One could be forgiven for thinking that the bereaved parents got bad advice after the death of their daughter, who had been a Discovery life policyholder, or that lawyers tried to cash in on a legal technicality with regards to a policy that had been cancelled a few weeks prior to her death.
The court ruled that the quick payment of another premium on the daughter’s policy by her parents nearly a week after her death did not reinstate the policy.
While the Gauteng Division of the High Court originally ordered Discovery to pay a claim of around R4 million on the death of a client, the Supreme Court of Appeal reversed the judgment and ruled that the particular policy was indeed no longer valid.
Central to the matter was the exact date the cancellation of the policy came into effect.
The insured, Susan Church, cancelled her life policy with Discovery on August 6, 2018, by way of a telephone call to the life insurance company.
She explained to the call centre agent that she had decided to cancel the policy as she was taking out a new policy with Liberty Life.
A week later, on August 15, Church wrote to Discovery and said that she wanted to cancel the policy with immediate effect.
Discovery wrote to her insurance broker stating that the policy would be cancelled as requested, but that a notice period of 30 calendar days applied to cancellations.
The effect was that one more premium had to be paid, and cover would continue to the last day of September.
Debit order stopped
However, on August 23 Church instructed her bank to stop the payment of the debit order in respect of the last premium, being the premium for cover to the end of September.
On September 3, when Discovery submitted the monthly debit order to the bank for payment, the debit order wasn’t paid and was flagged with a comment of “payment stopped by account holder”.
On September 10, Discovery advised Church in writing that her policy had been cancelled with effect from September 1 and sent her a text message stating the same. She was also advised of the process to be followed if she wished to reinstate her policy.
The court documents state: “When Mrs Susan Church decided to cancel her insurance policy with the appellant, Discovery Life Limited, she had no inkling of the events that were to befall her six weeks later.
“While on holiday at the Sani Pass Lodge, she was overcome by carbon monoxide fumes from a faulty geyser in the showers, collapsed and died.”
The legal game started. The court heard that Church’s erstwhile financial advisor advised her parents to reinstate the policy by resuming premium payments. They paid the premium on September 27, a few days after her death on September 22.
Lawyers argued in court that Discovery elected to hold Church to the terms of the policy (and the 30-day cancellation period) when she sought to cancel the policy with immediate effect in the middle August.
Thus, the lawyers argued that the policy remained in force and both parties had to honour their respective obligations under the contract.
Notification of unpaid premium
“Moreover, the respondents contended that Discovery failed to notify Mrs Church of the unpaid September premium as required by the terms of the policy, in terms of which Discovery, before cancelling the policy, ought to have afforded Mrs Church a thirty-day grace period to pay the outstanding premium.
“Therefore, as the premium was paid, albeit by the first respondent as the executor of Mrs Church’s estate, within the thirty-day grace period, Discovery was obliged to honour the claim and pay out the sum assured,” argued the lawyers.
However, Discovery countered that it set out the reinstatement requirements after it received the premium on September 27, which included that Discovery required a fully completed and signed declaration of ‘health by all lives assured’ form.
It contended that there was no response to the letter. Instead, a claim was submitted on November 19.
Discovery opposed the claim on the basis that the policy was effectively cancelled on September 10, with effect from September 1. Discovery admitted the terms of the policy and those applicable to the grace period for payment of premiums, but contended that those provisions only applied when the insured had defaulted in their obligations by failing to pay the premium on time.
“Furthermore, it asserted that those provisions did not serve to extend the policy against the wishes of the insured after the policy had been cancelled, and also did not preclude Discovery from cancelling a policy forthwith in the event of its repudiation,” state the court documents.
“When Discovery received a message from the bank that Mrs Church had stopped payment of her debit order, it was clear to Discovery that Mrs Church did not intend to comply with her contractual obligations under the policy.
“Therefore, as Mrs Church had repudiated her contract, Discovery had elected to cancel it as per its letter of 10 September 2018, hence its decision to repudiate the claim.”
The appeal court found that the contract between the parties was no longer in force, because Church had made it clear on August 6 and 15 that she wanted the policy cancelled.
“Furthermore, despite the fact that Discovery had initially sought to enforce the contract as indicated in its letters of 16 and 28 August 2018, Mrs Church’s instruction to her bank to stop payment of the premium payable on 3 September 2018 was an unequivocal indication that she had no intention of continuing with the contract and wanted it cancelled immediately.
“Therefore, a reasonable person in the position of Discovery would have interpreted Mrs Church’s conduct as evincing an intention no longer to be bound by the terms of the contract. This was also made clear by the fact that Mrs Church did not respond to Discovery’s letter and text message of 10 September 2018, advising her that the policy had been cancelled with effect from 1 September 2018,” according to court arguments.
The appeal court came to the conclusion that it is beyond question that when Discovery wrote to Church on August 28 advising her that the policy would come to an end on October 1 and that her last premium would be payable on September 3, it was oblivious to the fact that she had instructed her bank not to pay this premium.
The court stated: “Mrs Church’s conduct in so doing, could be interpreted in no other way than that she no longer wished to remain bound by the terms of the policy. Come what may, she had no intention of honouring the terms of the policy which required her to give a month’s notice and thus to pay the premium for September 2018.
“Thus, one can accept that she had deliberately repudiated her policy.”
Grace period not applicable
The court also found that the usual 30-day grace period when people don’t pay premiums doesn’t apply here.
“In the present case, Mrs Church did not need reminding that her premium was unpaid. That it should not be paid, and that it should remain unpaid, was plainly her inferred intention as evinced by the conduct [of instructing her bank not to honour the debit order],” said the judge in his ruling.
Even the opposing counsel conceded in court that the grace period provision in the contract cannot exclude repudiation or mutual agreement by the parties to cancel the life policy.
The judge also pointed out that different individuals at Discovery communicated with Church about the matter and that she must have known the terms of the policy and the consequences of stopping the last premium as she was a professional woman assisted by a financial broker.
It is strange that lawyers believed – and that the high court initially ruled – that a life policy could be reinstated after the death of a client and without complying with the important requirement of a declaration of health.