CR344
Retrenchment
Retrenchment claim – insurer’s liability excluded if life insured “self-employed or employed in a family-owned business” – complainant retrenched from employment in a business run by a family trust – whether exclusion applicable
Background
1. The complainant had a credit card balance protection policy. He was employed as a farm manager by a family trust (which had the same name as the complainant’s surname). He was retrenched with effect from 18 March 2011, and submitted a retrenchment claim, including a letter of retrenchment signed by a trustee of the family trust.
2. The insurer repudiated the claim on the grounds that according to the policy the insurer is not liable to pay a retrenchment claim “if the life assured is self-employed or employed within a family-owned business”.
3. The complainant lodged a complaint with our office, maintaining that the family trust was a separate legal entity and that the business was not owned by his family but by the trust. He stated that the trust always kept family members’ interests separate from the trust’s interests by recording resolutions passed at meetings and by the general handling of trust matters separately from family matters.
Discussion
4. We suggested that the insurer obtain a copy of the trust deed from the Master’s office. This was done, and it emerged that the complainant was the founder of the trust, a trustee and a beneficiary. In terms of the trust deed the complainant had during his lifetime the sole right to nominate trustees of his choice for the trust.
5. The matter was discussed at an adjudicators meeting. The following further points were noted:
• The trust ran a business with the object of making a profit in order to benefit the trust beneficiaries.
• In law, a trust is not a separate legal person; a trust itself is unable to perform juristic acts, and these are performed on behalf of the trust by the trustees.
• In the case of the complainant’s family trust there was no true segregation between him as a family member and the affairs of the trust. The family, of which he was a member, was in full control of the trust business.
• As a trustee of the trust the complainant had full control over the insured event ie the retrenchment on which his claim was based.
• In the particular circumstances of the case the family trust had to be interpreted as being a “family-owned business” for the purposes of that term in the policy.
Result
6. A provisional ruling was made, setting out the above and concluding that the exclusion was therefore applicable, and that the insurer was not liable to pay the retrenchment benefit.
7. The complainant reluctantly accepted the provisional ruling.
SM
February 2013
CR344
Credit insurance
Retrenchment claim – insurer’s liability excluded if life insured “self-employed or employed in a family-owned business” – complainant retrenched from employment in a business run by a family trust – whether exclusion applicable
Background
1. The complainant had a credit card balance protection policy. He was employed as a farm manager by a family trust (which had the same name as the complainant’s surname). He was retrenched with effect from 18 March 2011, and submitted a retrenchment claim, including a letter of retrenchment signed by a trustee of the family trust.
2. The insurer repudiated the claim on the grounds that according to the policy the insurer is not liable to pay a retrenchment claim “if the life assured is self-employed or employed within a family-owned business”.
3. The complainant lodged a complaint with our office, maintaining that the family trust was a separate legal entity and that the business was not owned by his family but by the trust. He stated that the trust always kept family members’ interests separate from the trust’s interests by recording resolutions passed at meetings and by the general handling of trust matters separately from family matters.
Discussion
4. We suggested that the insurer obtain a copy of the trust deed from the Master’s office. This was done, and it emerged that the complainant was the founder of the trust, a trustee and a beneficiary. In terms of the trust deed the complainant had during his lifetime the sole right to nominate trustees of his choice for the trust.
5. The matter was discussed at an adjudicators meeting. The following further points were noted:
• The trust ran a business with the object of making a profit in order to benefit the trust beneficiaries.
• In law, a trust is not a separate legal person; a trust itself is unable to perform juristic acts, and these are performed on behalf of the trust by the trustees.
• In the case of the complainant’s family trust there was no true segregation between him as a family member and the affairs of the trust. The family, of which he was a member, was in full control of the trust business.
• As a trustee of the trust the complainant had full control over the insured event ie the retrenchment on which his claim was based.
• In the particular circumstances of the case the family trust had to be interpreted as being a “family-owned business” for the purposes of that term in the policy.
Result
6. A provisional ruling was made, setting out the above and concluding that the exclusion was therefore applicable, and that the insurer was not liable to pay the retrenchment benefit.
7. The complainant reluctantly accepted the provisional ruling.
SM
February 2013
