Posts in category: Lapsing

CR341
Lapsing

Life assured not having paid a premium for the month in which he died – 30 day grace period running during that month – was the insurer’s decision to decline the claim justified?

Background

1. The deceased had by telesale purchased life cover under a policy which commenced on 1 May 2007 and which provided that premiums were payable monthly in advance. It further stipulated that the policy will be cancelled if a premium payment is not made within 30 days after the agreed payment date and that it would then provide no further benefits.

2. The deceased passed away on 12 December 2009. The premium for December had not yet been paid, but it was within the 30 day grace period that he died. When the complainant lodged a death claim against the insurer, it was declined on the basis that the deceased had no cover during the month of December. In doing so, the insurer cited the following clauses as the basis for their decision:

“Contract of Insurance
In return for your payment and our receipt and acceptance of your premium we will provide insurance cover according to the terms of your policy during the period shown in your schedule.

Payments
Premiums are payable monthly in advance by debit order and are payable for as long as the premium paying terms section of your policy states.

Cancellation
The contract will be cancelled on our side, if any of the following happens:

• …:

• you fail to pay your premium within the 30 days after the agreed payment date. If the premium is not paid in full within these 30 days, the policy will end, and we will provide no further benefits.

Claims
Note that (the insurer) will only accept a claim if:

• the definitions and requirements of the insured event have been met

• we rule that the claim is valid

• we have received and accepted all the information required

• the premiums for the policy have been paid in full

• the contract has not been cancelled.”

3. The insurer accepted that it was within the 30 day grace period that the life assured died, and stated that in such a case the policy would not be cancelled but that the claim will not be accepted. The complainant, aggrieved about the insurer’s decision, approached our office contending that the benefit amount should be paid.

Discussion

4. We noted that the provisions of this policy provided for a grace period of 30 days in respect of each premium payment due. On the facts of the case there was no dispute that the insured event had occurred during the period of grace. As such the legal position suggests that the benefit is payable subject to the payment of the arrear premium by the life assured. The insurer was referred to an extract from the book by PM Nienaber and MFN Reinecke entitled “LIFE INSURANCE IN SOUTH AFRICA” which states:

“The grace period in effect extends the time for payment. A payment of the arrears made during that time will accordingly be a payment made in time. The policy remains “in force”. Should the insured event occur during the extended period, the benefit will be payable by the insurer, but only against tender of the arrear premium by the insured.”

5. In light of the above, the insurer was requested to review their decision but they declined to do so. Following this the matter was discussed at a meeting of adjudicators where it was decided that the insurer should furnish a copy of the sales recording in order to ascertain whether the provisions of the policy which they sought to rely on in order to escape liability had clearly been explained to the life assured at the point of sale.

6. The recording disclosed that the life assured had not been advised about the aforesaid provisions. It was noted that the cancellation clause gave the life assured a period of 30 days in which to pay the arrears in respect of each premium due. The clause in question specifically stated that if the premium is not paid in full within the said period, the policy will be cancelled, and will provide no further benefits, but it was silent on what would happen if the insured event occurred within that period. We reiterated to the insurer that the general rule is that if the insured event occurs during the period of grace, the benefit is payable against the tender of arrear premiums by the life assured. As the insurer had failed to explain to the life assured either in writing or orally that no benefit would be payable during the period of grace, we suggested that they should honour the claim and pay the benefit accordingly.

Result

7. The insurer agreed with our view and settled the claim.

NS
February 2013

CR328
Lapsing

Whether insurer’s conduct in having accepted late premiums in an earlier period, and in accepting arrangements to pay arrears, indicated a waiver of its right to regard the policy as having automatically lapsed according to its terms – onus on complainant to prove conduct showing unequivocal intention to waive, and consistent with no other hypothesis.

Background

1. The complainant was the premium payer on her father’s whole life policy. She failed to pay the premiums on time in February, March and April 2009, and in terms of the relevant policy provisions it lapsed automatically. In a complaint to our office she maintained that payment had been accepted late on two previous occasions in 2008 without the insurer relying on an automatic lapsing, and that, in respect of the February, March and April 2009 premiums she had telephoned the insurer’s call centre and made arrangements to pay arrear amounts off by increasing her payments from July 2009 onwards. She argued that in this way the insurer had “negotiated” the contract, and she had been led to believe that it would not insist on implementing the lapsing provisions in the policy.

2. The relevant terms stated that –

“All premiums are payable in advance and due on the first day of the month. A period of grace of one month is allowed for the payment of each premium.

If a premium is not paid within the period of grace, the policy will lapse.

If the policy lapses, [the insurer] will consider reinstatement subject to [the insurer’s] requirements at the time”.

3. The complainant’s argument was effectively that the insurer had waived or abandoned its right to the automatic lapsing of the policy according to its abovesaid terms.

4. The insurer denied that it had had any intention to release the complainant from her obligation to pay premiums timeously (with the exception of one premium – see paragraph 10 below), or to waive its right to regard the policy as having lapsed if the premiums were not paid within the grace period of one month.

Discussion

5. We pointed out to the complainant that the onus is on the party alleging a waiver to establish it by clear proof of an intention to release or waive. A waiver may be effected not only expressly, but also tacitly, for example by conduct such as the complainant contended in this case. In respect of a waiver by conduct the circumstances relied on must be unequivocal, however, and consistent with no other hypothesis. There must be nothing indicating that the insurer did not have the intention to waive its right to regard the policy as having lapsed.

6. Section 52 (1) of the Long-term Insurance Act requires that if a premium is not paid on its due date “the long-term insurer shall notify the policyholder of the non-payment”. The insurer maintained that such notices had been sent to the policyholder on 27 March 2009, 26 June 2009 and 26 August 2009, pointing out the arrears and warning of the pending lapse of the policy (if the arrear premiums were not paid).

7. The insurer contended that these letters were an indication of its intention in 2009 to enforce the policy provisions. It would indeed be difficult to argue, in the face of the notices, that the insurer intended by its conduct in allowing late payment in 2008 to waive timeous payment in 2009 or that the insurer intended to be similarly lenient in 2009.

8. The complainant and her father maintained that neither of them had ever received any such notices. The insurer sent us a screen dump indicating that notices were sent on the mentioned dates to the correct address, but it could not prove that the letters had been received by them. On the probabilities it appeared unlikely to us that all three letters would have gone missing in the mail, and therefore likely that at least one of the letters would have been received, and if received but ignored this would afford no defence.

9. Even if one were to accept that the notices were not received, what remained to be considered was whether there was any other evidence which indicated that there was an intention by the insurer to waive the lapsing provision.

10. Concerning the two respective versions of the calls and arrangements allegedly made between the complainant and the call centre operator, there was a dispute of fact. The calls were not recorded. The complainant stated that the call centre operator told her in April 2009 that all the arrears would be written off and that she must just pay timeously in future. The call centre operator’s version was that he told her only one premium would be written off, and that the rest still had to be paid. Apparently she thereafter made some short payments, and no payment at all in August 2009. The operator stated that he had telephoned her on three further occasions, in July, August and September 2009, reminding her to pay the arrears and to provide new bank account details (to allow future debit order deductions), and each time she stated that she would do so. No arrear payments were made until October 2009, however, by which time the insurer had regarded the policy as having lapsed with effect from 1 July 2009.

11. As it was the complainant who was asserting that the arrangements were part of the insurer’s conduct showing an intention to waive timeous payment, the onus was on her to prove her version.

12. In our view she had not discharged this onus. On a balance of probabilities it was more likely that the insurer had been prepared to write off one month’s arrears, and not two or more months. When the premiums were overdue in 2008 the insurer did not write off any premiums, which made it unlikely that it would have been prepared to write off more than one premium in 2009. The premium history showed that only one premium was in fact written off in April 2009. The complainant had herself stated that the call centre operator told her in the beginning of his April 2009 conversations with her that even if the arrears were written off she must start paying premiums timeously thereafter. This would indicate that the insurer was prepared to make one concession, but no more. It was also consistent with an intention not to waive the lapsing provision in the policy if she did not comply with the further chance afforded her.

13. We asked the insurer to comment on why, if it was not the insurer’s intention to be lenient regarding premium payment, the call centre operator had made so many calls to the complainant about the arrears. The insurer responded that, because she had continued to make some payments, and made promises to honour the financial arrangements, she was given the benefit of the doubt. However, after the third failed promise to provide the required bank details, the policy was regarded as having lapsed (retrospective to the month before the last payment default ie July 2009).

Result

14. We advised the complainant that in our view the insurer could not be faulted for this. The conduct of the insurer did not indicate an unequivocal intention to waive its right to regard the policy as having lapsed. While the insurer was prepared to negotiate with the complainant regarding arrear premiums, this was done on the basis that she would comply with the arrangements; when she did not the insurer was entitled to insist that the policy had lapsed. We made a provisional ruling to this effect, and the complainant apparently accepted it as we did not hear from her again.

SM
January 2012

CR255

Lapsing of policy – complainant repeatedly having failed to pay premiums – insurer always accepting double premiums thereafter – insurer held to have waived lapsing provision.

Background

The complainant complained that her policy, a dependant care plan, had been cancelled by the insurer in 2007 due to unpaid premiums. She stated that, after the policy was sold telephonically to her in 2003, she had never received a contract from the insurer. She stated that over the years there had been several occasions on which she had not paid the monthly premiums, but she had paid a double premium the next month and these were always accepted by the insurer. In February 2007 she was told that the policy had lapsed and she asked for it to be reinstated, which was done. She missed a premium some months later, however, and although she paid double the next month the insurer this time refused to reinstate the policy.

In its response to our office the insurer stood by its decision, relying on the lapsing and reinstatement clause in the policy, which read:

“If one month’s premium is unpaid the policy will lapse, no further benefits will be made and no premiums will be refunded. The policy can be reinstated within three months from date of the last premium being paid. Reinstatement can only be made once during the life of the policy. Outstanding premiums may be recovered at claims stage”.

The complainant persisted in her allegation that, despite repeated requests, she had never been sent a copy of the policy, and the insurer was unable to disprove this.

Discussion

We asked the insurer to provide us with a full premium history from inception of the policy. From this it was evident that there had been erratic payments – premiums had been missed in July 2003, September 2003, March 2004, November 2004, March 2005, June 2005, October 2005, November 2005, December 2005, January 2006, February 2006, March 2006, May 2006, June 2006, July 2006, August 2006, October 2006, November 2006, January 2007, March 2007, and May 2007. In each case there was a payment recovery some weeks after the due date. The insurer had cancelled the policy in February 2007, whereafter it was reinstated, and cancelled it again in May 2007.

We pointed out to the insurer that it had accepted late payment on several occasions over the life of the policy. By the insurer’s own conduct in regularly accepting late payments the insurer may thus be deemed to have waived the right to regard the policy as having lapsed in terms of the policy provision quoted above. Even if this conduct did not amount to a waiver, the complainant was, in our view, reasonably justified in believing, on the strength of the insurer’s past conduct, that it would not insist on strict and prompt payment in future.

We asked the insurer whether notices had been sent to the complainant in January/February 2007, or later, warning of the arrear premiums and the imminent lapsing of the policy. Such notices are required to be sent, in terms of section 52(1) of the Long-term Insurance Act. We also asked why the complainant had not been provided with a copy of the policy when it commenced in 2003.

Result

We never received a direct answer either to these questions or to our comments about the apparent waiver of the lapsing clause.

The insurer’s response was simply that it had decided to reinstate the policy, with the proviso that in future the terms of the policy would be adhered to, and no further reinstatements would be considered.

We advised the complainant to ensure that her premiums were paid regularly and on time in future.

SM
May 2008

CR253

Lapsing of policy – implications of acceptance of late payment.

Background

More than eight months after the lapsing of a policy in terms of the policy provisions, the spouse of the policyholder, who was also the beneficiary in terms of the lapsed contract, deposited an amount in respect of the arrear premiums in the account of the policyholder. On the same day she went to the insurer’s offices where the deposit slip was presented to the staff member on duty, and where she enquired whether the amount deposited would be sufficient to reinstate the policy. The deposit slip was faxed to the insurer’s head office and a telephonic response confirmed that the amount was sufficient and that the policy would be on the “correct account” within four days.

She was phoned by the insurer eleven days later to be informed, however, that a further amount was required to have the policy reinstated. After receipt of this further amount, the insurer sent a letter to the policyholder informing him that the policy had been reinstated subject to disclosure to the insurer of any change in the health of the insured as well as of any special medical tests undergone whilst premiums were outstanding. It was explicitly stated in the letter that failure to disclose such information may result in voidability of the contract and forfeiture of the premiums paid in respect of the reinstatement.

It was quite clear that there had been dramatic changes in the state of health of the insured during the period in which the premiums were not paid. During this period, and after the lapsing of the policy in terms of the contract, the insured experienced epigastic pain, weight loss, melena stools, vomiting and difficulty in swallowing food. After consulting his general practitioner, he had been hospitalised and tests were performed. Whilst the results of such tests were outstanding, the severity of the increased symptoms was such that it necessitated follow up consultations. Enlargement of the liver and metastasis of malignant tumor to the liver were suspected. The first payment of arrear premiums was made one day after the second follow up consultation when cancer was suspected. The insured died one day before the insurer informed the premium payer that a further amount was due and before such amount was paid. The insurer was not informed that the insured had died the day before the premium payer was phoned and the further payment was made.

Consideration

We considered whether the acceptance of payment by the insurer under the particular circumstances may have constituted a waiver of the insurer’s rights in terms of the contract. It was not in issue that the payment and acceptance of the outstanding amounts were in respect of a renewal of a lapsed contract. As such this amounted to the conclusion of a new contract.

The duty of good faith attaches to the renewal of such contract of insurance just as it did to the conclusion of the original contract – “General Principles of Insurance Law” (2nd Edition) Reinecke et al at para 177. The insurer’s rights in respect of the duty of disclosure of material information concerning the state of health of the insured are relevant.

Two crucial aspects regarding the issue of waiver were, firstly, whether the persons who accepted the payments had the authority to waive the rights in issue and, secondly, even if such persons had such authority, whether the persons who may be considered to have waived the rights on behalf of the insurer knew what such rights were.

The available information provided no support for the suggestion that the persons who accepted the payments concerned on behalf of the insurer had any authority, including implied or ostensible authority, to waive the insurer’s right to rely on the duty of good faith at the time of renewal, or to reinstate a contract in respect of an event which had already occurred.

From the available information it was further concluded that even if it were to be assumed that there had been actual, implied or ostensible authority on the part of the officials involved, there was no waiver of the insurer’s right. There was also no basis for an inference that the insurer was aware, either through the officials involved or otherwise, of the material change in the state of health of the insured such as would obviously have entitled the insurer to rely on failure to comply with the duty of disclosure.

As it was not in issue that the insurer was not informed of the material change of the state of health, and more in particular the death of the insured prior to the renewal of the contract, it was also accepted that the available information did not confirm conduct on the part of the insurer which would support reliance either on quasi mutual assent or estoppel.

EdB
May 2008

CR203

Payment – debit order not activated due to capturing error on part of insurer – policy lapsed

Background

During 2004 the complainant applied telephonically for a policy which provided, inter alia, cover for himself and his wife for death as a result of an accident. The policyholder’s wife died on 7 July 2005 due to unnatural causes. When the policyholder instituted a claim the insurer repudiated the claim because, so it contended, the policy had lapsed on 1 September 2004 due to the non-payment of premiums.

Upon making enquiries from the insurer, the complainant ascertained that the insurer lodged the debit order but that it was returned by the bank marked as “no authority”, the reason being that the insurer incorrectly captured the account details as a transmission account despite the fact that the complainant informed the insurer that it was a cheque account. Debit orders could apparently not be lodged against a transmission account. (Subsequent to the sale of the first policy, two further policies were sold to the complainant and in both instances the complainant did not provide the insurer with new banking details. Apparently the insurer informed him that his banking details were on record and could be used to lodge the debit order. Premiums were deducted successfully for these two policies.)

The complainant demanded that the insurer pay the death claim because the lapse of the policy was due to an error on its part. He explained that he was the holder of more than one policy from the insurer and did not realise that this specific policy’s premiums were not being deducted from his bank account at the time. He maintained that the insurer should have contacted him telephonically when premiums were in arrears and that he never received a letter sent by the insurer in which it informed him that the policy had lapsed.

Discussion

The matter was discussed at an adjudicators’ meeting. The meeting’s view was that:

o the insurer was in the first instance to blame for the fact that the payments were not initially transmitted from the complainant’s cheque account;

o there was, however, no contractual duty on the insurer to have contacted the complainant when the debit order was returned, marked “no authority”;

o on the probabilities the insurer did send a letter to the complainant in which it informed him that the policy had lapsed;

o a policyholder, as the debtor in respect of the obligation to make payment of premiums, is under a duty, when payment of premiums is to be deducted from his bank account, to ensure that such payments are indeed transmitted from his account;

o because no premiums were thus transmitted the policy had lapsed and accordingly could no longer support a claim;

o any claim for damages by the complainant for breach of contract (mora creditoris) would largely be neutralised by the mitigation rule;

o because of the insurer’s initial poor administration a compensatory award in terms of our Rule 3.2.5 was justified which, in the circumstances, should not be less than R10 000.

Result

The complaint was accordingly not upheld but a provisional ruling was made that the insurer should pay compensation in the amount of R10 000. The insurer abided by our decision.

AS
November 2006

CR105

Lapsing – Whole life policy made paid-up for reduced benefits – policy kept in force until funds in the accumulation account were depleted – policy lapsed – complainant expected paid-up value to increase with bonuses

Background

The insured effected a whole life policy during 1987 and during 1992 the premium and cover were increased respectively. On 19 January 1999 the insured requested the insurer to make the policy paid-up with immediate effect with the instruction that “no further premiums are to be collected”. The paid-up value quoted was R5 799,00.

The insured was advised that the policy had lapsed due to insufficient funds to keep the policy in force, with effect from 1 June 2004.

After corresponding with the insurer, the insured’s broker lodged a complaint with this office expressing his dissatisfaction that the policy had lapsed because, when making the policy paid-up, the insured had “expected the paid up value to increase with bonuses over time”.

Assessment

On 19 January 1999, the insured requested that his policy be made paid-up and that no further premiums were to be collected.

This was in accordance with the “explanatory notes” which, while not part of the policy, were issued to “facilitate understanding”. “Paid-up” was defined in these explanatory notes as “Certain reduced benefits will be payable, as calculated by (the insurer), based on the balance in the Accumulation Account, after the deduction of all outstanding expenses. These reduced benefits are calculated on the assumption that no further premiums will be paid under the policy”.

The broker alleged that the instruction that no further premiums were to be collected was included on the advice of the broker consultant at the time the policy was made paid-up. It was clear from the documentation on file and the advice of the insurer’s broker consultant, that the insured understood his election to be that he would not be liable to pay further premiums and that he would only (in the wording of the explanatory note) be entitled to “reduced benefits…as calculated by (the insurer), based on the balance in the Accumulation Account after the deduction of all outstanding expenses”.

This was not, however, what happened. The insurer purported to act in terms of the policy provisions providing for “Automatic Paid-up Value and Reinstatement”:

“If the instalment premiums are not paid within the period of grace allowed, the policy will, … be automatically converted to a paid-up assurance (for reduced benefits and in accordance with conditions which (the insurer) will determine at the time. The Basic Benefits and Supplementary Benefits and Supplementary Benefits will continue for as long as there is sufficient balance in the Accumulation Account to meet the costs of these benefits”.

The insurer contended that the insured should have given a special instruction to have the life cover removed in order to give effect to his election.

In the result and contrary to the insured’s intention, the policy, due to the depletion of the balance in the accumulation account, eventually lapsed.

In the circumstances there was clearly no consensus between the insured and the insurer as to the implications and contractual consequences of his decision at the time to make the policy paid-up. Because his decision was in line with the explanatory note and the broker consultant’s advice, his decision was not an informed one and consequently it did not seem to us that his error was an unreasonable one.

That being the case, his then election to make the policy paid-up would appear to have been invalid for lack of consensus and the position of both parties should have retrospectively been reinstated as it was in January 1999 when the uninformed decision to make the policy paid-up was taken.

Recommendation

The office recommended that the insured should be afforded a fresh opportunity to decide what he wants to do as if this were January 1999.

The insurer thereupon offered the insured the choice of the payment of the surrender value of the policy as at January 1999 (amounting to R4 464,92 with interest) or of accepting the payment of R7 928,95 as at 1 June 2004 with interest. The latter amount was the maturity value of the policy as at 1 June 2004 (date of lapse) had the policy been changed to a pure endowment policy during January 1999.

Result

The insured elected to receive the payment of the maturity value of R7 928,95 with interest at a rate of 8% per annum as if the policy had been changed to a pure endowment policy during January 1999.

The insurer paid the amount accordingly.

AR
October 2005

CR103

Lapsing – interpretation – life insured no longer eligible – reinstatement with full cover.

Background

The complainant took out a policy with X company in 2000. Her father was one of the life assured. The policy provided that premiums were payable monthly or annually in advance and that if payments were not made within two months “from the commencement date” the policy would lapse.

During 2005 the complainant experienced financial difficulties and reneged on premiums for two consecutive months. When she tendered the full arrears in the month following X company informed her that the policy had lapsed but that she could apply for reinstatement. She did so. X company was prepared to reinstate the policy but with the exclusion of cover for her father who had in the meantime exceeded the maximum age at entry of 75 years. The complainant approached us.

Discussion

We wrote to X company as follows:

“I would like to hear your views as to whether Clause 5 of the Policy Terms and Conditions, annexed to your letter to us, entitles you to regard the policy as lapsed. I say so for the following reasons:

Clause 5 of the Policy provides, “If payments are not paid within two (2) months from the commencement date, the cover will lapse. Cover will be re-instated at the sole discretion of X company.”

The commencement date reflected on the policy is 1 April 1997.

The clause, literally interpreted, refers only to late-payments “within two (2) months from the commencement date” and not to a delay of two months in respect of any subsequent payments. On that basis the policy makes no provision for a lapsing in the event of subsequent delays.

Thus interpreted it would mean that the policy, contrary to what you stated to the complainant, did not lapse on the non-payment of the two premiums in January 2005. It would further mean that the lapse letter of February 2005 can be ignored and that it was not necessary for the complainant to apply for a reinstatement. On that basis you were likewise not entitled to reinstate the policy without the cover, which previously existed, for the complainant’s father who had in the meantime become ineligible for such cover in terms of a new policy.

In view of these difficulties it may be to your advantage:

(i) to either regard the policy as not having lapsed, provided the complainant clears any arrears currently owing on the policy;

(ii) to reinstate the policy but with the retention of life cover for the complainant’s father;

(iii) to give serious consideration to a redrafting of the affected clauses in respect of future policies.”

In response to this letter X company replied that the funeral benefit in respect of the complainant’s father had been added to the reinstated policy but subject to a three months waiting period in respect of death resulting from natural causes.

Result

The complainant was satisfied and the matter was resolved on that basis.

PMN
October 2005