An Insurer that refused to pay a claim of R277 500 on a policy covering a mortgage bond has been ordered to do so by the Ombudsman for Long-term Insurance, Judge Ron McLaren.
Mrs M and her husband took out two policies from Nedgroup Life Assurance Company to cover what they owed on a bond in the event of death or disability.
Mrs M’s husband died in 2015 and she claimed the insured amounts under both policies. The insurer settled the outstanding bond balance under one of the policies (for cover of R280 000) but declined the claim under the second (for R277 500) on the basis of an exclusion clause that stated: “No benefit will be payable after repayment/cancellation of the bond.”
The insurer said: “It was a duplicate policy and on payment of the claim on (the first) policy, the outstanding balance on the Nedbank (bond) account was settled in full. All premiums in respect of (the duplicate) policy were refunded.”
Mrs M’s response was that her late husband had paid the premiums on both policies for many years. As it turned out, the insurer implemented a system to prevent “duplicate policies” only in 2016, nine years after the commencement of Mrs M’s husband’s policies.
The complaint was considered at a meeting of adjudicators at which the following factors were considered:
* The policyholder received regular annual benefit statements advising him that the sums assured were R280 000 and R277 500;
* Premiums were duly paid and it was reasonable of the policyholder and his wife to have a legitimate expectation that the policies they paid for every month would pay out in the event of his death; and
* The policies were not decreasing-term policies - in other words, they did not decrease in value as the balance on the bond declined. They paid out a set amount of money regardless of how much had been paid on the bond.
The meeting was of the view that the payment under the first policy extinguished the outstanding balance on the bond and it made a provisional ruling that the sum assured under the second policy should be paid to Mrs M.
The insurer challenged the provisional ruling reiterating that the payout of the first policy had settled the bond account in full and, “as per the terms of (the second policy), no benefit was payable”.
A second adjudicators’ meeting was held and took into consideration that premiums had been paid on time and without fail, over many years. While the insurer was of the view that Mrs M and her husband should have read the policy documents upon receipt, there was no provision in either policy that prohibited them holding more than one policy on the same mortgage loan.
The meeting could further find no indication on any of the annual communication sent by the insurer to the deceased, that holding two policies might be problematic. It is not unusual to hold more than one policy with a particular insurer.
The meeting was of the view that the correct conclusion had been reached in the provisional determination. The final determination was that Nedbank Life Assurance should pay the sum assured of R277 500 in terms of the second policy.
It’s only fair
In another case, the ombudsman applied the equity/fairness principle when he ordered an insurer to refund a portion of premiums paid for full cover when, in fact, accidental cover was provided.
The product was aimed at people who were HIV-positive. It was marketed by AllLife and underwritten by Centriq Life Insurance.
In taking out the policy, the complainant, Mr D, was told over the phone that the policy had a disability benefit. However, to receive full life cover, Mr D had to complete an underwriting process within three months. He was told that should he fail the underwriting process or not complete it, the policy would automatically be limited to accidental cover only.
Mr D did not complete the underwriting process. His cover was reduced to accidental cover only and he was notified in writing on March 30, 2016. Mr D was again underwritten in August 2018. Due to being hospitalised for cancer, he did not pass underwriting, and his cover remained as accidental cover only. The premium was, at this stage, reduced.
Later in 2018, he submitted a claim for disability. The claim was declined as the disability was not as a result of an accident. He then asked for all his premiums to be reimbursed, as he believed the cover had been amended without his consent.
The ombudsman’s office enquired of AllLife whether the premium had been reduced when the policy was changed to accidental cover in March 2016. The insurer replied it had not, saying there would not have been any adjustment as the customer could complete underwriting at any stage.
The complaint was discussed at an adjudicators’ meeting. It was agreed that, contractually, the disability claim was not payable because the disability was not as a result of an accident.
However, it was unanimously agreed that the insurer should refund Mr D the difference between the full-cover premium and the accidental-cover premium for the period March 2016 to August 2018.
The insurer disputed the provisional ruling, again arguing that Mr D could have completed the underwriting process at any stage and that he had agreed to the contractual terms and conditions.
The ombudsman has the power to decide cases based on equity or fairness, which may override the contractual fine print of an insurance policy. The final determination states: “Prejudice to the insurer ... does not preclude our office from exercising our equity jurisdiction. Such prejudice is taken into account and weighed against the prejudice suffered by the complainant to decide if an equity decision is justified.”
The meeting unanimously agreed that, in terms of equity/fairness, the payment of a premium for full cover, when the actual cover provided was that of accidental cover only, could not be justified and as such, the difference between the full-cover premium and the accidental-cover premium for the period in question was to be refunded to Mr D.