CR207 Settlement – by conduct.


Settlement – by conduct.


The complainant, a Trust, was the holder of a policy with a value in excess of R12M. In February 2002 the Trust took an advance of R4.5M against the policy. The insurer applied a market value adjuster (MVA) of 20% in calculating a deduction of R1 125 000. At the maturity date of the policy, in November 2002, an amount in excess of R7M was paid into the Trust, taking into account the loan and the deduction in respect of the MVA. Not surprisingly the Trustees protested at the amount thereof. According to the attorney for the Trust the insurer “replied by telefax on 20 August 2003 agreeing ‘to adjust the MVA’ “. An amount of R625 000 (plus related growth) was thereupon repaid by the insurer into the Trust’s banking account in August 2003.

Three years later, in 2006, the attorney for the Trust approached our office stating “It was only when it became known, earlier this year, that the Ombudsman was taking up the cudgels on behalf of the public in regard to matters involving long-term insurance companies, that I was instructed to revisit the matter, it appearing that, at last, there was an Authority to whom one could turn to ensure and procure fair dealings.”

The insurer, in responding to the complaint, emphasised that “the ex gratia payment referred to above was expressed to be in full and final settlement of the Trust’s claim” against the insurer.

The averment that the ex gratia payment was in full and final settlement was disputed on behalf of the Trust. The term “ex gratia”, so it was contended, “cannot give rise to an implication of a payment in full and final settlement”.


The matter was discussed at an adjudicators’ meeting. The meeting, having debated it, was of the view that the complainant raised three issues: one, whether the insurer was entitled to make a deduction in respect of a “market value adjuster” from the policy value on its partial termination prior to maturity; two, on the supposition that such a deduction was permissible, whether there was an agreement between the parties settling the amount of the reduction of the deduction; three, if not, whether the insurer is entitled, as it contended, to the repayment of the amount paid to the Trust if the matter was found not to have been settled.

As to the first issue the meeting felt that it was common cause between the parties at the time that the insurer was entitled to apply a MVA in respect of the loan. This view was supported by the terms of the loan agreement which specifically allowed the insurer to adjust the value of the policy to take account of market conditions.

As to the second issue the meeting held that there was an absence of any oral or contemporaneous documentary evidence as to what transpired between the parties when the repayment of R680446 was made. The fact of the payment–over, its acceptance without objection at the time, and the considerable period that had elapsed thereafter before the issue was pertinently raised, persuaded the meeting that, on the probabilities, an agreement by conduct had in fact been reached at the time as to the amount of the reduction of the deduction and its repayment; and that the absence of any express statement accompanying the payment that the payment was in full and final settlement did not detract from that finding.

As to the third issue, the meeting held that the second issue pre-empted it but that, even if there had been no settlement, it would simply have meant that the question of the correct amount of the reduction of the deduction remained open and that that fact in itself could not support a claim for repayment by the insurer.

A provisional ruling in the form of a declaratory order was accordingly made along the above lines.

Neither party responded to the provisional ruling which thereupon became final.

November 2006

CR208 Settlement by insurer – confidentiality


Settlement by insurer – confidentiality – unforeseen negative spin-off of a generous settlement.


Publicity is good for the office – the more people know about its existence, the better the office can serve its purpose by assisting policyholders and others who have a gripe against their insurers to find out if there is merit in a complaint and if there is, to do something about it.

But a case where positive publicity has had an unfortunate and unforeseen negative repercussion on what we are able as an office to offer consumers is one to which we drew attention when our 2005 Annual Report was released to the press. We cited it as an illustration of how insurers are sometimes commendably generous in settling cases where there is obvious hardship but the law is clear and there is no room for invoking our equity jurisdiction.


The insured was a pilot who was killed when his aeroplane crashed one day after the inception date of his policy. A claim on the policy was declined on the grounds that the insured indicated, when applying for the insurance, that he was in possession of a “commercial” pilot’s licence, whereas the insurer’s investigation revealed that, although qualified, he only held a “private” pilot’s licence. There was a dispute about this issue and the probabilities were fairly evenly balanced. The insured’s widow could not afford to take the matter to court. We were asked to approach the insurer for an ex gratia payment and the insurer, having considered all the circumstances of the case, made a generous offer which the widow accepted in full and final settlement.

The case was mentioned in the week-end press. Consistent with our policy of confidentiality, we had not disclosed the names of either the complainant or the insurer but in the newspaper report the identity of the insurer was revealed. The newspaper had its own source of information. We were not unduly perturbed when we read the report because we thought that the insurer would be pleased with the accolade which came its way.


We were wrong. The insurer informed us that as a result of this report it was flooded with demands for ex gratia payments from other policyholders when claims were declined. In the result the insurer decided, in a later case which was deserving of consideration for an ex gratia payment, that, although sympathetic to the complainant, it could no longer consider an ex gratia payment for fear of creating a precedent for the future. The case can serve as one more example of how the best of intentions can turn into the worst of results.

November 2006