CR230 Misrepresentation – Alleged misrepresentation
Misrepresentation – Alleged misrepresentation; poor disclosure/poor service; optional cash withdrawal reducing sum assured.
The insured was in need of some extra money for his son’s wedding. He telephoned the insurer’s call centre on 14 December 2005, to ask whether he could take a loan on his ten-year old whole life policy. According to the recording of the conversation the call centre operator told him that he could take either a loan or an optional cash withdrawal; if he took the latter it was not repayable, but the value of the policy would be reduced by the amount withdrawn. At that stage his sum assured was R225 600. Withdrawal forms were faxed to him and he filled these in, ticking the box which offered him the option of a quotation. He then went in to the insurer’s local office and was given a quotation which he signed, together with the forms. He was paid the amount of R 3 800. The insurer stated that an endorsement was sent to him by post to his usual address indicating that the cover had reduced to R186 789, although according to his wife this was never received. The insured died a couple of months later. The complainant, his wife, was aggrieved that the death benefit was R38 800 less, after a withdrawal of R3 800.
The insurer in response stated that the risk on the life cover was increased after the withdrawal, resulting in “the recalculation of cover applicable to the client’s current age, using current rates and also taking into account the additional risk of the withdrawal from the fund value”. The reduction in cover, according to the insurer, also resulted in “the extension of the guaranteed term”, from 23 years to 38 years (age 90). The insurer’s view was that the quotation indicated the reduced cover, and that the endorsement was sent to the insured after the alteration; since he did not try to cancel it within the 30 day cooling-off period, he must be taken to have decided to withdraw the funds even though this had such a negative effect on his policy.
We did not understand why the guaranteed term had been unilaterally extended, and after correspondence on this point, the insurer agreed that the guaranteed term be left at 23 years. This would increase the death benefit by R6 200, which the insurer offered as a gesture of goodwill, while standing by the rest of its submissions.
In our view, after listening to the tape recording of the conversation with the call centre operator, it was very clear that the insured was given the wrong impression that if he took an optional cash withdrawal the value of the policy would be affected by a reduction of the benefit by the amount withdrawn. The words of the call centre operator were “If there is a death claim, whatever was withdrawn from the policy is deducted from the death claim value”. When the insured asked “So it just reduces by that amount?”, the reply was “Yes”.
We examined the application for withdrawal, the quotation, and the endorsement.
The application contained the declaration that “I/we acknowledge that taking an optional cash value could substantially affect the future cash values, death claim value and ultimate maturity value of my/our policy” (our italics). It did not state that this would always be the case.
The quotation which the insured signed did not in our view clearly indicate that the insured amount would reduce. The page entitled “Quotation of policy alteration” set out a sum assured but did not itself indicate that this sum assured was reduced. That conclusion could only be reached by comparing the page entitled “Image before policy alteration” with the quotation. The fact that the two pages needed to be compared was not stated anywhere, and could easily have been missed by the insured, who would in all likelihood only have concentrated on the document entitled “Quotation”. The amounts under “sum assured” were out of alignment with the headings and were in small computer print, interspersed with other figures, without an “R” to indicate rands, and with no written cues to alert the reader to their importance. On the quotation itself, more prominently displayed and higher up on the quotation, was the statement “Cover reduction %…: .00”, which to the average reader would in our view have indicated that the reduction in cover was nil.
The endorsement did clearly indicate the reduction in cover, in a transparent manner which contrasted strongly with the unclear communication in the quotation. However, the late policyholder’s wife maintained that he never received this endorsement.
On the strength of the facts regarding the telephone conversation with the call operator, we took the view that this should be seen as a case of pre-contractual misrepresentation, which induced the insured to enter into the contract of withdrawal. The remedy would be to rescind the withdrawal, and place the parties in the position they occupied before the withdrawal was concluded, by restoring what had been performed. Taking into account, however, that there had been a quotation (even though it was extremely unclear), and that an endorsement was sent to the insured after the fact (which on the probabilities he received), it would be appropriate that there should be a settlement, reflecting the relative merits.
After prolonged negotiation, with the assistance of our office the parties agreed to settle on the basis that the insurer paid 50% of the disputed amount, ie R19 400, to the complainant.