CR189 Intermediary – delictual liability of insurer for representations made by an intermediary under the insurer’s letterhead.
• Intermediary – delictual liability of insurer for representations made by an intermediary under the insurer’s letterhead.
The complainant, Mrs A, was nominated as the beneficiary in terms of a policy taken out by her then husband, Mr A, as the life insured and policyholder. When Mr and Mrs A were divorced, her position as the nominated beneficiary was dealt with as part of a settlement agreement that was made an order of court. The relevant portion of the settlement agreement, (referring to Mrs A as “the Defendant”) read:
“The Plaintiff undertakes to retain the Defendant as the beneficiary of ..[(the policy in issue)]. In this regard the Plaintiff undertakes to pay the monthly premium promptly and on due date. In the event of the Plaintiff failing to do so, the Defendant shall be entitled to pay such premium and to recover same from the Plaintiff. Furthermore, and in respect of this policy, the Defendant shall be entitled to request the Plaintiff to surrender the policy and such amount recovered therefrom shall be for the sole and absolute benefit of the Defendant.”
Shortly after the divorce was finalised, the intermediary responsible for the policy and who was ostensibly associated with the insurer, wrote to Mr A, with a copy to Mrs A, in which he stated, inter alia:-
“Further to our discussion on … I confirm the following:-
I confirm that Mrs A is the sole beneficiary. .. …” followed by the full extract from the settlement agreement.
Some three years later, and unbeknown to Mrs A, Mr A, with the assistance of the same intermediary who wrote the letter, surrendered the policy. Two years later Mr A committed suicide.
When Mrs A submitted a claim against the insurer in her capacity as the nominated beneficiary she was informed that the policy had been surrendered and that no claim could be entertained.
She then approached our office.
In its first response the insurer contended that it never received a copy of the divorce settlement agreement, that it was not party to such agreement and that the agreement was not binding on it. The insurer failed to address the complainant’s main contention that it was negligent in allowing the policyholder to surrender the policy without first notifying her. Even after extended correspondence and discussions between the insurer and our office during which the insurer, inter alia, obtained an outside legal opinion, the insurer remained adamant that it was not in breach of any contractual obligations towards the complainant either in terms of the insurance contract, the beneficiary nomination (a third party contract) or the settlement agreement between the parties to the divorce; and, consequently, that there were no grounds for any liability on its part.
It was our perception from the outset that Mrs A’s cause of action was not contractual but delictual in nature. The insurer clearly was not a party to the settlement agreement nor was there a breach of an enforceable right of the complainant in terms of either the policy or the third party contract.
The primary issue in this matter was thus whether the insurer was under any obligation, as a result of the contents of the letter sent by the intermediary under the insurer’s letterhead, to inform the complainant of what had happened so as to enable her to protect her own interests.
Although invited to comment on the exact legal relationship between it and the intermediary, the insurer declined to do so and failed to provide confirmation of the exact scope of the intermediary’s mandate. Our conclusion was that even if the actual mandate was limited the insurer was nevertheless estopped from denying that the intermediary had the requisite authority to write the particular letter in the terms on which it was written.
The intermediary was clearly fully aware of the clause of the settlement agreement which was quoted in his letter. It was furthermore our conclusion that the intermediary obtained such information in the performance of tasks falling within the scope of his relationship with the insurer or, at the very least, in the performance of tasks which the insurer would be estopped from denying fell within his relationship with the insurer. It was therefore our conclusion that his knowledge of the settlement agreement couldbe imputed to the insurer, more particularly that if the policyholder failed to pay premiums promptly on the due dates, she would be entitled to pay such premiums and to recover them from the plaintiff; furthermore, that she would be entitled to request the plaintiff to surrender the policy and that she would be entitled to the total proceeds of any such surrender.
In our view there was accordingly a legal duty on the insurer to take reasonable steps for the protection of the complainant’s interests. The insurer’s failure to take any such steps and to inform the complainant resulted in potential economic loss. The issue was not whether the insurer could prevent the policyholder from surrendering the policy but whether there was a duty on the insurer, in the light of what had transpired and the insurer’s imputed knowledge and confirmation of the terms of the settlement, to forewarn the complainant that the policyholder had applied for a surrender of the policy.
After further responses, a final ruling on the merits in favour of the complainant was eventually made at an adjudicators’ meeting. The insurer was thereupon given an opportunity to make representations on the quantum of the claim.
It was not a foregone conclusion that if the complainant had been notified of the impending surrender that she would have been able to defeat it and that she would thereafter have recovered in full on the policy. In the light of these uncertainties the complainant accepted the insurer’s offer of payment of fifty percent of what the value would have been on the death of the policyholder had the policy not been surrendered, minus premiums unpaid from surrender to date of death.