Insurer mistakenly paying a cancer benefit in 2009 at a higher level than it should have been paid – insurer realising mistake when a claim for progression of cancer lodged in 2020 – insurer seeking to set off the new claim against the amount overpaid in 2009 – debt prescribed.
1. The complainant lodged a claim in 2009 under the insurer’s dread disease benefit following a lobectomy arising from Stage 1 lung cancer. The claims assessor determined that this qualified for a Cancer Benefit, Severity D 25% benefit – Stage 1 Lung Cancer, and a Respiratory Disease Benefit, Severity B 75% benefit – Lobectomy. As these two severe illnesses were related, only one benefit was paid, based on the higher severity level, in accordance with the policy. The amount paid on the Severity B level for the Respiratory Disease Benefit was R463 476.82, 75% of the cover amount.
2. In April 2020 a further claim was lodged. The lung cancer condition had progressed, and now qualified for a Cancer Benefit, Severity C benefit. Severity C pays 50% but because this was an upgrade from a Severity D benefit the payment would be at 25% – the amount of R187 036.76.
3. At this point however (almost 11 years later), the insurer discovered that it had been wrong in assessing the claim as qualifying for a Respiratory Disease Benefit Severity B back in 2009. The complainant had had an upper right lobectomy. The claims assessor had apparently misread the criteria, one of which was “any disease or disorder requiring removal of >one lobe of lung”. She had only had one lobe removed. She should only have been paid R154 492.28 in 2009, so was overpaid by R308 984.54.
4. The insurer decided to recover this amount by setting off the balance overpaid against the amount of R187 036.76 now due. Because the overpayment exceeded the amount now due, it informed the complainant that no amount would be paid for her 2020 claim, and the insurer would, “as a gesture of good faith”, not recover the balance of the overpaid amount, R121 947.78, after the set-off was applied.
5. The complainant argued that the insurer’s claim for recovery of the overpayment had prescribed. The insurer maintained that its claim had not prescribed, due to the insurer not having any deemed knowledge of the claim until the second claim was lodged in 2020, and the insurer having no ground to suspect an error by the assessor.
6. The matter was discussed at an adjudicators meeting.
7. In terms of section 10 of the Prescription Act, 68 of 1969 (“the Act”), a debt shall be extinguished by prescription after the lapse of the applicable period. In terms of section 11 this is three years, in respect of a debt based on unjustified enrichment. In terms of section 12, prescription shall commence to run as soon as the debt is due. As stated in Contract – Principles (fifth edition) by Van Huyssteen, Lubbe and Reinecke: “A debt is due when the creditor has the right to institute action immediately for the recovery of the performance and the debtor is unable to raise a defence against the claim”. (p 536 and 537)
8. Section 12(3) of the Act provides that
“A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and the facts from which the debt arises: Provided that a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care”.
9. The insurer argued in this case that it only became aware of the debt when it considered the second claim in 2020. According to the insurer, “once a claim has been approved and payment finalised, the matter is closed and no further consideration will be given to a claim”. There would thus, the insurer argued, have been no way to determine the error until such time as a new claim was submitted: “Our audit processes at the time did not provide for re-assessment of authorised claims”. The insurer further stated: “We confirm that despite the fact that we knew who the debtor was and that the facts pertaining to the assessment was at our disposal when payment was made…we simply did not know that the claim was incorrectly categorised”; which the insurer submitted was an “excusable error”.
10. The complainant argued that she did not have to show that the insurer had knowledge that the debt was due, if she was correct that in light of the proviso to Section 12(3) the insurer should have known it by exercising reasonable care. She submitted that it could and should have.
11. The meeting considered that in 2009 all the relevant facts were known to the insurer. The claim was properly submitted, the insurer incorrectly assessed the claim and erroneously overpaid R308 984.54. The insurer could have sued for the recovery of the overpayment immediately after it had been made, on the basis of unjustified enrichment (the condictio indebiti). The complainant would have had no defence. Everything had happened which entitled the insurer to institute action and pursue its claim.
12. In the view of the meeting, with reasonable care the insurer could have found out about its error. Insurers can and do audit claims, and can be expected to check the decisions of assessors, within a reasonable period. The insurer must therefore be deemed to have had all the knowledge it needed for the running of prescription to commence.
13. On the insurer’s version the claim could remain enforceable for ever. This would mean that in all cases where an insurer pays a claim, there is a risk that the insurer might at some future date review its earlier decision and claim repayment, without prescription coming into play. This could not be in line with the purpose of section 12(3) or of rules of prescription generally.
14. As was stated in Minister of Finance and Others v Gore NO 2007 (1) SA 111 (SCA), “The statutory prescription periods are meant to protect defendants from undue delay by litigants who are laggard in enforcing their rights”.
15. In the view of the meeting prescription commenced to run on the date the debt became due, and the debt became prescribed three years after that, or at best for the insurer a reasonable period after the three years to allow an opportunity to review earlier assessments, which period must be much less than the ten years which have elapsed since the 2009 claim was paid. The insurer’s claim based on unjustified enrichment had therefore prescribed.
16. The meeting also considered the application of Treating Customers Fairly (TCF). For more than ten years the complainant lived as if the payment was due to her and arranged her affairs accordingly. In 2020 she had a medically valid further claim, but was told by the insurer that she had no claim, would be paid nothing, and in fact owed R121 947, which the insurer was prepared to waive. In the view of the meeting this was not fair treatment.
17. The meeting concluded that the insurer must pay the 2020 claim for the Cancer Benefit to the complainant, together with interest from 18 June 2020. A provisional ruling to this effect was made.
18. The insurer complied with the provisional ruling.