Your insurer must treat you fairly by making sure you fully understand the conditions of your policy before you sign on the dotted line and by avoiding clauses that place unreasonable or onerous obligations on you. If it doesn’t, it will get little sympathy from the Ombud for Financial Services Providers.

In a recent ruling, Workers Life Assurance Company, the provider of a funeral policy to members of the police union, Popcru, came in for fierce criticism from the ombud, Noluntu Bam. She found that, not only was there no record of a policyholder having been fully informed about exclusions in respect of pre-existing medical conditions, but that related clauses in the policy “disproportionally favour the insurer, giving it virtually an unfettered discretion to reject claims”.

Importantly, she emphasised that, under the Financial Advisory and Intermediary Services (FAIS) Act and the Treating Customers Fairly (TCF) regulatory framework, it is incumbent on the product provider, not you, the client, to ensure that you understand significant conditions in the policy and their implications before the sale takes place. In other words, an insurer cannot sell you a policy with little in the way of explanation, and make it your responsibility to read, understand and accept the terms and conditions in the policy contract.

In the case in question, Mr M, a policeman from East London, included a cousin on his Popcru Funeral Family Benefit Scheme policy when it was sold to him in May 2013. The policy provided for cover for “extended family”.

Mr M’s cousin died from tuberculosis in March 2014. When Mr M tried to claim on the policy, his claim was rejected, because it was found that Mr M’s cousin had had tuberculosis at the time the policy was sold, and the policy excluded pre-existing conditions.

In his complaint to the ombud, Mr M told Bam that the exclusions were not brought to his attention when he was sold the policy, and the terms and conditions were not in front of him when he signed. He said he told the sales staff that his cousin was “in and out of hospital with tuberculosis”, but was told that it was fine, as long as he did not claim within the first three months.

The two relevant clauses in the policy’s terms and conditions were:

• “Should death occur due to any pre-existing medical condition [diagnosed] within the first 24 months prior to [the] inception date, claims will be declined.”

• “A medical condition [is one] from any illness which arises from or is caused by a condition or defect for which medical treatment has been recommended, advised, sought out or received during the 24 months prior to the commencement date.”

In response to the complaint, Workers Life Assurance Company said the exclusion had been explained to Mr M and that, by signing the application form, “the complainant acknowledged that he received the original policy document that contained the terms and conditions of the policy”.

It pointed out that the salesperson had left her contact details with Mr M, who “could have called her if he did not understand the terms and conditions”.

The insurer also asserted that the exclusion clause was placed “prominently” on the form Mr M signed in front of the salesperson.

In her determination, Bam says the FAIS Act requires product providers to record all verbal exchanges made while rendering financial services. She says a standard application form does not constitute a record of advice.

Bam says the FAIS Act also requires providers fully to disclose to the client any information that would reasonably be expected to enable the client to make an informed decision, including “concise details of any special terms or conditions, exclusions of liability, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided”.

Having inspected the application form that Mr M signed, she says the exclusion regarding pre-existing conditions was printed “in an extremely small font, making it difficult to read … in an already cramped column”. She was of the view that, “unless the clause was pointed out, a client could easily miss it or treat it as of no consequence”.

Regarding the clauses themselves (only the first of which appeared both on the application form and in the policy’s terms and conditions), Bam says in her determination that the second clause “is drafted in very broad terms that clearly favour the insurer” to the extent that “even a casual visit to the doctor can result in a rejection”.

Taken in conjunction with a medical questionnaire that claimants must complete, Bam says the [deceased] “will have to have lived like a super-human”.

“If one considers the combined effect of both exclusions, it is hard to imagine that any policyholder will file a successful claim against this policy. The whole purpose of this type of insurance is defeated.”

Bam says it appears the policy was specifically crafted for Popcru members. “The net result of this is that innocent Popcru members will not suspect that this policy is mined with explosive exclusionary clauses that will render it unlikely that a successful claim can be made. On this basis alone, it is imperative that full disclosure of the exclusionary clauses must be made. It is not enough to merely point them out; there has to be an accompanying explanation, followed by a record that this was done.”

Another concern of Bam’s was that other exclusions included “active participation in war, riot, civil commotion and terrorism” and “being exposed to deliberate danger”, risks to which policemen would naturally be exposed.

Bam ruled that Workers Life Assurance Company had breached the FAIS Act and that its conduct had fallen far short of TCF. She ordered it to pay Mr M R10 000 for his cousin’s funeral.