CR98

Ambiguity in a policy wording

Background

The policy in question was a retirement annuity. The issue was that nowhere on the schedule of rates did it state the frequency of annuity payments. The rates quoted were intended to be annual, but the complainant chose to assume that they were monthly. A qualifying statement under the schedule of rates stated “…The pension will be payable monthly in arrears…”. The insurance company took the view that the table simply reflected the rates to be used to calculate retirement benefits at the policyholder’s various ages. They argued that the table was a progression in age and this in itself qualified the rates as being annual. Furthermore, the dictionary definition of annuity is a sum payable in respect of a particular year.

Assessment

It is an established principle of interpretation that words and phrases that are unambiguous will not be departed from purely because it would lead to onerous obligations for one or other of the parties; but if the words or phrases are ambiguous, considerations of equity and reasonableness must be applied.

As stated in Rand Rietfontein Estates Ltd v Cohn 1937 AD 317, a court “will not, unless the intention of the parties is manifest, so construe the contract as to give one of the parties an unfair or unreasonable advantage over the other”. If the complainant’s interpretation of the contract prevailed, the effect would be grossly unreasonable and inequitable. If the rates quoted in the schedule were taken to be monthly the result would be that the purchase price of R87 460 would be exhausted in less than one year. This would hardly be an equitable construction.

Result

The Ombudsman took the view that, bearing in mind the magnitude of the ambiguity, the complainant knew subjectively or ought as a reasonable man to have known, that there was an area of doubt regarding the frequency of payment. In the circumstances the complaint was not upheld.

DM

October 2005