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Clause for concern in your policy

In terms of the law, your financial advisor or broker must call your attention to the clauses in your life policy that allow an assurance company to reject your claim.

By Bruce Cameron

The Saturday Star, July 10, 2004

In terms of the law, your financial advisor or broker must call your attention to the clauses in your life policy that allow an assurance company to reject your claim.

The introduction of the Financial Advisory and Intermediary Services (FAIS) Act is forcing financial advisors and life assurance companies to take a long, hard look at the exclusion clauses of life policies.

The FAIS Act regulates the provision of financial advice and the sale of financial products.

In terms of the Act, financial advisors and intermediaries must give you appropriate advice which enables you to make an informed decision about a financial product. Appropriate advice includes informing you about the conditions under which you will not receive a benefit from a life assurance policy – conditions life assurers commonly refer to as exclusions.

Until recently, intermediaries were not legally obliged to give you appropriate advice, and so you may be blissfully unaware of the type of events covered by the exclusion clauses – the fine print – in your policy document.

And yet these exclusion clauses may result in your dependants not being paid out after your death, or in you not receiving benefits if you are disabled – even if the cause of your death or disability was not directly associated with the exclusion clause.

Say, for example, you go out tonight, drink too much, drive home too fast on worn tyres and are seriously injured in an accident after suffering a heart attack while at the wheel. Your life assurance company may repudiate a disability claim on at least two grounds:

  • You were drinking  – in contravention of an exclusion clause which states you may not “intentionally consume alcohol”; or
  • You were drunk and driving an unroadworthy vehicle – in contravention of an exclusion clause which states that you may not be “in violation of criminal law”.

And if you were injured in a foreign country, your claim may also be rejected, because, in terms of the fine print, you are only covered while you are in South Africa.

Freddie Andalaft, the chief executive of National Financial Partners, a network of financial advisors, is leading a campaign to make intermediaries aware that, in terms of the FAIS Act, they must take account of exclusion clauses when advising policyholders to switch policies.

Andalaft says intermediaries may fall foul of the Act if they advise you to switch from one life assurer to another purely on the basis of the premiums you pay, and do not take account of how the exclusion clauses may affect your ability to claim.

Exclusion clauses are normally legitimately included in life assurance policies to:

  • Stop policyholders from making fraudulent claims, such as deliberately shooting yourself in the foot so you can receive a disability benefit; and
  • Prevent a life company from accepting unnecessarily high risks, which would jeopardize the company’s financial well-being or force it to raise premiums. High risks may include someone who has a dangerous occupation or hobby or whose lifestyle is unhealthy.

But Andalaft says many exclusion clauses that could enable a life assurance company to refuse to pay out the benefits are unfair to you, the policyholder. Such clauses may be broadly or ambiguously worded, so that a life company can reject your claim on spurious grounds.

He says increased competition between life companies for your business is resulting in massive switching of risk life assurance policies for death and disability, and few intermediaries are taking account of the exclusion clauses when they switch clients’ policies.

WHAT YOU SHOULD CHECK

Andalaft says you and your financial advisor should take account of three main issues before switching a policy.

These are:

  • The period for which the premiums you pay are guaranteed;
  • Any compulsory increases in your premiums, including escalation clauses; and
  • Any exclusion clauses in terms of which benefits will not be paid.

Andalaft says a life company may reject your claim if you do not inform the company of a change in your personal circumstances – such as occupation, residence or smoking habits.

“While certain companies may only adjust the benefits payable, others will repudiate a claim outright, even if it is not directly related to the changed circumstances.”

He says examples of unacceptable or badly worded exclusions include:

  • Claims that arise from any pursuit deemed by a life assurance company as dangerous without listing the pursuits in the policy.
  • Claims that wholly or partly arising from your failure to immediately obtain medical advice after an injury or illness or failure to follow the advice you receive. Andalaft asks what happens if you cannot afford to pay for the treatment?
  • Claims as a result of self-inflicted injuries that cause death and disability. He says one life company replaced the standard clause that excludes suicide (no payments in the case of suicide within the first 24 months of the policy) with a clause excluding claims resulting from “self-inflicted injury.”

Many life companies have this exclusion for disability benefits, but it is often ambiguous and not clearly defined. For example, can injuries resulting from reckless driving be regarded as self-inflicted?

Andalaft’s campaign has resulted in many life companies tightening up on the wording of their exclusion clauses, while others have attempted to discredit him.

The Life Offices’ Association, which represents most life assurance companies, is to investigate the possibility of standardizing exclusion clauses and/or wording.

Exclusion clauses are a major source of policyholder complaints to Judge Peet Nienaber, the Ombudsman for Long Term Insurance. Last year, Nienaber received 690 complaints about rejected claims, of which 231 were fully or partially decided in favour of policyholders.

Andalaft says you must check your life policy very carefully. “The large print giveth, the fine print taketh away,” he warns.

WHAT THE OMBUDSMAN SAYS

Judge Peet Nienaber, the Ombudsman for Long Term Insurance, says his office’s approach to exclusion clauses is that “we will, broadly speaking, give effect to such a clause, it being part of the contract between the parties, unless there are some or other good reasons for not doing so”.

Nienaber says his office treats exclusion clauses – whether relating to death, accident or disability – as part of the terms of the contract, subject to the conditions outlined as follows.

  • The ombudsman’s office will respect an exclusion clause except:

v      Where it is regarded as being against public policy; or

v      If the circumstances of a particular case are such that it would be grossly and palpably unfair to enforce it. In such a case, the ombudsman “may well invoke our equity jurisdiction” to come to your assistance in some form or another.

  • Exclusion clauses will normally be narrowly construed – in other words, against the assurance company and in your favour. This means that, where the clause is ambiguously worded, you will be given the benefit of the doubt.
  • As a matter of law, the onus will rest on an assurance company to show that the event concerned falls within the exclusion clause.

Even when the company succeeds in discharging this onus, “we may well be able to persuade an assurer to be conciliatory towards a policyholder”.

Nienaber says he is currently dealing with a complaint where a life assurance company is seeking to rely on “a reverse onus” to repudiate the claim. He says a reverse onus occurs where the exclusion clause places the onus on you to prove that your complaint does not fall within the exclusion clause.

He says a reverse onus in an exclusion clause is unusual.

Nienaber says he has told the company concerned that “it might well be unfair and unreasonable to the insured to make the determination of the dispute dependent on the incidence of the onus, unless this unusual term was specifically brought to the attention of the insured”.

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