Posts in category: Jurisdiction

CR327

Jurisdiction

Deceased employed by an insurer – as such a member of its group scheme underwritten by the same insurer – on his death his life partner not satisfied with allocation by his employer of group scheme death benefit – office not having jurisdiction over a decision by the insurer in its capacity as employer.

The deceased was employed as a financial planner by the insurer, and as such was a member of its group scheme. He died in 1997 and was survived by his ex-wife, two minor children and a life partner who he had been living with for 12 years by the time of his death.

In its capacity as the employer the insurer made an allocation of the relevant life plan benefit, the proceeds of the provident fund and the group life plan, and it did so in terms of the authority given to it by two rules of the group life plan, which read as follows:

“Where payments are to be made to Dependants, the Association in its
absolute discretion:

– shall determine who are the Dependants of the Member

– may select the Dependant or Dependants to whom payments are to be made and the proportions of such payments, and from time to time vary such selection.”

and

“The Association may request (the insurer) to use any lump sum benefit to purchase an annuity, or to make payment of the lump sum by installments.”

For the purpose of these rules the Association referred to therein was elsewhere defined in the rules as meaning “the (insurer) group in its capacity as Employer”.

The issue that arose was whether the office had jurisdiction to make a decision on an allocation made by the insurer, not in its capacity as insurer, but in its capacity as an employer.

The complainant argued that the office did have jurisdiction because the insurer and the employer were one and the same entity, and further that because the deceased had been an agent of this entity no employer/employee relationship existed.

The above rules clearly provided, however, that it was the insurer in its capacity as the deceased member’s employer that was vested with the discretionary power to decide on the allocation of the death benefits concerned, and that it was in that capacity that it in fact did so.

Our Rule 2.1 clothes the office with jurisdiction over complaints against an insurer concerning inter alia the “…administration (and) implementation” of an insurance contract. The decision as to the allocation concerned, however, did not lie with the insurer, and was not made by it in its capacity as insurer.

The office therefore held that it did not have jurisdiction to deal with the complaint.

NvC
January 2012
2010/BG/2255

Jurisdiction CR312

Mistaken payment by insurer to policyholder of portion of benefit – insurer in fact not liable because of an exclusion clause – complainant claiming balance of benefit – office’s jurisdiction to deal at the same time with insurer’s condictio indebiti as a counterclaim.

The following is a provisional determination issued by the Ombudsman.

“1. The issue in this case is whether our office has jurisdiction to deal with an insurer’s condictio indebiti (a claim for repayment of money paid in error).

2. The facts relevant to the instant case are:
2.1 In August 2005 the insurer concerned had granted a life policy to the complainant covering one of its employees, Mr V. The policy also covered the event inter alia of his future functional impairment. In November 2006 the cover amount was increased to some R6M, but because in applying for the increase it was disclosed that Mr V had in the meanwhile had cervical fusion surgery in July 2006, an exclusion clause was introduced excusing the insurer from liability for the cervical spine.
2.2 Mr V thereafter suffered a disc herniation of C5/6 with spinal cord compression and myelomalacia (morbid softening of the spinal cord) and in June 2009 the complainant submitted a claim for the functional impairment benefit. The insurer paid the complainant
R1 644 194, being half of the total amount of the benefit of
R3 288 387.
2.3 In its complaint lodged with the office the complainant claims payment of the other half. The insurer’s defence is that an application of the exclusion clause excused it from liability, and that because it had owed nothing in the first place, it was in error that the payment of R1 644 194 was made. It states that it intends to sue the complainant in court for repayment.
2.4 In response the complainant contends that the insurer waived its right to rely on the exclusion clause. In this regard it is not in dispute that in the claim which was submitted to the insurer the exclusion clause had expressly been drawn to the insurer’s attention, and the complainant’s contention is that a payment made with that knowledge could only mean that the insurer thereby waived its right to rely on the exclusion clause.

3. That the exclusion clause would otherwise have excused the insurer from liability is not in issue, the only dispute being the complainant’s allegation that the insurer had waived its right to rely on the clause.

4. The office must of course deal with the complainant’s claim for payment of the other half of the benefit, which will be done in due course. The preliminary issue that must first be resolved, however, is whether our office has jurisdiction to deal at the same time, as a counterclaim, with the insurer’s condictio indebiti.

4.1 The insurer contends that our office does not have jurisdiction, and states that it wishes to institute action in court for repayment of the amount paid to the complainant.
4.2 On behalf of the complainant, on the other hand, it is contended that the office does have jurisdiction.

5. In this regard the complainant’s representative draws attention to our office’s decision in CR268 where in a similar situation we had held in 2008 that we do have jurisdiction. In that case the following were the office’s reasons (see the office’s website at ombud.co.za in Topics and Cases under “Jurisdiction”):
“As a complaint such as the complainant’s concerned the administration or implementation of a long-term insurance contract, and because as the beneficiary the complainant had been the one to lodge the complaint against the insurer’s demand for repayment, it was concluded that the office does have jurisdiction. In arriving at it we were alive to the fact, our rulings not being binding on complainants, that should the office rule against the complainant and should the complainant refuse to make repayment of any amount, the office could not enforce its ruling or impose any other sanction on her. We were satisfied that this did not stand in the way of the office exercising jurisdiction, and that in such a case the insurer would then have to sue the complainant in court.”

6. In that case the insurer had not raised any objection to our office exercising jurisdiction, so that we had not had the benefit of an argument that an insurer might otherwise have relied on. For this reason it is necessary to reconsider the question.

7. In the nature of the present dispute it is our Rule 2.1 that deals with when our office will have jurisdiction. It provides that the office will have jurisdiction over complaints (the emphasis being my own) –
“…arising from the marketing, conclusion, interpretation, administration, implementation or termination of any long-term insurance contract …”
and the only question that arises is whether in making the payment concerned the insurer was busy with the implementation or administration of the policy contract.

8. In this connection the insurer contends, first, that when making a payment in error it can never be for the purposes of the “implementation” or “administration” of a policy. In making this submission it seeks to compare the situation to one where the mistaken payment had been made to a third party to whom no policy had ever been issued.

While it might have been otherwise had the payment been made to someone to whom no policy had been issued, in the instant case it was in terms of the complainant’s policy, however, that the complainant’s claim was lodged with the insurer, and it was in response to that claim that the insurer then made the allegedly mistaken payment. The fact that it may have made a mistake by making the payment does not and cannot mean, however, that it was not thereby about the business of implementing or administering the policy contract.

9. The insurer’s second contention is based on the fact that in law all that need be proved in order for the condictio indebiti to succeed is, first, that it was in the mistaken belief that the monies were owing that the payment concerned was made, and secondly, that its mistake was excusable. Because of this the insurer submits, as I understand it, that the two issues in its condictio indebiti are entirely divorced from the issues that arise in the complainant’s claim. This is, however, incorrect. The issue in the complainant’s claim, because of the defence to it that the insurer raises, will be whether the insurer had waived its right to rely on the exclusion clause, and that very issue is inextricably bound up with the first requirement for the success of a condictio indebiti i.e. whether or not it was in error that the payment concerned was made.

10. The insurer submits lastly that, unlike the case in CR268, the complainant’s original complaint had not been that the insurer was demanding repayment. That much is of course true, but the fact remains that, although it has happened by a different route, in both CR268 and the instant case the complainant’s complaint and the insurer’s contentions are inextricably bound up with each other.

11. For all of the above reasons I am of the view that, on the facts of the instant case at any rate, the office does have jurisdiction to deal by way of a counterclaim with the insurer’s condictio indebiti. “

The insurer accepted the provisional determination and the office proceeded to deal with the complainant’s claim and the insurer’s counter claim.

BG
March 2011

CR268

Jurisdiction – overpayment to the insured of her monthly pension–insurer demanding repayment – complainant lodging a complaint with the office – held: that the office has jurisdiction over the insurer’s claim, a condictio indebiti –portion of the overpaid money ordered to be repaid.

BACKGROUND

The complainant’s husband had been in receipt of a pension purchased by his pension fund from an insurer and upon his death monthly payments were made to the complainant in terms thereof.

As a result of an administrative error, however, the annual growth percentage applicable to her pension had been recorded on the insurer’s computer system as being 100% instead of a fixed 8% per annum, and from December 2003 the complainant began receiving 100% annual increases. The annually increased payments continued to be paid for three years until the error was discovered just before the December 2006 increase, and from that date onwards she received the correct pension.

In the first year of overpayment, December 2003 to November 2004, the monthly pension payments had increased from R3 655 to R7 311, when she should only have received R3 948. In the second year, December 2004 to November 2005, they went up to R14 622, whereas they should have been R4 264. And in the third year, December 2005 to November 2006, they went up to R29 244, whereas they should have been R4 605. In total she received R614 124 over the three years whereas she had only been entitled to
R153 799, making a total overpayment in the sum of R460 325.

When the insurer demanded repayment from the complainant she then lodged a complaint with the office.

The insurer’s demand for repayment was based on the actio condictio indebiti which can only succeed if the error whereby the undue payment is made is excusable, and which is in any event limited to the amount by which the recipient is in fact enriched. Relevant in the latter regard is how the overpaid money was used by the recipient – the liability would be reduced or extinguished only if the diminution or loss of the overpaid money was not due to the recipient’s fault.

The insurer explained that although the complainant’s pension had not been one with-profits, it had mistakenly been placed on the computer system as if it were. As the computer would not operate without any growth percentage entered, with-profits pensions were routinely placed on the computer with a 100% growth percentage, which was then replaced each year by the actual declared percentage when it became known. The error with the complainant’s pension was only picked up when a spot check was done almost three years later. The insurer submitted that this was not “inexcusably slack” conduct. It maintained furthermore that the complainant knew, or ought in any event to have realised, that the annual increases she received could simply not be correct, and that there was a duty on her not only to have informed the insurer of the mistake, but also to have retained the amounts of the overpayments.

The complainant’s attorney contended on her behalf that she was unable to pay the money back as she had spent it, and thereby “lived within her means”. He submitted that the insurer’s explanation indicated negligence on its part; the error was repeated every year for four years, and should not therefore be seen as excusable. He maintained that the complainant, aged 75 and a housewife all her life, had not realised until the increase in the third year to R29 244 per month that the amounts were not due to her, and that she had then telephoned her financial adviser and subsequently also the insurer about it.

The insurer replied that there was a single error, only discovered four years later, so that the error had not been repeated as alleged. It argued that at no stage could the complainant reasonably have believed that she was entitled to 100% increases. It denied in any event that she had ever contacted it, even though by her own admission she had in fact realised from at least November 2005, when the monthly amount increased to R29 244, that the increases were a mistake. The insurer submitted that her use of the money amounted in fact to theft.

DISCUSSION

Although neither party had taken the point, the first question that had to be
answered was whether the office had jurisdiction to adjudicate on the insurer’s
claim. As a complaint such as the complainant’s concerned the
administration or implementation of a long-term insurance contract, and
because as the beneficiary the complainant had been the one to lodge the
complaint against the insurer’s demand for repayment, it was concluded that
the office does have jurisdiction. In arriving at it we were alive to the fact, our
rulings not being binding on complainants, that should the office rule
against the complainant and should the complainant refuse to make
repayment of any amount, the office could not enforce its ruling or impose any
other sanction on her. We were satisfied that this did not stand in the way of
the office exercising jurisdiction, and that in such a case the insurer would
then have to sue the complainant in court.

Our jurisdiction having been confirmed, a meeting of the adjudication staff accordingly considered the merits of the case.

The meeting accepted that in her circumstances the complainant may not have been aware that the monthly increase in the first year from R3 655 to R7 311 was excessive, and that she might reasonably have assumed that for that period the increase had been due to favourable returns obtained by the insurer’s investments. The unanimous view of the meeting was, however, that from the start of the second annual increase in December 2004, when her monthly pension increased further to R14 622, the complainant ought to have been aware that she was being enriched sine causa. And by her own admission she in fact realised when the pension increased to R29 244 in December 2005, that the increase could simply not be correct. The amounts overpaid to her in error in the second and third years amounted to R419 968-08 should therefore have been retained by her. Despite the office’s request the complainant had persistently failed to explain what had happened to this money, save for her assertion that she had spent it on day to day living and that in so doing she had lived within her means. She therefore failed to show that she had not been enriched, or that the diminution or loss of the overpaid money was not due to her fault.

It was the view of the meeting that, in the circumstances as explained by the insurer, its error was an excusable lapse. It occurred once rather than having been repeated three times, the effects of the original error simply being carried through to each succeeding year.

CONCLUSION

The office therefore made a final determination that the complainant was liable to repay to the insurer the amount of R419 968.08, being the amount by which she had unjustly been enriched between December 2004 and November 2006. Through her legal advisor the office was informed that he would make contact with the insurer in order to settle the matter, and the office heard nothing further.

SM
January 2009

CR224

Jurisdiction- death benefit payable to the deceased’s estate- father of deceased authorised by the Master of High Court to take control of deceased’s assets listed in an accompanying inventory-benefits in respect of this policy not listed in the inventory- insurer paid benefit to deceased’s father- Master, acting on behalf of deceased’s minor children, asserts that the insurer should not have paid the benefit to the deceased’s father- Master asserts that the insurer be ordered to repay the benefit into the Guardians Fund.

Background

The deceased was the policyholder whilst his father, Mr A, was the premium payer of an accidental death policy.

The provision in the policy document dealing with payment of benefits stipulated:

“This policy is not assignable and all benefits under this policy are payable to you (the policyholder) or your beneficiary/ies or your legal representative. If the benefit is payable in respect of your spouse or your children the money will be paid to you. No one other than you will have rights in terms of the policy against us. Receipt of the money so paid will be a valid discharge of our liability under this policy.”

When the deceased died due to an accident no beneficiary had been nominated. Consequently the benefit was payable to the deceased’s estate.

Following the deceased’s death, Mr A was issued with a certificate known as the “Letters of Authority” by the Master of the High Court (Master). This certificate reads as follows:

“This is to certify that Mr A has been duly authorised to take control of the assets of the estate of (the deceased), as reflected in the inventory filed with me, to pay the debts, and to transfer the residue of the estate to the heir(s) entitled thereto by law.”

The relevant inventory listed two bank accounts containing amounts in cash. No other assets were listed in the inventory.

Subsequent to the issuing of this certificate Mr A lodged a claim with the insurer for the death benefit. The insurer paid him the benefit.

The Master, acting on behalf of the deceased’s minor children, thereupon alleged that Mr A was only authorised to take control of the specific assets listed in the inventory to the Letters of Authority. This inventory did not include this policy’s benefits. The Master further alleged that Mr A used the policy benefit amount paid to him for his personal benefit and not for the benefit of parties with interest in the deceased’s estate, in this instance, his own grandchildren.

The Master asserted that the insurer should repay the benefit amount into the Guardians Fund. The Master further asserted that the insurer should reclaim the monies it paid to Mr A.

For its part the insurer asserted that it paid the benefit to Mr A on the strength of the Letters of Authority and that it was under no obligation to check any inventory.

Discussion

In dealing with this matter we first had to establish ourselves whether the office had jurisdiction to consider the complaint. Our Rule 2.1 provides;

“Subject to Rule 2.2 the Ombudsman shall receive and consider every complaint by a policyholder, a successor in title or a beneficiary, or by a life insured or premium payer, against a subscribing member concerning or arising from the marketing, conclusion, interpretation, administration, implementation or termination of any long-term insurance contract marketed or effected within the Republic of South Africa.”

Result

It was our view that the prerequisites for this office to assume jurisdiction over this matter had not been met. The Master and/or the children of the deceased were neither policyholders nor successors in title nor beneficiaries nor premium payers in respect of the policy. Although they may have legal standing to claim in another forum they could not assume any legal standing for our purposes. In the absence of consent from the insurer the office lacked jurisdiction to entertain the complaint.

We were accordingly obliged to decline to hear the complaint.

TS
MAY 2007

CR101

Jurisdiction – Exclusion clause – insurer alleges that it paid accident benefit in error – summons issued by insurer to prevent prescription – rules as they their read.

Background

The insured “the deceased” died in a motor accident whereupon the insurer paid out an amount of R216 982 to the beneficiary partly as an accidental death benefit. Some time thereafter the insurer claimed repayment of the amount paid as the accident benefit since it had discovered that the deceased’s blood alcohol content at the time of the accident had been 0.2g/100ml. This was in excess of the legally permissible limit. The insurer alleged that the assured had died as a result of circumstances which could be related to the abuse of alcohol which was specifically excluded in terms of the policy contract. The insurer further alleged that it had rejected payment of the accidental death benefit but that, as a result of an error in its computer system, the benefit was erroneously paid to the beneficiary. On this basis the insurer sought repayment of the amount of the accidental death benefit.

The beneficiary, through her broker, did not accept the situation as sketched by the insurer and approached our office for assistance. The complainant referred to several discrepancies concerning the description of the deceased. It appeared that affidavits originally lodged and reflecting the correct physical details of the deceased which were subsequently substituted with different affidavits. The insurer insisted that the errors in the original affidavits had been genuine errors. In view of the fact that the insurer’s claim for payment was about to prescribe, the insurer issued summons against the beneficiary, claiming repayment of the accidental death benefit on the basis that she had been unjustifiably enriched.

We suggested to the insurer that, in the event of the beneficiary undertaking not to rely on a defense of prescription, the insurer should consider withdrawing the action so as to permit our office to consider the issues in dispute. We also raised the possibility that the insurer had instituted legal action against the complainant for the purpose of removing the dispute from the jurisdiction of our office.

As rule 2.3 of our rules then read the office would not consider a complaint which is the subject matter of legal proceedings.

Assessment

Since the insurer in the instant matter ran the risk of its claim against the complainant prescribing before the Ombudsman had finalised his investigation and made a ruling, the question arose whether the Ombusman retained jurisdiction to hear a dispute where a subscriber, acting in a justifiable manner to prevent its claim from prescribing, had instituted legal proceedings.

We also raised the question whether the insurer in the instant case had not been motivated to remove the matter from our jurisdiction by instituting the legal proceedings. Prior to the institution of legal proceedings, we had questioned whether the insurer was entitled to rely on the exclusionary clause in regard to the alcohol or drug abuse and if so entitled, what that affect was in regard to the payment of the accidental death benefit seen in the light of the known circumstances and the delay in making the payment. We further questioned on what grounds the repayment was sought and whether the facts justified a repayment on a balance of probabilities.

Result

Since the observations of the doctor who performed the autopsy on the deceased and the affidavit by the policeman, responsible for the weighing of the body and the measuring thereof, were in dispute, we needed to consider whether our office should continue dealing with the matter. The issues could not be resolved on affidavit and it would be necessary for witnesses to be examined and cross-examined. Having also received an assurance from the insurer that it had instituted proceedings not because it wished to remove the matter from the jurisdiction of our office, but because it required to protect its right in law in view of the impending prescription of the claim, we concluded that the matter did not fall within our jurisdiction.

Largely as a result of this case rule 2.2.2 was formulated to make it plain that our jurisdiction is only excluded where it is the complainant, and not the insurer, who instituted or contemplates instituting legal proceedings

EdeB
October 2005

Facts

The policyholder had taken out a bond from a bank.  The bank required a policy on the life of the house owner to be ceded to it as security.

The premiums for the policy were included in the total bond payment made every month.  As interest rates vary this payment amount changes from time to time and the complainant was, therefore, used to fluctuating amounts being deducted.  The premium for the policy was deducted on an annual basis from the bond bank account and paid over to the insurer.  When there was a take-over of the bank the bondholder decided to move her bond.  At the time of the transfer the arrangement with the premium fell by the wayside.  The premium was not paid over to the insurer and eventually the policy lapsed.

When the bondholder (and life assured) died the insurer did not pay out the claim as there was no policy in force.  The wife of the deceased complained to our office.

Decision

We could not assist the complainant as the insurer had been justified in declining the claim.  It appeared to us that the bank may have been at fault at the time of the transfer of the bond to a new bank.  We contacted the Ombudsman for Banking Services who confirmed that he had jurisdiction in the matter and we, therefore, requested the complainant to complete the necessary forms in order to submit the claim to his office.

Comment

It is a concern that when a premium forms part of a bond instalment on a policy ceded to the bank the original policyholder loses control over the policy premium payments.  When premium payments are not made for whatever reason the policyholder is “out of the loop” and will be unaware of the premium arrears and the possible lapsing of the policy.

As far as this issue is concerned we wrote to the Banking Council in 2003:

“We are writing to you in the hope that you can assist with the following problem.

As you are doubtless there is a widespread practice of life insurance policies being ceded to banks as security for loans, mortgage loans in particular.  When such a cession is no longer operative, because the loan has been repaid, there is a need for the bank to advise the policyholder of that fact and return the policy document to the policyholder.  It has come to our notice that policyholders are not, unfortunately, always advised of the cancellation of the cession.

This is particularly important where the insurance premium has been remitted by the bank to the insurer.  This occurs where the bond repayment amount includes the cost of the insurance premium.  In the absence of such advice the policyholder may in all innocence omit to pay the premium directly to the insurer and the policy could lapse or become paid-up.  The policyholder could thus lose valuable policy benefits.

We would request you to please bring this problem to the attention of your members and in particular that it is essential that their clients be duly notified and that the policy document be returned to the policyholder as soon as the secured loan has been repaid.”

We have had no response to this letter and as far as we are aware no standard practice, however desirable, has yet developed in this regard.  Equally desirable would be a practice that insurers, as debtors, should inform their policyholders, the cedents, whenever a claim is made on a policy by an outsider, such as a bank as cessionary.  This would enable the policyholder to contest the payment, if there are good grounds for doing so.  (See, too, “Cession”).

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