CR195

Mistake – settlement – Income plan (back-to-back) – insurer refusing at maturity date to pay value stated as minimum maturity value on endowment policy, alleging that the stated value was a reasonable mistake (iustus error), alternatively that the actual contract differed from that evidenced by the policy.

Background

In June 1995, when he was 79 years old, the complainant purchased a 10-year temporary annuity for R100 000, which provided him with a gross monthly income of R2330. R1345 of this amount was paid to him as a guaranteed monthly income and the balance of R985 was used to pay monthly premiums on a 10-year endowment policy.

Under “Benefits” in the endowment policy it was stated that:

“The minimum maturity value of R104064, or the balance of the Investment Account if greater, is payable on the maturity date of 2005.07.01 should the life assured then be alive.

Should the Life Assured die before 2005.07.01, the sum assured of R100 000, or the balance of the Investment Account, if greater, will be paid”.

This statement was repeated in the summary of policy details enclosed with the initial welcome letter. It was also stated, in the summary of the investment plan details, under “Investment Plan Benefits”, that

“The following guarantees apply to your policy:
Minimum guaranteed maturity value of R104064 on 2005.07.01”. (our emphasis).

The policy statement as at 2001/10/01 stated, under “Benefits”, “Minimum Maturity Value R104064.00”, although on the other policy statements (1 April 2001, 1 March 2002 and 1 March 2003) there was no mention of a minimum maturity value. The policy statement for 1 April 2001 reflected illustrative maturity values at 6% and 9% as R0, but this was not mentioned on the other policy statements.

When the policy matured on 1 June 2005 the insurer at first maintained that all the premiums had been utilised to provide life cover and there was no positive value in the investment account to be paid out as a maturity value. When the complainant objected, the insurer offered to pay him the amount of R33 711.00, as this amount was mentioned as a guaranteed maturity value in a “special quotation” dated 1 June 1995. The complainant rejected this offer and complained to our office, pointing out that the special quotation was marked “for internal use only” and was not signed by the complainant.

Discussion

We asked the insurer to clarify whether it relied on reasonable mistake (in which case we would have to determine whether the error was reasonable and the policy was void or whether the insured had reasonably relied on the terms of the policy, in which case the insurer would be bound to the impression it had created), or whether it denied that the actual contract was correctly reflected in the policy, (in which case it would have to make out a case for rectification).

The insurer replied that a iustus error had occurred when the guaranteed maturity value of R104 064.00 was reflected in the policy, and that the complainant knew or should have known that this was a mistake as the quotation reflected a maturity value of R33 711.00 and also stated: “Please note that there is no guarantee that the original investment amount at the end of the term is guaranteed”; the insurer asked rhetorically why they would have guaranteed a value of R104 064.00 when there was no guarantee that the original investment amount of R100 000 would be paid at the end of the term. The insurer also indicated that the special quotation had been drawn on 1 June 1995 and the application form was signed on 2 June 1995, apparently in accordance with the figures of the quotation; thus the insurer contended that the broker and the client must have seen the quotation. It was argued that the contract was only issued subsequent to the acceptance by the complainant of the offer contained in the special quotation; thus the actual contract was not that set out in the policy.

When this was put to the complainant, he responded that the mistake could hardly have been an obvious one which he should have recognised, when the value of R104 064 was repeatedly confirmed in subsequent statements. He further stated that he had no recollection of having received or considered the special quotation at any stage nor did he know whether his broker at the time had seen it.

In our view there were strengths and weaknesses on both sides of this dispute. The insurer was unable to provide proof of the alleged actual contract. Furthermore, its argument flew in the face of its earlier stance that no value was payable at all. On the other hand, the complainant should have noticed that the guaranteed maturity value was unusually high, even higher than the illustrative value on the higher of the two rates used. There was also the possibility that we might make a finding on the probabilities that the quotation had been handed to the broker.

Result

The insurer made an offer to settle the matter for R52 000, that is, half the originally disputed amount. The complainant countered that he would settle for R80 000; this was rejected by the insurer. The parties then requested that we make a ruling. We wrote to the parties proposing a date for a round table meeting. The complainant subsequently advised that he would be prepared to settle on a figure between the two earlier figures suggested, ie R66 000. This proposal was accepted by the insurer, and the matter was resolved on that basis.
SM
November 2006