Posts in category: Premuims

CR272

Premiums – group scheme – complainant leaving employment – policy ceded to complainant – complainant not being aware that further premiums required to be paid – insurer never having informed complainant thereof – policy lapsing – insurer failing to apply relevant term of the policy.

BACKGROUND

Through her employer the complainant was insured for life cover under a group scheme policy. The policy had been issued in 1993 and premiums had been payable by the employer. When the complainant left her employment in 1999 the policy was ceded to her, and the employer was no longer responsible for premium payments. The insurer therefore notified the employer that arrangements required to be made with the complainant for the payment of premiums due after the cession. The employer, however, did not convey this to the complainant; nor did the insurer do so itself despite having been furnished by the employer with her address.

The complainant in turn had not realised that the policy provided for life cover and that further premiums were therefore payable. Because the surrender value of the policy at the time of leaving her employment had been
R13 824,00 she had decided not to surrender it but instead to benefit by its expected increase in value.

When premiums were not paid after the cession the insurer, believing that the policy entitled it to do so, debited the policy’s capital for payment of the premiums, and in 2003 the policy value was thereby reduced to nil and it lapsed. When the complainant discovered this in August 2008 she lodged a complaint with the office.

DISCUSSION

The insurer contended that it had not been its obligation, but that of the erstwhile employer, to have notified the complainant of the need to continue with premium payments after the cession. The office pointed out, however, that the insurer had nevertheless overlooked certain terms of the policy which provided that:

“The procedure if premiums cease to be paid will depend on whether or not the qualifying period has been completed. This period is defined as follows:
…
Three years if the term was more than 20 years”

and that:

“If, following the completion of the qualifying period, a premium is not received within 31 days of falling due
…
Provided the cash value exceeds R2 000.00, (the policy will be) left to accumulate without any undertaking to pay further premiums.”

The office drew to the insurer’s attention that because at the date of premium cessation the policy had already been six years old, and because its cash value had at that date been R13 824.00 and therefore exceeded R2 000.00, the above provisions applied. The policyholder had therefore been entitled to leave the policy to accumulate without having to pay further premiums.

CONCLUSION

The insurer accepted that it had erred and by letter dated 21 October 2008 undertook to reinstate the policy, at the same time issuing an account showing that its early cancellation value was then R21 845.00.

The complainant accepted the offer and the matter was thereby settled.

SM
January 2009

CR164

Premiums – Withholding premiums during dispute with insurer.

Background

The policyholder applied for life cover and risk benefits on his own and his spouse’s life. He also applied for an automatic annual increase of premiums and contributions. The insurer was not prepared to accept the risk at standard premium rates but was prepared to impose a loading on the premium. This loading was accepted by the applicant and the policy was issued accordingly.

The contract provides specifically that the policyholder is responsible for the payment of the total premium. It furthermore states that if a premium is not paid within 30 days after the due date, the policy will be cancelled from the due date. The contract further provides that if a policy is cancelled as a result of non-payment of premiums, the policyholder must apply for re-instatement of the policy. All arrear premiums must be paid before such an application for re-instatement would be considered. The insurer explicitly reserve the right to call for further medical information and to refuse the application for re-instatement.

On the first anniversary of the policy, the insurer informed the policyholder of the contractual increase in premium.

The policyholder gave instructions to stop payments of the premiums. Written notifications by the insurer were sent six days after the first due date and again one month thereafter, informing the policyholder that premiums were not paid and that the policy would lapse if more than two premiums were not paid.

In the interim, the insurer received enquiries from the policyholder’s broker regarding the increase. Quotations in respect of a lower rate of increase were requested by the broker. The loading was also questioned. No premiums were, however, paid. The policyholder died three months after the first unpaid premium became due.

Discussion

The policyholder’s spouse, in her capacity as beneficiary, complained to this office about the insurer’s refusal to consider a claim in terms of the policy which, according to the insurer, was no longer in force, because of the non-payment of the arrears, at the time of the insured’s death.

In her submissions to our office, the beneficiary contended that it was not the policyholder’s intention to terminate the insurance contract, but that the premium payment was stopped to expedite the process of obtaining information regarding the loading and rate of increase. It is not in issue that enquiries in this respect were made and that quotations were obtained. It was, however, clear that this was only done after the policyholder gave instructions to stop payment of premiums.

Result

Our conclusion was that the explicit provisions in the contract and the written notifications to the policyholder in respect of the consequences of non-payment of premiums were conclusive and that no legal or equitable grounds existed to uphold the claim. Unilateral termination of premium payment usually has serious effects on the validity of cover and value in terms of policies. It is not a suitable method to force insurers to attend to disputes.

EdB
April 2006

CR163

Premiums – insurer waived premiums for two years – non activation by the insurer of debit order thereafter – insurer purported to cancel the policy and refused reinstatement

Background

The complainant took out an insurance policy in 1999. In 2001 he was diagnosed with nephritis and lodged a disability claim against the policy. The insurer advised the complainant that he did not qualify for the payment of the trauma benefit, but that the waiver of premium benefit would be activated. In terms of the contract, this benefit provided for the premiums to be waived should the insured be unable to perform his occupation for 24 months, following an initial six months waiting period. The complainant’s claim under the benefit was approved for the period from 1 September 2001 until 31 August 2003. The insurer explained to the complainant that his policy would remain in force for that period with the insurer paying the premiums on the complainant’s behalf. The insurer instructed the complainant that he must resume payment of premiums from 1 September 2003.

During November 2003, already in arrears, the complainant forwarded to the insurer a debit order for payment of premiums on the policy and on 10 December 2003, the insurer confirmed receipt of the correspondence from the complainant. The insurer further confirmed that the debit order for the monthly premium had been activated to operate on the complainant’s bank account with the first deduction commencing on 25 December 2003. In the same letter the insurer advised the complainant that the policy had become automatically paid up (because of the late payment of premiums owing) but that he had a period of grace of one year to reinstate the policy. The insurer further advised that since the complainant had been prompt in his application, the insurer was prepared to consider reviving the policy on receipt of the payment of arrears in the amount of R1133.58 to cover premiums up to 31 December 2003.

The arrears were not paid but the insured believed that premiums were being deducted from his bank account. Sometime thereafter he realised that it was not happening and in March 2004 he requested his consultant to enquire from the insurer why the premiums had not yet been deducted. The insurer responded by requesting a payment of R1346 and also insisted that the complainant should complete certain prescribed medical forms and to go for an HIV test. The money was paid and the test was done yet the insurer advised the complainant that the policy had been declined on medical grounds. The insured did not accept this response and on 29 November 2004 the consultant requested the insurer to revive the policy. The insurer responded on 2 December 2004 as follows:-

“The waiver of premium was only effective until 31 August 2003. The debit order application form was received on 19 November 2003 and was implemented to deduct as from 25 November 2003. However, the debit order application form was received too late in order to implement the debit order for 25 November 2003 and was then implemented as from 25 December 2003.”

Due to non payment of premiums, your policy was automatically converted to a paid up assurance on 1 July 2003. Once a policy has ceased, we allow our clients a grace period of one year to reinstate the policy. However, we are prepared to consider reinstating your policy on receipt of:-

• completion of the attached application for reinstatement;

• the amount of R1705.30 (premium update excluded) or R1884.70 (premium update included), which represents arrears for the period ending 31 December 2004;

• regular payments of at least R194.30 per month.

These requirements should reach us on or before 31 December 2004. Failure to comply with the above conditions by this date will result in the request being automatically declined…”

The complainant took the necessary action and so advised the insurer on 20 December 2004. On 23 December 2004, however, the insurer advised the complainant that the application for revival had been declined for medical reasons. The insurer further advised the complainant that his policy had been “off our books for longer than one year and cannot be reinstated at this late stage….”. The insurer then requested the complainant to furnish his bank details in order that the insurer could refund the complainant’s overpayments.

The complainant referred the matter to our office for assistance.

Assessment

We requested further details from the insurer. We were advised that when it had requested the complainant to make payment of the amount of R1133.54 on 10 December 2003, the complainant was already in arrears with premiums for September, October, November and December 2003. The insurer alleged that it received the payment called for only on 9 March 2004 when the policy was already 7 months in arrears. Relying on the insurer’s own internal ruling that medical evidence was needed when payments were in arrears for longer than 6 months, the matter had been referred to the insurer’s underwriters as well as its own Chief Medical Officer and the application for reinstatement of the policy was thereupon declined for medical reasons.

We suggested that the insurer reconsider the matter, as they informed the client in their letter of 13 December 2003 that they “allow our (their) clients a grace period of one year to reinstate the policy”, subject to the payment of all arrears. No mention was made of any medical requirements or that the reinstatement would be subject to underwriting.

The insurer advised that the policy had been declined due to medical requirements and not due to the late payments of arrears premiums. The assurer referred to its internal ruling which states:-
“Policies with life cover and benefits with cover can be reinstated without requirements, within 6 months of last premium due date/cancellation (as no underwriting is required) unless:

• The policy has trauma benefits, or
• The policy has hospital care benefits or
• The policy is reassured or
• The policy is health loaded or has (LOA) history or
• The cover exceeds R500 000…”

Since the complainant’s policy had a trauma benefit and having taken into account the client’s request for reinstatement, it had been declined for medical reasons. The insurer, however, was prepared to reinstate the policy, but all cover and benefits were to be removed. The complainant was given until 1 July 2005 to advise the insurer if he was prepared to accept this offer. We enquired from the insurer what was meant by “All cover and benefits will be removed”. We again pointed out to the insurer that in its letter dated 10 December 2003 to the complainant, the insurer had given to the complainant 12 months within which to pay the arrear premiums and no mention had been made of a 6 month period. It appears that the internal ruling of the insurer had come into operation during 2004 and if the complainant’s application had been denied, the insurer had applied this internal ruling retrospectively.

Result

The insurer offered to reinstate the policy with all the applicable benefits to what it was before it lapsed provided that the outstanding premiums amounting to R2429.02 were paid before 31 October 2005. We suggested to the complainant that he accept this offer, which he duly did.

HE
April 2006

C76

Premium waiver benefit admitted and later terminated on review – whether cessation of benefit justified.

Background

The complainant was a teacher who suffered from major depressive disorder. Because of his condition and his inability to continue working the Education Department granted approval for him to retire in March 1999.

The complainant had a policy with the insurer which, amongst other benefits, included a waiver of premium benefit. Following his early retirement the complainant applied to the insurer for the waiver of premium benefit to be instituted. In July 1999 the insurer informed the complainant that the waiver of premium benefit had been approved for a period of two years; it was reassessed and approved for a further period of two years in July 2001. In May 2003 the insurer sent a letter to the complainant advising him that the waiver of premium benefit had come up for review but the letter was apparently not received by the insured; the benefit was then terminated. When the insured communicated with the insurer in November 2003 the claim was referred to the insurer’s Chief Medical Officer. He expressed the opinion that the insured was not totally and permanently disabled and while the insured could not perform his own occupation, he was not incapable of performing any other occupation. This opinion apparently was influenced by the disability claim medical report of the insured’s doctor who, in response to the question “Do you consider that the disabled is at presently totally incapable of performing … any occupation whatsoever, irrespective of ability?” had responded “No”. In explanation thereof he had indicated that the insured was capable of “creative handwork”.

The complainant approached our office for assistance.

Discussion

In terms of the policy the requirement for the premium waiver benefit was that the life assured and the payer of the premiums (being one and the same person)

“has become totally and permanently disabled and as a consequence of which has been wholly and continuously prevented from engaging in any business or occupation and from performing any work for remuneration, compensation or profit for a period of six consecutive months (and in the opinion of the company will continue to be so prevented permanently)”.

We noted that the insured’s doctor had, on each instance that the matter had come up for review, furnished the insurer with a disability claim medical report. The same answers given by the medical doctor in 2003 had been given in the 2001 report. Despite the fact that the medical doctor had indicated that the insured was capable of “creative handwork” in 2001, the insurer had made the decision to continue payment of the benefit.

When we asked the insurer to advise us what creative handwork this could consist of, how and whether any remuneration could be earned for such creative handwork and whether the complainant had had any previous experience of performing creative handwork, the insurer replied that since the complainant had provided the occupation of “creative handwork” to his medical attendant, the complainant was in a position to provide the specific details as to how, where and when this occupation was to be performed and whether he was able to derive an income from it. However we pointed out that there was no evidence that the complainant had provided this occupation to his medical attendant. It appeared to us to be the medical attendant’s opinion which had been expressed since, in the form filled in by the complainant, he clearly indicated that he had been incapable of working since 1998.

We furthermore pointed out to the insurer that if it sought to rely on an alleged implied ability to perform creative handwork as a reason to repudiate the claim, it should be able to demonstrate that creative handwork is a business occupation or work as distinct from a part-time activity or hobby, and that the activity deemed to be a business, occupation or work would generate an income enabling the insured to earn a living.

It was clear from the earlier assessments that the complainant had major depression and personality dysfunction and we pointed out to the insurer that one would have expected a full evaluation by a psychiatrist to be done before determination of the benefit on review, rather than reliance on a one line opinion expressed by a general practitioner.

Result

The insurer reviewed its earlier decision and decided to admit the waiver of premium benefit up to the policy maturity date.

SM
October 2005