Poorly worded policies don’t only result in disputes over multi-million-rand commercial claims. The Ombudsman for Long-term Insurance (Olti) last year dealt with a number of complaints about rejected or limited funeral benefit claims that arose from the ambiguous use of two words.
The micro-insurer (which the Olti did not name) stated the following in the policy document:
What is the maximum funeral benefit amount per life assured?
Benefits per life assured over the age of 13 years on ALL policies – R50 000 (fifty thousand rand)
The insurer’s system could not detect the over-insurance at application stage (the system was subsequently upgraded), according to the Olti’s 2021 annual report.
The problem arose at claim stage, when a life assured died who was covered under more than one policy owned by different policyholders.
The insurer would pay the benefit on a “first claim, first pay” basis, irrespective of when the policies were issued. When claiming the remaining benefit, policyholders would either receive the balance of the maximum amount or no benefit at all.
Premium refunds were subsequently paid to these policyholders.
The 70 complaints about declined or limited claims resulted in the Olti having “extensive consultations” with the insurer and the FSCA.
More than one meaning
The Olti said the insurer’s reliance on the policy wording to decline claims on the ground that the maximum benefit per life assured had been reached was problematic.
The policy clause titled “Benefits payable under this policy” stated, “All lives assured under this policy will qualify for benefits as specified per the terms and conditions.”
The Olti said the clause dealing with the maximum benefit amount could have more than one meaning and should have been expanded upon to make the insurer’s intention clearer.
As it stood, it was not clear whether “ALL policies” referred only to policies held by a particular policyholder, or to “ALL policies” across all insurers, or to “ALL policies” held with the particular insurer.
The “claims procedure” clause in the policy did not warn of the possibility of over-insurance or of the insurer’s practice of paying on a “first come, first paid” basis.
There was nothing a policyholder who took out the first policy could do to protect him- or herself, because knowledge of the total amount of cover on a particular life assured’s life rested solely with the insurer.
The fact that the insurer’s system failed to prevent the breach of the clause by allowing other policyholders subsequently to effect cover on the life assured’s life did not assist its defence, the Olti said.
The office was of the view that:
- The wording “ALL policies” was imprecise.
- The insurer could not avoid its obligation to pay the full policy benefit to a claimant by invoking the “first come, first paid” defence.
- The insurer could not tell policyholders that the clause in question meant that if a deceased was “over-insured”, the competing claim would be treated on a “first come, first paid” basis and that the insurer’s liability was capped.
- The principles of fairness and equity, in terms of the Policyholder Protection Rules, were absent.
- The words “ALL policies” were therefore not sufficiently clear to allow the insurer to avoid liability.
Agreement to settle
It was agreed with the insurer that the complaints would be resolved as follows:
- Where the claims were otherwise valid, the insurer had to pay the policy claim amount.
- Where there were other possible defences, the insurer could raise these after a proper investigation of the circumstances.
However, the Olti said there was a considerable delay in finalising these complaints because of the consultations and the subsequent investigations.
It then emerged that another insurer was also involved with the policies. It was agreed that the policies underwritten by that insurer would be resolved on the same basis as mentioned above.
“The office continues to receive complaints regarding this issue,” the Olti said.
