Class ac­tion against fu­neral as­sur­ers ‘just a mat­ter of time’

There are at least three grounds on which hold­ers of fu­neral as­sur­ance poli­cies could bring a class ac­tion against a life com­pany or the Fi­nan­cial Ser­vices Board, an ad­vo­cate says. Angelique Ardé re­ports Un­der­stand­ing cer­ti­fi­ca­tion

Weekend Argus (Saturday Edition) - - GOODPOSTER -

Abuses in the fu­neral as­sur­ance mar­ket are rife, and the Fi­nan­cial Ser­vices Board (FSB) knows it. It’s a mat­ter of time be­fore a class ac­tion is brought against the reg­u­la­tor or a life com­pany.

This is the view of Ad­vo­cate Chris Shone, who was part of the team of ad­vo­cates who ar­gued the bread dis­tri­bu­tion price-fix­ing case ear­lier this year in the Con­sti­tu­tional Court. This was the first class ac­tion to be fought suc­cess­fully in South Africa. Small-scale bread dis­trib­u­tors, rep­re­sented by Im­raahn Is­mail Mukad­dam, brought the case against bread producers Pi­o­neer Foods, Tiger Brands and Pre­mier Foods.

At a re­cent sem­i­nar hosted by con­sult­ing firm Burns-Hoff­man and As­so­ci­ates, Shone iden­ti­fied pos­si­ble class ac­tions that could be brought against the FSB or the long-term insurance in­dus­try.

Shone says the bread car­tel case has opened the way for class ac­tions in South Africa, and if a “class” or group of peo­ple who meets the le­gal cri­te­ria to bring an ac­tion can be iden­ti­fied, it is likely they will ob­tain a set­tle­ment from a party that is found to be re­spon­si­ble for the dam­age or loss they suf­fered.

About 95 per­cent of class ac­tions in the US in which a class is cer­ti­fied – in other words, meets the le­gal cri­te­ria of a class – are set­tled, Shone says (see “Un­der­stand­ing cer­ti­fi­ca­tion”, right). “It’s a very pow­er­ful threat,” he says. Ob­vi­ous abuses in the fu­neral in­dus­try have been al­lowed to con­tinue for many years, but, un­til now, the vic­tims have not been able to take le­gal ac­tion, be­cause the harm they have suf­fered has been too small to jus­tify in­di­vid­ual claim.

A class ac­tion is one in­volv­ing an abu­sive prac­tice on a large scale, and it is about “hun­dreds of Davids tak­ing on Go­liath, who is pulling off small rip-offs on a large scale and mak­ing mas­sive prof­its”, he says.

The fu­neral as­sur­ance mar­ket is ripe for class ac­tions, par­tic­u­larly in three ar­eas where pol­i­cy­hold­ers are the vic­tims of il­le­gal prac­tices, Shone says.

The Long Term Insurance (LTI) Act does not re­fer to “fu­neral poli­cies” but reg­u­lates them through “as­sis­tance poli­cies”, which are life poli­cies with a max­i­mum ben­e­fit, Shone says. The max­i­mum ben­e­fit was re­cently in­creased from R18 000 to R30 000, be­cause the FSB found that, with the lower limit, con­sumers were be­ing sold mul­ti­ple poli­cies.

“No per­son may con­duct the busi­ness of an in­surer with­out be­ing reg­is­tered and au­tho­rised, mean­ing no per­son may is­sue an as­sis­tance (fu­neral) pol­icy un­less reg­is­tered as an in­surer,” Shone says.

He says the three ar­eas where pol­i­cy­hold­ers are vic­tims of il­le­gal prac­tices are: To be able to bring a class ac­tion, “cer­ti­fi­ca­tion” is re­quired, which means the ap­pli­cants (the would-be claimants) have to ap­ply to a court for the cer­ti­fi­ca­tion of a “class”. The cri­te­ria for cer­ti­fi­ca­tion in­clude:

◆ Nu­meros­ity. Your class needs to be sig­nif­i­cant in size. Con­sid­er­ing that most fu­neral as­sis­tance schemes have more than 1 000 pre­mi­um­pay­ing mem­bers, this would not be a prob­lem, Ad­vo­cate Chris Shone says.

◆ Com­mon­al­ity. All class mem­bers must be in the same boat for the class to be cer­ti­fied. For ex­am­ple, ei­ther the en­tire book is un­der­writ­ten, or noth­ing is un­der­writ­ten, Shone says. “Pol­icy word­ings are gen­er­ally iden­ti­cal, the only dif­fer­ence be­ing age-re­lated pre­mium rates and wait­ing pe­ri­ods.”

◆ Ascer­tain­abil­ity. Your mem­bers need to be “ob­jec­tively iden­ti­fi­able”.

◆ Tria­bil­ity. Your case must have a rea­son­able prospect of suc­cess.

◆ Typ­i­cal­ity. A pol­i­cy­holder launch­ing a claim must have a claim typ­i­cal of all other mem­bers of the scheme.

◆ Ad­e­quacy of rep­re­sen­ta­tion. An in­di­vid­ual pol­i­cy­holder who launches a claim should rep­re­sent the in­ter­ests of any class of claimants, pro­vided the claim is not unique to that in­di­vid­ual.

Many fu­neral as­sis­tance schemes pro­vide a fu­neral only, but no cash ben­e­fit, and this is a con­tra­ven­tion of the LTI Act, Shone says.

“The LTI Act re­quires that any pol­icy ben­e­fit ex­pressed oth­er­wise than in a sum of money – such as a fu­neral ser­vice – must nev­er­the­less be avail­able as a sum of money equal in value to the cost the in­surer would have in­curred had the ben­e­fit been pro­vided oth­er­wise than as a sum of money. In short, a pol­icy pro­vid­ing a fu­neral ben­e­fit only is invalid, and a cash ben­e­fit must al­ways be avail­able,” he says.

Mem­bers of a fu­neral scheme where the ben­e­fit is a fu­neral ser­vice only, with­out a cash al­ter­na­tive, would be ca­pa­ble of bring­ing a class ac­tion, Shone says.

The LTI Act stip­u­lates that an en­tity must be reg­is­tered and au­tho­rised to con­duct the busi­ness of an in­surer, and if some­one has is­sued a pol­icy that has not been un­der­writ­ten, you, as the pol­i­cy­holder, may can­cel the pol­icy and claim your money back from the in­surer.

Many fu­neral poli­cies are is­sued by en­ti­ties that are not un­der­writ­ten by a reg­is­tered in­surer, Shone says.

Many schemes are re-in­sured, rather than un­der­writ­ten, but this does not sat­isfy the re­quire­ments of the LTI Act, and such schemes are there­fore in breach of the Act, he says.

( In insurance terms, an un­der­writer would be the di­rect in­surer, and a re-in­surer in­sures the un­der­writer’s risk, Shone says.)

All mem­bers of any fu­neral scheme where the pol­icy has not been un­der­writ­ten by a reg­is­tered in­surer could lodge a class ac­tion, he says.

In­sur­ers are re­quired by the LTI Act to pay cash ben­e­fits to a nom­i­nated ben­e­fi­ciary or the de­ceased’s es­tate, but many en­ti­ties that of­fer fu­neral as­sur­ance pay ben­e­fits di­rectly to other par­ties, such as un­der­tak­ers. This con­tra­ven­tion of the law “is a real prob­lem and ap­plies to il­le­gal in­sur­ers, as well as reg­is­tered in­sur­ers”, Shone says.

A class ac­tion could be brought by a ben­e­fi­ciary un­der a long- term pol­icy is­sued by a fu­neral scheme or as­surer that has paid the ben­e­fit to some­one other than the ben­e­fi­ciary, such as an un­der­taker.

It could also be brought by an ex­ecu­tor of an es­tate where the de­ceased held a long- term pol­icy is­sued by a fu­neral scheme or as­surer where there was no ben­e­fi­ciary nom­i­na­tion and where the ben­e­fit was not paid to the de­ceased’s es­tate.

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