Adjudicating complaints by reference to principles of equity - PowerPoint Presentation

Slide1

Adjudicating complaints by reference to principles of equity: the perspective of the office of the Ombudsman for Long-term Insurance

Sue Myrdal

Assistant

OmbudsmanSlide2

OVERVIEWTwo scenarios – equity case examples

Ombudsman Rules

Our

equity jurisdiction

Common misconceptions about our equity/fairness jurisdiction

Equity and late submission

More

case examples

Pension Funds ActSlide3

TWO SCENARIOSCR242

P’holder

had one of her kidneys transplanted to her brother – claimed

sickness

benefit for month off

work

Insurer rejected on grounds of exception in policy:

No benefit payable if sickness intentionally self-inflected or intentionally self-induced

Our view: in these exceptional circumstances a literal interpretation could produce disquieting results

Equity considered: would a reasonable person regard it as fair and just that the claim be rejected?

No. Made equity rulingSlide4

Newsletter case: Complainant

hospitalised

with staphylococcal septicemia

 multiple organ

failure

In

hospital for 25 days

Policy would pay if insured had infectious disease causing “

at least one month of acute

hospitalisation

”

Claim declined: < 1 month in hospitalSlide5

Ruling:Complainant required hospital care, but immuno-compromise meant hospital a greater risk

This was a complication of his condition



sent home with hospital-type care for several more weeks

Repudiation of claim was “Snatching at the bargain” and unreasonable

Claim to be paid, on basis of equity

[Could also be seen as a tacit term that complainant’s situation covered by requiring “

at least one month of acute

hospitalisation

”]Slide6

OMBUDSMAN RULESRule 1The

mission

of the Ombudsman is to receive and consider complaints against subscribing members and to resolve such complaints through mediation, conciliation, recommendation or determinationSlide7

Rule 3Determination may be decline to consider

uphold complaint, wholly or in part

dismiss

make ruling of procedural or evidentiary natureSlide8

Rule 3award compensation (irrespective of whether complaint dismissed or upheld)

order payment of

interest

order insurer to take/refrain from taking any such action in regard to disposal of a specific complaint as Ombudsman may deem

necessary

issue a declaratory orderSlide9

Decisions are binding in respect of insurersComplainant may institute legal proceedings if unhappy with result in Ombudsman office, insurer may not (unless complainant appeals and loses)Rules also provide for hearings to determine disputes of fact, appeals, etc.Slide10

Our office has had equity jurisdiction since 1998 – by agreement with subscribers (insurers)FSOS Act, 2004, stipulates that an Ombud scheme must have procedures enabling the application, where appropriate, of principles of equity in resolving a complaintSlide11

Our Rules – incorporate sense of equityRule 1.2.2 follow informal, fair and cost effective procedures

Rule 1.2.3 keep in balance the scale between complainants and subscribing members

Rule 1.2.4

accord due weight to considerations of equity

Rule 1.2.7 ensure subscribing members act with fairness and with due regard to both the letter and the spirit of the contractSlide12

OUR EQUITY JURISDICTIONWhat is equity/fairness?

Lord Steyn: “

in contract law effect should be given to the reasonable expectations of honest men

.”

Reactions such as “

it cannot be right

”, “

it goes against the grain

”, “

there must be another solution

”, or “

it is not cricket

” – pay attention!

Aim:

to see that justice is done

To avoid technical

defences

trumping the requirements of justice in an individual caseSlide13

In the first instance, apply the law.Only whenlegal position unclear, or

i

f clear, strict application will act harshly against complainant

t

hat there is scope to rely on equity in resolving a disputeSlide14

Solutions by way of following not equity, but law:•

Contra

proferentem

(when ambiguous terms)

• Unconstitutional

terms

• Against

public policy

• If the law (contract/rules) provides for insurer [trustees/fund] to exercise a discretion

eg

- determine whether disabled

- [distribute death benefits equitably]

Ombudsman/Adjudicator will have to consider equity, but (if substitutes decision) will be on basis of contract/rules, not equity jurisdictionSlide15

Discretion must be exercised judicially, ie take account in an objective and reasonable manner relevant considerations

ignore irrelevant considerations

View of our office:

An objectively reasonable decision may be substituted for an unreasonable oneSlide16

Equity is not a charm to conjure up when the Ombudsman feels sorry for a complainantRight to accord due weight to equity is not a licence to act in unprincipled manner

Power must not be used arbitrarily or indiscriminately

Should be employed sparinglySlide17

We need to consider equity in both process and outcomeNeed to ensure that the outcome is not negatively influenced by age, level of financial sophistication, language ability or economic circumstancesSlide18

Equity in processOmbudsman office can help with “equality of arms” ie. raise arguments not raised by less powerful party

BUT of course all arguments must be put to the other side

Requires

investigation

Asking

questions, not just relying on the submissions of the parties

May

involve obtaining input from third partiesSlide19

Often there is disagreement about equityRulings on equity not made except by decision of full adjudicators meetingBut

individual adjudicators

may persuade insurers of equitable approach in cases then not requiring a ruling – conciliation

In this sense, we “do” equity every

daySlide20

COMMON MISCONCEPTIONS ABOUT OUR EQUITY/FAIRNESS JURISDICTIONthat it is restricted to the application of legal principles

that it cannot be applied outside of the contractual terms

that we can only apply it where the insurer has done something “wrong”

that an equity decision sets a precedent

that a ‘template’ can be developed for the application of equitySlide21

COMMON MISCONCEPTIONS ABOUT OUR EQUITY/FAIRNESS JURISDICTIONthat equity can only be applied to a practice or a provision that is against public policy

t

hat applying the

contra

proferentum

rule equates to equity by giving the complainant the “benefit of the doubt”

t

hat ‘prejudice’ to the insurer or other policyholders means that we cannot apply equity

that treating everyone exactly the same always means that the insurer is acting fairlySlide22

EQUITY AND LATE SUBMISSIONClaim submitted outside contractual time limitsOur approach

:

Starting point: A clause in a policy requiring a claim to be lodged within a stipulated period is not in itself objectionable as grossly unreasonable or against public policySlide23

Could be unqualified “guillotine” clauseorAllow for some discretionReliance on a

guillotine

clause same as a

defence

based on extinctive

prescription - will

in principle be enforced by the office

Exception

: if fairness to both parties requires we exercise our equity jurisdiction in

favour

of the complainantSlide24

Relevant circumstances to take into account in balancing the equities:complaint only a fraction late

i

nsurer aware, within time limit, that complainant seriously intended to claim, but formalities only complied with after prescribed period elapsed

complainant not to blame for the delay –

eg

in coma, serious accident/illness, could not reasonably apply mind, or uncertainty re when notice period commenced (disability claims)Slide25

delay largely due to insurer itselfInsurer not significantly prejudiced

Factors elastic and complementary

eg

significant delay in lodging claim may be shored up by a very compelling explanation for the delay, and

vice versa

We uphold insurer’s reliance on time limits in majority of complaintsSlide26

CR336Funeral benefit – 12 month limit to claim

Complainant’s daughter died in car accident in January

2010

Mother submitted claim in November 2011 – 10 months late

Her reason for delay:

Admitted to hospital with major depression from moment she heard of her daughter’s gruesome death – furnished medical reports in support of this

No

prejudice shown by

insurer

→ Ruling on

basis of equity – claim must be paid

Slide27

Case 12/2013 Final determination against Old MutualFacts: Time limit to lodge disability claim:

within 4 weeks after 3 month waiting period

Complainant diagnosed with TB and antiretroviral disease

Employer gave 4 months sick leave from 1 July 2007 – to get treatment. Prognosis deemed fair, expected to return to work

Returned

4 months later, but struggled

July 2008 – doctors declared her permanently disabled – claim lodged by employer August 2008Slide28

Insurer’s arguments:employer was negligent, should have lodged claim within four weeks after 3 month waiting period, calculated from 1 July 2007 (last day at work)

no fault on insurer’s part

circumstances not unique, if late notice clause waived for this claim → c

lause ineffectual

prejudice to insurer

not fair to insurer – declined in accordance with express provisions of the policy

not fair to other life assuredsSlide29

Ruling:Employer’s argument: prior to lodgment the complainant was not considered disabled, expected to make full recovery – good reason for delay

Equity exercised on case by case basis, not bound by previous decisions – no precedent

Insurer had not demonstrated

specific

prejudice

Date of disability not certain

Prospects of success on the merits goodSlide30

Contractual terms not in principle unfair/unreasonable/ contrary to public policy – but can in given circumstances result in an unjust hardship

The very purpose of equity jurisdiction is to enable us to depart from the express terms of contract when they result in an unjust hardship

Took into account the prejudice to the insurer

• could not be the overriding factor

• outweighed by unjust hardship to complainant

→ Ruling: claim must be assessedSlide31

S30I Time limit for lodging of complaintsThe Adjudicator shall not investigate a complaint if the act or omission to which it relates occurred more than three years before the date on which the complaint is received by him or her in writing

The provisions of the Prescription Act, 1969, relating to a debt apply in respect of the calculation of the three year period referred to in subsection (1)Slide32

CR343Disability claim on psychiatric grounds declined in 2003

Insurer said that according to medical information insured had responded well to treatment, further improvement likely

Complaint lodged 8 years later

Insurer defended on basis of prescriptionSlide33

Medical information available in 2003:Hospitalised for depression and psychotic symptoms in 1998

3 psychiatrists said dysfunctional, poor prognosis, chronic PTSD, psychosis, etc.

Discharged from police for medical unfitnessSlide34

Complainant’s explanation for delay:“the circumstances boggled my mind and aggravated my condition and thus I could not function as a normal person because everything was sent to the insurer and the reason for the non-payment is/was unjustified”Slide35

He tried again in 2010 – insurer treated as a new claimHe provided letters from hospitals certifying schizophrenia, etc.

In 2011 insurer told him his cover had ended in 2002 (premiums ceased) so no claim could be assessed

He tried to argue – they raised prescriptionSlide36

We found there was no doubt he was disabled in 2002 – insurer’s 2003 decision had been incorrectWe asked what prejudice insurer would suffer if claim admitted on equity basis

Insurer decided to pay claimSlide37

MORE CASE EXAMPLESCR352Insured had continuous life cover with insurer for 21 years, under 3 policies – total sum assured of R6 million

In March 2011 he applied for a replacement policy, and the three old policies were terminated – sum assured R1 million

Reason for replacement: “by changing to a new generation product, the cover rates are greatly reduced”.Slide38

Almost a year later, on 31 March 2012, he committed suicideInsurer repudiated death claim, relying on standard two- year suicide exclusion clauseSlide39

We asked ASISA for industry views. Mixed : some insurers would rely on exclusion; some would apply “rule of continuous risk”; some said no general rule, would look at merits of each case individually

We pointed out to the insurer that the insured had had uninterrupted life cover for 21 years; also risk to insurer much reduced (R6 million to R1 million)

→ Recommended payment on basis of equity – insurer agreedSlide40

CR344Complainant had credit card balance protection policy

Was employed as farm manager by a family trust

Retrenched, and submitted retrenchment claim

Insurer repudiated on grounds of exclusion: not liable to pay “

if life assured is self-employed or employed within a family-owned

business

”

Complainant

argued the family trust was a separate legal entity – trust owned the business, not his familySlide41

We called for the trust deed – showed the complainant was the founder of the trust, a trustee and a beneficiaryWe noted:Trust ran a business with the object of making a profit in order to benefit the trust beneficiaries

In law, a trust not a separate legal person; trust unable to perform juristic acts; these are performed on behalf of the trust by the trustees

In the complainant’s family trust, no true segregation between him as family member and affairs of trust. Family in full control of trust businessSlide42

As trustee, the complainant had full control over the insured event (the retrenchment)In the particular circumstances, on the basis of equity towards the insurer, the family trust had to be interpreted as being a “family owned business”

→ Exclusion therefore applicableSlide43

PENSION FUNDS ACTS30D Main object of AdjudicatorThe main object of the Adjudicator shall be to dispose of complaints …

(2) In disposing of complaints … the Adjudicator must

apply, where appropriate, principles of equity

have regard to the contractual legal relationship or

o

ther legal relationship between the complainant and any financial institution

have regard to the provisions of this Act; and

act in a procedurally fair, economical and expeditious mannerSlide44

S30E Disposal of complaintsIn order to achieve his/or her main object, the Adjudicator -

Shall, subject to paragraph (b), investigate any complaint and may make the order which any court of law may make;

May, if it is expedient and prior to investigating a complaint … [require complainant to first approach pension fund dispute resolution organization approved by Regulations]Slide45

S30J Procedure for conducting investigationThe Adjudicator may follow any procedure which he or she considers appropriate in conducting an investigation, including procedures in an inquisitorial mannerSlide46

Need to create environment to be able to “apply, where appropriate, principles of equity”Make funds aware of equity jurisdiction?

Contingency funds held by fund for equity rulings?

More scope for in-house conciliation – reaching of settlements?

TCF

Complaints management framework for funds (duty imposed by draft notices)Slide47

THANK YOU