntary retrenchment; the expiry of a non-renewable fixed term contract or a contract of temporary of casual nature; any form of retirement or fair dismissal in terms of your contract of employment”. In other words, if the insured person’s retrenchment, loss of income when self-employed or in the event of a strike also falls under any of these excluded situations, no benefit is payable. It is necessary in the first instance, however, that the reason for the loss of employment must be one of the three defined insured events, before the exclusion can come into play.

4. Loss of employment for alleged misconduct is not an insured event covered by this policy, and therefore the complainant could not receive any benefit for loss of employment for this reason, whether the termination of his employment was fair or unfair, or whether he was reinstated or not.

5. The exclusion in the case of “fair dismissal in terms of your contract of employment” meant, for example, that if the contract of employment precluded strike, it might be a fair dismissal to terminate an employee who had gone on strike, and the insurer’s liability would be excluded.

6. We made a provisional ruling against the complainant, setting out the above reasoning.

Result

7. The complainant accepted our provisional ruling.

SM
September 2014

CR350 Credit insurance / Retrenchment Credit insurance

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CR350
Credit insurance / Retrenchment

Credit insurance – claim under credit life policy for retrenchment benefit – insurer repudiating on grounds of exclusion for voluntary retrenchment – dispute of fact as to whether retrenchment was voluntary – insurer eventually accepting complainant’s version

Background

1. The complainant claimed against his credit protection policy when his employment was terminated. The insurer repudiated the claim, citing a policy exclusion of liability if “the life assured…accepts voluntary redundancy”.

2. The insurer stated that it had telephoned the employer’s Human Resources manager and director, who confirmed that the complainant had opted for voluntary retrenchment. There was also a settlement agreement signed by the parties, stating that “the Employee and the Company have mutually agreed to terminate the employment relationship” on the basis of certain terms of separation. One of the terms of the agreement was that the employee undertook “not to institute any claim, in whatever forum, against the employer regarding the voluntary termination of services”.

3. However, the manager had given the complainant a letter when he left his employment, setting out the dates of his employment and position, and then stating: “This further serves to confirm that Mr X’s service has been terminated due to the Operational Requirements of the Business”.

Discussion

4. We asked the insurer to provide a recording of the telephone conversation between it and the employer. We pointed out that the settlement agreement did not, in our view, constitute proof of the life assured having accepted voluntary redundancy. One would need to know whether he had volunteered to be made redundant, as part of a voluntary severance programme offered by the employer. There was no evidence of this in the employer’s letter indicating that his employment had been terminated “due to Operational Requirements of the Business”. We suggested that it might be that the employer had required employees to sign a settlement agreement to forestall any allegation of alleged unfair dismissal or unfair labour practice.

5. The insurer sent us the recording. On it, the employer explains that the key reason for the retrenchment process it had engaged in was operational reasons, but that as a strategy “to mitigate the risks of retrenchment” it had offered its employees “the option to go for a voluntary retrenchment, which was more attractive than the forced one”. He stated: “The criteria we were going to use was LIFO [Last In First Out], and they exactly knew who they were, so it made sense for them to say give it to me voluntarily… it saves a whole lot of time and you have to move on”.

6. We sent the recording to the complainant for his comment. His response is worth quoting in full:

“After listening to the tape …I find [the employer] economical with the truth. What I know happened is that we had a consultation at the end of October last year with [the employer], he then told me and my other former colleague that the company has decided to do away with sales consultants in Gauteng. He told us that to make it easier for us they will give us a week extra pay more than what the law allows.

I did ask him if I can be placed in other position inside the company, his response was that it’s impossible as the company is restructuring itself. We can either agree on this offer or if we don’t agree the company will get rid of us anyway. He told me that he needs a response by the following day so that he can report back to the directors.

On the set day he said I need not worry because he will write me a retrenchment letter and we will still get our UIF so as to help us financially. I did mention to him that I cannot take that decision as I have young family to look after and have a home loan and other financial commitments to fulfil. His response was that the company is trying to meet me halfway that is why they offering an extra week. He also said once I sign the letter he will speak to his bosses to allow us to be in their books until end of November 2011 so that we can have that extra month pay, which is what happened. I tried to delay the process of signing that letter, but was told that I’m not allowed to see company customers anymore the company will help me with its resources to look for another employment.

I’m really disappointed that he can say what he is saying on the tape and contradict what he told me and wrote on the letter. I’m also amazed by [the insurer] that they can take what he is saying verbally being a truth than what he wrote on the letter with company stamp and letterhead.”

Result

7. We asked the insurer to reconsider the case in the light of the complainant’s submission. The insurer did so, and advised us that it had decided to admit the claim. It appears that it was prepared to give the complainant the benefit of the doubt with regard to the dispute of facts and the contradictory documentation.

SM
September 2014

CR331 Credit insurance Claim under credit life policy for retrenchment benefit

by with No Comment Case ReportsCredit InsuranceRetrenchmentTopics & Cases

CR331
Credit insurance

Claim under credit life policy for retrenchment benefit – insurer invoking exclusion in case of acceptance of voluntary retrenchment – circumstances of case not constituting voluntary retrenchment

Background

1. The complainant was employed by a hair and beauty salon. On 28 February 2012 her employer gave her a letter advising that she could not keep the business going. The employer stated in the letter:
2.
“Unfortunately due to the economic climate I found I was unable to carry on with the salon as it was and the only other option that was left to me was to offer all of [my] employees a rent a Chair/Space which would have at least allowed you to work within the premises on a self employed basis.

But obviously after some deliberation you have decided not to accept my offer of rent a chair/space (self employed) you have decided to seek pastures new”.

3. The complainant was paid out her notice, and she lodged a retrenchment claim against her store account protection plan policy. The insurer repudiated the claim on the basis that the complainant had accepted voluntary retrenchment.

4. The complainant lodged a complaint with our office. She stated that

“My employer had given us options, that due to financial reasons I was unable to choose, which had left me with the only option that was retrenchment. I did not do it voluntarily, as it was the only option I was left with”.

5. In its response to our office the insurer stood by its decision, citing the paragraphs from the employer’s letter quoted above as justification, without further comment.

Discussion

6. The clause in the policy dealing with the retrenchment benefit stated as follows:

“In the event of the Insured being retrenched or made redundant by his/her employer during the period of insurance and the term of their work agreement and prior to the Insured’s 60th birthday, due to new technology, reorganisation by the employer, liquidation of the company and staff reductions, and which resulted in the Insured not earning any income for a continued unemployment period of 30 days, payment in one lump sum to [the store] on the account, subject to the sum insured”.

7. The insurer’s liability was excluded

“… if the Insured comes to the expected end of a fixed term contract, is a contract worker, finishes the job he/she was specifically employed to do, resigns, retires or accepts voluntary retrenchment”.

8. We wrote to the insurer stating our view that offering employees an option to pay rent for space in its premises thereby to become self-employed was not an offer of continued employment with the employer. Declining an offer to rent space could not therefore be seen as voluntary retrenchment.

9. It was clear from the employer’s letter that it was the economic climate that had led to her decision to close the business. As a result of this situation the employees were faced with involuntary unemployment, as a direct result of the liquidation of the company, resulting in staff reductions (in that the employment of all staff was to be terminated).

10. We did not believe it could be said that the termination of the complainant’s employment in these circumstances was voluntary; rather it appeared that the reason for the termination was retrenchment/redundancy, occasioned by the liquidation of the company. We asked the insurer to reconsider.

Result

11. The insurer accepted our approach and paid the claim.

SM
May 2013

CR331
Retrenchment

Claim under credit life policy for retrenchment benefit – insurer invoking exclusion in case of acceptance of voluntary retrenchment – circumstances of case not constituting voluntary retrenchment

Background

1. The complainant was employed by a hair and beauty salon. On 28 February 2012 her employer gave her a letter advising that she could not keep the business going. The employer stated in the letter:

“Unfortunately due to the economic climate I found I was unable to carry on with the salon as it was and the only other option that was left to me was to offer all of [my] employees a rent a Chair/Space which would have at least allowed you to work within the premises on a self employed basis.

But obviously after some deliberation you have decided not to accept my offer of rent a chair/space (self employed) you have decided to seek pastures new”.

2. The complainant was paid out her notice, and she lodged a retrenchment claim against her store account protection plan policy. The insurer repudiated the claim on the basis that the complainant had accepted voluntary retrenchment.

3. The complainant lodged a complaint with our office. She stated that

“My employer had given us options, that due to financial reasons I was unable to choose, which had left me with the only option that was retrenchment. I did not do it voluntarily, as it was the only option I was left with”.

4. In its response to our office the insurer stood by its decision, citing the paragraphs from the employer’s letter quoted above as justification, without further comment.

Discussion

5. The clause in the policy dealing with the retrenchment benefit stated as follows:

“In the event of the Insured being retrenched or made redundant by his/her employer during the period of insurance and the term of their work agreement and prior to the Insured’s 60th birthday, due to new technology, reorganisation by the employer, liquidation of the company and staff reductions, and which resulted in the Insured not earning any income for a continued unemployment period of 30 days, payment in one lump sum to [the store] on the account, subject to the sum insured”.

6. The insurer’s liability was excluded

“… if the Insured comes to the expected end of a fixed term contract, is a contract worker, finishes the job he/she was specifically employed to do, resigns, retires or accepts voluntary retrenchment”.

7. We wrote to the insurer stating our view that offering employees an option to pay rent for space in its premises thereby to become self-employed was not an offer of continued employment with the employer. Declining an offer to rent space could not therefore be seen as voluntary retrenchment.

8. It was clear from the employer’s letter that it was the economic climate that had led to her decision to close the business. As a result of this situation the employees were faced with involuntary unemployment, as a direct result of the liquidation of the company, resulting in staff reductions (in that the employment of all staff was to be terminated).

9. We did not believe it could be said that the termination of the complainant’s employment in these circumstances was voluntary; rather it appeared that the reason for the termination was retrenchment/redundancy, occasioned by the liquidation of the company. We asked the insurer to reconsider.

Result

10. The insurer accepted our approach and paid the claim.

SM
February 2013

CR332 Credit insurance Credit insurance – claim under credit life policy for retrenchment benefit

by with No Comment Case ReportsCredit InsuranceRetrenchmentTopics & Cases

CR332
Credit insurance

Credit insurance – claim under credit life policy for retrenchment benefit – exclusion if insured not in full time employment for 6 months before notification date of retrenchment – not applicable on the facts of this case

Background

1. The complainant had an account protection plan policy, commencing on 23 September 2008, covering the outstanding balance on her department store account in the event of her death, disability or retrenchment. She had commenced employment with an accounting firm on 1 August 2011. On 12 December 2011 she received notification from her employer that she would be retrenched, with her last day of service to be 31 January 2012. In February she informed the store thereof. The store lodged a claim on her behalf, but it was repudiated.

2. In its response to our office the insurer defended its repudiation, citing the following exclusion clause in the policy:
“No benefit shall furthermore be payable for retrenchment claims if any of the following apply:
…
The insured has not been in full time employment for the 6 (six) months immediately before the notification date of retrenchment”.

3. The insurer stated that the complainant had only worked for 5 months when she was notified of her retrenchment.

Discussion

4. We wrote to the complainant, noting that she had commenced employment with the accounting firm on 1 August 2011, and asking her whether she had been in full time employment with any other employer in June and July 2011.

5. The complainant replied that she had indeed been employed full time in the accounting department of another company prior to starting her job with the accounting firm in August 2011, and she provided payslips for June and July 2011 as proof.

6. We put it to the insurer that the evidence showed that the complainant had been in full time employment for the six months immediately prior to the notification date of retrenchment. The policy did not require that the insured be in full time employment for six months with the same employer.

Result

7. The insurer accepted this, and paid the claim in the amount of R5156.48, being the outstanding balance on the store card on the date of notification of retrenchment.

SM
February 2013

CR332
Retrenchment

Credit insurance – claim under credit life policy for retrenchment benefit – exclusion if insured not in full time employment for 6 months before notification date of retrenchment – not applicable on the facts of this case

Background

1. The complainant had an account protection plan policy, commencing on 23 September 2008, covering the outstanding balance on her department store account in the event of her death, disability or retrenchment. She had commenced employment with an accounting firm on 1 August 2011. On 12 December 2011 she received notification from her employer that she would be retrenched, with her last day of service to be 31 January 2012. In February she informed the store thereof. The store lodged a claim on her behalf, but it was repudiated.

2. In its response to our office the insurer defended its repudiation, citing the following exclusion clause in the policy:
“No benefit shall furthermore be payable for retrenchment claims if any of the following apply:
…
The insured has not been in full time employment for the 6 (six) months immediately before the notification date of retrenchment”.

3. The insurer stated that the complainant had only worked for 5 months when she was notified of her retrenchment.

Discussion

4. We wrote to the complainant, noting that she had commenced employment with the accounting firm on 1 August 2011, and asking her whether she had been in full time employment with any other employer in June and July 2011.

5. The complainant replied that she had indeed been employed full time in the accounting department of another company prior to starting her job with the accounting firm in August 2011, and she provided payslips for June and July 2011 as proof.

6. We put it to the insurer that the evidence showed that the complainant had been in full time employment for the six months immediately prior to the notification date of retrenchment. The policy did not require that the insured be in full time employment for six months with the same employer.

Result

7. The insurer accepted this, and paid the claim in the amount of R5156.48, being the outstanding balance on the store card on the date of notification of retrenchment.

SM
February 2013

CR323 Credit Insurance Retrenchment benefit – extent of cover.

by with No Comment Case ReportsCredit InsuranceRetrenchmentTopics & Cases

CR323

Credit Insurance

Retrenchment benefit – extent of cover.

The complaint concerned the extent of the retrenchment benefit payable in terms of a credit life policy. When taking out the policy the complainant had been under the impression that in the event of her retrenchment the balance owing on her vehicle would be settled.

The relevant clause in the policy read, however, as follows:

“In the event of your loss of employment as a result of retrenchment, (the insurer) will permit an advance against your policy in order to cover any additional interest which may become due by you in respect of each instalment deferred, excluding that of the first instalment. This benefit will cease upon your re-employment or after 6 (six) monthly benefits have been granted in terms of this policy, whichever occurs first.”

In terms of this provision retrenchment would therefore only result in an advance against the policy, for a period of six months, to cover the additional interest accruing in respect of each instalment deferred. It did not provide for the settlement of the outstanding balance as the complainant assumed.

This sort of retrenchment benefit, covering as it does only the interest concerned, is rather unusual, and would therefore require that policyholders are suitably warned at sales stage of its limitation. The office therefore focused on this question.

Whilst at the point of sale the telesales consultant had failed to explain the nature of the retrenchment benefit to the complainant, the insurer had subsequently sent the complainant a letter wherein it stated:

“Just as important, if you were retrenched we would defer your instalments for up to six months by the same period and pay the extra interest incurred. This whilst you are looking for employment.”

On the basis of the above letter the office was satisfied that the insurer had adequately explained the nature of the retrenchment benefit to the complainant, and that any prejudice suffered by her was the result of her own failure to read the insurer’s letter or the policy, which would have resulted in her properly understanding the extent of the cover.

LS
January 2012

CR330 Credit insurance – claim under credit life policy for retrenchment benefit

by with No Comment Anti-SelectionCase ReportsCredit InsuranceRetrenchmentTopics & Cases

CR330
Credit insurance

Credit insurance – claim under credit life policy for retrenchment benefit – expiry of a renewable contract not grounds for excluding liability

Background

1. The complainant had a “credit card debt protection” policy affording him life, disability and retrenchment cover in respect of his credit card agreement.

2. The complainant was employed under a year-long fixed term contract, which was annually renewed, for four and a half years, commencing on 27 September 2007.

3. On 12 March 2012 the employer gave the complainant a letter, advising him that his fixed term contract was due to end on 31 March 2012, and that the renewal of the contract for the next year would depend on the availability of work from its client. The employer also provided a letter dated 12 June 2012 indicating that his employment had ended on 31 March 2012, ie the contract was not renewed.

4. The complainant thus found himself unemployed and lodged a claim under his policy for a retrenchment benefit.

5. “Retrenchment” was defined in the policy as follows:

“Your forced retrenchment from employment, in terms of the Labour Relations Act, without income from any source as a direct result of:
• New technology being introduced by your employer; or
• Reorganisation by your employer; or
• Expectation of adverse conditions by your employer, which results in staff reductions”.

6. The insurer repudiated the claim on the grounds that non-renewal of a fixed term employment agreement does not constitute a retrenchment in terms of South African law.

7. The insurer apparently relied on an exclusion in the policy which read as follows:

“Exclusions applicable to retrenchment

We will not pay any amount:
…

If your employment ended due to your resignation or if you accepted voluntary retrenchment, if a non-renewable fixed-term contract or a contract of a temporary or casual nature is not renewed, any form of retirement or fair dismissal under your contract of employment”. [Our emphasis]

Discussion

8. We pointed out to the insurer that the complainant’s contract was renewable, the renewal depending on the availability of work from the employer’s clients (according to a letter from the employer). The employer’s letter also confirmed that the complainant’s contract was renewed annually. The complainant had been in employment with the same employer on a full-time basis for four and a half years, and this could not be seen as “a non-renewable fixed-term contract or a contract of a temporary or casual nature”.

9. We pointed out further that the fact that the contract was renewable would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

10. The insurer responded, arguing as follows:

● that when the employer gave notice (in its letter of 12 March 2012) that the renewal of the contract term ending on 31 March 2012 depended on the availability of work from its clients, and that it would keep employees employed as long as it had work available, it changed the nature of the employment agreement from a fixed term contract to a temporary agreement;

● that the employment agreement had been a non-renewable fixed term agreement, and that all contract workers were made aware that they would only have employment with the company as long as the company had work from its client. The insurer argued that “the termination date of the contract was in fact known every year, for a year in advance, upon renewal thereof, and only changed when the employer gave the employee notice of the renewal of the agreement”;

● that the employer’s failure to follow the correct retrenchment procedures as stipulated in Section 189 of the Labour Relations Act constituted an unfair dismissal, and not a retrenchment. The complainant should thus approach the CCMA, bargaining council or Labour Court for relief.

11. The matter was discussed at an adjudicators meeting. It was decided that a provisional ruling should be issued, after dealing with the above arguments as follows:

● that it may be so that the employment agreement changed from a fixed term contract to a temporary agreement, but such a temporary agreement would operate from 1 April 2012, the day after the fixed term agreement ended on 31 March 2012. In fact no temporary agreement came into being, since the complainant did not work again after 31 March 2012. This was not relevant to the fact that the complainant lost his employment when a renewable contract was not renewed.

● that in our view the complainant had a reasonable expectation that his contract would be renewed again, since it had been renewed several times between 2008 and 2012. We cited John Grogan in Workplace Law (7th edition), addressing an aspect of the legitimacy of an employee’s expectation as follows:

“Whether the employer can quash the employee’s claim to a reasonable expectation simply by specifying the termination date each time the contract is entered into is a moot question. The weight to be attached to such advance notice probably diminishes in proportion to the number of successive contracts the parties have concluded”.

● that a retrenchment is in fact a form of dismissal ie it is a dismissal for operational requirements. Section 186(b) of the Labour Relations Act expressly provides that the non-renewal of a fixed-term contract constitutes a dismissal if the employee reasonably expected the employer to renew the contract but the employer did not do so. That in our view was what had happened in this case.

12. We pointed out in the provisional determination that the complainant had lost his job as a direct result of reorganisation by his employer, alternatively the expectation of adverse conditions by his employer, which resulted in staff reductions. The form this took in the complainant’s case was the non-renewal of a renewable fixed-term contract. In our view a policyholder could not be penalised by the insurer if his employer did not follow the legislated retrenchment procedures in retrenching him.

13. We reiterated that the fact that the complainant’s contract was renewable, and was renewed several times, would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

14. Our provisional ruling was therefore to the effect that the insurer was liable under the policy to pay the retrenchment benefit to the complainant.

Result

15. The insurer accepted the provisional determination and paid the claim.

SM
May 2013

CR330
Retrenchment

Credit insurance – claim under credit life policy for retrenchment benefit – expiry of a renewable contract not grounds for excluding liability

Background

1. The complainant had a “credit card debt protection” policy affording him life, disability and retrenchment cover in respect of his credit card agreement.

2. The complainant was employed under a year-long fixed term contract, which was annually renewed, for four and a half years, commencing on 27 September 2007.

3. On 12 March 2012 the employer gave the complainant a letter, advising him that his fixed term contract was due to end on 31 March 2012, and that the renewal of the contract for the next year would depend on the availability of work from its client. The employer also provided a letter dated 12 June 2012 indicating that his employment had ended on 31 March 2012, ie the contract was not renewed.

4. The complainant thus found himself unemployed and lodged a claim under his policy for a retrenchment benefit.

5. “Retrenchment” was defined in the policy as follows:

“Your forced retrenchment from employment, in terms of the Labour Relations Act, without income from any source as a direct result of:
• New technology being introduced by your employer; or
• Reorganisation by your employer; or
• Expectation of adverse conditions by your employer, which results in staff reductions”.

6. The insurer repudiated the claim on the grounds that non-renewal of a fixed term employment agreement does not constitute a retrenchment in terms of South African law.

7. The insurer apparently relied on an exclusion in the policy which read as follows:

“Exclusions applicable to retrenchment

We will not pay any amount:
…

If your employment ended due to your resignation or if you accepted voluntary retrenchment, if a non-renewable fixed-term contract or a contract of a temporary or casual nature is not renewed, any form of retirement or fair dismissal under your contract of employment”. [Our emphasis]

Discussion

8. We pointed out to the insurer that the complainant’s contract was renewable, the renewal depending on the availability of work from the employer’s clients (according to a letter from the employer). The employer’s letter also confirmed that the complainant’s contract was renewed annually. The complainant had been in employment with the same employer on a full-time basis for four and a half years, and this could not be seen as “a non-renewable fixed-term contract or a contract of a temporary or casual nature”.

9. We pointed out further that the fact that the contract was renewable would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

10. The insurer responded, arguing as follows:

● that when the employer gave notice (in its letter of 12 March 2012) that the renewal of the contract term ending on 31 March 2012 depended on the availability of work from its clients, and that it would keep employees employed as long as it had work available, it changed the nature of the employment agreement from a fixed term contract to a temporary agreement;

● that the employment agreement had been a non-renewable fixed term agreement, and that all contract workers were made aware that they would only have employment with the company as long as the company had work from its client. The insurer argued that “the termination date of the contract was in fact known every year, for a year in advance, upon renewal thereof, and only changed when the employer gave the employee notice of the renewal of the agreement”;

● that the employer’s failure to follow the correct retrenchment procedures as stipulated in Section 189 of the Labour Relations Act constituted an unfair dismissal, and not a retrenchment. The complainant should thus approach the CCMA, bargaining council or Labour Court for relief.

11. The matter was discussed at an adjudicators meeting. It was decided that a provisional ruling should be issued, after dealing with the above arguments as follows:

● that it may be so that the employment agreement changed from a fixed term contract to a temporary agreement, but such a temporary agreement would operate from 1 April 2012, the day after the fixed term agreement ended on 31 March 2012. In fact no temporary agreement came into being, since the complainant did not work again after 31 March 2012. This was not relevant to the fact that the complainant lost his employment when a renewable contract was not renewed.

● that in our view the complainant had a reasonable expectation that his contract would be renewed again, since it had been renewed several times between 2008 and 2012. We cited John Grogan in Workplace Law (7th edition), addressing an aspect of the legitimacy of an employee’s expectation as follows:

“Whether the employer can quash the employee’s claim to a reasonable expectation simply by specifying the termination date each time the contract is entered into is a moot question. The weight to be attached to such advance notice probably diminishes in proportion to the number of successive contracts the parties have concluded”.

● that a retrenchment is in fact a form of dismissal ie it is a dismissal for operational requirements. Section 186(b) of the Labour Relations Act expressly provides that the non-renewal of a fixed-term contract constitutes a dismissal if the employee reasonably expected the employer to renew the contract but the employer did not do so. That in our view was what had happened in this case.

12. We pointed out in the provisional determination that the complainant had lost his job as a direct result of reorganisation by his employer, alternatively the expectation of adverse conditions by his employer, which resulted in staff reductions. The form this took in the complainant’s case was the non-renewal of a renewable fixed-term contract. In our view a policyholder could not be penalised by the insurer if his employer did not follow the legislated retrenchment procedures in retrenching him.

13. We reiterated that the fact that the complainant’s contract was renewable, and was renewed several times, would remove the possibility of anti-selection that would exist with a non-renewable fixed term contract, where the date of termination of employment would be known in advance.

14. Our provisional ruling was therefore to the effect that the insurer was liable under the policy to pay the retrenchment benefit to the complainant.

Result

15. The insurer accepted the provisional determination and paid the claim.

SM
May 2013

CR314 Pre- existing condition – Death Claim under credit life policy

by with No Comment Case ReportsCredit InsurancePre-Existing ConditionsTopics & Cases

Pre- existing condition CR314

Death Claim under credit life policy – policy containing a pre-existing condition exclusion clause– was there any need for the proposer to undergo medical examination notwithstanding the aforesaid exclusion clause?

Background

On 9 February 2007 the deceased took out a credit life policy covering his death, disability, retrenchment and dread disease. He died on 19 June 2008 as a result of diabetes mellitus. The complainant thereupon lodged a claim but the insurer declined it on the basis of a pre-existing condition exclusion clause in the policy which read:
“No amount shall be payable
(a) in the event of:
(i) Your illness, bodily injury, physical defect, ill-health or any other incident or condition which materially contributed to the Death, Disability or Dread Disease claim against the policy, existed prior to the Commencement of insurance. ”

The certificate provided by a medical doctor at claim stage revealed that the deceased had been diagnosed with sugar diabetes on 25 November 2004, more than 2 years prior to the commencement of the policy. The complainant approached our office, contending that the insurer should have “checked” on his health status before accepting his proposal.

Discussion
It was clear that the pre-existing sugar diabetes had materially contributed to the cause of the policyholder’s death.

As to the complainant’s contention it was pointed out that in general insurers follow one of two courses:
(a) On the one hand they underwrite the proposal, and for this purpose usually require the proposer to undergo medical examinations or to answer a series of medical questions, and on the basis of the information elicited by this means their underwriting may result in them imposing (apart from other possible terms) exclusions for the specific conditions so disclosed.

(b) On the other hand there is no underwriting, which is what happened in the deceased’s case. In such a case the proposer may not be asked any medical questions or required to undergo medical examinations. Instead, the insurer protects itself simply by imposing a general pre-existing condition exclusion clause in the policy contract. The one thing that is then necessary, however, is that the proposer should in such a case always be made aware of the existence and implications of the clause, because he might be unaware of it and as a result suffer possible prejudice.

Conclusion
In this case there was no evidence that the deceased had not been informed of the clause. A provisional ruling was therefore made against the complainant. We received no response, and closed our file.
NS
March 2011

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

by with No Comment Case ReportsConclusion of ContractCredit InsuranceTopics & Cases

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.
NvC
March 2011

CR239 Credit insurance Claim under credit life policy for redundancy benefit

by with No Comment Case ReportsCredit InsuranceTopics & Cases

CR239

Credit insurance

Claim under credit life policy for redundancy benefit – meaning of redundancy in policy.

Background

The complainant had a credit life insurance policy, which provided cover in the event inter alia of redundancy.

The complainant was dismissed, but maintained that the dismissal had been without valid reason. He averred that when dismissing him his employer told him that he had been on a fixed term contract which was at an end, and made him sign receipt of a letter to that effect. In complaining to us the complainant averred that the contract had not been for a fixed term, and stated that he had referred the matter for dispute resolution as he contended he had been unfairly dismissed. His unfair dismissal case was settled on the basis of payment of a sum of money.

When the complainant lodged a claim with the insurer for the redundancy benefit, the insurer repudiated the claim on the ground that the following exclusion applied:

“No benefit will be payable for redundancy if … the life assured comes to the end of a fixed-term contract which is not renewable, …”.

The insurer contended that even though it had been found that the complainant was unfairly dismissed, he had not shown that he fell within the definition of redundancy, which was defined to mean:

“… termination of the life assured’s position by his employer based on adverse conditions (including insolvency of the employer) or anticipation thereof, or upon any other business decision of his employer resulting in staff reduction.”

The insurer also relied on the policy requirement, which the complaint had not met, that he must produce a letter from his employer confirming the redundancy.

The complainant pointed out that he had specifically not signed acceptance of the contents of the letter he received from his employer, although asked to do so; he had merely signed acknowledgement of its receipt.

Discussion

We asked the insurer to reconsider its stance. We pointed out that the complainant had not agreed with the content of the letter from the employer, and had referred the matter as a dispute, which was ultimately settled. It thus appeared that the existence of the fixed-term contract could not be taken to have been established as fact. There was no indication that the complainant had lost his job because of any misconduct, and because his had not been a fixed term contract we deduced that the letter had been the result of a business decision to reduce staff, which brought it within the meaning of “redundancy” for the purpose of the policy.

Result

The insurer agreed to pay the claim.