CR209

• Surrender – life cover reduced by approximately R200 000 due to part-surrender of the policy – policyholder alleges she was not made aware of the effect of the part-surrender on the policy

Background
The complainant’s husband was the insured under a whole life policy commencing on 1 February 1999 with life cover of R619 707,75. When her husband fell ill the policy was ceded to the complainant on 22 November 1999. On 16 January 2004 she effected a part-surrender and an amount of R26 854,17 was paid to her. Her husband passed away on 18 April 2004 and the insurer paid a benefit of R408 879,00. The complainant wrote to us in August 2005 expressing her dissatisfaction about the reduction of approximately R200 000 in the life cover as a result of the part-surrender of only R26 000.

According to the complainant the insurer never informed her of the negative consequences of a part-surrender on the policy, not orally when she contacted its call centre, nor subsequently in writing. She alleged that she would never have continued with the part surrender if its effect had been properly explained to her.

Discussion
In assessing the complaint, the office had regard to the relevant contractual documentation pertaining to the part-surrender, to the quotation, to the surrender application and to the endorsement.

As to the quotation, the insurer referred to a quotation e-mailed and addressed to the branch office of the insurer. The quotation clearly indicated the new basic sum assured of R408 879,00. The complainant alleged that she was never shown the quotation.

During the investigation it transpired that the complainant’s deceased husband was a financial adviser of the insurer and that the complainant was employed as his secretary at the particular branch office to which the quotation was e-mailed. The insurer contended that neither the deceased nor the complainant could be regarded as laypersons regarding insurance matters and that they should have been alive to the adverse consequences of a part-surrender of a policy. The insurer, moreover, was adamant that the application for the part-surrender could not have been effected without the submission of a quotation even if it was not signed by the complainant.

As to the surrender application form signed by the complainant on 16 January 2004, the insurer contended that in the normal course of events this document would have been completed after the policyholder had had sight of the quotation. In this document the part-surrender value was mentioned with the qualification “thereby reducing a portion of the sum insured and bonuses”. There was no cross-referencing to the quotation and no mention of the amount by which the sum assured would be reduced.

The third applicable document was the endorsement forming part of the policy contract. One would have been expected the endorsement to have clearly and comprehensively set out the provisions of the part-surrender. That was also the insurer’s final opportunity to advise the policyholder how the part-surrender would influence the policy. There was, however, no indication on the endorsement of how the part-surrender would affect the sum assured.

The office was thus faced with a dispute of fact on whether the complainant had sight of the quotation.

The manner in which the transaction was recorded by the insurer left much to be desired:
• the insurer did not require the complainant to sign the quotation;
• the surrender application, although signed by her, did not indicate the reduction in the sum assured and did not have a cross-reference to the quotation; and, last but not least,
• the endorsement did not reflect the new basic sum assured of R408 879,00.

At the same time the office pointed out that there was a glaring weakness in the complainant’s case. Having regard to her background, she must have been aware that the part-surrender would have an adverse effect on her policy. She should have insisted on a quotation before she signed the surrender application. Her conduct prior to lodging a claim also gave the impression that she had accepted the terms of the part-surrender.

Result
In the light of these inconsistencies on both sides we suggested to both parties that the insurer should make an offer of settlement. The insurer did so and offered the complainant an additional amount of R178 670, which she accepted in full and final settlement.
AR
November 2006