CR168 Values – renewal of contract on maturity
Values – renewal of contract on maturity – options to be exercised by insured – reasonable reliance
Some time prior to the maturity of the complainant’s policy the insurer wrote to him that he had certain different options on maturity and stated: “If we do not hear from you, the policy will merely continue, fully invested, as it is now. However please refer to the section in the brochure headed “You May Delay Your Choice” regarding any investment guarantees which may be applicable now.” The complainant’s original investment was for a period of 5 years and he had a guaranteed return of 11.2% on this investment. Upon maturity of his policy the complainant remained silent and took the view that in terms of the insurer’s letter the proceeds of his policy had been reinvested for a period of 5 years at a guaranteed return of 11.2%.
The brochure enumerated a few options on maturity including a growth option which would result, if chosen, in the renewal of the investment for a period of 5 years. The growth option is described as a continuation of the “chosen investment portfolio.” The brochure also stated that “You don’t have to choose an option immediately. If you wish to delay making a choice, your policy will continue unchanged and fully invested as a growth option until we hear from you.”
The policy itself provided, under the heading of “Options at Maturity,” that the insured was required to make an election within one month before the maturity date. One option was that “The policy to remain a fully paid-up, in-force contract” to be applied in accordance with the brochure.
The insurer’s defence was that when the policy was originally issued it was not its intention that the interest guarantee would apply in perpetuity. Its intention was to enter afresh into dialogue with the insured when the policy matured in order to come to an agreement as to what the best options were. This was the approach it followed in practice. It nevertheless admitted that the wording of its letter was ambiguous and suggested a settlement on certain terms. These terms were not acceptable to the complainant and he turned to our office for assistance.
We pointed out to the insurer that if it could be said that the insurer by its documentation induced the complainant reasonably to believe that he could extend his investment for another period of 5 years at a rate of 11%, the insurer would be, in terms of the reliance approach of our law of contract, bound to the impression it created. To the complainant we pointed out that if a reasonable person in the position of the complainant would have realised that a return of 11.2% was no longer a realistic one in the light of the significant drop in interest rates over the period in question, his avowed reliance on the representations by the insurer might be judged as unreasonable. Against this background we encouraged both parties to strive towards a reasonable settlement.
The insurer offered to pay the complainant 11.2% for the first two years after maturity of his policy and to reopen the negotiations after that. This would create an opportunity for the complainant to withdraw his money at that stage if he felt like doing so. The complainant accepted the insurer’s offer.