CR353 Credit insurance / Retrenchment / Equity

Credit insurance / Retrenchment / Equity

Credit insurance – claim under credit life policy for retrenchment benefit – insurer repudiating on grounds that termination for misconduct excluded – reason appeared to be incapacity rather than misconduct – whether termination in these circumstances amounted to retrenchment – equity


1. The complainant took out a credit protection policy in July 2011. She worked as a systems manager at an analytical laboratory from December 2007 until her employment was terminated with effect from 31 March 2013. The insurer rejected her claim for a retrenchment benefit, stating that the employer documentation showed she had been “dismissed due to non-performance”.

2. The employer termination letter addressed to the complainant was headed “Incapacity Consultation”. It stated that the employer had met with her on several occasions to discuss her responsibilities and performance. It had been explained to her that “with the implementation of the quality systems we are of the opinion that you will not be able to cope with everything”. The employer stated that it had tried to explore the possibility of transferring her to another business unit within the group but had not been successful; it therefore “had no choice but to terminate your service as a result of incapacity in your current position”. She was told that she would receive 2 weeks’ pay for each completed year of service, and that her CV would be kept on file in case a suitable vacancy came around.

3. The complainant’s final payslip included a lump sum stated as being for “Retrenchment”, and her retirement fund withdrawal notification had the box ticked for “Retrenchment” as the reason for withdrawal.

4. The insurer’s repudiation letter quoted a policy exclusion to the effect that no retrenchment benefit would be paid where “Resignation, normal or early retirement, voluntary retrenchment or dismissal by reason of the Life Insured’s misconduct applies”. The letter then simply stated that as she was dismissed due to non-performance, no claim was payable.

5. In responding to our office the insurer expanded its reasoning. It quoted the policy wording stating that a retrenchment benefit (minimum monthly instalment of the finance agreement for a maximum of three months) would be payable “In the event of the Life Insured suffering loss of employment resulting from the implementation of a staff reduction program by his employer prior to his 69th birthday”. There is no further definition of “retrenchment” anywhere in the policy. The insurer stated: “We submit that the customer did not suffer a loss of employment from the implementation of a staff reduction program but rather that her contract was terminated due to non-performance”.


6. We wrote to the insurer arguing that the dismissal was for incapacity, which does not amount to misconduct and there is “no fault”. We suggested that the ultimate reason for the complainant’s incapacity dismissal was the operational requirements of the employer, as they could no longer afford to retain her.
7. The insurer accepted that the termination was “no fault” and not misconduct, but replied that it did not believe the complainant was retrenched, as her loss of employment was not as a result of the implementation of a staff reduction programme. It argued: “The complainant could not fulfil her duties and she was dismissed and the company would employ another to fulfil those duties. The complainant’s service was terminated based on incapacity. Retrenchment is seen as the forced lay-off of employees by a company, usually to cut down its payroll. It is something akin to downsizing. In this case the company was not downsizing or cutting down on their payroll”.

8. The matter was discussed at an adjudicators’ meeting. The meeting took into consideration the fact that there was no definition of retrenchment in the policy beyond “loss of employment resulting from the implementation of a staff reduction program by his employer”. We did not know for certain whether the company would employ another person to fulfil the complainant’s duties, or whether these duties would be subsumed under those of existing employees. It was accepted, however, that the probabilities were that subsequent to the reduction of staff occasioned by the complainant’s dismissal, someone else may well have been employed in her place.

9. The meeting then considered the matter from the point of view of equity, as the office’s Rules enjoin us to do. The meeting took into account the fact that this was a no fault dismissal which took place nearly two years after the policy was taken out; that part of the reason for the dismissal was a change in operations (the implementation of quality systems with which the complainant was not able to cope); that she received a retrenchment-type package from her employer, labelled “retrenchment” on her payslip; that her withdrawal from the provident fund was classified as being for the reason “Retrenchment”; and that the termination of her employment was an unforeseen event, not within her control.

10. The view of the meeting was that in light of these considerations, the claim should be paid, on grounds of equity.


11. A provisional ruling was made to this effect. The insurer agreed to pay the claim.
September 2014