Ombudsman orders Regent Life to pay funeral claim

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Regent Life Insurance declined to pay a funeral claim on the ground that cover had ceased when the life insured reached 21 years.

The sister of the insured complained to the Ombudsman for Long-term Insurance. She said she had taken out a funeral policy and covered her brother as an Extended Family member three months before he turned 21.

However, unbeknown to her, her brother's cover was removed when he turned 21 without her being notified or being given the opportunity to cover her brother at an increased premium. The brother died from stab wounds 16 months after cover had commenced.

Unusual provision

The Ombudsman found it unusual for an Extended Family member's cover to be terminated at age 21 and noted that the application form did not refer to this unexpected provision.

The Ombudsman's office had never come across such a term and, upon enquiry, could not find any other insurer that had a similar policy provision. The Ombudsman was also of the view that on actual termination of the cover, the insurer should have alerted the policyholder.

The insurer responded that:

• the broker should have alerted the policyholder to the clause in the policy terminating cover at 21;
  
• the policy schedules alerted the policyholder to the duration of cover and when a renewal letter was sent out after the termination of cover, the brother was no longer reflected as a life insured; and
  
• it was not an obligation for the insurer to offer further cover for the brother. The policyholder could apply if she wanted to extend the cover.

The Ombudsman considered the above but issued a ruling against the insurer on the basis that an insurer that had an unusual or unexpected term in its policy, had a duty to clearly highlight the term.

The duty to highlight an unusual provision did not lie solely with the intermediary but rested, in the first instance, with the insurer, the Ombudsman said. The application form was part of the contract and should, therefore, have clearly highlighted that cover for Extended Family members under the age of 21 ceased at age 21.

No restriction

"While the application form mentions the maximum age limit for children covered as Immediate Family members, no restriction is mentioned for children under the Extended Family cover. The only restriction mentioned for Extended Family members was the maximum entry age," Judge Ron McLaren, Ombudsman for Long-term Insurance, said.

"While it is possible that the broker may also have fallen short in his duties, the application form did not highlight the unusual provision and it is the insurer's liability in this respect that was under determination."

The Ombudsman further noted that nothing was done to inform the policyholder when the member's cover was terminated. The policyholder could have been asked whether she wished to continue cover for her brother at an increased premium.

The Ombudsman ruled that the insurer had to reassess the claim and that any additional premium payable was to be deducted from the claim amount. The insurer complied.