By Christine Rodrigues, Partner, Bowmans South Africa

A recent High Court judgment has reinforced the principles of ‘treating customers fairly’ (TCF).

More specifically, the Court has confirmed that:

• the terms and conditions of an insurance policy must be interpreted in their entirety and objectively;
• even if a policy lapses due to non-payment of the premium, if the insured event arose prior to the insurance policy lapsing, a person should still enjoy insurance cover;
• when assessing a claim and repudiating the claim the insurer must act reasonably; and
• the insurer will be required to conduct itself on the terms and conditions that it has agreed to insure upon.

The facts

Discovery Life repudiated the claim of the insured (PWR) on the basis that the insurance cover expired on 30 November 2015, and that there was no evidence that PWR had become totally and permanently unable to perform as a stockbroker by this date.

The claim arose from a series of traumatic events, that left PWR with a combination of post-traumatic stress disorder and unspecified bipolar mood disorder. Due to his health deterioration, PWR failed to pay any further premiums under his policy and, as a result, his policy lapsed on 30 November 2015.

PWR’s claim was for the ‘Capital Benefit’ under the policy issued by Discovery Life. Discovery Life rejected his claim on the basis that clause 6.3 of the policy stated that Discovery Life would pay out a capital sum ‘once it is established to the satisfaction of Discovery Life that [PWR is] totally and permanently unable’ to work as a stockbroker.

Discovery Life argued that the legal question the Court had to consider was not that PWR had become permanently incapacitated by 30 November 2015 and therefore whether Discovery’s repudiation of the claim was correct, but rather whether Discovery Life had unreasonably concluded that he had not become permanently incapacitated by 30 November 2015.

The Court indicated that in order to give efficacy to the policy, clause 6.3 had to be read together with clause 6.1.1. The Court interpreted clause 6.1.1 as describing the Capital Benefit under the policy which would pay ‘a capital amount in the event of [PR] being medically impaired to a degree that [he is] unlikely to be able to generate an income’.

Therefore, in order for the Capital Benefit to accrue to PWR, what was required to be determined was whether PWR was medically impaired to a degree that he was unlikely to be able to generate an income as at 30 November 2015. As the Court held, it was not a requirement that for the benefit to accrue to PWR, Discovery Life had to have formed an opinion as to whether PWR was totally and permanently unable to work.

The findings

The Court’s view was that clause 6.3, only obliged Discovery Life to pay out the Capital Benefit to PWR when it was reasonably satisfied that PWR’s condition had become permanent. In other words, once there were facts

in existence that would have satisfied a reasonable insurer that the insured’s incapacity had become permanent, Discovery Life had a duty to pay PWR.

In the leave to appeal application, Discovery Life further argued that the insured event was Discovery Life having to be reasonably satisfied that PWR had suffered from a permanent incapacity and not the onset of PWR’s incapacity.

The Court disagreed with such an argument and stated that if such interpretation was to be endorsed then this meant that the primary undertaking of the policy was ignored. This would mean that the policy was deprived of its ‘usefulness’. The Court found that it was inconceivable that anyone would take out a policy in circumstances where they could be denied benefits under it simply because they could not pay their premiums between the onset of their incapacity and Discovery Life satisfying itself that the incapacity was permanent.

The Court further found that Discovery Life had not acted reasonably in the manner it repudiated the claim. Discovery Life was under a duty to consider whether the insured event, being the onset of the incapacity, had taken place before the policy lapsed, regardless of when such information might come to light.

The Court also disagreed with the further argument raised by Discovery Life in its leave to appeal that the judgment would have a ‘wide-ranging impact on the insurance industry’. The Court indicated that in this instance, Discovery Life had conducted itself in a manner inconsistent with the objective meaning of its own policy and therefore the impact of the judgment is only on Discovery Life.

Conclusion

The effect of the trial judgement and the leave to appeal judgement is that any claim lodged by an insured is required to be assessed on its own merits and on the terms and conditions of the policy issued to such insured. The Court was correct in its view that the impact of the judgment could only affect Discovery Life because in this instance, the specific facts of this claim were unique to Discovery Life’s policy with PWR. However, the wide-ranging impact on the insurance industry is that Courts (albeit indirectly) are enforcing the principles of ‘treating customers fairly’ (TCF).