CR137

Funeral Insurance – eligibility of policyholder – whether disqualified because he did not belong to a particular trade union

Background

The complainant made application for a funeral policy administered by company X and underwritten by company Y. His application was accepted. Amongst the lives assured was his uncle who qualified as such in terms of the policy provisions. But when he submitted a claim on the death of his uncle company X on behalf of company Y declined it on the grounds that the funeral plan “was a union branded product” and the complainant was not a member of the trade union concerned. The administrator contended that as the proposal form clearly displayed the union logo at the top of the form, the complainant should have been alerted to the fact that the policy was solely intended for union members. The administrator declared the policy null and void and proceeded to do a partial refund of the premium contributions.

Assessment

Our office took the view that there were two issues that needed to be addressed:

(a) should the claim not be met in full?

(b) alternatively, should there not be a full refund of all premiums paid?

As to the first issue: should the claim not be met?

The complainant made application for insurance; his application, which was in
essence an offer, was duly accepted by the administrator acting on behalf of the
underwriter; the contract was accordingly concluded between the complainant
and the insurer.

There was nothing in the contract itself that stated that only members of the
union would qualify for cover.

We took the view that in the absence of any clause governing the above situation
both the contract and the claim would appear to be valid.

On the alternative cause of action: should a full refund of premiums not be
made?

On the assumption that the administrator was correct in stating that the contract was void because the complainant did not qualify for cover under the terms of the contract, it would follow that the entire policy was not binding on either the complainant or the insurer. It would further follow that the insurer was never at risk. If the contract was not binding and the insurer was never at risk there was no underlying causa for the acceptance of premiums by the insurer. Consequently all the premiums had to be repaid with interest. There was no recourse to the terms of the policy to reduce the sum that had to be repaid since, on this alternative approach, the policy by definition was not binding on either of the parties.

Discussion

As neither the underwriter nor the administrator could provide us with evidence or comments as to why the claim should not be paid in full, we made a provisional ruling that the death claim should be paid in full.

Result

The administrator did not contest the provisional ruling and proceeded to pay the full death claim with interest, less the partial refund of premiums originally processed.

DCW
April 2006