CR231 Non-disclosure – Policy cancelled on grounds of non-disclosure
Non-disclosure – Policy cancelled on grounds of non-disclosure- alleged re-instatement of policy after death of insured life – reinstatement abortive
By virtue of a buy and sell agreement, the complainant took out a policy on the life of his business associate for an amount of R3m.
When a disability claim was lodged under another policy, the insurer discovered that the insured life had experienced abdominal problems since September 2005. He had consulted a doctor who recorded the result of a CA 199 Tumour marker blood test as being 47. The insured furthermore on 29 September 2005 consulted a specialist who noted “a history of abdominal discomfort.” This doctor performed a gastroscopy. A chronic peptic ulcer and a fundal ulcer were diagnosed. Thereafter the insured consulted yet another doctor.
In view of the fact that the insured failed to disclose the consultations he had with several doctors, the insurer cancelled the abovementioned life policy. Its decision was communicated to the policyholder in a letter dated 3 March 2006.
The insured life was eventually diagnosed with stomach cancer within a month after applying for the insurance and he died on 21 March 2006. A death claim was lodged on 7 April 2006. The insurer rejected this claim on 13 July 2006 and confirmed its earlier cancellation of the contract.
Before receiving the insurer’s letter of rejection, dated 13 July 2006, the policyholder’s broker on 18 April 2006 wrote to the insurer’s Claims Department, challenging their decision of 3 March 2006 to cancel the contract. No mention was made in this letter of the fact that the insured life had in the meantime died.
On 18 May 2006 the insurer sent a letter to the policyholder confirming the “Reinstatement of the Contract.” The letter informed the policyholder that the contract had been “amended in accordance with your request” and that with effect from 1 April 2006 “…the attached schedule and annexure (if any) replace, or are added to, the corresponding provisions in the policy…” It also informed the policyholder that no liability will be incurred unless “… all contributions due are received.”
The policyholder paid the premiums as requested.
The first question to be decided was whether the insurer had the right to cancel the policy on the grounds of the non-disclosures alleged by them.
Our conclusion was that the symptoms experienced by the insured and the consultations he had were of such a nature that a reasonable person would have disclosed it to the insurer. The insurer was therefore fully justified in cancelling the contract on 3 March 2006.
Since the contract had been lawfully terminated, we took the view that mutual agreement was necessary to revive the contract.
The insurer explained that it did not intend to renew the contract and that its letter of 18 May 2006 was sent in ignorance and error. Consequently, it contended that there was no actual agreement to reinstate the policy with retrospective effect. The complainant on the other hand responded that he understood the letter precisely in that sense and that he paid the overdue premiums in that belief.
The question thus arose whether the insurer by its conduct induced a reasonable belief in the mind of the policyholder that the contract had been reinstated on the terms alleged by the complainant. Could the insurer, in other words, be held liable by virtue of the reliance approach towards contractual liability?
When the insurer wrote its letter of 18 May 2006, the insured life was already dead. We took it for granted that in principle one cannot insure the life of a dead person. It is a matter of a supposition common to both parties. A possible exception could be where there is uncertainty whether or not the life to be insured is still alive and the parties specifically agree to cover the life insured whether dead or alive.
In the present case there is in the insurer’s letter of 18 May 2006 no reference either to the death claim or the fact that the insured life may or may not be alive. Neither does it profess to agree that the insurer’s cancellation of the contract was unfounded. The letter in reality purports to be no more than a systems generated reinstatement letter for non-payment of premiums.
We ruled that the insurer’s letter of 18 May 2006 could not reasonably be interpreted as an offer to cover the person in question whether or not he is alive. Hence, it provided no basis for holding that the insurer reasonably led the policyholder to believe that there was a new contract to cover the dead person .
In the special circumstances of the case we nevertheless found grounds for ordering the insurer to pay compensation for bad service.