Law firm fights loss of life cover

• Richard Spoor Attorneys alleges Constantia Insurance’s ‘unilaterally’ cancelled more than 5,000 policies

Richard Spoor Attorneys has launched an application at the Financial Services Tribunal to review the decision by the Prudential Authority to allow Constantia Insurance to cancel more than 5,000 life policies.

Richard Spoor Attorneys has launched an application at the Financial Services Tribunal to review the decision by the Prudential Authority (PA) to allow Constantia Insurance to cancel more than 5,000 life policies. That took place after the insurer converted its licence from a short-term to a non-life insurer due to changes in legislation.

The law firm, which has made a name for itself representing communities in classaction law suits — including landmark litigation against mining companies whose workers suffered silicosis-related health issues — is representing eight policyholders whose life policies were cancelled by Constantia Insurance. The firm also has a power of attorney mandate to represent an additional 102 policyholders who had life policies with Constantia Insurance that were cancelled.

“Constantia have admitted that the policies were loss-making. However, this is not a justifiable reason to cancel life policies, seemingly under the guise of complying with a new legislative dispensation,” Sonam Mansingh, an associate attorney at Richard Spoor Inc, told Business Day.

According to the law firm, Constantia Insurance began notifying 5,427 policyholders in early 2020 that it would be cancelling their Prime Living Cover Grow and Living Legacy policies, which were previously registered under the Short-Term Insurance Act. The reason for the cancellation was that Constantia Insurance was converting its licence to a non-life insurer in terms of the new Insurance Act of 2017, meaning it would no longer be able to continue providing life policies.

Mansingh said Constantia allegedly assured the policyholders that they need not be concerned as they would be contacted to discuss an alternative insurance solution. However, they were offered policies that did not provide the same level of cover as they had under the original policies.

Those who did not want the alternative policies were unable to secure comparable life cover from other insurers because of their age and health.

“The policyholders are mostly elderly and vulnerable persons with serious pre-existing conditions,” says Mansingh.

“They held these policies for years and then suddenly had them cancelled only to be offered a different policy, which was not what they originally signed up for.”

Mansingh says what is more galling is that Constantia Insurance aggressively marketed its Living Legacy policy between 2010 and 2015 and the Cover Grow policy between 2015 and 2018 using telesales channels. She says the policies were sold on the pretext that they would provide lifelong cover at fixed premiums.

“These policies were designed to cater for lower- and middle-income earners with pre-existing illnesses looking to protect their families in the event of an unexpected death through accident or illness,” she says.

“One of the applicants is a 67year-old, stage 4 cancer patient who was paying R745 per month for R2m in life cover.”

The crux of the issue appears to stem from regulatory changes that occurred after parts of the short-term insurance and longterm insurance acts were repealed in 2017 and replaced by the new Insurance Act, which took effect on July 1 2018. It required all insurers to register under the new act, which allowed them to be licensed to conduct either life or non-life insurance business, effectively stopping them from providing both forms of cover.

The PA released a seven-step conversion process for insurers to convert their licences to either a life or non-life business, but Richard Spoor Inc alleges that Constantia Insurance opted to “unilaterally cancel” the affected policies before the conversion process was finalised. It alleges that Constantia Insurance failed to disclose this to the PA, prompting Hermione Nell and 73 others to launch an application in the high court to declare the cancellation unlawful.

The court ruled in June 2020 that the cover provided to policyholders had to remain in place. However, the PA instructed Constantia Insurance the next month to offer replacement policies providing cover for personal accidental death and extended funeral benefits. Richard Spoor Inc argues that the replacement policies substantially reduced the benefits to policyholders.

The challenge by Richard Spoor Inc is scheduled to be heard on October 15 by the Financial Services Tribunal. The tribunal has limited powers to force any changes and can only refer the matter back to the PA. Mansingh says that should the tribunal find against the challenge, it will either take the matter back to the high court or consider launching a classaction lawsuit.

Sean Riskowitz, the CEO of Conduit Capital, which owns Constantia Insurance, declined to comment on the record when contacted by Business Day. However, he later forwarded a statement on WhatsApp from Constantia Insurance.

“Constantia has continued to take guidance from the PA regarding the policies that were exclusively sold by Prime Meridian Direct, an independent third-party broker,” it read.

“Throughout this, we have been clear that our principal focus was (and is) about operating strictly within the regulatory guidelines. We will continue to do so. Given that the matter is currently pending before a tribunal, we would not be able to comment further as it would be inappropriate for us to do so.”

THE POLICIES WERE SOLD ON THE PRETEXT THAT THEY WOULD PROVIDE LIFELONG COVER