By: The Ombudsman for Long-Term Insurance
The insurance industry must become more yielding, and where necessary,supplement policy provisions with equity by acting in a more reasonable and fair manner that also reflects ubuntu which carries within it humaneness.
This was the gist of a final determination by the Ombudsman for Long-Term Insurance, Judge Ron McLaren, when he said ubuntu was enshrined in our law and consumer protection also took into account the disparity in bargaining power in most insurance contracts as well as the technical nature of insurance agreements.
Judge McLaren was ruling in a matter in which Sanlam Developing Markets (SDM) refused to pay claims under three funeral policies on the grounds that the deceased had been misrepresented as the “son” of the complainant in the policy document.
The complainant had taken out a funeral policy in 2013, 2015 and in 2016 covering her family and included the deceased as a life insured and paid premiums for him.
The complainant had cared for the deceased from 2009 until his death on 1 February 2018 after he was stabbed during a robbery.
She said she had helped the deceased’s family when they were experiencing hard times in a rural settlement. In December 2009, the deceased began living at her house with her own children and refused to go back to his family.
The complainant regarded the deceased as part of her family, even though there was no legal adoption. There was mutual affection between the complainant and the deceased.
She enrolled him at high school and arranged for his customary circumcision. She treated him like she did her other children because “according to our tradition, an orphan is treated the same way as the kids he lives with”.
“He called me ‘aunt’ and later called me ‘mum’,” said the complainant.
The aunt of the deceased said the complainant had become a parent to him and supported him with food, clothing, education and medical attention.
“To prove that she did not have any regrets for caring him as her son, she paid all the funeral expenses in remembrance of all the time they spent together,” the aunt said.
The deceased’s sister and brother as well as the village headman confirmed that the complainant had taken care of the deceased.
However, SDM refused the claims on the basis that the complainant had described the deceased as a family member when there had not been a blood relationship. SDM refunded premiums paid in respect of the deceased.
The Office of the Ombudsman for Long-Term Insurance suggested to SDM that they should consider equity/fairness given the circumstances of the relationship between the complainant and the deceased. The insurer was not prepared to make a concession.
Their view was that there had been a material misrepresentation and that SDM would not have accepted the risk had they known of the true relationship.
The complaint was discussed at a adjudicators meeting convened by the Office of the Ombudsman for Long-Term Insurance. The meeting was of the unanimous view that in this particular case, given the circumstances of the complainant in relation to the deceased, the insurer should in fairness pay the claims under the policies, less the amounts already paid.
SDM again refused to pay the claim. “Our unanimous conclusion is that, taking all considerations into account, this claim should not be paid – no matter how much one’s heart goes out to the bereaved policyholder,” the insurer said.
“The policy contract spells out clearly, in plain language, which persons may be covered – in particular also who can be covered as a child of the policyholder.
“The complainant included the deceased as her child. This was an intentional misrepresentation. She knew the deceased was not her child. She herself says that the deceased at first called her “aunt”.
“We acknowledge and endorse your equity jurisdiction and responsibility – and understand what it comprises. In our respectful view, however, it needs to be borne in mind always that equity is not an exact and rigid concept. Equity (fairness) remains an abstract value.
“In our sincere view, it will not be equitable to pay the claim in this case. An intentional misrepresentation cannot be condoned by an application of equity,” SDM said, adding it would be unfair to expect the pool of policyholders to absorb the expense of the claim.
“The pool of policyholders and shareholders of the insurer played by the rules of this policy product, and did not put a foot wrong.
“The hard truth is that the complainant is the only party who has put a foot wrong. She did not play by the rules of this policy product.”
In his final determination, Judge McLaren said SDM was of the view that equity/fairness could only be applied within the confines of the actual policy provisions.
“If that is so, there would be no need for an equity/fairness jurisdiction. It is precisely when the application of the policy provisions leads to an unfair/inequitable result that it is necessary to exercise our equity jurisdiction,” he said.
The Ombudsman disagreed with SDM’s assertion that it was an intentional misrepresentation by the complainant and that there can be no equity applied in this case.
“There was no fraudulent intent on the part of the complainant when she described the relationship as she did. She described the de facto relationship. There is no evidence that this was a situation where the complainant had no connection with the deceased or where there was no insurable interest and the complainant was intent on financial rewards for herself on the deceased’s death.”
He added that the complainant had submitted that the intermediary who sold the policies did not point out that there had to be a blood relationship between her and the deceased.
The Ombudsman also said “fairness” informed the decision that SDM should pay the claim.
“SDM is correct that fairness is not an exact and rigid concept. It is, however, part of our jurisdiction and has been since 1998; it is prescribed as a requirement for financial ombudsman schemes in terms of the Financial Services Ombud Schemes Act, 2004; it is part of the requirements for such schemes in terms of Chapter 14 (to be effective 1 April 2019) of the Financial Sector Regulation Act, 2017; it is part of the Treating Customers Fairly approach included in the Policyholder Protection Rules; and fairness is one of the fundamental principles that the International Network of Financial Services Ombudsman Schemes recommends for financial ombudsman schemes.
“It is, therefore, clear that equity/fairness is part of the financial services landscape and has been part of our jurisdiction for more than 20 years.”
SDM was ordered to pay the claims (less premiums refunded) plus interest.