CR116

Funeral Policy – premiums – insurer consistently accepts late payments – effect of.

Background

The complainant’s father took out a funeral policy for R4000 in 1988 with a Funeral Fund administered by “F for Funerals” and underwritten by an insurance company. The premiums, gradually increasing over the years from R4 per month to R70 per month, were payable by the 10th of every month. He was issued with a policy booklet but there is no proof that a document containing conditions and provisions was ever issued to him.

The policyholder was admittedly often late with his payments but the shortfalls were always made up in later months and the premiums were always accepted without objection. His last payment was in January 2004. He died in April 2004 when some premiums were due. When a claim was made by the deceased’s son (presumably on behalf of the estate) the claim was declined on the grounds that the policy had lapsed.

Discussion
When the office queried this approach “F for Funerals” responded:
“The fact that we took monies (premiums) late on previous occasions does not justify the policyholder’s case. According to our underwriting conditions the client should pay his premiums before the 10th of every month, failing to do so could result in cancellation of such membership…. In the case of the above client we need to acknowledge that the client was constantly late or outstanding with his premiums. We feel that we have no legal obligation to pay the claim for we could not claim from our underwriters because of the lapsed policy.”

Our response was in the following terms:
“It is a well-known and indeed fair principle of law that when a contract provides for cancellation by the creditor on the non-payment by the debtor of a periodical amount or instalment on due date (e.g. rentals on a lease), and the creditor, in the immediate past, accepted late payments over a period of time without cancelling the contract, he cannot then cancel the contract on the next late payment unless he first warned the debtor that he would do so if the next payment due should also be late. The reason is that the consistent acceptance of late payments over a period would lull the debtor into the false belief that the creditor does not propose to invoke the cancellation clause in their contract. This is what appears to have happened in this particular case. Late payments were consistently accepted in the past without any indication that a claim would not be met if a late payment should once again be made. The debtor should first have been cautioned that he must not assume that the contract would not lapse if payments were not made on the due date in future. This did not happen.”

Result

The company thereupon informed us that it had decided to pay the entire claim, less the outstanding premiums. We thanked it for its approach and closed our file.

PMN
October 2005