Fais ombud settlement case studies

Published Nov 7, 2015

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Here are some of the cases that were settled by the Office of Ombud for Financial Services Providers in the year to March 31, 2015, as detailed in the ombud’s annual report for 2014/15.

CLIENT INCORRECTLY INSURED

The complainant bought a motor vehicle when he was 26 years old. The proposal for the insurance policy included a restriction in terms of nominated drivers and an exclusion for drivers below the age of 27. The complainant alleged that the broker had advised him to state that his parents were the nominated drivers. (The quotation was issued based on the complainant’s father and mother as the drivers of the vehicle. Once the quote had been accepted, the complainant was named on the proposal form as an additional driver.) The vehicle was involved in an accident while driven by the complainant. The insurer rejected the claim, because the driver at the time of the accident was not one of the nominated drivers. The complainant said the broker had failed to inform the insurer that he had turned 27, which would have removed the exclusion. He said the broker’s omission had cost him R1 116 752. The insurer agreed to settle the matter by paying R800 000, which is the maximum amount that falls within the jurisdiction of the ombud's office.

POLICY NOT PROPERLY EXPLAINED

A product provider rejected a life assurance claim, because the policy had a 24-month exclusion for pre-existing health conditions. The complainant’s late husband had been on chronic medication for high blood pressure before he died from a heart attack. She told the ombud's office that no one had explained what “pre-existing condition exclusion” meant. When the office referred the complaint to the provider, it argued that the complainant had a duty to have made all the necessary disclosures and to have reviewed the policy wording. The respondent made an offer of R335 000, which the complainant rejected. The ombud’s office pointed out to the provider that the deceased would not have known to disclose a life-threatening condition, because his representative had not explained what is meant by a pre-existing condition. The respondent increased the settlement offer to R400 000, which the complainant accepted.

FAILURE TO ACT WITH DUE CARE AND DILIGENCE

In 2006, the complainant invested R600 000 in an investment product called Sanvest, on the recommendation of a representative of a financial services company. The complainant invested a further R676 581 in 2010. In 2013, she fell ill, and required capital from the investment to pay for her medical expenses. However, when she sought to withdraw, she was informed that her investment was tied up in property and that no funds could be withdrawn. The complainant contended that this had not been what had been agreed to, and claimed to have been under the impression that funds were always available. The respondent offered to refund the initial R600 000, but it refused to take responsibility for the R676 581, because it claimed that the representative had facilitated this investment after he had left its employ in 2008. An investigation by the ombud’s office found that the Financial Services Board had debarred the representative in 2008. The respondent had known this, but it could not provide any documentation to show that it had notified any of the debarred representative's clients, or cautioned them as to his reasons for leaving. The office put it to the respondent that, because it had failed to act with the due skill, care and diligence required by the general code of conduct under the Financial Advisory and Intermediary Services Act, the complainant did not know that the representative had been debarred when he asked to make the additional investment in 2010. The respondent offered to refund half of the R676 581, which was accepted by the complainant.

MATERIAL INFORMATION NOT DISCLOSED

The complainant submitted an insurance claim after she was involved in a motor vehicle accident. The claim was rejected, because the person driving the vehicle at the time had not been listed as a nominated driver. The ombud’s office asked the insurer to provide documentation showing that it had sought to determine, from the complainant, who regularly drove the vehicle and explained why this was important. The insurer changed its mind and settled the claim with a payout of R111 599.

COMMISSION NOT DISCLOSED

A retired couple was advised to consolidate all their investment policies and replace them with one policy. When the complainants received their policy document, they noticed that the product provider’s representative had charged them commission, despite having been told that the change would be a reinvestment and that no fees would be payable. The complainants, who were at the advanced ages of 82 and 76, also noticed that the maturity date of the policy was 2029. After the ombud's office asked the product provider to respond to the complaint, it agreed to refund the commission of R26 141 and to amend the term of the policy.

COST OF SWITCHING NOT DISCLOSED

A policyholder complained that, despite having liaised with a life assurer's representative on a number of occasions about switching his retirement annuity, he had not been told about the costs he would incur. In its response to the ombud’s office, the assurer said that, although its representative might have failed to highlight the charges, it would be unreasonable to assume that the complainant had not been aware that certain charges would be levied. As a result, the assurer offered to pay the complainant R3 000 in lieu of poor service. The life company further contended that, in terms of the fund's rules, charges are applied to all members who access their benefits before maturity, while the assurer had incurred upfront costs when the contract had been issued, which it planned to recover over the term of the contract. The ombud’s office recommended that the life company refund all the charges, because the representative had denied the complainant the opportunity to make an informed decision about the policy change. The complainant was refunded R17 658.

INAPPROPRIATE POLICY

The complainant replaced her life assurance policy on the recommendation of the product provider's representative. The new policy had a lower premium. The complainant was admitted to hospital for the treatment of a pulmonary embolism. When she tried to claim under the policy’s severe illness benefit, she was told this condition was covered only under the “comprehensive and extensive cover” option, which she did not have. The ombud’s office established that the complainant’s previous policy would have settled the claim. The office could not find any documentation to support that the complainant had been advised of the consequences of replacing her policy, or that the new policy did not provide the same level of cover. The complainant accepted a settlement of R11 765 from the product provider.

POLICYHOLDER INCORRECTLY INFORMED

The complainant applied by telephone for life assurance for himself and his family. The product provider’s sales representative told the complainant that his cover commenced “immediately”, although the first premium had not been paid. The complainant’s son was killed in a car accident days after the phone call. His claim was rejected, because the cover had not yet started. The life assurer conceded to the ombud’s office that its representative had provided the complainant with incorrect information. It offered him an ex gratia payment of R10 000, which the complainant accepted.

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