CR51 Rescission – claim for disability benefit – cancellation of entire policy although non-disclosure

CR51

• Rescission – claim for disability benefit – cancellation of entire policy although non-disclosure related only to part thereof – whether contract divisible.

Mr C took out his policy in 1993. The policy provided for a guaranteed endowment benefit of R70 000 as well as a capital disability benefit of R70 000. The disability benefit was in the nature of an accelerated benefit in that the policy is designed to come to an end on payment of a capital disability benefit. A composite premium was charged without specifying the amount payable in respect of each benefit. The insured answered “No” to a question whether he ever experienced any back, neck or disk problems. This answer was incorrect. In 2002 he had submitted a claim for a lump sum disability benefit. The insurer cancelled the entire transaction on the grounds of misrepresentation and refused to pay the claim for disability.

The policy on the face of it appeared to be indivisible not only because a composite premium was charged but also because the disability benefit and the endowment benefit were linked.

As in the other case mentioned earlier, the misrepresentation affected only the disability benefit.

The insurer acknowledged that a guaranteed endowment policy could be obtained without disability cover. It also emerged from the correspondence that it would be possible to extricate from the global premium the separate amounts raised in respect of each benefit.

The issue was whether the insurer could be allowed to rescind the entire transaction or whether it should be restricted to a lesser remedy, ie reduction of the insured’s benefits. This would in effect, if not in law, have meant a cancellation of the disability benefit and associated premium but upholding the endowment benefit.

Notwithstanding strong representations from the office, the insurer was not prepared to reinstate the endowment benefit. It was prepared to meet the insured by remitting the balance of the surrender value as at the date of the cancellation of the policy less the outstanding loan debt with interest that was incurred on the security of the policy. Mr C reluctantly accepted the offer on that basis.

MFBR

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