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CR109 Misselling – can insurer be held liable on the basis that the policy should never have been issued


Misselling – can insurer be held liable on the basis that the policy should never have been issued?


• In 2002 the complainant was 82 years old when he was sold a policy for a 10 year period with a recurring premium of R300 000 per annum by an independent broker. The complainant and his wife were the lives assured on the policy.
• Subsequent to his wife’s death the complainant ceded the policy to a trust and a while after his wife’s death added his daughter as the second life assured.
• The problem was that the complainant could not keep up the premiums and the paid up value was much lower than the original investment amount.
• The complainant believed that the policy was missold but he was also of the opinion that the insurer should never have issued the policy. The broker was an independent intermediary who was not subject to our jurisdiction.
• It appeared from documentation that the insurer has a practice that does not allow for policies to be issued with a maturity date after a client’s 90th birthday. We questioned them about not applying it in this case and they advised that they will accommodate a client but then insist on a second life assured as they did in this instance.


Our points of enquiry to the insurer were the following:
Although an insurer can rely on the proposal brought to them by an independent broker, where the circumstances are markedly out of the ordinary, as in this matter, a duty may well arise for an insurer to do an investigation when the proposal is received.
If it does not do so, it is capable of the interpretation that the insurer deliberately closed its eyes for fear of losing potentially valuable business. The investment was so out of the ordinary having regard to the complainant’s status as a pensioner, his age and the nature, length and magnitude of the recurring premium that the insurer should have been alerted.
Although most of the blame for this complainant’s misselling attached to his broker, the insurer was not blameless. On the abovementioned analysis it should have been more astute and proactive in enquiring into the complainant’s financial ability to sustain the policy.

We suggested a settlement on the basis that the policy should be reconstituted as a single premium 5 year policy. Both parties accepted the suggestion.

We also communicated with the FSB regarding the activities of the independent broker.

October 2005

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