Updated: Discovery to petition SCA after losing appeal against R25m disability order

The High Court in Johannesburg has dismissed Discovery Life’s application for leave to appeal a judgment ordering the insurer to pay more than R25 million to a man who became permanently incapable of working as a stockbroker after he suffered a mental breakdown.

The court has concealed the man’s identity, referring to the plaintiff as “PWR”.

The background to the trial judgment and the reasons for the appeal are narrated in these articles:

• Discovery must pay R25m to ex-stockbroker who suffered mental breakdown
• Discovery files for leave to appeal R25m incapacity pay-out order

In brief, PR’s policy had lapsed when he claimed a lump-sum disability benefit. PR stopped paying the premiums after he was incarcerated in Mauritius on suspicion of murdering his girlfriend at the end of December 2014. He was charged with murder and suffered a mental breakdown.

PR returned to South Africa in March 2016 after he was acquitted of the murder. He was admitted to a hospital in Pietermaritzburg to undergo further evaluation for post-traumatic stress disorder and depression.

Discovery Life repudiated PR’s claim in August 2016 on the basis that there was no evidence that he had become totally and permanently unable to perform as a stockbroker by 30 November 2015, the date on which his insurance cover expired.

In March this year, Judge Stuart Wilson found that Discovery was not entitled to repudiate PR’s claim. Instead, it should have satisfied itself whether PR’s incapacity had in fact become permanent before his policy lapsed on 30 November 2015. If it had done so, Discovery would have concluded that PR’s incapacity was permanent on that date.

In a decision handed down on 15 May, Judge Wilson found there was no prospect that Discovery’s arguments against his trial judgment would succeed on appeal.

In a brief statement on 16 May, Discovery Life said it “respects and is studying the judgment” and was “considering the options available to us”.

In a further statement on 19 May, Discovery said: “Following further reading of the judgment, our interpretation of the matter has not changed, and we therefore intend to file a petition for leave to appeal to the Supreme Court of Appeal.”

The key issue in the appeal application

The key issue in the appeal application was the relationship between the insured event and the life insurer’s duty pay the claim.

In his trial judgment, Judge Wilson found that the insured event, which triggered Discovery’s liability under the policy, was the onset of PR’s permanent incapacity to act as a stockbroker.

However, Discovery was entitled to delay paying the claim until it could reasonably be satisfied that PR’s incapacity was permanent on or before 30 November 2015 (when PR’s policy lapsed).

At appeal, counsel for Discovery contended:

• The insured event was not the onset of PR’s incapacity, but the existence of facts that would reasonably have satisfied Discovery of it.
• This interpretation was consistent with the “Miller principle”, which counsel derived from the judgment of the Supreme Court of Appeal (SCA) in Southern Life Association Limited v Miller (2005).
• In terms of this principle, a claim that it is wrongful for an insurance policy of the kind held by PR to be repudiated should be evaluated based on whether the repudiation was reasonable, not whether the repudiation was correct on the facts.

Judge Wilson said the “Miller principle” meant that PR could have become permanently incapable of acting as a stockbroker before the policy lapsed, but he would not be entitled to the benefits because Discovery could not have been satisfied of his permanent incapacity until after the policy lapsed.

In other words, PR could suffer an incapacity, then lose the ability to pay his premiums because of that incapacity, and then not be able to claim under the policy because Discovery had not reasonably been able to satisfy itself of the permanence of the incapacity until after the policy lapsed.

Judge Wilson said the problem with this argument is that “the Miller principle is not really a principle at all”.

It is a particular approach the SCA took to the policy at issue in the Miller case. Its application was entirely dependent on the text of the policy in that case, which specifically provided that the insurer’s liability would arise only once the insurer was reasonably satisfied that the insured was permanently incapacitated, the judge said.

The text of PR’s policy was different, he said.

Reading the policy as a whole

Judge Wilson referred to two clauses in PR’s policy relevant to his claim.

One clause (clause 6.3) stated that a claim “pays out 100% [of the benefit] once it is established, to the satisfaction of Discovery Life, that you are totally and permanently unable to perform your nominated occupation (as indicated on your policy schedule) due to sickness, injury, disease or surgery”.

Were that the only provision of the policy bearing on Discovery’s liability, Discovery’s argument might be correct, the judge said.

But, he said, the policy must be read as a whole – all the provisions that bear on Discovery’s liability must be read together to characterise the insured event.

Clause 6.1.1 promised that the capital disability benefit envisaged under Category D of clause 6.3 “pay[s] a capital amount in the event of you being medically impaired to a degree that you are unlikely to be able to generate an income. This medical impairment may be permanent or temporary.” (Judge Wilson’s emphasis.)

Reading clause 6.1.1. and clause 6.3 together meant that Discovery’s liability under the policy – the insured event – arose at the onset of the permanent incapacity, but the duty to pay out the benefit was triggered only once Discovery could reasonably be satisfied that incapacity was permanent, Judge Wilson said.

The insured event was the onset of PR’s permanent incapacity, on or before 30 November 2015. Discovery could delay paying out until there were facts in existence from which a reasonable insurer would conclude that PR’s incapacity was permanent. Those facts came into existence no later than 1 May 2019, he said.

To find that the insured event is Discovery’s being satisfied of the incapacity not only ignores the primary undertaking made in the policy – that the benefit is paid “in the event” of permanent incapacity – but it also deprives the policy of much of its usefulness, Judge Wilson said.

“It is inconceivable that anyone would take out a policy in circumstances where they could be denied benefits under it simply because they could not pay their premiums between the onset of the incapacity and Discovery satisfying itself that the incapacity was permanent.”

Impact on the insurance industry?

Another of Discovery’s grounds for appeal was that the trial judgment would have a wide-ranging impact on the insurance industry. This assumed Judge Wilson had departed from “the Miller principle”, thereby interfering with the basis on which Discovery and other insurers underwrite their policies.

But counsel for Discovery acknowledged it had not placed any evidence before the court that would allow it to assess that proposition.

“In any event, if, as I have found, the ‘Miller principle’ does not apply to this case, then I have not really departed from it,” Judge Wilson said.

“What has instead happened is that Discovery has conducted itself in a manner inconsistent with the objective meaning of its own policy. If that is so, then the impact of my judgment is only on Discovery and only on claims made under PR’s policy of broadly the nature PR made.

“I cannot accept that this unspecified impact on Discovery is compelling enough to ask the SCA or a Full Bench of this court to entertain an appeal that otherwise lacks prospects of success.”

Click here to download full judgment.
Note: This article was updated on 19 May to reflect that Discovery Life has decided to petition the SCA.