CR204

Payment of premiums – debit order on third party’s bank account without his authorisation – whether third party has a claim against the insurer for repayment of the premiums wrongfully deducted from his bank account – jurisdiction.

Background

The office recently and quite fortuitously received three complaints in almost identical factual circumstances, two against insurer X and one against insurer Y.

The complainant in each case was an account-holder at a bank. In all three cases deductions were made by debit order from the complainants’ respective bank accounts. All the payments were made to insurers in respect of premiums on policies of which the complainants were not the policyholders or beneficiaries. In all three cases there were factual disputes about how it happened that one man’s bank account was employed to pay another man’s premium debt.

The first common problem was whether the office had the requisite jurisdiction to consider the various complaints. Rule 2.1 provides that the office should “receive and consider every complaint by … a premium payer against a subscribing member…”. Not one of the complainants was a designated premium payer in terms of the policies concerned. Not one of them, on their own versions, ever had the intention of redeeming the premium debts of the policyholders. But, as a matter of fact, in each case it was the complainant’s bank account that purported to be used to pay the premium debt concerned. Our office adopts an expansive, rather than a restrictive interpretation as to its jurisdiction to hear legitimate complaints, and in all three instances the approach was that the complainant was a de facto if not a compliant premium payer and that this fact was enough to invest the office with jurisdiction to hear the complaint.

The second common problem was whether the complainants had viable claims for refunds of the premiums from their insurer. The insurers maintained, broadly speaking, that an unauthorised deduction from a complainant’s bank account was not their problem: the complainants were not their policyholders and, as outsiders to the policies, had no standing to question the validity of the policies as such; their complaints should be directed against the wrongful deductions of premiums from their accounts and they should seek redress from the banks (who debited their accounts without the requisite authorisation) or from the person/s who contrived to lodge spurious debit orders with the bank.

The mere fact that the complainants may well have had claims against their banks or against the third parties who lodged debit orders with the banks would not of itself disqualify the complainants from looking to their insurers for refunds of the premiums that were improperly deducted from their accounts. But the question remains: would such a claim be legally feasible?

According to the insurers a premium payer is not a party to the policy. There is no contractual relationship, so it was contended, between the various complainants as unintentional premium payers and the various insurers. An insurer’s only interest is to receive the premiums – whether from the designated policyholder or from a third party is of no concern to it. The validity of the debit orders was accordingly not a matter for them to investigate. They received regular payments in respect of valid policies from the bank and in those circumstances there was no duty on them, as insurers, to investigate whether the third party payments were properly authorised – that was the duty of the accountholders or the banks, as the case may be. The account-holders accordingly only had themselves to blame, so the argument concluded, and they should look to the banks for satisfaction if they wrongly allowed third parties to impose themselves as professed premium payers.

A debt does not have to be paid by a debtor; a third party can do so either on the debtor’s behalf or, for reasons of his own, on the third party’s own behalf. In those circumstances the corresponding intentions to pay and to receive payment are not those of the debtor and the creditor but of the third party and the creditor. If the third party, for instance, should steal money in order to pay the debtor’s debt the ensuing payment would be a proper payment and could not be annulled and recovered at the instance of the party from whom the money was stolen. But it is different if the debt was paid by means of a debit order in the debtor’s name even if his signature or professed authority was not genuine. Although it is the bank which, legally speaking, effects the payment it does so in the name of its account-holder. De facto it is the account-holder who effects the payment and who is impoverished and, depending on the circumstances, it is the insurer who is de facto enriched by receiving the payment. In principle, whether in law or in equity, the complainants should therefore have a claim for the refund of the payments made to the insurers.

It is necessary to add the words “in principle” because, apart from factual disputes, the insurer concerned may well have a legal defense to a claim for a refund, as is demonstrated by the facts of the following individual cases.

First case

Dr A, a specialist in the medical field, was the policyholder of a Retirement Annuity with company X. When, in March 2006, he decided to retire from it he discovered to his surprise that for years an amount had been debited from his account at bank P. On further enquiries being made he discovered that the payments were in respect of a life policy taken out in the name and in favour of his accountant Mr B, in 1993. Neither Mr B nor Mr B’s broker, Mr C, professed to have any knowledge or recollection of how the policy came to be issued in favour of Mr B or how deductions were permitted to be made from Dr A’s account at the bank. No copy of the policy could be traced, not by company X, not by B nor by C, the broker, who claimed to have lost Mr B’s file in his filing system.

When the existence of the mysterious policy was eventually discovered Mr B surrendered it and directed the proceeds to be paid into Dr A’s account.

The sum of the premiums deducted from Dr A’s account exceeded the amount recovered on surrender by only some R2500.00.

There were problem’s with Dr A’s case.

On the scant information placed before us we were unable to determine who the author of the debit order was but the probabilities suggested that it was Mr C acting in the name of Mr B.

Dr A, moreover, was not keen to proceed against Mr B who was in any event not subject to our jurisdiction.

And the fact that Dr A allowed deductions to be made against his account for more than a decade without objection, immediately raised issues of prescription and estoppel, irrespective of whether he wished to proceed against the insurer or against his bank.

We informed Dr A that in view of the relatively small amount involved he had to decide for himself whether he wished to pursue a delictual claim against Mr B; that we could, if he wished to pursue his remedies against the bank, refer his complaint to the Banking Ombudsman; but that he should bear in mind the possible defences of prescription and estoppel.

As far as the insurer was concerned, there was some evidence of poor service in dealing with his complaint when he first broached it with the insurer which, in our view, justified a compensatory award of R2500.00.

Dr A eventually informed us that he did not want to pursue the matter further against either the bank or the insurer. The compensatory award was paid. Our file was otherwise closed.

Second case

In this case the policy was taken out with insurer X in the name of Mr D, a former business associate of the complainant, Mr C. The premiums were deducted from the bank account of a CC of which the complainant, Mr C, was the sole member. That fact was only discovered after Mr D had died and after insurer X had paid out a large sum on the policy to Mr D’s estate. In this respect the second case differed substantially from the first.

Once again it was impossible for the office, in the absence of co-operation from the bank and the estate, to ascertain how it happened that the CC’s bank account was debited without the Mr C’s consent. There was also some suggestion in the papers that Mr C was not as ignorant of the debiting of his account as he would have us believe. As long as that remained an issue it could not be said that insurer X who paid out on an apparently valid policy made an erroneous payment. Issues of prescription and estoppel would also have been relevant. In the circumstances we concluded that in view of the nature of the factual disputes and the large amount involved, this was a matter that should rather be ventilated in a court of law. Our office is simply not geared to pursue factual issues of this nature and magnitude which, in our view, require that all the parties concerned be involved (some of whom are not subject to our jurisdiction), that pleadings be exchanged between them and that the matter be determined after evidence was heard and tested in a court of law. We accordingly declined jurisdiction in terms of our Rule 3.3.3 which entitles the Ombudsman not to consider a complaint which, in his opinion, can more appropriately be dealt with by a court of law.

Third case

The third case, in which the same issue arose, followed a slightly different pattern.

Mr and Mrs F had separate bank accounts with different banks, banks P and Q respectively. They also had a number of separate insurance policies but with the same insurer, Y.

Premium payments in all the instances were effected by means of debit orders from 1995 onwards. In respect of one of Mrs F’s policies, issued in 1995, she duly authorised, by her signature, the payments of premiums from her bank account at bank Q.

According to Mrs F her husband contrived to misuse that authorisation to falsify authorisations for payments on a number of his policies. All the unauthorised debit orders appear to have been lodged before 1 March 2001.

All these policies, having endured for some time, were thereafter either encashed or made paid-up by Mr F.

Mrs F estimated the amounts of payments, deducted from her account, to be in the region of R75 000.00, being R2 050.00 per month for approximately three years.

It was only in August 2004, after the policies were encashed or made paid-up, that Mrs F made enquiries for the first time, so she said, regarding the unauthorised deductions from her bank account.

Mr and Mrs F, not surprisingly, were divorced in March 2005.

There was no response to Mrs F’s earlier enquiries and when, in April 2005, the insurer again did not respond she approached our office for assistance.

The insurer’s response was that it was not at fault; that Mrs F could and should have raised the alarm at a much earlier stage; and that she should seek her redress from the bank and not from the insurer.

In response to the complaint we expressed the view:

(a) that Mrs F may in principle have had a claim for a refund on the grounds of undue enrichment;

(b) that Mrs F should have noted within at least three months of it happening that unauthorised deductions were being made from her account;

(c) that any such claim, or a significant part thereof, would in the meantime have prescribed;

We tried to persuade the insurer to make an ex gratia payment but the insurer responded with a letter from Mr F to the effect that he and Mrs F have pooled their resources at the time to meet their financial obligations and that Mrs F had given her prior consent to the deductions from her account at Bank Q. Moreover, we were provided with a recording of a telephone conversation between Mrs F and the insurer’s call centre in 2001. In it Mrs F not only mentioned that: “we sent you a change of banking details” but it was also apparent that it was understood that premiums were to be deducted from her account in respect of at least some of Mr F’s policies.

In the light of this new development the insurer was understandably not prepared to make an ex gratia payment and in the absence of any grounds on which a compensatory award could be made in Mrs F’s favour, the file, a product of marital discord, was closed.

PMN/EdB
November 2006