Misrepresentation – offering of a conditional prize by insurer to proposer for insurance – effect on ensuing contract – section 45 of the LTIA
The complainant contended that when he phoned about the insurer’s ‘cash on call’ scheme he was told that he had won a cash prize of R5000. That is why he consented to take out accident insurance. A policy was sent to him. He later on made another phone call, this time in response to the ‘double money giveaway’ scheme. An extra R5000 was, according to him, promised to him. Subsequently his insurance premiums and benefits were doubled. His complaint was that he did not get the prizes promised to him and he therefore insisted that the insurer pay him the prize money. He also demanded that no further premiums be collected from his bank account.
On an analysis of the transcript of the discussion that took place between the complainant and the insurer’s mouthpiece, it was clear that the complainant was mistaken as to the terms of the prizes in issue. He was only told that he was eligible to win these prizes and that he would be informed if he in fact had won. The complainant, therefore, had no grounds to claim any prize money. But could he cancel the agreement and claim a refund of the premiums paid by him?
The question is whether the offering of a prize to proposers for insurance is in contravention of section 45 of the Long-term Insurance Act 52 of 1998 (LTIA). The section provides:
“No person shall provide, or offer to provide, directly or indirectly, any valuable consideration as an inducement to a person to enter into, continue, vary or cancel, a long-term policy, other than a reinsurance policy.”
The insurer contended that its practice of offering prizes did not fall foul of the section because neither the requirement of “inducement” nor that of “valuable consideration” had been met.
We took the view that the legislative purpose clearly was to prevent the taking out of long-term insurance for reasons that had no bearing on insurance as such.
The term “inducement” is a well-known concept of the law of contract. It refers to causality. There is no denying that the offering of a prize was a marketing technique to attract customers. Why else would an insurer go to such expense? The mere fact that the conclusion of an insurance contract was not expressly stated as a requirement for the prize did not mean that the purpose of the scheme was something other than inducing persons to take out insurance. This interpretation is supported if due effect is given to the word “indirectly” in the section.
The suggestion that the offering of a prize did not constitute “valuable consideration” is likewise not convincing. Valuable consideration, in the present context, is not a narrow technical term but one of wide import. The offering of a prize would certainly be a prime example of the type of valuable consideration the legislature must have had in mind.
Having concluded that the offering of the prize in question was contrary to section 45, the next question was what the effect of the contravention was. Section 60 of the LTIA preserves the validity of a contract entered into in contravention to the Act while section 67 provides that an insurer which contravenes section 45 would be guilty of an offence.
We took the view that since the offering of the prize was in contravention of section 45, such an offer was an improper means of obtaining consensus, analogous to, for instance, misrepresentation. On that basis, the insured had an election whether or not to uphold the contract. If the insured should elect to cancel the contract he may claim a refund of premiums paid.
We ruled that the contract was voidable at the instance of the insured and that the insured in fact cancelled it. Consequently the premiums paid by the insured had to be refunded. The insurer was also liable to compensate the insured for any bank charges occasioned by the collection of premiums from his bank account. The insurer, while not necessarily accepting the correctness of the ruling, gave effect to it.
This marketing practice is currently being considered by the Financial Services Board.