CR388
Retrenchment/ interpretation/ contra proferentum
Policy excluding any retrenchment claim “where the retrenchment was announced within the first 6 months” – on the specific facts of this case, employer letter giving notice of proposed restructure and inviting consultation not an announcement of insured’s retrenchment – his actual retrenchment announced after expiry of the six month period
Background:
1. The complainant had retrenchment cover commencing on 1 January 2019. On 31 July 2019 he lodged a claim. He attached relevant supporting documentation: an email from his employer dated 4 June 2019 with the subject Notice of Restructure; a Notice of Invitation to Consult in terms of Section 189, also dated 4 June 2019, copies of the proposed new organisational structure and proposed timeline (indicating names of those employees who could be affected, including the complainant’s name); and a Notice of Termination letter dated 4 July 2019 addressed to the policyholder specifically, stating that after consultation in terms of Section 189 of the Labour Relations Act, his employment would terminate on 31 July 2019.
2. The insurer declined the claim, invoking a clause in the policy which stated:
“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.
The insurer was of the view that the retrenchment was announced by the employer on 4 June 2019, within the six month exclusion period.
3. The complainant was unhappy, stating that he was only officially retrenched on 4 July 2019 (outside the six month period), and that the documentation dated 4 June 2019 related to a general notice of restructure in terms of Section 189, the very nature of which in his view was to protect the employee, and to do everything possible to avoid retrenchment, before it would legally be permitted to announce any specific retrenchments. He stated his view that the insurer’s “decision to decline my claim is based on an attempt to interpret the company’s implementation of the Section 189 legislation, as an intention to retrench me specifically, which is not the case”.
Discussion:
4. We examined the policy and the retrenchment documentation. The scope of the cover was set out in the following clause:
“The Retrenchment Protector benefit covers the Life Insured for an initial period if they are formally retrenched from full-time employment in terms of a legal process in accordance with labour legislation.”
5. As mentioned above, the policy had an exclusion clause reading as follows:
“No retrenchment claim will be paid where the retrenchment was announced within the first six months of Retrenchment Protector cover commencing”.
6. “The retrenchment” in this clause, referring to the insured event, must refer to the formal retrenchment of a policyholder from full-time employment in terms of a legal process in accordance with labour legislation.
7. The complainant had received a letter dated 4 June 2019 addressed to “Dear Employee”, giving him formal notice of the company’s “proposal of a restructure that may result in possible redundancies of positions and subsequent retrenchments as a result thereof”. He was “invited to participate in a joint consensus-seeking consultative process in terms of section 189 of the LRA” for consultation on possible alternatives, including avoiding of retrenchments, minimizing the number of retrenchments, and changing the timing of retrenchments, and for the method of selecting employees to be dismissed in the event of retrenchment. He was told at the conclusion of the letter that “the company wishes to advise that no final decision has or will be taken on the final structure and/or any possible retrenchments until input of all affected parties has been considered”.
8. In our view this was clearly not an announcement to the complainant of his formal retrenchment from full-time employment in terms of a legal process in accordance with labour legislation. It was a letter informing various employees of possible restructuring, with an invitation to consult. It was an announcement of an intention to start a process of consultation related to possible retrenchments, not an announcement of “the retrenchment” as a fact, ie the definite occurrence of the insured event, either on that date or in the future. On 4 June 2019 there was no certainty that the complainant (or anyone else) would be retrenched.
9. The complainant’s retrenchment was in fact announced by letter on 4 July 2019. This letter was addressed to him specifically by name, it recorded that the parties had “meaningfully consulted” and it was announced that his retrenchment would proceed, with his employment terminating on 31 July 2019. Details of payments due to him, his retrenchment package, etc were provided. The date of the announcement of the policyholder’s retrenchment, 4 July 2019, fell outside the 6-month period after commencement of cover on 1 January 2019.
10. An exclusion clause must be interpreted restrictively. In our view there was no justification for an interpretation that “where the interpretation was announced within the first six months” must refer to the announcement on 4 June 2019 of the employer’s intention to restructure and retrench.
11. Even if such an interpretation were possible, there was another interpretation that could be attributed to these words, as we outlined. The meaning would therefore be ambiguous. In such a situation, the principle of contra proferentem must apply, that is, the provision must be interpreted against the drafter (the insurer), in whose power it lay to draft the provisions clearly, and in favour of the policyholder.
Result:
12. We recommended that the insurer reconsider the matter. The insurer agreed to pay the claim.
