CR273 Surrender – illustrative value grossly overstated by insurer


Surrender – illustrative value grossly overstated by insurer – policyholder relying thereon to his prejudice – held that it must have been obvious to the policyholder that the overstated illustrative value had been a mistake- insurer not liable.


The complainant, a practising attorney, was the policyholder in an investment policy. A schedule of his policies dated 9 January 2007, obtained from the insurer by the complainant’s financial advisor, reflected the policy’s surrender value at that stage as being R1 393 916.00, and its estimated maturity value R2 174 716.00. A couple of days later he withdrew R200 000.00 from its value.

On 10 April 2007, however, the broker obtained from the insurer a further policy schedule in which the then current surrender value was stated to be
R5 222 639.00. Despite the advisor’s recommendation that the complainant should first verify the correctness of the figure, the complainant instructed him to surrender the policy in full with immediate effect. This was duly done, whereupon the correct surrender value turned out to be based, not on
R5 222 639.00 as had been represented in the schedule furnished by the insurer, but on R997 861.17.

Despite the complainant’s demand the insurer refused to pay a further sum to bring the total proceeds of his surrender to R5 222 639.00.

The complainant lodged a complaint with the office, claiming payment to make the total R5 222 639.00. His contention was in effect that the insurer had misrepresented to him that the higher figure was the surrender value, that he had relied on the correctness thereof in deciding to surrender the policy, that he had thereby suffered a loss, and that the insurer should be ordered to pay him an amount to make up a total surrender value of
R5 222 639.00.


The view of the office was that, although the insurer had misrepresented the surrender value, it was nevertheless not liable for any loss the complainant might have suffered. He could not reasonably have relied on the correctness of the higher figure. On the contrary it must have been quite obvious to the complainant, and he ought in any event to have realised, that the value of the policy could simply not have increased from a little over R1M to over R5M in a mere 3 or 4 months. It had therefore not been reasonable for him to have relied on the mis-stated figure – indeed, his own advisor realised that there had probably been a mistake and had sought for that reason to persuade him not to rely on it, and the probability was that the complainant himself had realised that the figure was a mistake and had sought to exploit the error.

The office advised the complainant that the surrender of a policy constitutes a contract in itself, and if the reflection of the illustrative surrender value of the higher figure really had induced him to enter into such a contract, he would be entitled to no more than a rescission of the surrender. He was in any event informed that it cannot be said that it was as a result of the mis-statement that he had acted to his detriment. It was furthermore clear that a “forfeiture” of an amount to which he had claimed to be entitled cannot be categorised as a loss. The misrepresented value had never been guaranteed by the insurer, and in the circumstances the complainant could not claim to be placed in the hypothetical position he would have been had the misrepresentation been true.


The complainant persisted in his contentions, however, and the office thereafter made a final determination whereby his claim was dismissed. Because the misrepresented illustrative value had constituted a poor service by the insurer, however, the office informed the insurer that it ought to pay compensation to the complainant for the poor service which it offered to do in the sum of R10 000.00. The complainant rejected the offer and threatened that he was going to court. He was of course fully entitled to do so, Rule 3.6 expressly preserving that right for complainants. The office closed its file.

January 2009