A High Court judgment has upheld the enforceability of long-term insurance contracts, where policyholders must adhere to the limitations set by both the contract and legislation.
Sanlam Life Insurance Limited appealed to the High Court in Mbombela after the Nelspruit Regional Court ordered the life insurer to cancel a policyholder’s five-year endowment policy.
The policyholder, Nosifiso Chigombo, invested R320 000 in a Cumulus Fixed Return Plan. The policy was to run for five years from 1 January 2022 to 1 January 2027, with a maturity benefit of R418 368.20. But only three weeks into the contract, Chigombo made a partial withdrawal of R120 000.
In January 2023, Chigombo wanted to make another partial withdrawal. Sanlam declined the request. She then demanded that the contract be cancelled, so all her funds could be returned to her. This request was also refused.
Chigombo launched an application in the Nelspruit Regional Court, seeking an order for Sanlam to cancel the contract and pay her R167 000 (it was not disclosed how this figure was calculated).
The Regional Court granted the order, reasoning that “a party may enter into a contract, but if for whatever reason they want to cancel the contract, it is in terms of the law allowed, and the court feels it will be untenable to refuse a party or a consumer an opportunity to cancel an agreement in respect of which they entered in a voluntary manner”.
The court concluded it would not be in the interests of justice to force a person to be a party to an agreement wherein she no longer wished to be.
Sanlam appealed to the High Court, arguing that the lower court erred in placing more weight on the “interests of justice” than the contractual terms and legislative provisions. It pointed out that the policy clearly restricted withdrawals and was governed by specific legal limitations, including the Long-term Insurance Act and its Regulations.
Sanlam also submitted that the Regional Court allowed Chigombo to argue a different case to the one presented before it in the affidavits.
It was also argued that to the extent that the lower court relied on the provisions of the Consumer Protection Act (CPA), it based its reasoning on non-existent provisions that were not presented before it.
What the contract stated
Chigombo averred that Sanlam undertook to repay her investment with interest after five years or at any other time upon demand. She referred to a page from the contract, which, according to her, stipulated the amounts to be available for withdrawal for each year for the duration of the contract until maturity was reached.
The page to which she referred states that policyholder who need cash before maturity can:
- apply for a loan from a bank or any other institution and use your policy as security; or
- apply to cash in your policy, or you can apply to make a cash withdrawal; against it.
It then goes on to provide indicative cash amounts that a policyholder could receive.
The next section of the page is headed, “Are there any restrictions under present legislation?”
It states: “Yes. If you cash in your policy before 1 January 2027, we are not allowed to pay you more than an amount limited by law. So, if the cash value of your policy is more than this limited amount, and the balance will remain invested until that date. Also, if you only partially cash in your policy before 1 January 2027, you are not allowed to cash in again before this date.”
In his judgment, Judge Takalani Ratshibvumo said it was obvious that the contract did not support Chigombo’s allegations. There was no provision to the effect that Sanlam undertook to pay back the invested funds with interest after the lapse of five-year period or at any other time upon demand (judge’s emphasis).
Lower court got the law wrong
Judge Ratshibvumo said it was also clear that the Regional Court had got the law completely wrong.
He pointed out that the lower court failed properly to apply section 54 of the Long-term Insurance Act and Part 4 of the Regulations issued under the Act, which limit the payment of investment benefits under certain policies within five years of inception.
For example, the judge drew attention to Regulation 4.2, which states:
(1) Subject to sub-regulations (2), (3), (4) and (5), a long-term insurer, and any person who acts as intermediary between a long-term insurer and any person in respect of a policy or proposal for a policy, shall not undertake to provide, or provide
(a) a policy benefit under a policy during an extended restriction period;
(b) upon the full or partial surrender of a policy during an extended restriction period-
(i) if the policy has previously been partially surrendered during the extended restriction period concerned, any further consideration [judge’s emphasis]; or […]
And regulation 4.1 defines “restriction period” as a period of five years, which commences, if the date concerned is 1 January 1994 or later-
(a) on the date when the first premium period begins; or
(b) during a premium period after the first such period, on the first day of the month in which an excess premium is received by the insurer.
Judge Ratshibvumo said the Regional Court, while ignoring the relevant provisions in the Long-term Insurance Act, had come up with up with section 24 of the CPA as a basis for holding that every consumer has a right to cancel the contract.
“It is not clear where it got this section from, as it was not referenced to by any of the parties.”
He said a simple perusal of the CPA reveals that section 24 does not provide for the cancellation of contracts. Instead, it provides for product labelling and trade descriptions.
Judge Ratshibvumo concluded that Chigombo had an opportunity to cancel the contract as a whole or make a partial withdrawal, and she chose the latter.
“Nothing was advanced by the respondent [Chigombo] that suggests that she could understand the clauses in the written contract. What she expected the court to do is against the legislative provisions that were also incorporated into the contract that she signed. In allowing the respondent to make a second withdrawal or cancel the contract after making a partial withdrawal, the appellant [Sanlam] would not only be deviating from the agreement but would also be breaking the law,” he said.
The High Court set aside the Regional Court’s order and upheld Sanlam’s appeal, with costs.
