IN THIS ISSUE

Our office has often been asked how we exercise our equity (fairness) jurisdiction. It is not an easy question to answer because equity or fairness cannot readily be defined. It may be more illuminating to demonstrate our use of equity by way of case studies.

Case 1

The insured had a policy which provided cover for specific numbers of days of hospitalisation, and specific medical and surgical procedures. Included, as a procedure, was chemotherapy administered intravenously by or under supervision of a medical practitioner. The policy also provided for a benefit for radiotherapy.

The insured was diagnosed as suffering from an adenocarcinoma (cancer) of her oesophagogastric junction. Her oncologist prescribed combined radiotherapy and chemotherapy. The chemotherapy was an oral form of a radiosensitizer to allow the insured to have treatment as an outpatient.

The insured claimed for both the radiotherapy and the chemotherapy. The insurer paid for the radiotherapy but refused to pay for the chemotherapy on the basis that the policy was restricted to intravenous chemotherapy. In response the oncologist pointed out that although the medication was costly there is an enormous saving on the costs associated with administering the radiosensitizer intravenously i.e. hospital bed costs, consumables and insertion of the “port” under general anesthetic. She asked the insurer to reconsider their decision in the light of the savings and the improvement in oncological management that had developed since the policy was originally instated in 1994.

The insurer refused to reconsider its decision to decline the claim, again relying on the wording in the policy. The insured complained to our office.

We advised the insurer that although it was correct on a strict interpretation of the policy the decision did not appear to be fair in the light of the oncologist’s submission. We also referred the insurer to another case (see below case 3) determined by our office, and asked the insurer to reconsider its decision before our office tabled it for a determination. The insurer then agreed to pay the balance of the claim on an ex gratia basis.

This case demonstrates that in certain circumstances a strict adherence to policy wording can have an unfair outcome. In such circumstances we request the insurer to consider principles of equity/fairness. Occasionally we have to resort to a determination rather than relying on the insurer’s own sense of fairness.

Case 2

In a rather unusual case we had to make a provisional determination based on equity in favour of the complainant. The complainant was hospitalised and off work for a period of just more than a month on account of surgery to remove a kidney to donate to her brother who was in an end stage renal failure.

She had been advised by the insurer that they would not pay a claim for a daily sick pay benefit for this period on the grounds that the contract excluded liability to pay if sickness is, in the opinion of the insurer, attributable to “………excessive indulgence in liquor or drugs, immorality or disorderly conduct, intentionally self inflicted or intentionally self induced illness.” The insurer considered the “illness” after the donation of her kidney to be “intentionally self-inflicted or intentionally self-induced”.

The exception as a whole appeared to be reasonably clear but on closer reading particular shortcomings surfaced. In any event for the purposes of the complaint the crucial question was what meaning should be attributed to the words “intentionally self-inflicted or intentionally self-induced illness”. We pointed out to the insurer that an application of the provision would usually produce satisfactory results. However, exceptional circumstances could arise where a literal interpretation would have startling results. We gave the example of where a house is on fire, the fire brigade is on its way, but the insured who is engulfed by the flames gets panicky and decides to escape by running through the fire although he knows full well that he will be seriously injured in the process. Applying the provision literally would result in any ensuing claim being excluded. But such a result could, in our view, not have been in accordance with the intention of the parties.

We furthermore also agreed with the complainant that if one had reference to the other specific causes that were excluded in the paragraph and the eiusdem generis and the noscitur a sociis rule (in terms of which the meaning of a word or phrase used in a series is influenced by other words in that series) were applied it could be contended that the words “intentionally self-inflicted or intentionally self-induced illness” were intended to refer only to deliberate conduct of an improper nature. On that basis, intentional conduct not amounting to misconduct would not be within the parameters of the exception. While we conceded that it would be understandable that an insurer would be inclined to exclude liability for deliberate conduct which is not acceptable in the eyes of the public, it was not as clear to us why it should be inclined to exclude liability for deliberate actions which are in no way reprehensible. We also argued that the type of conduct that was in question in the complaint was exceptional and should not be interpreted to fall within the wording of the particular clause.

We pointed out that, although it was not entirely clear, the exclusion is stated to be applicable where there is a self-inflicted or self-induced “illness”, and that because the complainant’s condition was an injury rather than an illness, the exclusion did not appear to apply.

The insurer argued that it had been the clear intention of both parties to exclude an action such as donating a kidney from the ambit of the provision. In its view, it was clear that the ordinary grammatical meaning of the words did not result in “absurdity” or “repugnancy” and it was not inconsistent with the rest of the document. In their view the eiusdem generis rule was not applicable in the current case.

We then asked the insurer, because this was uncharted territory both for the office and for them, whether they would not consider an ex gratia payment even if that was not for the full amount of the claim. The insurer responded that it was not prepared to make any ex gratia offer and pointed out that the exclusion impacts on the pricing of the product and that the only self-inflicted conduct which would not fall within the exception would be conduct that was intended to avert a greater danger or to save a human life. They pointed out that if the complainant was alleging that the issue of the donation of her kidney was in order to save a life, that needed to be further investigated by discussing this with the treating doctor and specialists. After doing this they determined that the complainant was the only suitable donor available and that without receiving a kidney the average five year life expectancy of a patient in her brother’s condition was about 25%. The insurer, however, decided that it needed more time and that it did not wish to rush into a decision as they had received an increasing amount of queries of a similar nature.

The insurer then decided that in its opinion an ex gratia payment in the circumstances would compromise its position in the event of future claims by the complainant as a result of the kidney donation.

After considering the case at an adjudicators’ meeting our unanimous decision was that the insurer should pay the benefit for the period when the complainant had been hospitalised and off work. We admitted that from a legal point of view the meaning to be attributed to the exception in point is not totally clear and that we had not had similar complaints. However, in our opinion this was a clear case where our equity jurisdiction should come into play and that the normal rules of the law did not necessarily provide a satisfactory solution. Although we admitted that equity as such was not a well defined concept, in general it could be said that equity comprises the convictions of the community and what a reasonable person would regard as fair and just. This was a case where in terms of equity the result should be that the claim should be paid by the insurer and we made a provisional ruling to this effect.

The following complaint, which also appears on our website, would have had an unfair result without our intervention.

Case 3

The complainant’s life policy included a medical security plan, which provided cover for certain listed surgical procedures and diseases for the principal life assured and her spouse. There were exclusions in respect of her husband’s knees and eyes and, it appears, in respect of “ankylosing spondylitis”, a rheumatic disease. When she took out the policy the complainant was advised that there was provision for discretionary payment when a condition did not fall under the listed benefits.

In 2004 the complainant’s husband collapsed and was admitted to hospital, with a diagnosis of staphylococcal septicemia, a severe bacterial infection, resulting in multiple organ failure. He was in hospital for 25 days, whereafter his physician decided that because he was immuno-compromised and therefore at greater risk of contracting an in-hospital nosocomial infection, he should be discharged home but with 24-hour nursing care and the prolonged administration of antibiotics via a continuous catheter. The physician stated that it would have been easier to have kept him in hospital, but for the risk of infection.

The policy provided that the “infectious and parasitic disease condition” benefit was payable at 40% of the sum insured (40% would be approximately R75 000 in this case) in respect of “any infectious or parasitic disease which has caused, in total, at least one month of acute hospitalisation in the previous twelve months”.

The insurer declined the claim as the period in hospital was less than one month. In the response to the complaint the insurer stated that they had considered discretionary payment but rejected this as their underwriters had cited poor experience of the product in general and the need to be stricter in respect of ex gratia payments; furthermore the claim did not meet some of their guidelines for making discretionary payments, such as that the insured should not be covered by a medical aid.

Initially we wrote to the insurer requesting them to reconsider. We pointed out that the policy, which had been in effect for 13 years, stated that the main purpose of the medical security plan was to cover an insured for “unexpected and uncontrollable major medical expenses and we will always consider a payment in these circumstances”. The insured’s condition was such that he required the facilities and care that hospitalisation provided. As his physician pointed out, it would have been easier to have kept him in hospital, were it not for the greater risk of contracting an in-hospital infection, particularly as he was immuno-compromised. This could be seen as a complication of his condition, which resulted in the need to send him home, albeit with hospital-type care for several more weeks. This unexpected complication ironically resulted in lower costs, but did not detract from the fact that the infectious disease was extremely serious, life threatening and unforeseen. The insured had also furnished evidence to the effect that, while he had medical aid, the shortfall between the amount claimed and the amount paid by his medical aid was approximately R86 000.

The insurer responded that it was not willing to reconsider, and also raised the point that the insured had ankylosing spondylitis, an excluded condition, and that this might be linked to his staphylococcal infection. We asked the insured’s physician to respond to this and his view was that there were no grounds to blame the insured’s ankylosing spondylitis for the development of the infection that hospitalised him.

The matter was discussed at an adjudicators’ meeting and the unanimous view was that the insurer’s repudiation of the claim was akin to “snatching at the bargain” and was unreasonable. Apart from considerations of equity, it could also be argued that it was a tacit term of the contract that the situation in which the insured found himself was one covered by the contractual provisions requiring “at least one month of acute hospitalisation”. The tacit term was to the effect that treatment at home would be deemed to be “hospitalisation” for the purpose of this clause if the medical view was that such treatment would reduce his danger of exposure to life-threatening infection.

We made a preliminary/provisional ruling that the claim should be admitted and paid in full. (Our office always makes a preliminary ruling allowing both parties a further opportunity to make submissions, before making a final ruling.) The insurer responded, conceding that the home care the insured received could be equated to “in hospital” treatment, but raising again the point of a possible indirect link with ankylosing spondylitis. The insurer offered to pay an ex gratia amount equivalent to the medical aid shortfall, and the complainant accepted the offer.