CR285 Late submission of claims Death and disability claims in terms of mortgage protection policies
Late submission of claims
Death and disability claims in terms of mortgage protection policies – individual policyholders, members of their employer’s housing scheme, having been granted mortgage bond by their employer, ceding their policies to their employer – can the insurer be held liable where the employer fails to notify it of the claims within the periods set out in the policies?
Summary of facts
Employees of a certain company to whom it granted housing loans in terms of the employer’s housing scheme, each had to take out a policy with the insurer which was thereupon ceded to the employer as security for the repayment of the mortgage debt in the event of the employees’ death or disability. Clause 14 of each policy provided that by ceding the policy to the employer the life insured’s rights and obligations arising from the policy would be made over to the employer, and that in the event of a valid claim the benefit would be paid to the employer. In the case of a death the insurer would pay the balance of the mortgage bond plus an amount not exceeding R10 000 for the costs incurred in connection with the discharge and cancellation of it, while in the case of a permanent disability the insurer would pay only the balance of the mortgage bond.
Each policy provided that a death claim was required to be submitted to the insurer within 6 months from the date of death, and a disability claim within 365 days from the date of the bodily injury.
The practice was that in the event of the death or disability of the life insured, his dependants would inform the employer’s housing department which in turn would assist her/him with the completion of the relevant claim form, and the employer would then submit the claim documents to the insurer. Having also taken over the insured’s obligations in each policy, the employer in any event had the obligation to submit the claims concerned.
In six cases the office received complaints from the dependants of the life insured or the life insured himself. One involved a disability claim and the others each a death claim. In all of the death claims the employer had been notified of the deaths concerned within 5 months from the date of death, yet the employer failed to submit the claims to the insurer either within the stipulated time or at all. With regard to the disability claim, the claim documents were submitted to the employer 8 months after the date of injury, but the claim was only submitted by the employer to the insurer 14 months after the expiry of the 365-days’ time limit. Relying on the time limitations referred to in the policies, the insurer repudiated liability for the claims.
The complainants subsequently approached the office for assistance.
The office’s view was that the insurer had been justified in placing reliance on the relevant limitation clauses, so that its decision to repudiate the claims on contractual grounds could not be faulted. We requested the insurer, however, to indicate what prejudice if any it would suffer if the office were to exercise its equity jurisdiction in the complainants’ favour and call upon it to assess each claim on the merits despite the late notification.
The insurer responded as follows:
• The rights and obligations arising from each of the group scheme policies vest in the employer and the insurer as parties to the contract. (Correctly stated, however, the employer had not been a party to the policies, but it had nevertheless taken over all of the policyholders’ rights and obligations.)
• The employees are only the lives insured, and not parties to the contract. (Correctly stated, however, the employees had in fact been parties to their policies, but they had made over their rights and obligations to the employer.)
• The employer had breached its duty arising from the provisions of the contract to submit the claims within the prescribed time periods.
• There had been several instances of such breach in the past, which led to the insurer arranging a meeting with the employer during 2006, at which the employer admitted liability. In an effort to assist the dependants, an agreement was reached at the meeting whereby the insurer, although not in fact liable, would settle all the outstanding out-of-time cases that had already been notified to it at that point, which amounted to R1.39m; all cases that had not been notified to it at that point and did not appear on the list of late-reported claims would stand rejected; and the employer would write off the debt with regard to those.
• The employer had not paid any premiums towards the group policy since the beginning of November 2008 and the employer had in writing terminated the group scheme policy with the insurer.
• As there was no longer a business relationship between the insurer and the employer pertaining to the group scheme, it would be prejudicial to the insurer and contrary to sound business practice to require the insurer to honour the various outstanding claims that had not been part of the 2006 settlement agreement with the employer
• The complainants had a right of recourse against the employer.
It must be emphasised that none of the six matters being considered by the office had been brought to the insurer’s attention as at the date of the 2006 meeting between the employer and the insurer.
Although the office did not necessarily agree with all of the insurer’s submissions, it ruled that it could not exercise its equity jurisdiction in the complainants’ favour, and in doing so took account of the following:
(a) that it was the employer’s repeated breach of the policy conditions that had landed the complainants in their predicament.
(b) that the insurer had made reasonable efforts in the past to assist the dependants of the lives insured.
As the complainants’ right of recourse lay against the employer, the matter fell outside the ambit of the office’s jurisdiction and the office could not assist the complainants in that regard.