CR289 Mistake Mistake excluding consensus

by with No Comment Case ReportsMistakeSnatching at the BargainTopics & Cases

CR289
Mistake

Mistake excluding consensus – insurer mistakenly imposing exclusion wording which did not conform to its intention – on the particular facts complainant could not reasonably rely on impression that insurer had not made a mistake – contract void ab initio and premiums refundable

Background

1. The complainant had a policy covering him for sickness and permanent incapacity. In November 2006 he applied for increased cover. He disclosed on his application form that he suffered from and was being treated for rickettsial infection (the symptoms of which include malaise and fatigue). The insurer made a counter-offer to afford him the additional cover with an exclusion for “post-viral fatigue syndrome”. It also imposed an exclusion for “mental disorders” as it was evident from the medical information that he had a history of depression. The complainant raised no objection to the exclusions. The counter-offer was thereby accepted and a contract concluded accordingly.

2. In early 2009 the complainant claimed for a sickness benefit for a five month period when he had been unable to work because of a re-activation of his rickettsial infection. The insurer agreed to pay his claim on the original cover, but declined his claim for the increased cover on the grounds that the condition claimed for fell within the terms of the exclusion.

3. The complainant then pointed out to the insurer that the condition he suffered from was a bacterial infection, and thus could not be covered by the exclusion, which was stated to relate to viral infection.

4. The insurer then advised the complainant that it had made a mistake, as it had intended to exclude liability in the event of rickettsial infection, and that no other facts had been disclosed that would have led to the insurer to introduce an exclusion for post-viral fatigue syndrome. The insurer stated that it was correcting the error, and that “the correct exclusion therefore replaces the one that was initially placed from the date that the incorrect one was placed”. For this reason the claim for the increased cover, according to the insurer, could not be paid. It was stated that “the insurer accidentally placed an incorrect exclusion and as an insurer we are allowed to correct an error”.

Discussion

5. Our office pointed out that the basis for contractual liability is consensus supported by the serious intention of both parties to be legally bound by what they had agreed. The validity of the contract will be called into question, however, if a mistake occurs which excludes consensus.

6. The insurer’s intention had been to exclude its liability in the event of rickettsial infection, the condition which the complainant had disclosed on his application. but it was mistakenly worded in the exclusion as being for post-viral infection syndrome. The insurer’s subjective intention therefore differed from what was stated in the agreement.

7. In terms of the reasonable reliance theory, and looking at the facts from the point of view of the non-mistaken party, the complainant would be able to enforce the contract if he reasonably believed that there was subjective consensus between the parties. In other words the contract would be valid if the requirements are met, firstly that the insurer created the impression that it subjectively agreed to the contract; secondly that the complainant relied on this impression; and thirdly that his reliance was reasonable.

8. In this instance it was clear that the insurer created the impression that it subjectively agreed to the contract wording, so that the first requirement was met.

9. As to the second requirement the complainant would have to prove that he honestly believed that there was subjective consensus between the parties and that he actually relied on the impression created by the insurer’s incorrect declaration. If he was aware of the insurer’s mistake and nevertheless tried to enforce the declared agreement, this would be said to be “snatching at the bargain” i.e. knowingly trying to take advantage of the insurer’s mistake, which no contracting party is permitted to do.

10. As to the third requirement it also had to be proved that the complainant’s reliance was reasonable i.e. that a reasonable person would also have believed that there was subjective consensus between the parties. In our view a reasonable person would not have relied on the impression created by the wording of the exclusion clause. There would have been no reason for the insurer to exclude viral infection after assessing the complainant’s application, as he had not disclosed any prior viral infection. He had disclosed rickettsia which is a bacterial infection, and in our view a reasonable person would suppose that this was the condition which the insurer sought to exclude. In our view a reasonable person would have realised that the insurer had made a mistake, would have asked further questions on receipt of the insurer’s counter-offer with the exclusion wording, and would not have relied on the impression created by the wording.

Result

11. On the basis that the complainant’s reliance was not reasonable, a provisional ruling was made to the effect that the contract could not be enforced by him. In terms of the provisional ruling the contract was invalid (void ab initio, which means from the outset) because there was no consensus between the parties, and the insurer therefore had to refund all premiums paid by the complainant for the increased cover since the purported conclusion of the additional contract in November 2006.

12. The insurer and the complainant accepted the provisional ruling. The insurer refunded the premiums with interest but then tried to impose, in the original contract, a rickettsial infection exclusion from the date of the purported claim in 2009, and a mental disorders exclusion from November 2006. The insurer took the view that now that it knew about the complainant’s condition of rickettsial infection it could exclude any future claims arising from this condition. Our office explained to the insurer that this could not be done as the exclusions had fallen away with the void purported additional contract, and they could clearly not apply to the original contract which had been entered into before the rickettsial infection and depression conditions had manifested themselves.

13. Several weeks after the complainant indicated that he accepted the provisional ruling, his attorneys wrote to advise the insurer, without giving reasons, that he no longer accepted the basis of the office’s ruling, and that the matter would be taken further in due course. The insurer sent us a copy of this letter. A month later the complainant wrote to us to confirm that he no longer accepted the ruling, and set out suggestions for settling the matter. We advised the complainant that any further dealings would have to take place between him and the insurer directly.

SM
October 2009

CR248 Mistake Mistake by insurer when furnishing maturity values

by with No Comment Case ReportsMistakeTopics & Cases

CR248

Mistake

Mistake by insurer when furnishing maturity values – insured attempting to take advantage of obvious error.

Background

At regular intervals, but also on request, the insurance company provided the policyholder with detailed policy information schedules which featured, inter alia, estimated maturity values (EMV). These were values that the schedules stated were neither guaranteed nor promised, but were mere forecasts of future growth. For a short period of time, just a few weeks, incorrect estimated maturity value figures were quoted. Instead of an EMV of R200 000 the policyholder was told that the EMV was R1 200 000. The complainant sought to hold the insurance company to the incorrect figure. The insurance company stated that the error arose as a result of a malfunction of the data processing system.

Discussion

The office accepted that data processing systems do occasionally go wrong; insurance companies are not infallible and errors do occur from time to time. In this instance the incorrect figures quoted, which in any event were only estimates, were of such magnitude that they were obviously inconsistent with figures quoted both previously and subsequently. Any reasonable reader would have recognised that the figures were unrealistic and that a mistake had been made.

Result

We took the view that the complainant was seeking to take advantage of the error. The complaint itself was not upheld but an award was made of R2500 to compensate for inconvenience suffered.

Postscript

Two years after the ruling was made the complainant again raised the issue with the insurance company. An extract of his letter read:

“I would, however, consider a settlement of R20 000 as full and final payment on the above matter. If a settlement cannot be reached in this instance I will have no further option but to expose this whole issue to the financial press.”

The insurance company did not accede to the complainant’s request.

CR196 Mistake – endowment portion of policy

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CR196

Mistake – endowment portion of policy; insurer refusing at maturity date to pay value stated as minimum maturity value on policy schedule, alleging that the stated value was a mistake.

Background

In 1990 the complainant took out a 15 year term policy providing a mix of benefits: life cover, family funeral benefit, personal catastrophe and a linked pure endowment. According to the policy, if she survived to the maturity date in 2005, the maturity benefit on the endowment would be the greater of the value of the units of the investment portfolio or the minimum maturity value as mentioned in the schedule. The schedule set out a minimum maturity value of R24 965.

In 2005 the insurer paid out R2 630 as the maturity benefit. The complainant maintained that if this sum represented the value of the units she should have received R24 965 inasmuch as the minimum maturity value exceeded this sum.

The insurer responded that the guaranteed minimum maturity value on the policy schedule was a printing error. No explanation was given for the mistake. The insurer pointed out that on the initial quote, “upon which the client reacted to buy the policy”, it was stated that the GMV was R1 085 per R5 monthly premium. As the complainant had paid an endowment premium of R10, this would yield a minimum maturity value of R2 170. The value paid exceeded this amount. The insurer offered R3000 to compensate “for inconvenience caused”.

The section on the quote looked like this:

ILLUSTRATIVE INVESTMENT BENEFITS PER R5.00 MONTHLY PREMIUM

15% 90 896 44 941 22 095 10 801 5 253 2 454 1 042
GMV 6 128 4 564 3 337 2 383 1 661 1 085 625

Discussion

We wrote to the insurer arguing that in our view it would not necessarily have been clear to the complainant what the initials “GMV” stood for, as they were not in fact explained on the face of the document. She might well also not have appreciated that the word “15%” under “Illustrative investment benefits” meant an illustrated annual return of 15% over the term of the policy, as this was also not made clear. The relevant term of the policy was furthermore not specified on the quote.

In our view the complainant would in all likelihood have been uncertain as to what exactly the investment benefit would be until she obtained a copy of the policy, which stood as a record of the apparent contract. According to the policy schedule the minimum maturity value was clearly stated to be R24 965.

We argued that the insurer had created in the mind of the insured, by the wording which it set out in the policy, the belief or reliance that it intended to contract with the insured on the basis of a minimum maturity value of R24 965. This reliance appeared to be reasonable in the circumstances as it was doubtful whether it could be expected of the insured to estimate the growth rate that would have to be achieved in order to achieve such a maturity value, and that such a growth rate would be unrealistic, and that therefore the wording must have been a mistake.

According to the reliance theory as applied in South African law a contract exists either if there is actual consensus between the parties or, absent such actual consensus, if one of the parties in a reasonable manner relied on the impression created by the other that there was consensus. The party creating the erroneous belief in the mind of the other party would be bound thereby even if this was not his or her actual intention.

Result

The insurer agreed with our arguments and paid the amount of R24 965 less the R 2 630 already paid, plus interest from the maturity date.

SM
November 2006

CR197 Mistake by the insurer – enuring to the benefit of the complainant.

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CR197

Mistake by the insurer – enuring to the benefit of the complainant.

Background

The complainant wrote to us to complaint about the policy maturity value because he believed the amount of R279941,59 which he was advised was the fund value on 22 November 2005 was understated.

He also complained that he had received no information during the term of the policy regarding its performance.

The policy matured on 1 December 2001. He extended the maturity date. At 1 December 2001 the maturity value was R309000. The complainant was upset that the value of the policy had decreased after the initial maturity date and that his request for an actuarial verification of the value of the policy had not been acceded to. He also pointed out that the policy had been altered from an international portfolio to a local portfolio without his prior consent.

The insurer conceded that it had wrongly changed the portfolio of the policy but stated that it had made a correction on its books to reflect returns based on the international portfolio and that the R279941 was indeed the correct amount.

The mediocre investment value, so the insurer explained, was entirely due to poor returns in the off-shore portfolios and to the strengthening of the rand subsequent to the investment in the international portfolio.

The insurer also pointed out that the policy performance was in fact worse off in the international portfolio than it was in the local incorrect portfolio in which it had in fact been invested. The difference in value at date of change had been some R100000.

Discussion

We asked the insurer whether it would be prepared, as a gesture of goodwill, to give the policyholder the benefit of its error by allocating the value in which the policy had in fact been invested (the local portfolio) as the value of the policy, even though it was not in fact the correct (the international) portfolio. We conceded that there was no legal obligation on it to do so but we mentioned that certain asset managers, in similar circumstances, would oblige policyholders by granting them the benefit of such errors.

Result

After further consideration the insurer eventually agreed to give the complainant this benefit, the result of the insurer’s own error, of some R70000.

JP
November 2006

CR195 Mistake – settlement – Income plan (back-to-back)

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CR195

Mistake – settlement – Income plan (back-to-back) – insurer refusing at maturity date to pay value stated as minimum maturity value on endowment policy, alleging that the stated value was a reasonable mistake (iustus error), alternatively that the actual contract differed from that evidenced by the policy.

Background

In June 1995, when he was 79 years old, the complainant purchased a 10-year temporary annuity for R100 000, which provided him with a gross monthly income of R2330. R1345 of this amount was paid to him as a guaranteed monthly income and the balance of R985 was used to pay monthly premiums on a 10-year endowment policy.

Under “Benefits” in the endowment policy it was stated that:

“The minimum maturity value of R104064, or the balance of the Investment Account if greater, is payable on the maturity date of 2005.07.01 should the life assured then be alive.

Should the Life Assured die before 2005.07.01, the sum assured of R100 000, or the balance of the Investment Account, if greater, will be paid”.

This statement was repeated in the summary of policy details enclosed with the initial welcome letter. It was also stated, in the summary of the investment plan details, under “Investment Plan Benefits”, that

“The following guarantees apply to your policy:
Minimum guaranteed maturity value of R104064 on 2005.07.01”. (our emphasis).

The policy statement as at 2001/10/01 stated, under “Benefits”, “Minimum Maturity Value R104064.00”, although on the other policy statements (1 April 2001, 1 March 2002 and 1 March 2003) there was no mention of a minimum maturity value. The policy statement for 1 April 2001 reflected illustrative maturity values at 6% and 9% as R0, but this was not mentioned on the other policy statements.

When the policy matured on 1 June 2005 the insurer at first maintained that all the premiums had been utilised to provide life cover and there was no positive value in the investment account to be paid out as a maturity value. When the complainant objected, the insurer offered to pay him the amount of R33 711.00, as this amount was mentioned as a guaranteed maturity value in a “special quotation” dated 1 June 1995. The complainant rejected this offer and complained to our office, pointing out that the special quotation was marked “for internal use only” and was not signed by the complainant.

Discussion

We asked the insurer to clarify whether it relied on reasonable mistake (in which case we would have to determine whether the error was reasonable and the policy was void or whether the insured had reasonably relied on the terms of the policy, in which case the insurer would be bound to the impression it had created), or whether it denied that the actual contract was correctly reflected in the policy, (in which case it would have to make out a case for rectification).

The insurer replied that a iustus error had occurred when the guaranteed maturity value of R104 064.00 was reflected in the policy, and that the complainant knew or should have known that this was a mistake as the quotation reflected a maturity value of R33 711.00 and also stated: “Please note that there is no guarantee that the original investment amount at the end of the term is guaranteed”; the insurer asked rhetorically why they would have guaranteed a value of R104 064.00 when there was no guarantee that the original investment amount of R100 000 would be paid at the end of the term. The insurer also indicated that the special quotation had been drawn on 1 June 1995 and the application form was signed on 2 June 1995, apparently in accordance with the figures of the quotation; thus the insurer contended that the broker and the client must have seen the quotation. It was argued that the contract was only issued subsequent to the acceptance by the complainant of the offer contained in the special quotation; thus the actual contract was not that set out in the policy.

When this was put to the complainant, he responded that the mistake could hardly have been an obvious one which he should have recognised, when the value of R104 064 was repeatedly confirmed in subsequent statements. He further stated that he had no recollection of having received or considered the special quotation at any stage nor did he know whether his broker at the time had seen it.

In our view there were strengths and weaknesses on both sides of this dispute. The insurer was unable to provide proof of the alleged actual contract. Furthermore, its argument flew in the face of its earlier stance that no value was payable at all. On the other hand, the complainant should have noticed that the guaranteed maturity value was unusually high, even higher than the illustrative value on the higher of the two rates used. There was also the possibility that we might make a finding on the probabilities that the quotation had been handed to the broker.

Result

The insurer made an offer to settle the matter for R52 000, that is, half the originally disputed amount. The complainant countered that he would settle for R80 000; this was rejected by the insurer. The parties then requested that we make a ruling. We wrote to the parties proposing a date for a round table meeting. The complainant subsequently advised that he would be prepared to settle on a figure between the two earlier figures suggested, ie R66 000. This proposal was accepted by the insurer, and the matter was resolved on that basis.
SM
November 2006

CR151 Mistake – snatching at the bargain – bona fide error by insurer

by with No Comment Case ReportsMistakeSnatching at the BargainTopics & Cases

CR151

Mistake – snatching at the bargain – bona fide error by insurer

Feite

Die klaer het in 1971 en 1973 onderskeidelik twee polisse by die versekeraar uitgeneem.

Gedurende die tydperk wat hy die polisse besit het, het die versekeraar hom gereeld ingelig oor bonusverklarings en die stand van die polisse. Sedert 2001 het hy gereeld navraag gedoen oor die waardes van die polisse. In 2005 het hy besluit om die polisse af te koop en sy makelaar gevra om die nuutste waardes skriftelik aan te vra. Op 12 Mei 2005 het die versekeraar hom skriftelik ingelig dat die waardes van die polisse onderskeidelik R54 000 en R14 000 was. Die klaer het die nodige afkoopvorms voltooi en toe hy na twee weke nog nie betaling ontvang het nie, navraag gedoen. Dis toe dat die versekeraar hom meedeel dat die polisse reeds gedurende 1998 afgekoop was deur die bank aan wie die polisse gesedeer was. Volgens die versekeraar was die status van die polis foutiewelik aangedui as “volopbetaald” in plaas van “afgekoop”.

Die klaer was van mening dat hy onder ‘n wanindruk gebring is deur die versekeraar en dat daar ‘n verwagting geskep is dat daar afkoopwaardes op die polisse was. Hy voel dat die maatskappy aanspreeklik gehou moet word vir die uitbetalings aangesien hy nie vir hulle foute aanspreeklik gehou kan word nie.

Bespreking

Volgens die versekeraar kon daar redelikerwys van die klaer verwag gewees het om te weet dat die polisse in 1998 afgekoop was omdat, met die afkoop van die polis, R54 000 in die klaer se bankrekening gedeponeer is. Die versekeraar het verder aangebied om ‘n bedrag van R1 500 aan die klaer te betaal om hom te vergoed vir enige ongerief wat hul optrede kon veroorsaak het. Die klaer se antwoord hierop was dat sy rekening deur die bank gevries is a.g.v. sy likwidasie en dat hy geen beheer of handelingsbevoegdheid ten opsigte van die rekening gehad het nie. Hy was ook nie tevrede met die aanbod van R1 500 nie.

Resultaat

Nadat die saak op ‘n beregtersvergadering bespreek is het ons tot die gevolgtrekking gekom dat die klagte nie gehandhaaf kan word nie. Die afkoopwaarde van die polis is tot die klaer se voordeel aangewend. Ons was ook van mening dat die versekeraar se aanbod van R1 500 ‘n billike aanbod was en voldoende vergoeding is vir enige ongerief wat die klaer ervaar het.
AS
Maart 2006

CR152 Mistake – investment instruction not followed – was the client’s lack of action excusable?

by with No Comment Case ReportsMistakeTopics & Cases

CR152

Mistake – investment instruction not followed – was the client’s lack of action excusable?

Facts

The complainant retired from a pension fund during December 2000. His benefit was worth R536 777.
He relied on the advice of an insurance agent and decided to invest with an insurer. His pension benefit was first transferred to a retirement annuity fund. He immediately took a one-third cash lump sum. The balance was invested in a unit-linked annuity with the investment split fifty-fifty between two off-shore portfolios. He applied for a 10% income. The application was made on 7 March 2001.
On 13 March 2001 he sent a fax to the insurer in which he requested the following changes to the application:
he would repay the one-third i.e. R160 473 and the insurer should pay only R120 000 tax-free in cash, the balance to be invested in his compulsory annuity;
the investment portfolios should be changed to 75% in the one existing fund and 25% in a new fund;
the income percentage should be changed to 8%.

The insurer, after first denying it, admitted to receiving the instruction, however they did not act on instruction 2 but only on 1 and 3.
The complainant was sent the policy and other documents reflecting the investment portfolios in his initial application. His agent also saw these documents.
According to the complainant he did not notice the discrepancy because the names of the portfolios were very similar. Only in October 2002 did he discover the error when another adviser from the insurer advised him that his investment had fallen in value.
When he contacted the insurer it was not prepared to accede to his request to put him in the position he would have been in had his investment been in the freshly chosen portfolios from inception.
The insurer offered him R27 000 which was the difference between the old and the new investment choices, six months after his investment. It argued that by then he should have noticed the discrepancy.
The investment had remained in the wrong portfolios up to the time when the complaint was lodged with our office more than a year after he first noticed the discrepancy.

Discussion

In our view the insurer had been at fault for not investing in accordance with the complainant’s instruction. However, in October 2002, when the complainant noticed the discrepancy, he should have ensured that the investment be moved to his chosen portfolios.

We used this date as the cut-off date for calculating the values.

We suggested that the insurer compensate the complainant on the following basis:

• 60% of the difference between the values of the chosen portfolios (higher values) and the values in the “wrong” portfolios on the cut-off date had to be paid into the annuity;
• the cost of investing in the retirement annuity had to be paid into the annuity. The complainant need not have moved to a retirement annuity fund prior to purchasing further benefits from the insurer.

We apportioned the loss suffered on a 60/40 basis because the insurer was initially at fault but the complainant should have checked his policy and the statements he subsequently received to make sure that the annuity had been correctly invested.

Result

The insurer accepted our view immediately but the complainant only did so reluctantly and after further submissions and some delay.

JP
April 2006

CR10 Conclusion of contract – mistake

by with No Comment Case ReportsMistakeTopics & Cases

CR10

Conclusion of contract – mistake – insurance company’s error at underwriting stage – whether the insurance company should abide by their mistake and maintain the contract as originally issued.

Facts

In December 2003 Mr and Mrs A applied to X Company for a health insurance policy. Mr A’s application was accepted but with a loading. Mrs A’s policy was accepted at tabular rates without any exclusion or restrictive clause, this notwithstanding the fact that in the application form the history of Mrs A’s hip replacement, which she underwent some time in 1998, was recorded. Once the acceptance had been received, Mr and Mrs A cancelled their health insurance contract with Y Company.

X Company stated that it erred in not capturing the history of the hip replacement when Mrs A’s details were loaded into their underwriting system. When the policy was issued the medical history which featured in the application form was repeated in the contract document. X Company implied that as this did not record the history of Mrs A’s hip replacement she should have realised that something was amiss and, thus, she had been given an opportunity to correct matters. Mr and Mrs A stated that they never received the policy document which was not in fact forwarded directly to them but was allegedly forwarded to their broker.

The fact that a policy was issued in a form not intended by X Company, came to light two years later when Mrs A underwent a further hip replacement. X Company took the view that it was clearly its intention to include a hip replacement exclusion but nevertheless it agreed to admit the claim but insisted that an exclusion would apply to any further treatment relating to the conditions of the hips. Mr and Mrs A’s attitude is that X Company should abide by the original terms of acceptance and adhere to the contract as originally issued.

Result

The complaint was upheld and the contract remained as issued without any exclusion or restrictive clause.

DM