Dispute over cancelled policy: FST orders FAIS Ombud to reconsider decision

The Financial Services Tribunal (FST) has ordered the FAIS Ombud to reconsider a determination that found an FSP liable for an estate’s losses following the cancellation of a life insurance policy.

The Tribunal’s decision clarifies that financial advisers’ duties are limited to the specific terms of their engagement, and assumptions of indirect responsibility for policy management are insufficient grounds for liability.

In April this year, the FAIS Ombud ordered Futurum Financial Group (Pty) Ltd to compensate Christopher Mark Shadwell for damages amounting to R800 000, plus interest.

The dispute centres on a Brightrock life policy held by Shadwell’s late sister, Dr Tamryn Kate Shadwell, who named him as her sole heir and executor in her will.

Shadwell is also pursuing a claim against Brightrock that is pending before the Life Insurance Division of the National Financial Ombud Scheme.

The policy was incepted in December 2018 through Tamryn Shadwell’s financial adviser, Francois Roets. She, also through Roets, concluded four other policies in her personal interest.

The Tribunal pointed out that, contrary to the Ombud’s decision, Roets was at that time not a representative of Futurum. He joined the FSP in July 2019.

In 2020, Tamryn Shadwell experienced psychological challenges and was unable to work.

In October 2020, Shadwell stopped paying the monthly premiums on the Brightrock policy. Her brother paid some premiums on her behalf on the other policies, but he was unaware of the Brightrock policy.

The policy lapsed, effective 1 November 2020, because Tamryn Shadwell did not settle the arrears by December 2020. Brightrock confirmed the termination in a telephone call with Shadwell on 29 December 2020.

Shadwell took her life in November 2021.

Christopher Shadwell discovered the Brightrock policy while attending to his late sister’s affairs and subsequently sought compensation from Futurum, alleging that Roets failed in his advisory duty by not informing him of the policy.

Did the complainant have locus standi?

The Tribunal considered whether Shadwell had locus standi (legal standing) to lodge his complaint with the Ombud.

Futurum submitted that Shadwell did not submit the deceased’s will to the Master of the High Court as required by the Administration of Estates Act. The estate did not have an executor or a bank account.

The Ombud dismissed Futurum’s objection, relying primarily on Rule 3 of the Office’s Rules, which allows a complainant to include lawful successors in title or beneficiaries of the financial product. The Ombud interpreted this to mean that Shadwell, as the heir, could file the complaint.

However, the Tribunal said the Ombud misinterpreted and misapplied the rule.

First, Shadwell was not a legatee or lawful successor of the deceased. The estate itself is the lawful successor, not the heir directly. An heir’s right to inherit materialises only after debts, fees, and taxes have been settled and the estate’s account has been confirmed.

Second, Shadwell was not a nominated beneficiary. A nominated beneficiary under the policy would bypass the estate, but because Shadwell was simply the ultimate heir, the policy benefits would accrue to the estate.

The Ombud also held that, ultimately, any payment would go to the estate, so no prejudice would be suffered by allowing the matter to proceed before the registration of the estate had been initiated or finalised.

However, the Tribunal said this is not what the Ombud’s order states. The order directs Futurum to pay Shadwell directly, which conflicts with the principle that any award should be made to the estate.

Shadwell filed an executor appointment certificate during the Tribunal proceedings. Futurum objected because of the delay and inadequate explanation. But the Tribunal dismissed the objection in terms of its mandate for minimal formality.

However, this did not resolve the problem of how the Ombud’s order was formulated, which the Tribunal does not have the authority to correct.

Question of liability for the policy lapse

The Tribunal evaluated whether Futurum was liable for the estate’s loss resulting from the non-payment of the premiums and subsequent policy cancellation.

The Tribunal accepted that the insured knowingly cancelled the policy while aware of the outstanding premiums. Although Shadwell alleged that his sister lacked mental capacity at the time, the Tribunal ruled this claim irrelevant, finding no causal link between Futurum’s actions and her decision.

The Tribunal identified the deceased’s decision to cancel the policy as the “effective cause” of its lapse. It recognised that although the decision might have been motivated by financial constraints, motivation alone does not legally alter causation.

The Ombud found that Futurum was not “directly” liable for the lapse but suggested that the FSP might bear some “indirect” responsibility. The Tribunal questioned this indirect responsibility, finding no sufficient causal link.

Did the adviser have a duty to inform the complainant of the arrears?

The Tribunal noted that a central aspect of the complaint was Futurum’s alleged failure to inform the complainant about the policy arrears.

The contention was that Roets, as the insured’s financial adviser and broker, was aware of her precarious financial situation and hospitalisation and should have informed the complainant of the policy’s arrears to prevent it from lapsing. According to Shadwell, Roets’s lack of communication denied him the opportunity to manage the policy’s arrears, which he believed could have prevented the policy’s cancellation.

The Tribunal highlighted that Shadwell was not a client of Roets or Futurum with respect to the Brightrock policy. Consequently, Futurum and Roets had no statutory duty to Shadwell in terms of the FAIS Act. They had no obligations towards him because they had not undertaken to provide the complainant with a “financial service” as defined by the Act.

The Tribunal noted the Ombud concluded that both Roets and Futurum were legally barred from disclosing any information regarding the deceased’s affairs to the complainant. Under section 3(3) of the General Code of Conduct, a provider must not disclose any confidential client information without written consent unless disclosure is required by law or is in the public interest.

Shadwell argued that he had “alerted the insurer through Roets” about his sister’s medical condition.

But the Tribunal found that although Shadwell may have alerted the health insurer about his sister’s condition, this did not extend to Brightrock. Importantly, Shadwell was not in a position to instruct Roets to disclose the deceased’s mental condition to Brightrock because he did not have legal standing to make such requests.

Did the adviser have a duty with respect to the missed payments?

The premiums were set up to be paid directly from the insured’s bank account via debit order, meaning that neither Roets nor Futurum were engaged to perform any intermediary service related to premium payments.

The Tribunal said there was no statutory duty under the FAIS Act or the General Code of Conduct that required Roets, as a representative, to ensure that the insured paid her premiums. Responsibility for payment lies strictly between the insurer and the insured.

After a failed debit order in November, Brightrock informed Roets via email on 10 November, asking him to assist in contacting the insured. Roets received follow-up emails on 1 December and 7 December, alerting him to additional missed payments. Although these emails were addressed to the insured, they were also sent to Roets.

The Tribunal noted that the Ombud accepted that the policy was cancelled by agreement between the insured and the insurer.

The Ombud maintained that Roets’s failure to respond to the payment notifications was relevant to assessing his compliance with his statutory obligations. The Ombud wrote: “Any reasonable broker would have reacted to the emails and taken steps to ensure that Ms Shadwell was aware of the problem.”

But, as the Tribunal previously stated, neither Futurum nor Roets were engaged or called on to render financial services to the deceased at the time. “To act on a request by Brightrock as a conduit is not rendering a financial service to the deceased.”

No ongoing engagement

The Ombud suggested that Roets had a duty to conduct a regular review of the deceased’s life insurance policy per section 7(4) of the Code of Conduct.

The Tribunal found this interpretation problematic because the Code mandates a review only if a provider is actively engaged in providing ongoing financial services, which Roets was not.

The Ombud argued that if Roets had forwarded Brightrock’s emails about the missed premium payments to the insured, there was “high probability” that Shadwell’s brother would have been alerted to the arrears and paid them, enabling the estate to the benefit from the policy.

The Tribunal pointed out that the insured and the complainant had already made a joint decision to cancel all her insurance policies because of her financial difficulties. This decision undermined the Ombud’s claim of a “direct causal connection” between Roets’s inaction and the policy lapse, because the insured had intentionally allowed the policy to lapse based on affordability, independent of any intervention by Roets.

The FST also criticised the Ombud’s failure to consider why the Brightrock policy, specifically, would have been retained if Roets had intervened.

It set aside the determination and ordered the Ombud to reconsider the matter.

The Tribunal’s decision underscores that financial advisers are not automatically liable for lapses in a client’s policy unless there is a defined, ongoing engagement that includes policy management.

Advisers’ obligations under the FAIS Act apply only within the scope of an explicit adviser-client relationship, and they do not extend to notifying third parties unless specifically authorised by the client. This limitation reinforces that indirect responsibility or assumptions of liability are insufficient without a direct causative link to the client’s financial loss.