CR357 Late payment Is the insurer liable to pay additional interest?

CR357
Late payment

Is the insurer liable to pay additional interest?

Background

1. An insurer issued a mortgage protection plan to the deceased which commenced on 28 May 2008. The policy was issued as a security for a mortgage bond granted by a bank to the deceased. As such, it was ceded to the bank. It covered the deceased for death, dread disease, permanent disability and retrenchment benefits.

2. The nature of the policy was a reducing sum insured equal to the balance outstanding on the mortgage loan. The deceased passed away on 28 August 2008 due to unnatural causes. When the claim was lodged with the insurer, its assessment was deferred pending the finalization of the criminal investigation that was conducted by the South African Police Service as the cause of death was suspected to be due to taxi violence. The insurer was entitled to deny liability if the cause of death of the life insured was due to the violation of the criminal law in terms of the policy wording.

3. During this period, the complainant failed to make payment of the monthly instalments under the mortgage bond which caused the bond account to be in arrears.

4. Eventually, the benefit was paid out on 19 August 2010, almost two years from the date of death. The aforesaid benefit was payable on the date of death. The insurer did not pay the arrears, causing the bank to issue summons for the outstanding amount of R142 851.77. Following this, the complainant lodged a complaint to our office. As a result of our intervention, the insurer was prepared to offer interest (as per the LOA Protocol) amounting to R60 000.00. The bank refused to accept this amount as it was far less than the amount allegedly owed to them.

5. The complainant rejected the offer made by the insurer citing the same reason raised by the bank. We felt that we were unable to assist her with this matter any further as, in our view, the insurer’s offer was reasonable. A provisional ruling was issued in this regard.

Discussion

6. The complainant, aggrieved about this decision, made further submissions, contending that the bond account should be settled in full. The dispute arose as to whether the insurer was liable to pay any further interest.

7. As there was no basis to grant any further relief to the complainant, we decided to approach the bank as they were on the verge of attaching and selling the property by sale in execution. We did this with the assistance of the Ombudsman for Banking Services. We enquired from the bank whether they would be prepared to accept the R60 000.00 in full and final settlement.

Result

8. The bank agreed to do so and undertook to withdraw any legal action instituted against the complainant arising from the same set of facts.

NS
September 2014

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