Posts in category: Payment and Non Payment

CR364
Payment and non-payment

Payment to wrong party – insurer has to pay again – compensation for inconvenience

Persistence does sometimes pay off.

The complainant wrote to us after the insurer concerned repeatedly advised that they had no records any longer of the policy in question.

A policy belonging to the complainant’s father, who had also been the life insured under the policy had been taken out in 1976. The father died in England in 2002 and the insurer was advised of this in 2003. No response was received from the insurer and due to a family dispute probate only took place in 2012. When the complainant wrote to the insurer in 2013, the insurer advised that as the policy had been “off books” for more than 5 years no information was available. On further investigations by our office the insurer produced “screen dumps” reflecting a surrender of the policy. After some further digging the insurer was able to determine that a cheque had been issued and the cheque had been cashed. The complainant denied that there had been the receipt of any surrender amount. What caused further difficulty was the fact that the complainant was overseas, the policy had been issued in British Pound by an overseas branch of the insurer which no longer operated, and the bank that handled the cheque was in the United Kingdom. The insurer however persisted in its statement that the cheque had been sent to the deceased’s United Kingdom address.

The complainant did some digging of his own and found a contact person at the United Kingdom bank. Despite this it took a considerable amount of effort on the part of the complainant and the insurer to trace through another United Kingdom bank that acted as a processing agent for a Canadian Bank, that the money had been paid to an account in Montreal. The bank in Montreal could then confirm that the money had been paid to a client with the same surname but a different first name as the complainant’s father.

The insurer then realised that they had paid the money to the wrong policyholder. This was after almost a year during which time the complainant had sent numerous emails to all possible potential sources of information. The insurer conceded that it had to pay the death benefit (R321 437) to the estate of the deceased policyholder and also offered compensation to the complainant for the inconvenience caused by the error.

After some further negotiation a compensatory amount of R19 300 was paid to the complainant as he had gone to great lengths to obtain information about the incorrect payment and had not been willing to give up.

JP
April 2016

CR233

Payment of premiums – debit order on third party’s bank account without his authorisation – whether third party has a claim against the insurer for repayment of the premiums wrongfully deducted from his bank account – jurisdiction.

The complainant, Mr C, was for some time in some sort of business relationship with a certain Mr M. What the precise nature of that relationship was appeared to be seriously in dispute.

Section 4 of Mr M’s application form which preceded the issue of a policy by Insurer A to Mr M indicated that the premiums were to be paid by debit order from a certain numbered account at Bank B. The account number was that of the complainant, Mr C.

The section concluded: “I, the undersigned, authorise Insurer A to debit my account with the premiums due for the insurance for which I apply. I undertake to inform Insurer A of any change in my bank details and I authorise Insurer A to verify such bank details with my bank. I accept that Insurer A may debit my account on a date other than specified.”

Two signatures appeared in section 4 against the designation “Signature of account holder”. The one signature was that of Mr M. The other was reputed to be that of the complainant, Mr C.

During August 2002 Insurer A, acting on the application form completed by Mr M, issued an insurance policy . The policyholder was Mr M and the nominated beneficiary appeared to be his wife.

During the period August 2002 to July 2005 premiums were paid to Insurer A on the strength of a debit order (presumably the one issued pursuant to section 4) for R1000.00 per month (later increased) from the complainant’s bank account at Bank B.

During 2005, so the complainant stated, he discovered that an amount (later calculated to be R42643.81) had been deducted from his bank account and paid to Insurer A.

Complainant denied that it was his signature which appeared on section 4 of the application form quoted above. He alleged that it was a forgery.

Complainant, through his attorney, complained to Bank B and to Insurer A and, when he did not receive a satisfactory response, to this office.

The complainant demanded:

(a) the cancellation of the policy; and
(b) a refund of all payments deducted from his bank account as well as bank charges and interest.

Since the complainant was not the policyholder or otherwise a party to the policy, he lacked the status to demand a cancellation of the policy as such. The only relevant issue was thus whether he was entitled to a refund of the payments made.

In one of its letters Insurer A conceded, “It is our conclusion that Insurer A albeit innocent, made unauthorized withdrawals from Mr C’s bank account and we need to refund those payments. Insurer A will still have a claim against the policyholder for damages suffered”.

However, Insurer A subsequently intimated that there may be defences, based on prescription and estoppel, to Mr C’s claim for a refund. Moreover, it conducted further investigations. According to Insurer A Mr M visited its offices and confirmed that he and the complainant were business partners; that the complainant’s broker, a certain Mr S, wanted to sell Mr M a policy; that he, Mr M, made it clear that he could not afford a policy; that it was Mr S who completed the application form; that he signed section 4 of the application form before it was completed; and that the complainant accompanied him when he went for medical tests.

This statement was largely confirmed by a later affidavit signed by Mr M in which he added that when Insurer A phoned him, “to ask me if I can service this policy I told them I was not aware that I had a policy they must cancel it”; and that the signature on the application form is his. He concluded: “The one for the complainant I did not sign on his behalf”.

Significantly neither in the statement to Insurer A nor in the affidavit was it specifically mentioned that the other signature on section 4 was that of the complainant.

The insurer thereupon raised the factual dispute and stated, “The facts now clearly suggest that there is a possibility that the complainant authorised the debit order deductions …”.

If the complainant in fact counter-signed section 4 or authorised the deductions from his bank account, as was suggested by Insurer A, that would of course be the end of the matter and he would not have a claim for a refund of the premiums.

If, on the other hand, he had not signed the document and the deductions were unauthorised, the next question would be whether he would have a claim for a refund against the insurer or whether his remedies were limited to claims against the bank and Mr M.

In the statement quoted above Insurer A accepted that if the payments were not authorised by the complainant there would be a claim for a refund against it. We agreed. Such a claim could either be an enrichment or a delictual claim or one founded on equity.

Dealing first with a potential enrichment claim the position appeared to us to be as follows. Payment is a bilateral act requiring the intention on the part of the payer (whether as debtor or as a third party) to discharge the debt and a corresponding intention on the part of the creditor/payee. Although it is arguable that the payer in the case of a debit order is the bank, the de facto payer is clearly the account-holder. This office, clothed as it is with an equity jurisdiction, would be disinclined to close its eyes to the insurer’s factual enrichment and the complainant’s corresponding factual impoverishment as a result of the unauthorised payments made from his account.

In addition it could be argued that, in the circumstances of this case, there was a duty on the insurer to make appropriate enquiries from the bank as to the authenticity of the account-holder’s authorisation of the debiting from his account.

This arose in three respects.

Firstly, there is the wording of section 4, quoted above. Secondly, there is the bank’s response to the complainant’s attorney’s letter of demand to it in which the bank stated, “The customer instructions was obtained by Insurer A’s consultant and handed to his or her head office. They then captured the details on their banking system requesting payment from the bank. Once the bank receives this request this system is programmed to pay the transaction from the accounts. We as bank have an agreement with these companies that they must have proof that the account holder has authorised them to make such deductions”. And finally, there is the statement in Mr M’s affidavit referred to earlier that “when Insurer A phoned to ask me if I can service the policy I told them that I was not aware that I have a policy they must cancel it”.

A potential claim by the complainant on either an enrichment or a delictual basis would not be compromised by the complainant’s potential remedy (depending on the facts) against the bank (paying out without proper authorisation) or against Mr M (forging complainant’s signature or designating his account without his authorisation). This office had no jurisdiction over either the bank or Mr M and these issues were accordingly left aside.

As between the complainant and the insurer it all hinged on the factual issue whether the complainant authorised the deductions and signed section 4.

In terms of our Rule 5.1, this office “shall resolve material disputes of fact on a balance of probabilities and with due regard to the incidence of the onus”. The onus in this instance rested on the complainant to prove his case for a refund. When fraud is alleged this office will always be hesitant to come to a conclusion on the probabilities without further evidence being adduced.

Rule 5.3. provides for the hearing of evidence, “if the Ombudsman and all the parties concerned are in agreement that a complaint for a material and conclusive dispute of fact can best be determined by the hearing of evidence”.

In our view this was such a case. Our suggestion to both the complainant and the insurer was accordingly that they consent to a hearing in terms of the said Rule so that the critical issue of authorization (and some of the ancillary issues bearing on the probabilities) could be resolved.

Both parties eventually agreed to a hearing to be held in the Pretoria area where the complainant resides and where Insurer A had its offices.

But there was one practical problem. Mr M was not subject to the jurisdiction of this office and Insurer A was afraid that he might not attend the hearing.

Insurer A accordingly contacted Mr M itself. It suggested to him that he should cede the policy to Insurer A who would then pay out the surrender value to the complainant in full and final settlement of the dispute. Both Mr M and the complainant agreed to this solution of the problem and the matter was resolved without a hearing taking place.

PMN
May 2007

CR232

Payment – insurer setting-off overpaid amount against other policy benefits

1. The complainant invested an amount of R100 000 in March 1993 with an insurer in a so-called back-to-back policy. R72 000 was used to purchase a ten year temporary annuity providing the complainant with a monthly income of R1 100,00, the balance was used to purchase a nine year temporary annuity funding an annual premium on the ten year endowment policy.

2. In 1997 a partial withdrawal of R30 000 was taken.

3. In September 1998 the policyholder took a loan of R7 000.

4. The complainant’s income was not paid in November 1998 and she phoned the insurer. Her attorney also queried the non-payment.

5. The insurer explained in a letter to the client that due to an error on their part the income annuity had been duplicated and consequently double payments had been made to her since inception. The overpayment amounted to R74 957. When the error was discovered further payment was frozen.

6. The insurer offered her two options: 1) that the excess be repaid or 2) that all the policies be surrendered and the surrender proceeds be set-off against the overpaid amounts. The balance would not be claimable.

7. The complainant asked for the entire debt to be written off. She did not choose either option. He request was refused and she was advised that no further income would be paid after March 1999.

8. The complainant wrote to us in 2006 that the endowment had not paid out. The insurer advised that the maturity value of the endowment would have amounted to R35 343 which would not cover the amount of the outstanding loan debt plus the balance of the overpaid income. They were prepared to write off this amount.

9. The complainant, however, again queried the right of the insurer to reclaim the overpaid amount. We found that in the circumstances the insurer was in law entitled to rely on the condictio indebiti to reclaim the overpaid amount. As far as the annuity was concerned the insurer in our view was futhermore entitled, once it realised in November 1998 that an overpayment had been made, to raise set-off as it did from March 1999 when it ceased making the annuity payments and set the annuity payments off against the earlier overpayment. This left an amount of R41 202 that remained due in respect of the overpayment. As the insurer’s right to claim this amount had arose in November 1998 it was in our view a prescribed claim. Therefore we were of the view that the insurer could not set-off this remaining amount against the endowment policy.

10. The insurer did not accept our provisional ruling but made an offer of R22 000 to the complainant which was accepted by the complainant. Accordingly it was not necessary for the office to make a final ruling in this case.

JP
May 2007

CR204

Payment of premiums – debit order on third party’s bank account without his authorisation – whether third party has a claim against the insurer for repayment of the premiums wrongfully deducted from his bank account – jurisdiction.

Background

The office recently and quite fortuitously received three complaints in almost identical factual circumstances, two against insurer X and one against insurer Y.

The complainant in each case was an account-holder at a bank. In all three cases deductions were made by debit order from the complainants’ respective bank accounts. All the payments were made to insurers in respect of premiums on policies of which the complainants were not the policyholders or beneficiaries. In all three cases there were factual disputes about how it happened that one man’s bank account was employed to pay another man’s premium debt.

The first common problem was whether the office had the requisite jurisdiction to consider the various complaints. Rule 2.1 provides that the office should “receive and consider every complaint by … a premium payer against a subscribing member…”. Not one of the complainants was a designated premium payer in terms of the policies concerned. Not one of them, on their own versions, ever had the intention of redeeming the premium debts of the policyholders. But, as a matter of fact, in each case it was the complainant’s bank account that purported to be used to pay the premium debt concerned. Our office adopts an expansive, rather than a restrictive interpretation as to its jurisdiction to hear legitimate complaints, and in all three instances the approach was that the complainant was a de facto if not a compliant premium payer and that this fact was enough to invest the office with jurisdiction to hear the complaint.

The second common problem was whether the complainants had viable claims for refunds of the premiums from their insurer. The insurers maintained, broadly speaking, that an unauthorised deduction from a complainant’s bank account was not their problem: the complainants were not their policyholders and, as outsiders to the policies, had no standing to question the validity of the policies as such; their complaints should be directed against the wrongful deductions of premiums from their accounts and they should seek redress from the banks (who debited their accounts without the requisite authorisation) or from the person/s who contrived to lodge spurious debit orders with the bank.

The mere fact that the complainants may well have had claims against their banks or against the third parties who lodged debit orders with the banks would not of itself disqualify the complainants from looking to their insurers for refunds of the premiums that were improperly deducted from their accounts. But the question remains: would such a claim be legally feasible?

According to the insurers a premium payer is not a party to the policy. There is no contractual relationship, so it was contended, between the various complainants as unintentional premium payers and the various insurers. An insurer’s only interest is to receive the premiums – whether from the designated policyholder or from a third party is of no concern to it. The validity of the debit orders was accordingly not a matter for them to investigate. They received regular payments in respect of valid policies from the bank and in those circumstances there was no duty on them, as insurers, to investigate whether the third party payments were properly authorised – that was the duty of the accountholders or the banks, as the case may be. The account-holders accordingly only had themselves to blame, so the argument concluded, and they should look to the banks for satisfaction if they wrongly allowed third parties to impose themselves as professed premium payers.

A debt does not have to be paid by a debtor; a third party can do so either on the debtor’s behalf or, for reasons of his own, on the third party’s own behalf. In those circumstances the corresponding intentions to pay and to receive payment are not those of the debtor and the creditor but of the third party and the creditor. If the third party, for instance, should steal money in order to pay the debtor’s debt the ensuing payment would be a proper payment and could not be annulled and recovered at the instance of the party from whom the money was stolen. But it is different if the debt was paid by means of a debit order in the debtor’s name even if his signature or professed authority was not genuine. Although it is the bank which, legally speaking, effects the payment it does so in the name of its account-holder. De facto it is the account-holder who effects the payment and who is impoverished and, depending on the circumstances, it is the insurer who is de facto enriched by receiving the payment. In principle, whether in law or in equity, the complainants should therefore have a claim for the refund of the payments made to the insurers.

It is necessary to add the words “in principle” because, apart from factual disputes, the insurer concerned may well have a legal defense to a claim for a refund, as is demonstrated by the facts of the following individual cases.

First case

Dr A, a specialist in the medical field, was the policyholder of a Retirement Annuity with company X. When, in March 2006, he decided to retire from it he discovered to his surprise that for years an amount had been debited from his account at bank P. On further enquiries being made he discovered that the payments were in respect of a life policy taken out in the name and in favour of his accountant Mr B, in 1993. Neither Mr B nor Mr B’s broker, Mr C, professed to have any knowledge or recollection of how the policy came to be issued in favour of Mr B or how deductions were permitted to be made from Dr A’s account at the bank. No copy of the policy could be traced, not by company X, not by B nor by C, the broker, who claimed to have lost Mr B’s file in his filing system.

When the existence of the mysterious policy was eventually discovered Mr B surrendered it and directed the proceeds to be paid into Dr A’s account.

The sum of the premiums deducted from Dr A’s account exceeded the amount recovered on surrender by only some R2500.00.

There were problem’s with Dr A’s case.

On the scant information placed before us we were unable to determine who the author of the debit order was but the probabilities suggested that it was Mr C acting in the name of Mr B.

Dr A, moreover, was not keen to proceed against Mr B who was in any event not subject to our jurisdiction.

And the fact that Dr A allowed deductions to be made against his account for more than a decade without objection, immediately raised issues of prescription and estoppel, irrespective of whether he wished to proceed against the insurer or against his bank.

We informed Dr A that in view of the relatively small amount involved he had to decide for himself whether he wished to pursue a delictual claim against Mr B; that we could, if he wished to pursue his remedies against the bank, refer his complaint to the Banking Ombudsman; but that he should bear in mind the possible defences of prescription and estoppel.

As far as the insurer was concerned, there was some evidence of poor service in dealing with his complaint when he first broached it with the insurer which, in our view, justified a compensatory award of R2500.00.

Dr A eventually informed us that he did not want to pursue the matter further against either the bank or the insurer. The compensatory award was paid. Our file was otherwise closed.

Second case

In this case the policy was taken out with insurer X in the name of Mr D, a former business associate of the complainant, Mr C. The premiums were deducted from the bank account of a CC of which the complainant, Mr C, was the sole member. That fact was only discovered after Mr D had died and after insurer X had paid out a large sum on the policy to Mr D’s estate. In this respect the second case differed substantially from the first.

Once again it was impossible for the office, in the absence of co-operation from the bank and the estate, to ascertain how it happened that the CC’s bank account was debited without the Mr C’s consent. There was also some suggestion in the papers that Mr C was not as ignorant of the debiting of his account as he would have us believe. As long as that remained an issue it could not be said that insurer X who paid out on an apparently valid policy made an erroneous payment. Issues of prescription and estoppel would also have been relevant. In the circumstances we concluded that in view of the nature of the factual disputes and the large amount involved, this was a matter that should rather be ventilated in a court of law. Our office is simply not geared to pursue factual issues of this nature and magnitude which, in our view, require that all the parties concerned be involved (some of whom are not subject to our jurisdiction), that pleadings be exchanged between them and that the matter be determined after evidence was heard and tested in a court of law. We accordingly declined jurisdiction in terms of our Rule 3.3.3 which entitles the Ombudsman not to consider a complaint which, in his opinion, can more appropriately be dealt with by a court of law.

Third case

The third case, in which the same issue arose, followed a slightly different pattern.

Mr and Mrs F had separate bank accounts with different banks, banks P and Q respectively. They also had a number of separate insurance policies but with the same insurer, Y.

Premium payments in all the instances were effected by means of debit orders from 1995 onwards. In respect of one of Mrs F’s policies, issued in 1995, she duly authorised, by her signature, the payments of premiums from her bank account at bank Q.

According to Mrs F her husband contrived to misuse that authorisation to falsify authorisations for payments on a number of his policies. All the unauthorised debit orders appear to have been lodged before 1 March 2001.

All these policies, having endured for some time, were thereafter either encashed or made paid-up by Mr F.

Mrs F estimated the amounts of payments, deducted from her account, to be in the region of R75 000.00, being R2 050.00 per month for approximately three years.

It was only in August 2004, after the policies were encashed or made paid-up, that Mrs F made enquiries for the first time, so she said, regarding the unauthorised deductions from her bank account.

Mr and Mrs F, not surprisingly, were divorced in March 2005.

There was no response to Mrs F’s earlier enquiries and when, in April 2005, the insurer again did not respond she approached our office for assistance.

The insurer’s response was that it was not at fault; that Mrs F could and should have raised the alarm at a much earlier stage; and that she should seek her redress from the bank and not from the insurer.

In response to the complaint we expressed the view:

(a) that Mrs F may in principle have had a claim for a refund on the grounds of undue enrichment;

(b) that Mrs F should have noted within at least three months of it happening that unauthorised deductions were being made from her account;

(c) that any such claim, or a significant part thereof, would in the meantime have prescribed;

We tried to persuade the insurer to make an ex gratia payment but the insurer responded with a letter from Mr F to the effect that he and Mrs F have pooled their resources at the time to meet their financial obligations and that Mrs F had given her prior consent to the deductions from her account at Bank Q. Moreover, we were provided with a recording of a telephone conversation between Mrs F and the insurer’s call centre in 2001. In it Mrs F not only mentioned that: “we sent you a change of banking details” but it was also apparent that it was understood that premiums were to be deducted from her account in respect of at least some of Mr F’s policies.

In the light of this new development the insurer was understandably not prepared to make an ex gratia payment and in the absence of any grounds on which a compensatory award could be made in Mrs F’s favour, the file, a product of marital discord, was closed.

PMN/EdB
November 2006