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CR134 Estoppel – double cession

CR134

Estoppel – double cession – policy ceded to a bank in securitatem debiti – insurer records the cession but by mistake informs the complainant, when he enquired, that no pre-existing cession was in place – complainant takes outright cession of the policy “as an investment” – whether the insurer is estopped from denying the legal effectiveness of the second cession.

Facts
The policyholder, who is also the life assured, ceded his policy to a bank as security for the repayment of a loan. The insurer was notified of the cession and duly recorded it as such. For some or other unexplained reason the insurer “mistakenly altered our records to the effect that the security cession was cancelled”. In the meantime the policyholder submitted a “lost policy affidavit” to the insurer, stating that the original policy had been lost when he moved office. A duplicate policy was issued to the policyholder who, shortly thereafter, purported to cede it outright to the complainant “as an investment”. According to the complainant the policyholder assured him, and the insurer on request confirmed to “them”, that there was no pre-existing cession in place. On the strength of that assurance, so he stated, he purchased the policy, nominated his wife as the beneficiary and thereafter paid all the premiums due on the policy. It was only then, so the complainant alleges, that the insurer sought to rectify its records to the effect that the security cession was still in place.

Discussion

The insurer’s difficulty was that “we are regrettably not in a position to confirm or deny whether the complainant was informed that there was no pre-existing cession in place”. It denied the validity of the cession on the basis that it was a double cession and sought to suggest that the complainant only took cession of the policyholder’s “reversionary interest”. None of these “defences” stood up to scrutiny.

The crucial issue was whether the insurer was estopped from denying that the complainant was entitled to exercise all the rights of a cessionary to the policy.

It is of course true, as the insurer has pointed out, that the cession to the complainant was legally ineffective. That is because the policyholder had previously ceded the policy to Standard Bank in securitatem debiti and that cession is still in place.

But that fact is no answer to the complainant’s rebuttal that he was induced by the insurer’s conduct to believe that the previous cession had been cancelled and that he was accordingly free to take an outright cession of the policy; and that he acted on that believe to his detriment.

The insurer’s conduct in question consisted of mistakenly altering its record and in informing the complainant that the security cession had previously been cancelled when in fact that was not the case.

The complainant acted to his detriment by taking cession of the policy at a price and by paying the premiums.

In the circumstances all the requirements for a successful reliance on estoppel had been met.

Result

We accordingly made a provisional ruling that the insured was estopped from denying that the complainant was entitled to exercise all the rights of the cessionary to the policy.

The insurer replied: “I wish to confirm that we abide by the ruling on the understanding that we do not admit the findings of fact or the interpretation of law of the Honourable Long-Term Insurance Ombudsman and we reserve our right to contest same in legal proceedings to recover any damages that the insurer has, or may in future, suffer due to the purported cession of the
policy by the original owner to the complainant.”

We responded as follows: “Nothing in our ruling, which now becomes final, will prevent the insurer from taking any further action it may be advised to take against the cedent.”

On that note we closed our file.

PMN
April 2006

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