CR196 Mistake – endowment portion of policy

See too: CR, Mistake,

CR196

Mistake – endowment portion of policy; insurer refusing at maturity date to pay value stated as minimum maturity value on policy schedule, alleging that the stated value was a mistake.

Background

In 1990 the complainant took out a 15 year term policy providing a mix of benefits: life cover, family funeral benefit, personal catastrophe and a linked pure endowment. According to the policy, if she survived to the maturity date in 2005, the maturity benefit on the endowment would be the greater of the value of the units of the investment portfolio or the minimum maturity value as mentioned in the schedule. The schedule set out a minimum maturity value of R24 965.

In 2005 the insurer paid out R2 630 as the maturity benefit. The complainant maintained that if this sum represented the value of the units she should have received R24 965 inasmuch as the minimum maturity value exceeded this sum.

The insurer responded that the guaranteed minimum maturity value on the policy schedule was a printing error. No explanation was given for the mistake. The insurer pointed out that on the initial quote, “upon which the client reacted to buy the policy”, it was stated that the GMV was R1 085 per R5 monthly premium. As the complainant had paid an endowment premium of R10, this would yield a minimum maturity value of R2 170. The value paid exceeded this amount. The insurer offered R3000 to compensate “for inconvenience caused”.

The section on the quote looked like this:

ILLUSTRATIVE INVESTMENT BENEFITS PER R5.00 MONTHLY PREMIUM

15% 90 896 44 941 22 095 10 801 5 253 2 454 1 042
GMV 6 128 4 564 3 337 2 383 1 661 1 085 625

Discussion

We wrote to the insurer arguing that in our view it would not necessarily have been clear to the complainant what the initials “GMV” stood for, as they were not in fact explained on the face of the document. She might well also not have appreciated that the word “15%” under “Illustrative investment benefits” meant an illustrated annual return of 15% over the term of the policy, as this was also not made clear. The relevant term of the policy was furthermore not specified on the quote.

In our view the complainant would in all likelihood have been uncertain as to what exactly the investment benefit would be until she obtained a copy of the policy, which stood as a record of the apparent contract. According to the policy schedule the minimum maturity value was clearly stated to be R24 965.

We argued that the insurer had created in the mind of the insured, by the wording which it set out in the policy, the belief or reliance that it intended to contract with the insured on the basis of a minimum maturity value of R24 965. This reliance appeared to be reasonable in the circumstances as it was doubtful whether it could be expected of the insured to estimate the growth rate that would have to be achieved in order to achieve such a maturity value, and that such a growth rate would be unrealistic, and that therefore the wording must have been a mistake.

According to the reliance theory as applied in South African law a contract exists either if there is actual consensus between the parties or, absent such actual consensus, if one of the parties in a reasonable manner relied on the impression created by the other that there was consensus. The party creating the erroneous belief in the mind of the other party would be bound thereby even if this was not his or her actual intention.

Result

The insurer agreed with our arguments and paid the amount of R24 965 less the R 2 630 already paid, plus interest from the maturity date.

SM
November 2006

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