Relief as judge rules life policies still valid
● Francois Marais died at home in Bloemfontein early yesterday morning, believing that his three children would be left without an insurance payout because, just three months ago, his insurer unilaterally cancelled the policy he’d paid into for five years.
But thanks to a judgment handed down by judge Bashier Vally in the Johannesburg high court late on Friday as Marais, 64, was hours from death, his policy is still in place.
In the matter between Hermione Nell and 73 others who took out policies covering illnesses, accidents and death with Constantia Insurance Company — only to be told by SMS in late February that they were to be cancelled with effect from the end of March — Vally found that there was no legal basis for the cancellation. He ordered that:
● Constantia’s cancelling of its two policies, Prime Living CoverGrow and Prime Living Legacy, held by the 74 applicants, is unlawful and of no force and effect;
● The policies are still in existence;
● Constantia is to notify all policyholders — about 5,270 — that they may lodge claims for insured events since the date of the “purported cancellation”; and
● Constantia must give them all 30 days from the date of the order to pay premiums since March, should they wish to remain insured by those policies.
The policies were “expressly and aggressively” marketed as providing “cover for life”, Vally said. But when they were sold over the phone, no mention was made of the small print in the contract that was sent to policyholders later. It read: “The Insurer may cancel this policy on 30 days’ written notice …”
“By being told they would be insured ‘for life’… they were lulled into a false sense of security,” the judge said. “There was no reason for them to anticipate that [Constantia] would at whim cancel the policy and just give them 30 days’ written notice, thus placing them at peril.”
Constantia also refused to refund the premiums paid, a stance the Financial Services Conduct Authority (FSCA) agreed with.
“[We] could not find a basis to direct Constantia to refund the premiums received,” the FSCA said in April. “Premiums are paid monthly for cover which is provided monthly and as such there is no build-up of funds.”
But Vally said Constantia’s contention that a particular “sub-rule” in insurance legislation empowered it to cancel the policies with a month’s notice was “misplaced”, as was the finding of the FSCA “to this effect”.
For Marais’ sister, Amorien Veitch-Crawford, Friday’s judgment came as a massive relief. “At least Francois’s children will be able to claim now,” she said.
In breaking the shocking news to policyholders in February, Constantia said: “In terms of the new Insurance Act insurers may no longer conduct life and non-life insurance under the same licence. Your Prime CoverGrow policy meets the definition of a ‘life policy’ as defined in the Insurance Act, and given that Constantia Insurance Company Limited is licensed as a non-life insurer, we may no longer provide this cover.”
So what now for all those policyholders, given that Constantia’s conversion of its licence to that of a non-life insurer comes into effect on July 1, meaning it cannot continue to sell short-term insurance products?
“For the policies to remain in effect after July 1 2020, another underwriter would have to take over those policies, there would have to be willing buyer and willing seller scenario,” said Alex Peral of Fluxmans Inc which represented Nell and the 73 others pro bono, as did the advocates Duncan Turner and Douglas Ainslee.
“The most obvious solution appears to be that the policies should be transferred to another Constantia Group company that does have a life licence.”