Insurer ordered to pay out cancelled life policy
A judgment handed down by Judge Bashier Vally in the Gauteng High Court (Johannesburg) late on Friday ensured an insurance policy taken out by Francois Marais (64), who died at home in Bloemfontein early on Saturday morning, would be paid out.
Marais had died believing that his three children would be left without an insurance payout because, just three months ago, his insurer unilaterally cancelled the policy he'd paid into for five years.
A Sunday Times report notes that in the matter between Hermione Nell and 73 others who took out policies covering illnesses, accidents and death with Constantia Insurance Company – only to be told by SMS in late February that they were to be cancelled with effect from the end of March – Vally found that there was no legal basis for the cancellation.
He ordered that:
* Constantia's cancelling of its two policies, Prime Living CoverGrow and Prime Living Legacy, held by the 74 applicants, is unlawful and of no force and effect.
* The policies are still in existence.
* Constantia is to notify all policyholders (about 5 270) that they may lodge claims for insured events since the date of the ‘purported cancellation’.
* Constantia must give them all 30 days from the date of the order to pay premiums since March, should they wish to remain insured by those policies.
The policies were ‘expressly and aggressively’ marketed as providing ‘cover for life’, Vally said. But when they were sold over the phone, no mention was made of the contract small print sent to policyholders later.
It read: ‘The Insurer may cancel this policy on 30 days' written notice.’
‘By being told they would be insured "for life", they were lulled into a false sense of security,’ the judge said.
‘There was no reason for them to anticipate that (Constantia) would at whim cancel the policy and just give them 30 days' written notice, thus placing them at peril.’
According to the Sunday Times report, Constantia also refused to refund the premiums paid, a stance the Financial Services Conduct Authority (FSCA) agreed with.
‘(We) could not find a basis to direct Constantia to refund the premiums received,’ the FSCA said in April.
‘Premiums are paid monthly for cover which is provided monthly and as such there is no build-up of funds.’
But Vally said Constantia's contention that a particular ‘sub-rule’ in insurance legislation empowered it to cancel the policies with a month's notice was ‘misplaced’, as was the finding of the FSCA ‘to this effect’.
© Juta and Company (Pty) Ltd 2016
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