CR296 Misrepresentation -Telesale of credit life policy
Telesale of credit life policy – sales agent representing retrenchment benefit to be full amount owing on credit card – policy providing for a limited benefit– Appeal Tribunal ruling that insurer to be held to the representation
1. An agent of the insurer telephoned the complainant and offered to sell him a policy. The conversation was recorded. The recording revealed that the agent had told the complainant that, on the happening of an insured event, said to be death, disability or retrenchment, the policy would cover the amount outstanding on his credit card up to a maximum of R50 000. The method of calculating premiums was discussed, as were exclusions on the policy. The complainant asked some questions, which were answered. The complainant thereupon accepted the offer. The agent told the complainant that a policy would be sent to him, and that he could cancel it within 30 days of receipt if it was not what he wanted.
2. In October 2008 the complainant was retrenched and he submitted a claim. The outstanding balance on his credit card was R17 305, but the insurer paid a benefit of R6 699 in accordance with the formula for retrenchment set out in the policy:
“The benefit is payable in the event of the insured suffering loss of employment before the date of the insured’s 60th birthday, as a result of the implementation of a staff reduction programme by his employer. The benefit shall be the monthly amount equal to 10% of the average outstanding balance of the previous month for the duration of unemployment limited to 4 monthly instalments in total and payable after a deferred period of 30 days…”
3. There was thus a significant difference in the policy between the benefits payable on death or disability (the outstanding balance), and the benefit payable on retrenchment.
4. It later turned out that the insurer had actually calculated the retrenchment benefit in terms of the policy formula incorrectly – instead of R6 699 it should have been R3 967. The insurer did not seek, however, to reclaim the overpayment.
5. A provisional ruling was made to the effect that the insurer had paid the correct benefit as set out in the policy and had thus met its obligations. The complainant objected, stating that during the telephone conversation he had not been alerted to the different benefit for retrenchment.
6. The matter was re-allocated and further investigated. It was pointed out to the insurer that the sales agent had at no stage mentioned that the retrenchment benefit was different to the outstanding balance payable on death or disability. Payment of compensation was suggested, in view of the misleading sales conversation. The insurer offered R1 500 in compensation, which the complainant rejected. He also mentioned at this stage that he had never received the policy.
7. A final ruling was subsequently made in which the insurer’s position was upheld. It was pointed out to the complainant that he had been advised by the agent that a policy would be sent to him, and that he could cancel it within 30 days if it was not what he wanted. If he did not receive it, it could reasonably have been expected of him to have followed up and asked the insurer for a copy. The policy explained the retrenchment benefit. We said that the legal remedy (on the misrepresentation) would be to rescind the contract and for the insurer to refund premiums, which would place the complainant, having been paid R6 699, in a worse position than he was in.
8. The complainant appealed against the decision. The Appeal Tribunal, a retired judge, allowed the appeal, setting aside the Ombudsman’s final determination and ordering the insurer to pay the full balance of the amount outstanding on the credit card at the date of retrenchment. His reasons were as follows:
“In terms of the written policy there is thus a significant difference between benefits paid out in consequence of death or disability and those resulting from retrenchment. It is therefore clear from the telephone conversation that this material distinction was not explained to the appellant by the agent. In my view it was represented to him that if he was retrenched the full balance then owing on his credit card up to a maximum of R50000 would be covered by the insurance and paid out to him. He therefore in my opinion concluded the contract on the strength of this material representation. Now assuming in favour of the respondent that it had subsequently furnished the appellant with the statutory documentation pertaining to this insurance (as undertaken by the agent during the conversation) that in my view would not have availed it. Having materially misrepresented the situation there rested a heavy burden on it to take steps to draw the appellant’s attention to the correct information because, quite simply, in all the circumstances the appellant would have been entitled to assume that the terms of the written contract of insurance submitted to him accorded substantially with what he had been told. This is a well-known principle of our law of contract – see Shepherd v Farrell’s Estate Agency 1921 TPD 62.
In my opinion, applying principles of equity, which the Ombudsman is enjoined to do in terms of his rules, the appellant is entitled to relief. I consider that it is just and equitable that he be awarded damages which will place him in the position he would have been had the representations in regard to the terms of the contract been true.”
9. The insurer accordingly paid the complainant R10 606, being the difference between the outstanding balance of R17 305 and the R6 699 already paid.