CR253 Lapsing of policy – implications of acceptance of late payment.
Lapsing of policy – implications of acceptance of late payment.
More than eight months after the lapsing of a policy in terms of the policy provisions, the spouse of the policyholder, who was also the beneficiary in terms of the lapsed contract, deposited an amount in respect of the arrear premiums in the account of the policyholder. On the same day she went to the insurer’s offices where the deposit slip was presented to the staff member on duty, and where she enquired whether the amount deposited would be sufficient to reinstate the policy. The deposit slip was faxed to the insurer’s head office and a telephonic response confirmed that the amount was sufficient and that the policy would be on the “correct account” within four days.
She was phoned by the insurer eleven days later to be informed, however, that a further amount was required to have the policy reinstated. After receipt of this further amount, the insurer sent a letter to the policyholder informing him that the policy had been reinstated subject to disclosure to the insurer of any change in the health of the insured as well as of any special medical tests undergone whilst premiums were outstanding. It was explicitly stated in the letter that failure to disclose such information may result in voidability of the contract and forfeiture of the premiums paid in respect of the reinstatement.
It was quite clear that there had been dramatic changes in the state of health of the insured during the period in which the premiums were not paid. During this period, and after the lapsing of the policy in terms of the contract, the insured experienced epigastic pain, weight loss, melena stools, vomiting and difficulty in swallowing food. After consulting his general practitioner, he had been hospitalised and tests were performed. Whilst the results of such tests were outstanding, the severity of the increased symptoms was such that it necessitated follow up consultations. Enlargement of the liver and metastasis of malignant tumor to the liver were suspected. The first payment of arrear premiums was made one day after the second follow up consultation when cancer was suspected. The insured died one day before the insurer informed the premium payer that a further amount was due and before such amount was paid. The insurer was not informed that the insured had died the day before the premium payer was phoned and the further payment was made.
We considered whether the acceptance of payment by the insurer under the particular circumstances may have constituted a waiver of the insurer’s rights in terms of the contract. It was not in issue that the payment and acceptance of the outstanding amounts were in respect of a renewal of a lapsed contract. As such this amounted to the conclusion of a new contract.
The duty of good faith attaches to the renewal of such contract of insurance just as it did to the conclusion of the original contract – “General Principles of Insurance Law” (2nd Edition) Reinecke et al at para 177. The insurer’s rights in respect of the duty of disclosure of material information concerning the state of health of the insured are relevant.
Two crucial aspects regarding the issue of waiver were, firstly, whether the persons who accepted the payments had the authority to waive the rights in issue and, secondly, even if such persons had such authority, whether the persons who may be considered to have waived the rights on behalf of the insurer knew what such rights were.
The available information provided no support for the suggestion that the persons who accepted the payments concerned on behalf of the insurer had any authority, including implied or ostensible authority, to waive the insurer’s right to rely on the duty of good faith at the time of renewal, or to reinstate a contract in respect of an event which had already occurred.
From the available information it was further concluded that even if it were to be assumed that there had been actual, implied or ostensible authority on the part of the officials involved, there was no waiver of the insurer’s right. There was also no basis for an inference that the insurer was aware, either through the officials involved or otherwise, of the material change in the state of health of the insured such as would obviously have entitled the insurer to rely on failure to comply with the duty of disclosure.
As it was not in issue that the insurer was not informed of the material change of the state of health, and more in particular the death of the insured prior to the renewal of the contract, it was also accepted that the available information did not confirm conduct on the part of the insurer which would support reliance either on quasi mutual assent or estoppel.