INSURANCE: Pension Funds Adjudicator Raps Insurer for Delaying
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Insurer Liberty Life Ltd has been taken to task by Pension Funds Adjudicator Charles Pillai for causing undue delay in the processing of ill-health early retirement benefit and the lower than expected amount that was paid out.
“It is not expected of an insurer or administrator of a retirement annuity fund to take more than six months to submit a claim form from its Benoni branch to its head office in Johannesburg.
“This delay can only be attributed to the negligence of the insurer’s employees who displayed a singular lack of care and diligence in this matter,” Pillai said in his determination.
The complainant Lalitha Nayager was a member of the Lifestyle Retirement Annuity Fund (first respondent) which was underwritten and administered by Liberty Life Ltd (second respondent).
She made application for an ill-health early retirement benefit on 30 January 2008 at Liberty’s branch office in Benoni. However, despite numerous enquiries at the branch the application was not processed.
The initial application form was only forwarded to head office in July 2008 and the complainant was requested to complete another application in September 2008.
The disability claim was assessed and admitted, and the complainant was paid on 31October 2008. The complainant complained about the delay in processing her
claim and the quantum of the benefit she received.
The adjudicator reviewed the submissions from the parties and found that the insurer was responsible for the delay in ensuring that the claim form was timeously transferred from its Benoni branch to its head office for assessment.
This amounted to maladministration of the fund by its administrator. The complainant suffered loss as a result of the maladministration because her market-linked investment had decreased in value due to the delay.
The complainant’s contributions commenced at R150 per month, escalating at 10 percent per annum on each contract anniversary date. She paid her last monthly contribution of R353.69 on 22 January 2008.
The second respondent sent reminder letters advising her of the unpaid contributions, but no further monthly contributions were received. The second respondent made the contract paid-up on 1 April 2008.
The complainant’s fund value immediately before the paid-up event was R64 704.82. A paid-up causal event charge of R1 512.77 was levied by the second respondent, reducing the complainant’s fund value on 1 April 2008 to R63 192.05.
However, before the causal event on 1 April 2008, the complainant had submitted a disability claim form to the second respondent dated 30 January 2008. It appears that this claim form was never acted on because a second disability claim form dated 8 September 2008 was also submitted to the second respondent.
A document titled “medical certificate for disability” was completed by the complainant’s doctor and dated 7 October 2008. The complainant’s ill-health early retirement application was assessed and approved on 21 October 2008.
An actuarial computation of the complainant’s early retirement benefit was confirmed on 23 October 2008; a tax directive from the South African Revenue Services (“SARS”) for “nil tax” was obtained on 27 October 2008 and the second respondent paid the complainant her ill-health early retirement benefit of R42 183.62 on 31 October 2008.
The complainant complains about the delays that occasioned her application for an ill-health early retirement benefit and about the quantum of the benefit that was paid to her, alleging that she is owed more than what was paid to her by the respondents.
The complainant submitted that she took seriously ill in October 2007. In December 2007 she visited the second respondent’s head office in Braamfontein. She was given an ill-health early retirement claim form to complete and was sent to the second respondent’s branch in Benoni. The complainant duly did so and was assisted by consultants at the branch as well as by the second respondent’s call centre.
The claim form was submitted on 30 January 2008, where after the complainant enquired on a regular basis about her application.
The second respondent’s representatives also informed her of the quantum of the benefit she could expect to receive. On one occasion the complainant was told that the consultant who had assisted her had not forwarded the claim form to the appropriate department. It appears that after further enquiries with the branch manager and the regional manager a claim was finally submitted to the second respondent’s head office.
According to the complainant on 3 November 2008 she became aware of the payment that was made by the respondents, at which time she again contacted the second respondent’s consultants to inform them about her unhappiness about the quantum thereof.
The first respondent’s principal officer responded to the complaint by attaching a response from the second respondent in reply to the complaint. He averred that for the reasons provided in the attached response, the complaint against the respondents should be dismissed.
The second respondent’s response contained copies of the complainant’s policy document, rules and letters. As regards the complaint, the second respondent firstly confirmed that it was a retirement annuity fund contract and that it was made paid-up due to non-receipt of contributions. The complainant was advised of this in writing.
The second respondent assessed an early retirement benefit based on the complainant’s disablement. At the time of the claim the second respondent determined that the complainant met the disability requirements. The paid-up value of the contract was settled.
The second respondent advised that the policy had an illustrative maturity value of R85 194 on 1 March 2012. However, as the contract was terminated early due to ill-health early retirement, the second respondent submitted that the illustrative maturity value no longer applied.
The second respondent averred that the complainant believes she is entitled to R85 194, whereas this amount was merely an illustrative value that may have been payable on maturity in 2012.
The second respondent advised that the complainant’s policy had an actual early retirement benefit value of R42 183.62 at the time of payment. There was no tax deductible on this lump sum benefit and the full amount was paid to the complainant.
As regards the delay in processing the complainant’s claim, the second respondent admitted that there were “some delays in the processing of the claim.” The second respondent proceeded to advise as follows:
“As a result of some issues in the branch during 2008, the claim was only submitted to the head office claims’ department in July 2008. The assessment process was delayed further by the assessors requiring declarations from the former employer and medical reports from attending specialist. These are standard requirements for the assessment of any Disability Benefit.
The disability claim (Early Retirement Benefit) was assessed and approved on 21/10/2008. The settlement went through on 31/10/2008 after receipt of the Tax Directive.”
The second respondent concluded by averring that the complainant believed she was entitled to a higher value than the actual value that was paid to her in October 2008. However, they verified that the amount paid to the complainant was in fact correct, so the complaint should be dismissed.
In his ruling, Pillai said that by the second respondent’s own admission, there were
“some issues” at its Benoni branch that resulted in the complainant’s claim being
submitted to its head office claims department only in July 2008. Thus, there was an
omission on the part of the second respondent’s employees to timeously submit the
complainant’s claim form to its head office for assessment. This omission on the part of
the second respondent’s employees resulted in the complainant suffering loss.
“The second respondent acts not only as the first respondent’s underwriting insurer, but also as its administrator. Therefore, the second respondent and its employees are bound by the provisions of section 2(a) of the Financial Institutions (Protection of Funds) Act, No. 28 of 2001, to observe the utmost good faith and exercise proper care and diligence over the funds it administers in respect of the first respondent.
“In the present complaint it is clear that the second respondent, through its employees, was aware of the complainant’s ill-health claim in December 2007 and that by 30 January 2008 she had submitted a claim form to the second respondent (this is the case because the second respondent acknowledged that its head office received a claim by July 2008, even though the second claim form was only submitted on 8 September 2008).
“Thus, there was a delay from 30 January 2008 to 8 September 2008 before the complainant’s claim could be properly assessed by the second respondent.
“The second respondent failed to explain the reason for the delay, but it admitted that there was a delay in its response dated 5 May 2009. It is not expected of an insurer or administrator of a retirement annuity fund to take over some six months to submit a claim form from its branch to its head office.
“This delay can only be attributed to the negligence of the second respondent’s employees, who displayed a singular lack of care and diligence in this matter.”
Pillai said that looking at the complainant’s investment values provided by the second respondent, the complainant would have received R67 755.29 on 1 May 2008. Instead the complainant received R42 183.62 at the calculation date of 23 October 2008.
As the second respondent explained, this was due to adverse stock market conditions, especially in October 2008. The complainant would not have suffered such a sharp decline in her investment value had her ill-health early retirement claim been processed timeously by the second respondent.
The quantum of her loss is the difference between her investment value on 1 May 2008, i.e. R67 755.29, and the amount that was paid to her on 30 October 2008, i.e. R42 183.62. This amounts to a loss of R25 571.67.
“The second respondent has acted contrary to its statutory duties, has caused the complainant to incur a loss in her investment value and as a result the second respondent, in its capacity as administrator of the first respondent, must compensate the complainant for her loss.”
Liberty Life Ltd was ordered to pay the complainant an amount of R25 571.67, less any deductions in terms of sections 37A and 37D of the Pension Funds Act, 1956, plus interest thereon at the rate of 15.5% per annum computed from 23 October 2008 to date of payment.
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