Ganas case looms large in ombud for long-term insurance's annual report

The infamous "Ganas case" featured prominently in the ombudsman for long-term insurance's (OLTI's) 2018 annual report, with the office urging SA's lawmakers to "reconsider" the non-disclosure laws which allow insurers to reject a claim outright.

Momentum Life's rejection of Denise Ganas's claim on her husband Nathan's R2.4m death policy - on the grounds that when applying for the policy in 2014 he failed to disclose that he had high blood sugar levels - was supported by OLTI when the widow lodged a complaint with the office.

The "frenzy" which erupted in the media was based on the fact that Ganas died in a hail of hijackers' bullets in 2017, and not from diabetes, OLTI said, "but we believe that we correctly applied the law - an insurer is entitled to repudiate a claim on the ground of non-disclosure because it was misled as to the nature or extent of the risk and thus the conclusion of the contract".

"An applicant for a life insurance policy must give all material information in the application form," OLTI said in the report released this week.

"This is a fundamental principle which is founded on an insurer's legal right to be informed of all the material facts in order to enable it to properly assess the risk involved in an application."

Last November Momentum bowed to public sentiment - that the claim rejection was unfair because Ganas died of gunshot wounds, not diabetes - and hastily came up with a "solution".

In cases where they rejected a life policy claim on the basis of "material medical non-disclosure", they will pay an amount equal to the death benefit if the person died in a violent crime, regardless of previous medical history.

Denise Ganas and five others whose claims were rejected due to medical non-disclosure have since been paid out more than R7m.

"There is no question that the publicity and public outcry gave the industry and the authorities cause for thought," said ombud Ron McLaren.

While OLTI is of the view that insurers, when faced with "non-fraudulent misrepresentation", should "reconstruct" the policy to what it would have been had they known, - the so-called Didcott Principle - "sometimes an insurer argues that the policy in question cannot be reconstructed because, if they had known the truth, the policy would not have been issued at all."

That's the argument Momentum made in the Ganas case, hence the company's outright rejection of the claim, rather than paying the benefit after subtracting the difference between the premium he paid and what he would have paid if he'd made a full medical disclosure.

OTLI accepted that argument, "after obtaining an independent reinsurer's opinion on the underwriting criteria Momentum had applied in this case".

But the ombud now says the legislature "should" reconsider the current non-disclosure legislation.

"Until that happens, this office applies the law as it stands," the ombud said, while bearing in mind an insurer's obligation to "act with fairness and with due regard to both the letter and the spirit of the contract between the parties".

The legislature should, "at the very least", consider making the Didcott principle law, the office said.

OLTI's 2018 report, at a glance:

• The office received a record 11,768 requests for help in 2018 - 1,000 more than the previous year - and of the almost 6,000 cases which fell within its jurisdiction, the main complaint was about funeral benefits.

• 31,5% of "full cases" were resolved partially or completely in favour of complainants, and with the 1,132 "transfer" matters settled directly with complainants by insurers, 40% of complainants had some relief after lodging a complaint with OLTI.
• R185.8m was recovered for complainants, with compensation of R632,737 being awarded to 160 complainants for poor service by insurers.
• There were three final determinations against Alexander Forbes Life. In one case the insurer was ordered to pay R7,500 compensation for causing one of its clients to suffer "distress, inconvenience and financial loss". "The delays this office experienced in the complaint handling by Alexander Forbes; the incomplete responses and lack of supporting documentation from them added to the frustration the complainant experienced throughout this stressful period in her life," OLTI said.
• Ombud Ron McLaren said despite Treating Customers Fairly (TCF) being part of insurance regulation, some insurers demonstrate the opposite. In one such case involving a funeral claim for a stillborn baby, the insurer unfairly refused a R1,000 payment until OLTI intervened.
• Sanlam Developing Markets had refused to pay a funeral claim on the death of a second cousin who had been described as a "cousin" by the complainant when taking out the policy. Given that the term "cousin" includes second cousins in "certain black languages/cultures" - the very market in which the product is sold - the insurer was told by OLTI to pay a policy of R31,000.
• OLTI is mainly funded by the fees which insurers are charged when a consumer lodges a complaint against them, regardless of the outcome. The standard fee is R3,629 per complaint.