CR309 Funeral Insurance – Insurer “deeming” lives insured to be the policyholders

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Funeral Insurance CR309

Insurer “deeming” lives insured to be the policyholders, and not the person who applied in her own name for the policy – this practice not justified.

Background

A “policyholder” is defined in section 1 of the Long term Insurance Act (no. 52 of 1998) as “…the person entitled to be provided with the policy benefits under a long term policy”. A policyholder in this sense is occasionally referred to as the “policy owner”. A “policyholder” and “policy owner” basically indicates a person who is in a contractual relationship with an insurer and who acquires rights and obligations under the contract of insurance. Confusion sometimes arises when a person enters into a contract with an insurer for cover on the life of another person, and such contracts are subject to requirements including that of “insurable interest”. The basic contractual position, however, remains that the person who has entered into the contract remains the policyholder whilst the person whose life is insured is not, on that ground alone, a party to the contract but is the object of the insurance.

Insurers sometimes seek to depart from these basic contractual principles, particularly in respect of assistance/funeral cover “sold” by means of telephone marketing and marketing at retail sales outlets.

An example was a complaint in which the complainant stated that she took out funeral cover for herself and dependents through the call centre of an insurer. When the contracts were issued she noticed that she did not feature anywhere on them but that her “dependents” each got a contract in which they were indicated as policyholders.

The insurer contended that only one policy was for the complainant but that the rest were for the dependents. It said that “when you as the payer take a funeral policy for someone else, you are only the payer and the payer’s details do not reflect on the membership certificate of the persons the payer took the funeral policies for”. Apart from the legal position, these contentions were not in accordance with the policy provisions provided to us. Therein the “policy owner” was defined as “the person who is the legal owner of the policy”. It was furthermore clear and significant that the policy made provision only for cover on the lives of the policyholder, the policyholder’s spouse, the policyholder’s financially dependent children as well as parents of the policyholder and extended family members of the policyholder.

The insurer nevertheless insisted that any person can contact the sales call centre and apply for funeral cover for a family member, domestic worker etc, and that the applicant will then be the premium payer and the life insured will become the owner/main member of the policy. They added that after such sales call a confirmation call is made to the life insured to obtain his/her permission, and that only if the life insured agrees would the application be accepted.

Discussion
It appeared that the permission requested from the life insured is permission for cover on that person’s life. Whilst that may under certain circumstances amount to a mandate to the person who applied for the contract to act on behalf of the life insured it does not follow as a matter of course. The intention of the applicant is clearly also relevant. In this matter it was confirmed from the complainant that she had not intended to contract on behalf of other parties, but instead to obtain cover under a policy in respect of which she was the policyholder on the lives of her “dependents”.

Conclusion
The insurer was informed that unless the person who applies for insurance acts on a power of attorney or other mandate or authorisation on behalf of another party, the construction that an applicant is nothing more than a premium payer, and that a party who had no dealings whatsoever with the insurer becomes the policyholder or contracting party, cannot be upheld.

The insurer conceded to a request by the complainant for cancellation of all of the contracts and a refund of premiums plus interest.

EdeB
March 2011

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