Posts in category: Interest on Late Payments

Interest on late payment CR379

Dispute about calculation of payment in respect of a disability claim based on psychiatric grounds; whether interest payable.

Background

1. The complainant last worked on 21 January 2014. She lodged a disability claim in respect of depression (for a lump sum) with the insurer on 10 March 2014. At this time the cover amount was R3 675 000.The claim was repudiated in October 2014, and an ongoing dispute about this arose. At all times the complainant continued to pay premiums.

2. The insurer eventually asked a psychiatrist well-versed in insurance matters to assess the complainant. His report, dated 16 July 2016, concluded that her multiple symptoms prevented her from working, but that it was still premature to consider her condition permanent. He recommended admission to hospital for an observation period and treatment in a multidisciplinary setting. The complainant was subsequently admitted to hospital, following which her psychiatrist reported that her psychiatric and physical symptoms impaired her capacity to return to work, and recommended medical boarding.

3. The insurer admitted the claim on 6 August 2015. By this time the lump sum had increased to R3 895 500.

4. The insurer determined the date of disability to be 21 January 2014, and the lower amount of R3 675 000 was paid, together with a refund of premiums from January 2014. No interest was paid. The complainant claimed the higher amount, ie R3 895 500, on the basis that this was the amount payable at the date when the claim was admitted.

5. The insurer’s position was that permanence of a depression claim could not be determined until up to two years of treatment had been undergone, but that the date of disability, as determined by the insurer, governed the cover amount payable.

6. The Chief Medical Officer’s reasoning was set out as follows:

“A medical condition is calculated as permanently disabling using the following logic:
• The day the impairment prevented the claimant from going to work, provided that
• The impairment has been treated adequately, according to guidelines laid down by the appropriate specialist group
• Permanence can only be determined once treatment of the condition has failed
• Only then can it be calculated that the date of permanence is the day that the impairment initially prevented the claimant from going to work, or when the impairment commenced

The reasons for this are the following:

• Some conditions need to be treated for up to two years before ‘permanence’ can be established
• In this time many claimants are unable to work and have no other source of income, and their policies might lapse
• It will not be possible to pay out claims if the date of permanence is considered that date when it was determined that treatment had failed, and the policy had lapsed
• It is logical that permanence often can only be determined after a while, and should therefore be retrospectively applied to the date that the impairment actually commenced or was diagnosed”.

7. Our office requested a copy of the claim acceptance letter from the insurer. The letter furnished to us, dated 13 August 2015, reads as follows:

“Good day

CONFIRMATION OF PAYMENT

Thank you for all the documents submitted to date. We are happy to confirm that we have now received all the outstanding information needed for the payment of your claim.

We confirm that payment has been made as follows on 12/08/2015:

Payee
[Complainant]

Amount
R3 765 000 (CLAIM AMOUNT)
R18 637.00 (REFUND OF PREMIUMS)”

Arguments concerning interest
8. The question of interest on the capital amount from 21 January 2014 had been raised by our office, in the course of the investigation of the complaint.

9. The insurer’s response was that the medical evidence in support of the claim was received on 28 July 2015, and the claim paid on 12 August 2015, so no interest was payable.

10. It was contended that this position was in line with the Life Offices Association (LOA) guideline on interest for late payment of claims, which is to the effect that interest is payable on an equitable basis (even if there is no liability in law) once a claimant has duly submitted proof of entitlement to the insurer (the claim documentation) and it is shown that the insurer, having had a reasonable time to consider the claim, did not make payment. (The LOA guideline indicates that an insurer should be able to make a decision on a disability claim within 120 days.)

11. Our office had then pointed out that the insurer had derived value from non-payment of the benefit after January 2014, as it retained the value of a benefit which the insurer decided accrued to the complainant as at January 2014. We had expressed the view that it was not equitable for an insurer to require the insured to wait for a long period while permanence was established and then to receive a lump sum disability benefit as at the disability date many months prior to the determination of permanence, without interest being paid.

12. The insurer’s senior legal adviser responded as follows:

“The client’s own specialists indicated over an extended period of time that she is in fact not permanently disabled, alternatively failed to properly substantiate the claim. As late as 16 July 2015 [the psychiatrist] still advised that her condition does not present permanent disability. From the medical evidence it appears that right up to admission of the claim on 6 August 2015, it was not all that clear whether the definition of permanent disability has been met. Further, my understanding is that the client failed to follow the optimal treatment procedure prescribed by the medical practitioner. However, [the insurer] gave the client the benefit of the doubt in admitting the claim. In doing so, I believe [the insurer] has already acted fairly and equitably towards the client”.

13. The insurer’s product actuary commented as follows:

“[The insurer’s] stance has been strict application of the contract and ASISA guidelines and I don’t think this can be disputed. The contract states when the benefit is calculated (date of event) and the guidelines refer to receipt of all relevant information, which only happened shortly before the payment. But given that it was a marginal call on admitting the claim (there’s a strong argument for no claim), [the insurer’s] view is that it has gone beyond fairness already and further compensation (interest) is unfair. Overall, it’s hard to see a strong case for inclusion of interest on the grounds of fairness given the overwhelming sense of fairness in paying the claim. While the claim was admitted, there’s a significant ‘ex-gratia’ element to the decision and the amount, which implicitly includes additional compensation beyond the letter of the contract. Even without this, the contract, agreed to by the customer, clearly states the benefit amount and the industry guidelines recommend no interest be paid”.

Discussion

14. The case was referred to an adjudicators’ meeting for discussion.
15. The policy provided that:

“The Cover Amount is determined as at the date on which the Life Covered became Occupationally Disabled. This date must be confirmed by [the insurer’s] Chief Medical Officer”.

16. The meeting was satisfied that the Chief Medical Officer’s decision to confirm 21 January 2014 as the date on which the Life Covered became Occupationally Disabled (as defined in the policy) had been a rational and reasonable exercise of his discretion to determine the date of disability. The insurer admitted the claim on 6 August 2015, a confirmation that by that date it considered the complainant to have met the requirements of the definition. These included the requirement for permanence, as treatment of the condition was shown to have failed over a long period, establishing that the disability was of a permanent nature. 21 January 2014 was the last date that the complainant had worked, and this must retrospectively be considered the date the disability commenced. This date determines the applicable cover amount, which in January 2014 was R3 675 000. Premiums paid after the date of disability were correctly refunded.

17. The meeting then considered the question of interest.

18. Our rules enjoin us to accord due weight to considerations of equity (Rule 1.2.4). Specifically, Rule 3.2.6 provides that we may “order a subscribing member, in addition to any other recommendation or determination made, to pay interest to a complainant on the pertinent sum at a rate and from a date that is considered to be fair and equitable in the circumstances”.

19. We are not restricted by the LOA guidelines on the payment of interest, although we will obviously take these into consideration.

20. The meeting was of the view that the insurer had not taken account of the prejudice to the complainant inherent in being obliged to wait until permanence could be established (in itself a reasonable requirement), but then having her benefit backdated to the date on which her permanent condition was retrospectively determined to have begun. There had been no consideration of the fact that she had been without the benefit from this date of disability, and that the insurer had had the use of the money over that period.

21. The comments of the senior legal adviser appeared to blame the complainant for the fact that it was not proved from the outset that she was permanently disabled. This was at odds with the more compelling view of the Chief Medical Officer that it was logical that permanence could only be determined after a while.

22. It was also ironic that insurers have sometimes used the reverse argument to defend a claim apparently lodged late (outside policy time limits for lodging claims). For example, if a claimant waits out a period of unsuccessful treatment and then lodges a claim, the argument is made by some insurers that the claim should have been lodged soon after the diagnosis or first day unable to work, regarded as the “date of disability”. Some insurers then use this “late lodging” as a contractual defence against paying a claim.

23. The comments of the product actuary made out a case that the insurer had “gone beyond fairness already” in admitting a claim on which there was a “strong argument for no claim”, and therefore a “significant ‘ex-gratia’ element to the decision”.

24. The problem with this was that at no stage did the insurer indicate to the complainant that it had made an ex gratia decision, or that it was making a decision to admit the claim based on fairness even though it considered that there was a strong argument for no claim. Payment was not couched or offered as a settlement in view of any stated arguments for no claim. The claim was simply admitted and paid. The rationalisations were only made after the fact.

25. It was so that the insurer only received the final medical information which it accepted as confirming permanence in July 2015. Strict compliance with the LOA guidelines for paying interest on late payment would support payment of interest “once the claimant has submitted proof … that would satisfy a reasonable insurer that he has a valid claim in terms of the policy; and the insurer has had a reasonable time to consider the claim”.

26. However the meeting was of the view that the strict application of the provisions of the contract in conjunction with the industry guidelines produced a result which was unfair.

27. It was noted that it is not an uncommon situation for a date of disability to be determined retrospectively, for example where permanence can only be established after a period of unsuccessful treatment, and in our experience it is the usual practice that insurers pay interest on a lump sum as from date of disability, or pay arrear monthly disability payments as from date of disability.

28. The meeting was of the view that this particular case cried out for some accommodation of the complainant’s position, on grounds of equity. It viewed the insurer’s attitude as one of “trying to have its cake and eat it”, in that it was not prepared to pay the higher lump sum value as at the date of admission of the claim, but also was not prepared to pay interest from the retrospectively determined date of disability.

Result

29. A provisional ruling was made against the insurer in the following terms:

31.1 The complainant was not entitled to the higher benefit value of R3 895 500. Payment of the benefit value of R3 675 000, being the value applicable as at 21 January 2014, was correct.

31.2 The insurer must pay interest to the complainant on the claim value as at the date of disability, calculated from 8 July 2014 (being 120 days after the complaint was received) to date of payment, at the rate offered by Standard Bank on deposits for a period of 12 months.

30. The insurer accepted the provisional ruling, and interest in the amount of R242 952 was paid to the complainant.

SM
October 2017

CR357
Late payment

Is the insurer liable to pay additional interest?

Background

1. An insurer issued a mortgage protection plan to the deceased which commenced on 28 May 2008. The policy was issued as a security for a mortgage bond granted by a bank to the deceased. As such, it was ceded to the bank. It covered the deceased for death, dread disease, permanent disability and retrenchment benefits.

2. The nature of the policy was a reducing sum insured equal to the balance outstanding on the mortgage loan. The deceased passed away on 28 August 2008 due to unnatural causes. When the claim was lodged with the insurer, its assessment was deferred pending the finalization of the criminal investigation that was conducted by the South African Police Service as the cause of death was suspected to be due to taxi violence. The insurer was entitled to deny liability if the cause of death of the life insured was due to the violation of the criminal law in terms of the policy wording.

3. During this period, the complainant failed to make payment of the monthly instalments under the mortgage bond which caused the bond account to be in arrears.

4. Eventually, the benefit was paid out on 19 August 2010, almost two years from the date of death. The aforesaid benefit was payable on the date of death. The insurer did not pay the arrears, causing the bank to issue summons for the outstanding amount of R142 851.77. Following this, the complainant lodged a complaint to our office. As a result of our intervention, the insurer was prepared to offer interest (as per the LOA Protocol) amounting to R60 000.00. The bank refused to accept this amount as it was far less than the amount allegedly owed to them.

5. The complainant rejected the offer made by the insurer citing the same reason raised by the bank. We felt that we were unable to assist her with this matter any further as, in our view, the insurer’s offer was reasonable. A provisional ruling was issued in this regard.

Discussion

6. The complainant, aggrieved about this decision, made further submissions, contending that the bond account should be settled in full. The dispute arose as to whether the insurer was liable to pay any further interest.

7. As there was no basis to grant any further relief to the complainant, we decided to approach the bank as they were on the verge of attaching and selling the property by sale in execution. We did this with the assistance of the Ombudsman for Banking Services. We enquired from the bank whether they would be prepared to accept the R60 000.00 in full and final settlement.

Result

8. The bank agreed to do so and undertook to withdraw any legal action instituted against the complainant arising from the same set of facts.

NS
September 2014

CR282
Interest on late payments

Insurer in mora – endowment policy- insurer’s duty to take reasonable steps to find policyholder to make payment on maturity.

Background

The policyholder’s endowment policy matured in June 2004. The insurer averred that it had sent a maturity letter by unregistered mail to the policyholder’s last known address, but the policyholder, who was not aware that his policy had matured, denied having received any such letter. The policyholder had earlier changed his address, and according to him he had repeatedly informed the insurer thereof both by fax and by telephone, but the office was not able to resolve these factual disputes. The policy was eventually paid in 2008 and the policyholder claimed interest on the late payment. He pointed out that the insurer had at all times been in possession of his e-mail address, his fax and cellular numbers, none of which had ever changed.

Discussion

In the case of this endowment policy a specific date was set for performance. The office pointed out to the insurer that in such a case the duty rests on it to tender due payment by informing the policyholder in good time that it is ready to make payment on the due date and that it requires the latter’s co-operation in order to do so. Depending on the policy provisions such co-operation could be that the policyholder is required to complete and submit a maturity form. In such a case the policyholder’s failure to comply would mean that he, and not the insurer (as the debtor), will be in mora. But if the policyholder does comply and the insurer fails without lawful excuse to tender performance on the date specified in the policy, it will be a case of mora ex re on the part of the insurer (delay arising from the date named in the contract), and mora interest will be payable from the named date.

On the assumption that the insurer had not been informed of the change of address and did mail the maturity letter, the issue remained whether the insurer had made a proper tender of performance. In the circumstances of the present case, where the insurer had reliable other means of communication, the office suggested that the insurer should have secured the co-operation of the policyholder by making use of one of those other means. It was suggested that the insurer had therefore been in mora because it had not taken reasonable steps to tender payment to the policyholder. The insurer accepted the suggestion and calculated interest at the legal rate.

Result

The parties eventually settled for the amount tendered by the insurer.

MFBR
October 2009

CR188
Interest on late payment – delay of payment to nominated beneficiary caused by persons involved in the administration of the estate of the policyholder – whether steps taken by the insurer to locate the nominated beneficiary were reasonable?

Background
The complainant, Mrs B, was nominated as the beneficiary on a policy of her former husband in terms of which his own life was insured. The insurer was notified of the death of the insured by a firm of attorneys who indicated that they were attending to the administration of the estate of the deceased insured. The insurer confirmed that the proceeds of the policy were payable to the complainant and informed the attorneys of certain requirements to establish the claim. These requirements were in conformity with the provisions of the policy in terms of which the insurer would not admit any claim under the policy until it received, inter alia, a properly completed application form and proof to their satisfaction of the title of the claimant, Mrs B. The insurer received no response from that firm of attorneys but was subsequently informed by the estate and trust division of a firm of chartered accountants that they were now attending to the administration of the estate. This firm provided copies of the death certificate, letter of executorship and a power of attorney but did not complete the death claim form or the confirmation of the title of the claimant, Mrs B. The executrix in the interim also wrote to the insurer requesting that payment be held over. Yet another trust company informed the insurer that they were now dealing with the administration of the estate. The insurer wrote at least sixteen letters to the persons claiming to be attending to the administration of the estate requesting them to provide the outstanding documentation. The insurer was only provided with the completed application form when the complainant’s attorney, who submitted the complaint to our office on her behalf, eventually produced it.

The complainant demanded interest from the insurer for the period of delay from the date of the submission of the death claim to the date of payment. It was contended on her behalf that she only became aware that she was nominated as beneficiary when she received a letter from the attorneys of the executrix of the policyholder’s estate requesting her to renounce her right to the benefits of the policy. The insurer was then approached and the outstanding requirements were met. The proceeds were thereupon paid without further delay.

The complainant contended that the insurer was under an obligation to locate the beneficiary and offer payment to her; and that the insurer’s failure to do so caused her a loss of interest for the entire period of the delay from the date of death to the date of payment.

Discussion

In the light of the submissions that there was a failure on the part of the insurer to comply with a duty to take reasonable steps to locate the beneficiary and make payment to her, the primary issue in this matter was whether the insurer was delictually liable due to such alleged failure. The two primary considerations in this respect were whether there was a duty on the insurer to locate and make payment to the beneficiary and secondly, whether it failed in its duty.

There is a wealth of authority on the criteria applicable in the determination of wrongfulness, fault and causation. The element of reasonableness is a common denominator to all these elements and there is also some convergence in their application.

We were of the opinion that we were not able to support a contention that there is an absolute duty on an insurer, giving rise to delictual liability, to firstly, locate a nominated beneficiary and secondly, to make payment to such beneficiary forthwith. At most the insurer was obliged to take reasonable steps to advise any parties claiming payment of the prerequisites for doing so.

The main consideration was, therefore, whether the steps taken by the insurer were reasonable or contributed to the delay in payment.

At the time when the claim was instituted the only particulars regarding the beneficiary known to the insurer were those furnished in the application form for the insurance in which the full names and a relationship of Mrs B as the wife of the proposer were stated. The insurer was not aware of the divorce nor whether the beneficiary was alive at the time of the submission of the claim. The insurer admittedly did not conduct specific investigations to locate the beneficiary but advised every person who submitted a claim and each party thereafter who indicated that they were handling the affairs of the estate that a benefit was payable to a nominated beneficiary and requested the completion of the claim application form by the beneficiary. In all, at least sixteen such notifications were provided to the various parties who were involved in the administration of the estate from time to time.

Our conclusion was that the steps taken by the insurer were reasonable and that the insurer could reasonably have assumed that such notifications would be communicated to the beneficiary concerned. The fact that it subsequently appeared that the various parties involved, and in particular the executrix of the estate for reasons of her own, were not keen to inform the beneficiary of her rights and requirements, could not alter this position.

Result

The complainant was accordingly informed that we were unable to uphold her claim for the payment of interest.

EdB
November 2006