In an article about a case in which the High Court in Johannesburg ordered the South African Special Risk Association to pay Blackspear, the judge noted that, despite the complexity of the relevant clause of the insurance contract, “The striving for business sense must prevail.”
Read: High Court settles dispute over how valuer must calculate Sasria claim
This was also a strong argument in the various cases concerning contingent business interruption resulting from the Covid-19 pandemic.
The insurers argued that the government’s lockdown, and not the pandemic itself, was the reason businesses had to close down for an extended period. Eventually, after 14 judges had ruled that the lockdown resulted from the pandemic and was therefore the causal event which led to the loss, the insurers agreed to reimburse their clients.
Another aspect that played a significant role in these matters was the legal precedent that, where the policy wording cannot be clearly interpreted, the benefit of the doubt must go to the insured.
Recently, the Financial Services Tribunal (FST) dismissed an application for the reconsideration of a determination by the Pension Funds Adjudicator (PFA) in a complaint concerning casual event charges.
The FST agreed with the PFA that the fund acted in accordance with the regulations to the Long-term Insurance Act (LTIA) regarding complaints about excessive commission as well as fund administration and portfolio administration fees.
Background
The complainant involved a retirement annuity policy that the client took out with Momentum in 2007. The contract term was 17 years and six months, with a maturity date of August 2024.
Following her retrenchment, the policyholder notified Momentum on 21 April 2021 of her intention to transfer her policy to another fund because Momentum’s fees were excessive, and she could no longer afford to pay those monthly contributions because her financial circumstances had changed.
On receipt of the notification, Momentum informed her that it considers the instruction as the early termination of the contract, and she would be liable for causal event charges as provided for in terms of section 14 of the Pension Funds Act. She was also advised that she would forfeit her loyalty bonus.
She laid a complaint with the PFA but, unfortunately, did not provide accurate figures to enable the Adjudicator to make an accurate assessment, including the fact that her annuity contributions increased by 10% a year, which would result in far more commission than the upfront commission mentioned in her complaint.
The complainant received a quotation and an application form explaining that Momentum would deduct specific charges and administrative fees from her investment portfolio. The loyalty bonus would, logically, become payable only if she remained with Momentum until the end of the term of the policy.
Concerning the “excessive” costs, Momentum indicated that commission over the term of the contract came to R34 148, and fund administration charges amounted to R43 003. An additional R2 484 constituted a recurring portfolio administrative fee charged at R15 a month.
PFA’s finding
“The Adjudicator has no reason to interfere with the imposition of such charges, as the fund will be complying with the stipulated regulations in terms of the LTIA. Further, the fund provided an explanation regarding the fees charged… Therefore, the Adjudicator is satisfied that the fund acted lawfully in terms of its rules and the policy contract in imposing charges on the complainant’s policy.”
FST hearing
During the hearing, the complainant sought to expand her grounds of complaint, which were not part of her initial referral to the Adjudicator.
“It was explained to her that an expansion of her complaint was not permitted and that she was to confine her submissions to the complaint contained in her referral to the Adjudicator and which now served before the Tribunal.
“The Tribunal’s reconsideration of the Adjudicator’s decision is limited to the evidence or information upon which the decision under reconsideration was given. The only determination is whether that decision was right or wrong.
“The Tribunal is otherwise precluded from accepting new documents and to entertain new grounds of complaint, as the function of the Tribunal is to reconsider the decision and not to consider new evidence unless in exceptional circumstances where the provisions of section 232(5) of the FSR applies.
“The complainant did not bring an application for the introduction of new evidence, nor is this a case which demonstrates that exceptional circumstances exist as contemplated in the FSR. The prejudice to the respondents would also militate against the expansion of her complaint and the acceptance of new documents at this stage.
“At the hearing, the complainant indicated that she no longer intended to transfer her policy to another fund, particularly in view of the fact that she would retain her loyalty bonus which came to R60 107 […] as such, the issue of casual event charges became academic. Therefore, there was no need for this Tribunal to hear arguments on casual event charges.”
“It is therefore not necessary to deal with these issues, since the issues had resolved itself as conveyed by the parties in the hearing.”
I find this rather strange, given the Tribunal’s argument above about receiving additional grounds for complaint. When the PFA made her determination, this was not the case, and, in my view, it should not have swayed the FST, influencing its decision.
The fact of the matter is that she changed her mind when she heard that the loyalty bonus would be paid if she stayed. The part of the complaint relevant to the causal event charges should have been ventilated in far more detail.
And so we see, yet again, that legal scare tactics force a client to stay, against her will, with an insurer. It cannot be right that only two of the three parties involved carry the risk of early termination, while the third recoups all losses at the expense of the client and the adviser, to a lesser degree.
But it appears to be a lost cause, as the regulator has indicated that it is phasing out this practice over the next six years. Is this fair treatment of affected clients?
You be the judge.
