CR392 – Non-disclosure matter re-opened; death occurred 18 years ago

by Case ReportsTopics & Cases

A. Background

  1. The policy commenced on 1 January 1998 covering the life of Ms T. She passed away on 1 October 2001 after an ear operation. The cause of death is noted as spontaneous cerebral haemorrhage. The death benefit claim was declined by the insurer on the basis that there had been material non-disclosure at application of Apert Syndrome, a genetic condition whereby bones are fused and causes the deformity in the skull, feet and hands.
  2. The relevant question that Ms T had responded to in the negative and on which the insurer relied to decline the claim, on the basis of non-disclosure, was as follows: “5. Do you have any form of disability, eg loss of use of any limb, impaired sight or hearing?”
  3. In November 2018, one of the two beneficiaries of the policy, the Late Ms T’s mother, contacted this office with the request that the case be re-opened on the basis that her late daughter had not suffered from a disability but a deformity and had in fact responded correctly to the health questions that were posed to her at application. She stated that the insurer should not have cancelled the policy and should have admitted the claim in 2001.
  4. Our office wrote to the insurer, and from the information provided to our office, pointed out:
    • Ms T had deformity of bones, which did not impact on her ability to occupy a position as a data capturer at a large organization.
    • She used her hands, which were deformed, to good use on the computer.
    • There was no loss of the use of a limb.
    • There was no evidence that she suffered any other kind of disability.
    • Ms T’s doctor advised that she could have expected to live a normal lifespan.
    • Medical information furnished indicated that the cause of death was not related to Apert Syndrome.
    • Ms T may have suffered from deformity but not disability and therefore it could not have expected from her to respond in the positive to the question set out in paragraph 2.
  5. We requested the insurer to consider the claim once again even though the claim event had occurred 18 years ago.

B. Conclusion

  1. It transpired that the matter had been dealt with by an insurer which the current insurer had taken over. The current insurer agreed to settle the matter on an ex gratia basis, without admission of liability.
  2. The life cover benefit was R199 195 at the time of death in 2001. The insurer increased the settlement amount to R555 274. Each of the two beneficiaries received 50% in April 2019.
  3. This office noted that the insurer showed distinction in service in this matter, having promptly and justly settled it after an extended period of time had expired from the date the claim arose.

CR391 – Alleged misrepresentation of allocation of duties

by Case ReportsTopics & Cases

A. Background:

  1. When Mr V, a self-employed builder, with three labour assistants, applied for his policy he stated his occupation as “Construction”.
  2. He allocated his tasks as follows in the application:
    • Admin – 40%
    • Manual labour – 40%
    • Supervision (manual labour) – 10%
    • Travel – 10%
  3. The policy was approved, covering life, comprehensive disability and comprehensive critical illness.
  4. One evening, about six weeks after the inception date of the policy, a neighbour asked Mr V if he would assist her to gain access to her house as she had locked her keys inside. He assisted her and upon leaving her house, her dog, a boerboel, bit him in the left lower limb and ankle.
  5. The medical reports showed that as three vital nerves were wholly severed, with “unquestionable severe traumatic neuropathy” and “serious trauma induced disability” said to be “irreversible”, Mr V was deemed permanently unable to follow his own occupation as a builder. Both the occupational therapist and the specialist vascular surgeon found that he was totally and permanently medically incapacitated to continue to work as a builder. Because of the low temperature of the affected limb and other test results, it had been assessed that he suffered from unbearable pain (and it is not only self-reporting), taking various pain relief treatments up to eight times a day. The specialist recommended amputation below the knee as soon as he lost about 40kg. Mr V also consequently suffered from depression, anxiety and fear of dogs.
  6. The disability benefit covers own occupation or any other occupation as well as impairment, that is, loss of or loss of the use of a limb or foot. The critical illness benefit covers loss of or the loss of the use of a limb.
  7. The insurer declined the claim on the basis of alleged misrepresentation of duties at application.
  8. Intheclaimformtheclaimantisrequestedtoallocatepercentagestocertaintaskstotalling 100%. The duties, other than manual, do not include administration or supervision, only “prolonged travelling”, “prolonged sitting” and “computing”. Mr V made the allocations within the framework of the functions mentioned on the claim form and the insurer responded that his duties now indicated 80% manual, contrary to the allocation of 40% in the application form.
  9. Mr V replied as follows:
    • It is so that he performed much of the manual duties himself, as his competitive edge in his home town was that he was a hands-on builder, working along his assistants, but it was impossible to be totally accurate as “each week brings its own new challenges”. He mainly did renovation of properties.
    • A year after the application of the policy his adviser suggested that he increases the manual component to 60%. At that time, although he struggled with his leg, he was still hoping that it would recover from the bite as he was undergoing treatment. As he was self-employed, he continued to work after the accident, to best provide an income for his family.
    • As his home town experiences very cold winters, up to – 6 degrees, they cannot do building, tiling, plumbing etc in winter. People do not employ him and his team as it is bitterly cold and workers moving in and out of homes add to the cold. Thus in the winter months he did a lot of his administration, sourcing materials, doing quotes, his accounts, planning etc.
    • When he completed the application form, the adviser stated that he must allocate percentages of his overall duties, averaging over a year. He noted that the supervisory duty refers to manual work, thus with the allocation of 10% to it and 40% to manual labour, it was his view that it accurately reflected his duties, spread over the year and taking the quiet winter months into account.
    • He said that he is just a normal person, with no insurance experience, and he completed the forms as best as he could and how he understood the requirements.
    • He did not ask to be bitten by a dog, rendering him incapable of performing his core duties as a builder, at a very young age, and he felt aggrieved that the insurer now denied disability cover based on his honest allocation of duties and that the disability claim was therefore also declined.
    • It was his view that the insurer did not ask the occupational therapist to assess impairment or the loss of the use of his leg – only the disability aspect. This may be because the insurer had indicated that its view was that he would recover the full use of his leg.
  10. The insurer advised that the percentage allocations, submitted by Mr V, of the manual duties varied in that the application reflected 40%, thereafter the policy was amended to reflect 60% manual and the claim form showed manual duties as 80%. The insurer advised him that they do not offer disability cover if the percentage allocation for manual duties is higher than 60% and the disability claim could not succeed and there had not been evidence at that stage that he had permanent loss of the use of his leg.
  11. Mr V approached this office and it was decided at an adjudicators’ meeting that a hearing be held with Mr V and the insurer. Before the claim could be addressed, it was important to establish if there had been misrepresentation of duties and whether the insurer could deny cover based on it.

B. Hearing

  1. Mr V arrived at the hearing, with a medical kit as he required injections into the leg regularly to relieve the pain and also with invoices of many years, meticulously setting out the client’s name, contact details, dates, work done and costs charged. He explained the work and physical component of it that he had performed, where he supervised, what administration was required, what travelling he had done and what his assistants’ duties were. He also explained that much of the supervision is done by him manually showing the assistants what was required. He added that being a large man, there was work that he physically was not able to do, such as climbing onto roofs and into confined spaces and where the assistants would take over. As the assistants became more efficient, he could divide his time on running the business but he was generally very much hands on.
  2. Mr V pointed out that the application form and the claim form do not refer to the various duties in the same manner and he reasonably completed these forms in view of his varied duties and how these fluctuate over a period in accordance with workload, weather conditions and his capabilities based on the type of work the client required. He noted that the percentage allocation request in the claim form does not cover the administration duties and as he had to allocate percentages up to a total of 100%, there is an explanation of the presumably skewed view of his duties in relation to the percentages allocated in the application form.
  3. The insurer had an opportunity to address some issues with Mr V at the hearing. The insurer explained that it was dependent on the applicant to provide accurate information to properly assess the risk and that the allocation of percentages to the various duties was of utmost importance to apply underwriting principles but concurred that variances existed in the type of work that Mr V performed as a self-employed person in construction and hence the allocations.
  4. Itwasthisoffice’sviewthatMrVhadprovidedasatisfactoryexplanationofhisduties, and with supporting documents on the work, he showed there had not been any intention to mislead the insurer and that in the instance of a self-employed manually- based occupation there may reasonably be variances of tasks over a period.

C. Conclusion

The insurer responded promptly after the hearing stating that they accepted that the declaration of tasks at claim stage was incorrect and the disclosure of the tasks at application was correct. They found that he had reflected the tasks of his business as a whole instead of focusing on his own particular tasks only, and that Mr V did not

misrepresent his duties in view of the explanations put forward by him at the hearing. With application of the reasonable man test, it was concurred that he had reflected his duties as accurately as possible and to the best of his ability. His disability claim was assessed by the insurer in accordance with the definition of disability and approved.

CR390 Pre-existing condition exclusion / causation

by Case ReportsCausationDisabilityExceptions, Exclusions And Waiting PeriodsPre-Existing ConditionsTopics & Cases

CR390

Pre-existing condition exclusion / causation

Exclusion clause – whether claim directly or indirectly attributable to pre-existing condition – test for legal causation

The exclusion clause in the policy read:

In the case of disability and severe illness benefits, [the insurer] will not pay a claim during the first twelve months of the life assured becoming a member if, in the opinion of [the insurer], the claim is directly or indirectly attributable to an injury or illness for which the member sought medical advice for or knew about (or could reasonably be expected to have known about) during the six months before joining the scheme.

The flow chart below details the sequence of events:

PRE-EXISTING CONDITION

During six-month period prior to 1 April 2014: complainant sought medical advice for symptoms of gastro-esophageal reflux disease and hiatus hernia

   → joined scheme on 1 April 2014

↓

FIRST OPERATION

9 June 2014: first operation – hiatus hernia repair with fundoplication

↓

COMPLICATION

Complication of the first operation: fundoplication too tight

↓

SECOND OPERATION

30 July 2014: second operation – second fundoplication to release the first fundoplication

↓

COMPLICATION

Complication of the second operation: perforation leading to intra-abdominal sepsis

↓

THIRD OPERATION

5 August 2014: third operation  – partial gastrectomy to correct perforation and to drain abdominal abscess

As per the timeline above, during the six months before joining the scheme, the complainant sought medical advice for a hiatus hernia and during the twelve months after joining the scheme, her claim based on septicaemia arose.

So the issue to be decided was whether or not the complainant’s claim based on septicaemia was directly or indirectly attributable to the pre-existing hiatus hernia.

There was little doubt that the requirements of factual causation had been met. The more difficult question was whether the requirements of legal causation had been met.

Legal causation requires cause and its consequence to be sufficiently or reasonably closely linked.

The phrase ‘directly or indirectly’ in this instance meant that the pre-existing hiatus hernia did not have to be the proximate cause of the septicaemia for the exclusion to apply.

However, it did not follow from this that any causal link at all would suffice. A line still had to be drawn somewhere. (In the English case of Arc Capital Partners Limited v Brit Syndicates Limited [2016] EWHC 141 the court gave the example of the birth of Captain Ewing, even though it may be said to have led in the chain of causation to his being in the position in which he was killed, could not be considered as causing his death).

Had the word ‘indirectly’ not been there, the line could conceivably have been drawn earlier, possibly after the first operation.

However, to give meaning to the word ‘indirectly’ the line had to be drawn further down the chain of causation.

But no matter how wide the ambit of the exclusion, legal causation requires the event in question to have genuine causative effect.

In this case the pre-existing hiatus hernia and septicaemia were separated by arguably five links in the causal chain, namely, (1) the first operation (to repair the hernia) leading to (2) a complication (the tight wrap) necessitating (3) the second operation (revision surgery to loosen the tight wrap) leading to (4) a further complication (perforation) resulting in (5) the complainant going into septic shock and requiring a third operation to repair the perforation and drain the intra-abdominal abscess.

So whilst the pre-existing hiatus hernia was undoubtedly the factual cause of the septicaemia, it was not sufficiently or reasonably closely linked to the septicaemia to be construed as the legal cause of it. 

Had the septicaemia occurred as a complication of the first operation, it may have been a different matter.  However the septicaemia occurred as a complication of the second operation and therefore the pre-existing hiatus hernia cannot be said to have genuinely formed part of the chain of causation. At best the pre-existing hiatus hernia constituted the context or background against which the claim event (septicaemia) eventually occurred.

It was decided in a provisional ruling that whilst the insurer had proven factual causation, it had failed to prove legal causation and could therefore not rely on the exclusion clause to repudiate the complainant’s claim.

The insurer accepted our provisional ruling and paid the claim.

LS

August 2022

CR382 Mistake, lapsing, reliance, reinstatement

by Case ReportsReinstatement of Policies or BenefitsTopics & Cases

CR382

Mistake, lapsing, reliance, reinstatement

Lapsed policy – insurer informing policyholder that if arrears paid the policy would be reinstated, and mistakenly advising that this would be without underwriting if reinstatement took place before a mentioned date – policyholder paying arrears before mentioned date – insurer invoking its mistake – policyholder entitled to enforce contract on basis of reasonable reliance.

Background:

1. The policyholder had a “key person” policy on the life of an employee.  Premiums for October and November 2017 were paid late, after the thirty day grace period. 

2. On 25 November 2017 the insurer sent the policyholder a letter advising that “Your policy has lapsed (been cancelled)”.  The letter also advised that “you may be able to reinstate the policy within 6 months”.  It stated further:

“You may be able to reinstate your policy

If you decide to pay the arrear premiums, the policy may be reinstated depending on [the insurer’s] underwriting requirements at that time.

Please speak to your financial adviser or call us to discuss your options.  You will need to apply for reinstatement within 6 months of the date of this letter”.

3. The policyholder requested that the policy be reinstated.  On 29 November 2017 a letter was sent to the policyholder’s broker (agent for the policyholder) stating as follows:

“The total outstanding amount (December 2017 premium included) is R1 479.76 to reinstate the policy without formalities.  Should the policy be reinstated after the 28th February 2018, the reinstatement will be subject to underwriting assessment”.

4. A similar letter was sent on 8 December 2017.

5. The policyholder paid the outstanding amount of R1 479.76, which included the premium for December, on 20 December 2017. 

6. The insurer then stated that it made an error in offering to reinstate the policy without formalities.  It insisted that the life insured be underwritten again before it would reinstate the policy.  The policyholder complained to our office.

Discussion:

7. We noted that the policy is silent on the issue of reinstatement.  This means that there is no right to reinstatement flowing from the policy.  An agreement on reinstatement would thus have to be reached between the parties.  There would have to be an offer and an acceptance, to constitute a binding agreement (a contract).

8. The letter sent on 29 November 2017 (paragraph 3 above) appears to be a clear offer by the insurer to reinstate, without formalities, if the total outstanding amount is paid.  The time within which payment must be made for reinstatement without formalities is not made as clear, but the implication is that it should be before 28 February 2018.

9. The policyholder paid the total outstanding amount of R1 479.76, which included the premium for December, on 20 December 2017.  In doing so the policyholder indicated acceptance of the insurer’s offer.

10. The insurer then stated that it made a mistake in offering to reinstate the policy without formalities.

11. This mistake would be regarded as causal, since according to the insurer it intended to contract on different terms, ie on the basis that underwriting would be required.  The mistake is material (essential), since it led to dissensus between the parties on a material term of the contract.

12. An essential mistake in principle means that a contract is invalid (void ab initio), because of the lack of subjective agreement. 

13. Contractual invalidity in this situation may be seen as unfair to the other party, if he reasonably believed that there was a valid contract, and the reasonable reliance approach may then come into play.

14. In accordance with the reasonable reliance approach, it must be asked whether the policyholder (the non-mistaken party) reasonably believed that there was subjective consensus between the parties.  If so, he should be able to enforce the contract despite the insurer’s mistake.  In terms of the reasonable reliance theory, the contract will be valid if the mistaken party (the insurer) created the impression that it subjectively agreed to the contract; and there was reliance on this impression by the non-mistaken party; and the reliance was reasonable.

15. In this case the insurer created the impression that it would reinstate the policy without underwriting/formalities if the arrears were paid before 28 February 2018.  The policyholder relied on this impression, paid the arrears on 20 December 2017, and attempted to pay subsequent premiums.  In our view the policyholder’s reliance in this case was reasonable.  We stated our view that the insurer should be held to the contract.

Result:

16. The insurer reinstated the policy without underwriting.

CR383 Disability claim – mineworker – hearing loss

by Case ReportsDisabilityTopics & Cases

CR383

Disability claim – mineworker – hearing loss

Group scheme claim lodged in 2017 – insured passed fitness examinations and worked on mine for ten years before being declared unfit because of hearing loss – insurer declining claim on basis insured was already unfit for his position when first employed by mine in 2007 – whether insurer declining liability was fair.

Background:

1. The complainant was employed as a miner in 2007 and became a member of the employer group scheme with the insurer.  He passed  fitness examinations and was declared “Fit” to work by the occupational health practitioner every year from 2007 until 2017.  He in fact did work for those ten years. 

2. The complainant had been compensated in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA) for some hearing loss in 2006, when he was working for another employer.  This compensation was based on a percentage disability (PD) of 11%, in turn based on a percentage hearing loss (PHL) of 17% and pure tone average of 27.5 dB (which became the baseline at his entry into the job in 2007).  His hearing remained relatively stable until 2016 when deterioration took place.  An audiology test dated 3 February 2017 confirmed a PHL at that stage of 27%.  At this point, after a 10% shift from baseline, the occupational health practitioner decided to declare him not fit to work, for his own protection against any further hearing loss.  He could not be accommodated in a less noisy setting and sought payment of a disability benefit. 

3. The insurer declined the disability claim.  The insurer stated that according to the minimum standards of fitness to work on a mine issued by the Department of Minerals and Energy, a person aged 40 and above (which the complainant was in 2007) should have a pure tone average of 25 dB or less on audiometric screening.  At 27.5 dB the complainant’s level was already over this limit, and he had even been compensated for hearing loss.  The insurer’s defence was therefore that, at the time when the complainant joined the scheme on employment in 2007, he was in fact already unfit to occupy the position as a miner. 

Discussion:

4. The disability definition in the policy read as follows:

A Member shall be regarded as Disabled and entitled to his Benefit as from the expiry of the Waiting Period if, in the reasonable opinion of Momentum, injury or illness has rendered him totally incapable of engaging in his Own Occupation during the first twenty-four months of disability.

5. A clause in the policy stated: 

For those medical conditions that both impact on the Member’s ability to perform his Own Occupation safely and are governed by the Mine Health and Safety Act of 1996 and the Occupational Health and Safety Act of 1993, the Date of Disablement will be the date that the occupational health practitioner determines the Member’s medical condition to be below the mandatory requirements applicable at that date. [my emphasis]

These conditions include and are limited to:

  • Loss of vision
  • Loss of hearing
  • Epilepsy
  • Cardiac function
  • Insulin dependent diabetes; and
  • Hypertension                  

6. We put it to the insurer that an employee may be compensated more than once in terms of the Compensation for Occupational Injuries and Diseases Act (COIDA), depending on the injury/disease, and the level thereof.  Having been compensated does not in itself mean that an employee is prohibited from working.  Furthermore having been compensated cannot be seen in itself as an indication that the complainant was disabled as defined by the Momentum policy – he clearly was not totally incapable of engaging in his Own Occupation of a miner at that stage, as he did engage in it full-time for the next ten years.

7. We noted that the insurer did not appear to have requested proof of insurability at the time when the complainant became a member, and the insurer accepted premiums in respect of his disability cover for ten years.

8. We suggested that it was not for the insurer to decide after the fact (ten years later) that the complainant’s medical condition had been below the mandatory requirements at the date he commenced employment.    In terms of the policy, it is the occupational health practitioner, not the insurer, who must make the determination as to the date on which the member’s medical condition is below the mandatory requirements.  In this case the occupational health practitioner in fact certified the complainant fit to work in 2007, and each year until 2017, when the occupational health practitioner for the first time determined his medical condition to be below the mandatory requirements.

9. We examined the minimum fitness standards referred to by the insurer.  While the Department of Minerals and Energy Guideline for the Compilation of a Mandatory Code of Practice (“the Guideline”) indicated at clause 8.3.5.2.1 an audiometric standard for a person age 40 and above as “pure tone average of 25 Db  or less”, the same document also indicated at clause 8.4.1 that a discretion was afforded to the occupational health practitioner when determining fitness for work, taking into account such factors as the period of further exposure, the experience of the employee, personal protective equipment, supervision at work, etc.  An example was given at 8.4.1.3: “Where serious, permanent disablement could result, further exposure is undesirable thus eg an employee with more than 60Db average pure tone hearing loss (0,5 kHz, 1,2 and 3 kHz) is not fit to work in a noise zone at a mine”.  We pointed out to the insurer that 60Db pure tone hearing loss was considerably more than that suffered by the complainant. 

10. It was also stated at clause 8.4.1.7 that: “The OMP may consider declaring a person fit to continue working subject to certain conditions such as closer supervision and monitoring which may include reduction in exposure and more frequent medical surveillance”.

11. It was a matter of record that the complainant had been closely monitored by the occupational health practitioner at the mine, regularly received hearing loss counselling, and was compliant with the use of protective devices. 

12. It was also stated in the Guideline at clause 8.3 that “an OMP may apply more or less stringent standards depending on circumstances or risk assessment, at a specific mine.  For specific fitness requirements for job placement consult Annex 1. (Annex 1 must be complied with.)”   We noted that Annexure 1 “Schematic Guideline for Job Placement Evaluation” did not in fact make it clear, in respect of hearing, that a person may not work if they have the pure tone average hearing loss for different ages listed in Annexure 1.  The word “exclude”, employed for other conditions in Annexure 1, was not used in respect of hearing loss.

13. The South African Society of Occupational Medicine Guideline “Audiometry in the Workplace” (2011 Revision) stated at clause 6.11 that “Workers should preferably be removed from the noise area when their PLH is more than 15%, but definitely at more than or equal to 30%”. [my emphasis]  This underlined the use of discretion by the occupational medicine practitioner. 

14. In the context where the occupational medical practitioner had exercised a discretion to declare someone fit to work although he had mild (and compensable) hearing loss in 2007, and to continue to declare him fit annually until his hearing loss deteriorated to such a degree that he no longer considered him fit to work in 2017, we argued that it was unfair for the insurer to deny liability once disability and a date of disability had been determined by the occupational health practitioner to be in 2017, on the basis that the degree of hearing loss fell below a certain standard in 2007.

15. It appeared that it was the insurer’s argument that the employer/ occupational health practitioner should not have allowed the complainant to work, because of the level of his mild hearing loss in 2007.  The implication was that his recourse would thus be against his employer.  We stated that if that was the argument, the result was inequitable.  The complainant would clearly not be in a position to sue his employer for having employed him for the last ten years, and it was fanciful to suppose that the employer would agree to pay him a salary for the next four years now that he was considered disabled, despite having insured itself against such an eventuality. Having rendered service for ten years, with premiums having been paid to cover him for disability, the complainant would in all likelihood, despite being disabled, be without an income for the four years until his retirement date.

16. We stated our view that, taking into account all the factual circumstances and evidence, as well as considerations of equity, the claim should be paid.

Result:

17. The insurer agreed to pay the claim.

CR384 Delay in payment; interest; in duplum rule

by Case ReportsDelayInterest on Late PaymentsTopics & Cases

CR384

Delay in payment; interest; in duplum rule

Background:

1. The policy commenced on 1 July 1995. It covered life, capital disability and a double accident (as defined) benefit each at R48 176.

2. The life insured Mr. V, a Police Officer, passed away as a result of a gunshot wound to the head on 27 January 2000.

3. The beneficiary, the deceased’s brother, also, Mr. V submitted a claim and was paid the life cover benefit of R56 892.32 on 12 April 2000.

4. The information at the disposal of the insurer indicated that the death was as a result of suicide and they declined the double accident benefit. However, new information was submitted later on 6 September 2018 and on 11 September 2018 the insurer paid the beneficiary the double accident benefit of R48 211.32, which included interest of R35.32.

5. One of the issues that had to be determined was the consideration of interest on the delayed payment of the accident benefit. The insurer was alerted in this regard to paragraph 23 of the revised practice note on the payment of interest as follows:

“The foundation of Rule 3.2.6 is equity. When the issue of interest arises as a result of late payment, considerations similar to unjustified enrichment could be indicative of where the equities lie. Where the insured/beneficiary has a claim that became due on a particular date, but payment of the claim is deferred, the effect is that the insurer enjoys the benefit of the use of the money due to the insured/beneficiary at the expense of the latter.”

6. The complainant was aggrieved about the interest of R35.32 citing that his brother had passed away in 2000 and the accident benefit was only paid in 2018, while the insurer’s argument was that they only became aware that the cause of death was an accident and thus that a double benefit was due, as opposed to suicide, in September 2018 after which they made payment within a week.

7. Our office did a provisional ruling dated 26 August 2019 finding that the insurer should pay interest on the accident benefit, with effect from 1 April 2000, when the claim for the life cover benefit was finalized, as the insurer had the use of the funds. The interest amounted to R104 297.06 according to a calculation submitted to our office by the insurer on 23 July 2019 but later retracted as not applicable in this matter. 

8. The insurer made further submissions in terms of the provisional determination, offering 50% of R104 000 and citing the in duplum rule, that, in their opinion applied, whereby the interest component should be capped to the (outstanding) capital amount. The offer was a settlement amount of R52 000to be paid on an ex-gratia basis.

9. The complainant declined the settlement offer.

10. The office decided to obtain an independent legal opinion on the application of the in duplum rule on interest on benefits, as opposed to interest on loans.

11. The legal opinion concluded that interest should be capped at the capital amount of the benefit.

12. The matter was submitted to an adjudicators’ meeting where it was decided as follows:

  • The ex-gratia offer of R52 000 made by the insurer was reasonable.
  • Our office agrees with the legal opinion provided to our office by an independent legal consultant that, with application of the in duplum rule, the offer exceeds the capital benefit, and that the interest due, whether in mora or not, had stopped accruing when it reached the capital amount.
  • As the amount offered is in excess of the capital amount, the dates from when the interest should run is deemed irrelevant.

13. The complainant expressed that he remained aggrieved that the interest did not run from date of death but accepted the office’s decision. He was paid R52 000 in interest and the file was closed.

CR385 Exclusion of psychiatric disorders; constitutional rights infringed?

by Case ReportsConstitutional RightsTopics & Cases

CR385

Exclusion of psychiatric disorders; constitutional rights infringed?

Background:

1. Mr X submitted a disability claim to the insurer based on a mental condition. It was declined by the insurer due to material non-disclosure at application for a history of this condition, supported by medical evidence. A psychiatric disorder exclusion was placed on the policy. He submitted a complaint to this office and the complaint was dismissed in a provisional ruling. Material non-disclosure was evident. Mr X was not happy with the outcome of the provisional ruling, stating that neither the insurer, nor this office, had taken his constitutional rights into consideration in that there ought to be no discrimination against persons suffering from a mental condition.

2. He stated that the imposition of a pre-existing condition to deny the benefit is a violation of his human rights, contending that the insurer’s risk analysis and imposition of the exclusion is illegal.

3. He added the policy contract does not stand above the Constitution.

4. His view was that the insurer did not apply TCF by the need of equal treatment for persons who suffer mental disorders.

5. The insurer responded:

  • The disclosure of previous diagnoses is vital for the insurer in the underwriting process.
  • The differentiation methods are applied equally and consistently to all applicants and does not amount to unfair discrimination.
  • Psychiatric disorders present with an increased risk to the insurer.
  • The complainant was duty bound to make disclosures to provide the insurer the opportunity to properly assess the risk; the contract of insurance is one of good faith and the insurer treats its customers in line with the contractual provisions and in the spirit of TCF.

6. As is the procedure at this office the file was re-allocated for review of the provisional determination since Mr X had made further representations. In the final ruling he was advised that in terms of our rule 3.3.4 our office does not intervene with the insurer’s legitimate exercise of its commercial judgement, and the fair application of the criteria. Mr X was informed that his proposition that insurers should, in any event, provide cover for persons where a condition had manifested, so as not to discriminate against that group of persons, was untenable and to add such persons to the risk pool would not make business sense and would not protect the rights of other persons in that pool.  The insurer therefore poses the underwriting questions to counteract adverse selection by limiting coverage, the basis of insurance.

7. The conclusion reached in the provisional ruling, covering the non-disclosure, was confirmed in the final ruling, and this final ruling also reiterated this office’s stance on complaints about the alleged infringement of constitutional rights.

 Conclusion:

8. We informed Mr X that our office does not have the power or jurisdiction to consider the question of the infringement of constitutional rights. This power vests in the High Court, more specifically when it sits as an Equality Court, for the purposes of the adjudication of matters relating to infringements of, inter alia, the right to equality and unfair discrimination. We could therefore not assist Mr X and the file was closed.

CR386 Termination of contract/ retrenchment claim

by Case ReportsRetrenchmentTopics & Cases

CR386

Termination of contract/ retrenchment claim

Termination of long-standing contract/retrenchment benefit claim/consideration of form of employment.

The background of the matter is as follows:

1. Mr W was employed at a State Department as an independent contractor, through a consulting agency, from 1 April 2010 up to 30 March 2017, at which time his contract was not renewed.  In a letter dated 6 November 2017 from the agency, addressed to Mr W, the contract was not renewed due to budget cuts.

2. He had taken out a Salary Protection policy: Retrenchment and Injury cover only, commencing on 1 October 2012, and terminating on 30 September 2021. The cover was R75 000 per month, at a premium of R1 141, which had escalated at 6% per annum.

3. In the sales call Mr W stated that as he was a contractor, he needed to cover himself if he loses his income. The consultant did advise him later on that he does not provide advice, only information. During the call the consultant informed him on the retrenchment cover as set out below in paragraph 6.

4. The complainant advised that he submitted a retrenchment claim later in 2017 which was eventually declined on 6 December 2017. He provided some details to our office on the liaison with the bank and unfortunate circumstances endured from the termination of the contract up to the time that he submitted his complaint to our office.

5. Mr W was aggrieved due to the insurer‘s stance that the claim cannot succeed as he was not considered a permanent employee and a formal retrenchment process was not followed in the termination of his contract.

6. The policy under the heading “Retrenchment” states:

“About retrenchment

 * Bank will provide a monthly payout for a maximum of six months, provided that the following conditions are met:

• Your employer must have followed a formal retrenchment process.

• You cannot be self-employed or employed by any of your family members in any capacity whatsoever.

• The salary protection insurance must have been in force for at least six months before the retrenchment process started.”

*Full name of Bank not provided

7. The retrenchment claim was declined as (a) Mr W was not permanently employed (b) the employer did not follow a formal retrenchment process in the termination of his services and (c) his contract came to a natural end.

8. We asked the insurer to consider that a contract that is renewed over several years creates the expectation of contract renewal and points to permanent employment and that one could not hold the insured to the fact that the employer did not follow a formal or legitimate retrenchment process. In this case, Mr W had stated that there had in fact been several consultations between him and the agency (effectively his employer), before the contract was terminated. The insurer responded that the claim could not succeed because:

  • The agency confirmed Mr W was an independent contractor and not an employee.
  • His contract came to a natural end.
  • He was paid an hourly rate and there were no deductions for UIF or employee benefits.
  • The nature of the budget cuts at the State Department, where Mr W was contracted to, was not stipulated and adverse conditions had not been confirmed.
  • There was no indication of a retrenchment process being followed by the employer.
  • The minimum criteria had not been met and the claim cannot succeed.

9. Mr W responded by emphasizing:

  • He cannot be penalised if there is no information about the reasons for the budget cuts, but he can inform that when the agency loses an income from a client, there are budget cuts and he and two other contractors were affected.
  • His contract was renewed over 12 years at the agency until budget cuts affected him.
  • He paid PAYE.
  • The agency extended his contract for (only) another month which indicates there was a consultation process when the company experienced adverse conditions.
  • At a minimum, he worked 8 hours a day times the number of workdays per month.

10. This matter was submitted to the adjudicators’ meeting.

Meeting’s consideration and decision:

11. The meeting considered the policy requirements, as set out in paragraph 6 above. The criteria do not include the requirement for the insured to be “permanently employed” as suggested by the insurer. The meeting focused on the exclusion of “self-employed” persons. The question that arose was whether Mr W, in the circumstances and taking cognisance of “employee” definitions and the understanding of the factual employment relationship, could be considered an “employee”.  An “employee” enjoys retrenchment cover as opposed to a contractor that offers his services through his own enterprise.

12. Section 213 of the Labour Relations Act, 1995 (LRA) defines an employee as:

“(a) any person, excluding an independent contractor, who works for another person or for the state and who receives, or is entitled to receive, any remuneration, and (b) any other person who in any manner assists in carrying on or conducting the business of an employer, and ‘employed’ and ‘employment’ have meanings corresponding to that of employee.”

13. However, the above must be read with Section 200A of the LRA and section 83A of the Basic Conditions of Employment Act, 1997 (BCEA), which provide that until the until the contrary is proved, a person who works for, or renders services to, any other person, is presumed, regardless of the form of the contract (emphasis added), to be an employee if any one or more of the following factors are present:

“i)The manner in which the person works is subject to the control or direction of another person;

ii)the person’s hours of work are subject to the control or direction of another person;

iii)in the case of a person who works for an organisation, the person is a part of that organisation;

iv)the person has worked for that other person for an average of at least 40 hours per month over the last three months;   

v)the person is economically dependent on the other person for whom that person works or renders services;  

vi) the person is provided with tools of trade or work equipment by the other person;

vii) or the person only works for or renders services to one person.”

 14. It is evident from the above provisions that our labour legislation presumes that a person is an employee notwithstanding what a contract may be called or the form it takes. The law effectively looks at the substance of the relationship/agreement.

15. Mr W’s contract had rolled over for a period of 12 years with the agency and he worked for at least 40 hours per week. He did not provide his services to any other entity and was under the control and instruction of this company. The factual employer/employee relationship between him and the agency had brought him within the four corners of the definition of “employee”. The meeting was of the view that he ought to enjoy the protection the policy affords to an employee in terms of retrenchment.

16. The other criterion in the policy relates to the requirement that the employer must have followed a formal retrenchment process. We reiterated that it was not Mr W’s fault that his employer did not provide details of the consultations or the “budget cuts”.  From the information at our disposal, the logical conclusion is that his position became redundant when his employer could not pay his salary due to budget cuts and that these followed from adverse, structural, economic or operational factors, suffered by the employer, and this impact, affected future work for him. He is adamant that he and two other contractors had formal consultations with the employer prior to termination, in any event.

17. The format of “a formal retrenchment process” may not necessarily mean the legislative process or documented by the employer. It may take the shape of meetings with the employer where the termination is considered. It was our view, from the information provided to us, that Mr W was dismissed due to operational requirements after consultations with his employer, and notice provided to him that his contract would not be renewed.

18. After due consideration of the factual employment relationship and the reason for the termination of the contract, the meeting concluded that a recommendation be made to the insurer to consider admitting this claim for the retrenchment benefit.

Insurer’s response:

19. The insurer responded that it had noted the recommendation by this office and that it had concluded that it was willing to make an exception to its business rules and pay the retrenchment benefit. They asked for Mr W’s banking statements to prove unemployment.

 Conclusion:

20. Mr W was paid the retrenchment benefit as set out in the policy. The file was closed.

CR387 Prescription

by Case ReportsPrescription / Time BarTopics & Cases

CR387

Prescription

Insurer mistakenly paying a cancer benefit in 2009 at a higher level than it should have been paid – insurer realising mistake when a claim for progression of cancer lodged in 2020 – insurer seeking to set off the new claim against the amount overpaid in 2009 – debt prescribed.

Background:

1. The complainant lodged a claim in 2009 under the insurer’s dread disease benefit following a lobectomy arising from Stage 1 lung cancer.  The claims assessor determined that this qualified for a Cancer Benefit, Severity D 25% benefit – Stage 1 Lung Cancer, and a Respiratory Disease Benefit, Severity B 75% benefit – Lobectomy.  As these two severe illnesses were related, only one benefit was paid, based on the higher severity level, in accordance with the policy.  The amount paid on the Severity B level for the Respiratory Disease Benefit was R463 476.82, 75% of the cover amount.

2. In April 2020 a further claim was lodged.  The lung cancer condition had progressed, and now qualified for a Cancer Benefit, Severity C benefit.  Severity C pays 50% but because this was an upgrade from a Severity D benefit the payment would be at 25% – the amount of R187 036.76.

3. At this point however (almost 11 years later), the insurer discovered that it had been wrong in assessing the claim as qualifying for a Respiratory Disease Benefit Severity B back in 2009.  The complainant had had an upper right lobectomy.  The claims assessor had apparently misread the criteria, one of which was “any disease or disorder requiring removal of >one lobe of lung”.  She had only had one lobe removed.  She should only have been paid R154 492.28 in 2009, so was overpaid by R308 984.54. 

4. The insurer decided to recover this amount by setting off the balance overpaid against the amount of R187 036.76 now due.  Because the overpayment exceeded the amount now due, it informed the complainant that no amount would be paid for her 2020 claim, and the insurer would, “as a gesture of good faith”, not recover the balance of the overpaid amount, R121 947.78, after the set-off was applied.

5. The complainant argued that the insurer’s claim for recovery of the overpayment had prescribed.  The insurer maintained that its claim had not prescribed, due to the insurer not having any deemed knowledge of the claim until the second claim was lodged in 2020, and the insurer having no ground to suspect an error by the assessor.

Discussion:

6. The matter was discussed at an adjudicators meeting.

7. In terms of section 10 of the Prescription Act, 68 of 1969 (“the Act”), a debt shall be extinguished by prescription after the lapse of the applicable period.  In terms of section 11 this is three years, in respect of a debt based on unjustified enrichment.  In terms of section 12, prescription shall commence to run as soon as the debt is due.  As stated in Contract – Principles (fifth edition) by Van Huyssteen, Lubbe and Reinecke: “A debt is due when the creditor has the right to institute action immediately for the recovery of the performance and the debtor is unable to raise a defence against the claim”. (p 536 and 537)

8. Section 12(3) of the Act provides that

“A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and the facts from which the debt arises: Provided that a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care”.

9. The insurer argued in this case that it only became aware of the debt when it considered the second claim in 2020.  According to the insurer, “once a claim has been approved and payment finalised, the matter is closed and no further consideration will be given to a claim”.  There would thus, the insurer argued, have been no way to determine the error until such time as a new claim was submitted: “Our audit processes at the time did not provide for re-assessment of authorised claims”. The insurer further stated: “We confirm that despite the fact that we knew who the debtor was and that the facts pertaining to the assessment was at our disposal when payment was made…we simply did not know that the claim was incorrectly categorised”; which the insurer submitted was an “excusable error”.

10. The complainant argued that she did not have to show that the insurer had knowledge that the debt was due, if she was correct that in light of the proviso to Section 12(3) the insurer should have known it by exercising reasonable care.  She submitted that it could and should have.

11. The meeting considered that in 2009 all the relevant facts were known to the insurer.  The claim was properly submitted, the insurer incorrectly assessed the claim and erroneously overpaid R308 984.54.  The insurer could have sued for the recovery of the overpayment immediately after it had been made, on the basis of unjustified enrichment (the condictio indebiti).  The complainant would have had no defence. Everything had happened which entitled the insurer to institute action and pursue its claim. 

12. In the view of the meeting, with reasonable care the insurer could have found out about its error.  Insurers can and do audit claims, and can be expected to check the decisions of assessors, within a reasonable period.  The insurer must therefore be deemed to have had all the knowledge it needed for the running of prescription to commence. 

13. On the insurer’s version the claim could remain enforceable for ever.  This would mean that in all cases where an insurer pays a claim, there is a risk that the insurer might at some future date review its earlier decision and claim repayment, without prescription coming into play.  This could not be in line with the purpose of section 12(3) or of rules of prescription generally.

14. As was stated in Minister of Finance and Others v Gore NO 2007 (1) SA 111 (SCA), “The statutory prescription periods are meant to protect defendants from undue delay by litigants who are laggard in enforcing their rights”.

15. In the view of the meeting prescription commenced to run on the date the debt became due, and the debt became prescribed three years after that, or at best for the insurer a reasonable period after the three years to allow an opportunity to review earlier assessments, which period must be much less than the ten years which have elapsed since the 2009 claim was paid. The insurer’s claim based on unjustified enrichment had therefore prescribed.

16. The meeting also considered the application of Treating Customers Fairly (TCF).  For more than ten years the complainant lived as if the payment was due to her and arranged her affairs accordingly.  In 2020 she had a medically valid further claim, but was told by the insurer that she had no claim, would be paid nothing, and in fact owed R121 947, which the insurer was prepared to waive.  In the view of the meeting this was not fair treatment.

Result:

17. The meeting concluded that the insurer must pay the 2020 claim for the Cancer Benefit to the complainant, together with interest from 18 June 2020.  A provisional ruling to this effect was made.

18. The insurer complied with the provisional ruling.

CR388 Retrenchment/ interpretation/ contra proferentum

by Case ReportsInterpretationRetrenchmentTopics & Cases

CR388

Retrenchment/ interpretation/ contra proferentum

Policy excluding any retrenchment claim “where the retrenchment was announced within the first 6 months” – on the specific facts of this case, employer letter giving notice of proposed restructure and inviting consultation not an announcement of insured’s retrenchment – his actual retrenchment announced after expiry of the six month period

Background:

1. The complainant had retrenchment cover commencing on 1 January 2019.  On 31 July 2019 he lodged a claim.  He attached relevant supporting documentation: an email from his employer dated 4 June 2019 with the subject Notice of Restructure; a Notice of Invitation to Consult in terms of Section 189, also dated 4 June 2019, copies of the proposed new organisational structure and proposed timeline (indicating names of those employees who could be affected, including the complainant’s name); and a Notice of Termination letter dated 4 July 2019 addressed to the policyholder specifically, stating that after consultation in terms of Section 189 of the Labour Relations Act, his employment would terminate on 31 July 2019.

2. The insurer declined the claim, invoking a clause in the policy which stated:

“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.

The insurer was of the view that the retrenchment was announced by the employer on 4 June 2019, within the six month exclusion period.

3. The complainant was unhappy, stating that he was only officially retrenched on 4 July 2019 (outside the six month period), and that the documentation dated 4 June 2019 related to a general notice of restructure in terms of Section 189, the very nature of which in his view was to protect the employee, and to do everything possible to avoid retrenchment, before it would legally be permitted to announce any specific retrenchments.  He stated his view that the insurer’s “decision to decline my claim is based on an attempt to interpret the company’s implementation of the Section 189 legislation, as an intention to retrench me specifically, which is not the case”.

Discussion:

4. We examined the policy and the retrenchment documentation.  The scope of the cover was set out in the following clause:

“The Retrenchment Protector benefit covers the Life Insured for an initial period if they are formally retrenched from full-time employment in terms of a legal process in accordance with labour legislation.”

5. As mentioned above, the policy had an exclusion clause reading as follows: 

“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.

6. “The retrenchment” in this clause, referring to the insured event, must refer to the formal retrenchment of a policyholder from full-time employment in terms of a legal process in accordance with labour legislation. 

7. The complainant had received a letter dated 4 June 2019 addressed to “Dear Employee”, giving him formal notice of the company’s “proposal of a restructure that may result in possible redundancies of positions and subsequent retrenchments as a result thereof”.  He was “invited to participate in a joint consensus-seeking consultative process in terms of section 189 of the LRA” for consultation on possible alternatives, including avoiding of retrenchments, minimizing the number of retrenchments, and changing the timing of retrenchments, and for the method of selecting employees to be dismissed in the event of retrenchment.  He was told at the conclusion of the letter that “the company wishes to advise that no final decision has or will be taken on the final structure and/or any possible retrenchments until input of all affected parties has been considered”.

8. In our view this was clearly not an announcement to the complainant of his formal retrenchment from full-time employment in terms of a legal process in accordance with labour legislation.  It was a letter informing various employees of possible restructuring, with an invitation to consult.  It was an announcement of an intention to start a process of consultation related to possible retrenchments, not an announcement of “the retrenchment” as a fact, ie the definite occurrence of the insured event, either on that date or in the future.  On 4 June 2019 there was no certainty that the complainant (or anyone else) would be retrenched.

9. The complainant’s retrenchment was in fact announced by letter on 4 July 2019.  This letter was addressed to him specifically by name, it recorded that the parties had “meaningfully consulted” and it was announced that his retrenchment would proceed, with his employment terminating on 31 July 2019.  Details of payments due to him, his retrenchment package, etc were provided.  The date of the announcement of the policyholder’s retrenchment, 4 July 2019, fell outside the 6-month period after commencement of cover on 1 January 2019.

10. An exclusion clause must be interpreted restrictively.  In our view there was no justification for an interpretation that “where the interpretation was announced within the first six months” must refer to the announcement on 4 June 2019 of the employer’s intention to restructure and retrench.  

11. Even if such an interpretation were possible, there was another interpretation that could be attributed to these words, as we outlined.  The meaning would therefore be ambiguous.  In such a situation, the principle of contra proferentem must apply, that is, the provision must be interpreted against the drafter (the insurer), in whose power it lay to draft the provisions clearly, and in favour of the policyholder. 

Result:

12. We recommended that the insurer reconsider the matter. The insurer agreed to pay the claim.