CR103

Lapsing – interpretation – life insured no longer eligible – reinstatement with full cover.

Background

The complainant took out a policy with X company in 2000. Her father was one of the life assured. The policy provided that premiums were payable monthly or annually in advance and that if payments were not made within two months “from the commencement date” the policy would lapse.

During 2005 the complainant experienced financial difficulties and reneged on premiums for two consecutive months. When she tendered the full arrears in the month following X company informed her that the policy had lapsed but that she could apply for reinstatement. She did so. X company was prepared to reinstate the policy but with the exclusion of cover for her father who had in the meantime exceeded the maximum age at entry of 75 years. The complainant approached us.

Discussion

We wrote to X company as follows:

“I would like to hear your views as to whether Clause 5 of the Policy Terms and Conditions, annexed to your letter to us, entitles you to regard the policy as lapsed. I say so for the following reasons:

Clause 5 of the Policy provides, “If payments are not paid within two (2) months from the commencement date, the cover will lapse. Cover will be re-instated at the sole discretion of X company.”

The commencement date reflected on the policy is 1 April 1997.

The clause, literally interpreted, refers only to late-payments “within two (2) months from the commencement date” and not to a delay of two months in respect of any subsequent payments. On that basis the policy makes no provision for a lapsing in the event of subsequent delays.

Thus interpreted it would mean that the policy, contrary to what you stated to the complainant, did not lapse on the non-payment of the two premiums in January 2005. It would further mean that the lapse letter of February 2005 can be ignored and that it was not necessary for the complainant to apply for a reinstatement. On that basis you were likewise not entitled to reinstate the policy without the cover, which previously existed, for the complainant’s father who had in the meantime become ineligible for such cover in terms of a new policy.

In view of these difficulties it may be to your advantage:

(i) to either regard the policy as not having lapsed, provided the complainant clears any arrears currently owing on the policy;

(ii) to reinstate the policy but with the retention of life cover for the complainant’s father;

(iii) to give serious consideration to a redrafting of the affected clauses in respect of future policies.”

In response to this letter X company replied that the funeral benefit in respect of the complainant’s father had been added to the reinstated policy but subject to a three months waiting period in respect of death resulting from natural causes.

Result

The complainant was satisfied and the matter was resolved on that basis.

PMN
October 2005