Life insurance claim denied: A cautionary tale of misrepresentation

NOT disclosing all the material details when applying for a life insurance policy can have a dire effect, as a KwaZulu Natal woman discovered after she had lost out on R6 million as the beneficiary of her late mother’s policy, but it had emerged that the mother did not disclose all when she applied for the policy.

Viantha Naidoo turned to the high court sitting in Durban after Discovery Life refused to pay the R6 million. The policy was taken by her late mother, Sandra Naidoo, who died of natural causes.

Upon the death of Sandra Naidoo, the plaintiff sought payment from Discovery in accordance with the contractual terms of the policy. However, Discovery notified her that the claim was rejected.

According to Discovery, the contract was declared void because Sandra Naidoo misrepresented her income in her application, stating that she earned R35,000 per month as a supervisor at Shoprite Checkers, Chatsworth. Instead, it was said that her gross income earned was only R5,455,89 per month. In addition, Discovery said she also did not disclose to it a simultaneous application for life insurance with another insurer, Old Mutual.

Discovery, meanwhile, canceled the insurance contract and retained the premiums paid as a penalty. It maintained that the plaintiff was not entitled to any benefits under the policy, as her mother was not entirely truthful. It said the warranty in the application form required all information to be true and correct, and for all material information to be disclosed to Discovery. The warranty further stipulated that any benefits would be voided in the event of a breach.

Discovery argued that had it known the true facts, it would have either not issued the policy on the terms it did, or possibly not at all.

The plaintiff, on the other hand, submitted that her mother was employed by Checkers at the relevant time of contracting with Discovery, but that her total income was far in excess of her monthly salary from Checkers. She said her mother had an additional income derived from other sources, such as selling cosmetics, and that she thus did not lie about her income.

The evidence of the plaintiff was largely based on recollections of what she had known of her late mother’s earnings and predominantly hearsay evidence of her mother’s financial affairs. Discovery, on the other hand, obtained the actual financial statements of the late Sandra Naidoo as well as copies of her salary slips during the period of her employment at Checkers.

Discovery’s position is that had the deceased properly disclosed her salary from Shoprite Checkers, it would not have offered the life cover amount that it did. 

It further said had she disclosed her simultaneous application for life cover with Old Mutual, Discovery would have provided her with significantly lower life cover (based on the fact that she had already succeeded in obtaining cover with Old Mutual). 

It may have decided not to offer her any cover at all on the basis that she was covered to the fullest extent, based on her age and verifiable income, the insurer said.

It emerged that Old Mutual, in fact, did honour its policy and paid the plaintiff a significant amount. Judge Mahendra Chetty, in turning down the claim, said on the evidence, the only income that was verifiable was that from the deceased’s employment at Checkers. 

He found that the deceased had misrepresented her true earnings. He also found that she had omitted to disclose to Discovery that she also had a life insurance with Old Mutual at the same time.