COMPLI-SERVE Compressed versions of FAIS Ombud determinations

“FAIS Ombud Determinations 2009”  
(The compressed versions of FAIS Ombud determinations are prepared to assist clients and other compliance professionals with the interpretation and application of key Ombud decisions. )

Michael Le Roux (Executor)

In his capacity as executor of Estate of Late
Ivan Nigel Grant Leighton (Complainant)

AND

Barons Belville a division of Barloworld SA
(Pty) Ltd (Respondent)

Date Issued  September 2009
Version  1.1; Complaint upheld
Please note: Any quotations from this text relate to actual comments made by the Ombud

1. Background

The late Mr Leighton purchased a new Volkswagen Chico from the respondent’s dealership on 20 October 2004. The transaction was financed through an instalmentsale agreement with Wesbank. The total amount financed was R79 492.32. The vehicle was delivered to his business premises by Ms Redelinghuys and Ms Williamson the same day. As the vehicle had been ordered telephonically and all information captured telephonically, this was the first time that Mr Leighton met Ms Redelinghuys and Ms Williams. Mrs Leighton and their son, Adam, joined Mr Leighton at this meeting.

During this meeting Ms Redelinghuys indicated that the financier, Wesbank, required a cession of any of Mr Leighton’s life policies to cover the outstanding debt in the
event of his death. Mr Leighton informed Ms Redelinghuys that he had two longstanding policies with an estimated value of R200 000, more than enough to cover the outstanding debt.

Ms Redelinghuys then allegedly informed Mr Leighton that the respondent could offer him a product that would cover Mr Leighton in the same manner, and in the event of his death, would pay out the sum assured. This policy was the Optimum Personal Debt Protection policy, underwritten by Guardrisk Insurance and administered through international Cover Administrators. Mr Leighton was then presented with a one page Optimum proposal form which was already completed and typed out by the
Barons Quotemaster system and had all relevant information pertaining to Mr Leighton.

Mr Leighton then signed the proposal form and the finance agreement. According to Mrs Leighton, no copies of the signed documentation or any other record of the
transaction were left for Mr Leighton. No further communication was received by Mr Leighton from Ms Redelinghuys or Ms Williams regarding the transaction.
Mr Leighton passed away on 30 November 2007. The cause of death, as reflected on the death certificate, was “Carcinoma Thyroid”. Mr Leighton had previously been
diagnosed with thyroid cancer in July 1997 and after surgery and treatment, had been clear since February 1998. Mr Leighton had been re-diagnosed with thyroid
cancer in October 2005 and was declared “medically disabled with no recovery”. Mr Leighton’s son, Adam called Wesbank in order to cancel the debit order so that
the ceded policy could settle the debt. Wesbank advised that they had no record of such a policy and that Adam should contact the respondent directly. Adam then
called the respondent and requested to speak to either Ms Redelinghuys or Ms Williams but was informed that they had since left the employ of the dealership. The
respondent’s finance department then confirmed existence of the policy and faxed a copy of the proposal form to Adam. The claim was forwarded to International Cover
Administrators on 10 December 2007. On 14 December 2007, Mrs Leighton enquired form ICA when she could expect settlement of the outstanding debt owed to
Wesbank. Mrs Leighton also enquired when the balance of the insured amount would be paid into her bank account. Mrs Leighton was informed that if the claim was
honoured, ICA would only settle the outstanding debt and that there would be no other amount paid to her. Mrs Leighton was then referred to the terms and
conditions and declarations of the policy. When she informed ICA that they had not received these documents, ICA e-mailed an internet link for her to download same.
Upon perusal of the downloaded document, Mrs Leighton realized that Mr Leighton would not have qualified for cover under clauses 2 and 4 of the policy.
Clause 2 states: I have not received any treatment from any doctor during the past 12 months or been hospitalized nor undergone hospital treatment and, save for
routine checkups, have had no specialist investigation during the past 5 years and have never suffered from any form of disability or heart disease, stroke, cancer or kidney disease.

As stated previously Mr Leighton had previously been diagnosed with thyroid cancer in July 1997.

Clause 4 states: I am aware that a redundancy/retrenchment claim will not be paid during temporary or part-time employment and that self employment is excluded from cover under the policy.

At the time the vehicle was purchased, Mr Leighton was self employed. On 11 January 2008, Mrs Leighton was informed that the claim had been rejected on
the basis that clause 2 had not been complied with and that an appropriate return of premium would be refunded. Nothing was said about clause 4, which, according to
complainant would also have rendered the policy inappropriate to Mr Leighton’s circumstances.  

2. Complainant’s case

Complainant is claiming R66 270 being the total sum assured; on the basis that the respondent had failed to inform Mr Leighton that this policy would only settle the
amount owed to Wesbank. The complainant avers that the respondent had led Mr Leighton to believe that the sum insured would be paid out to settle any monies owed to Wesbank and that the surplus would in fact be paid out to his estate.  

3. Respondent’s case

The respondent stated that where a transaction takes place at the offices of Barloworld, a needs analysis is undertaken and as each insurance policy is discussed
and a recommendation made, this information is captured on the system. At the completion of the discussion, a full analysis and proposal is printed together with all
the policy documents. The proposal and confirmation of understanding is signed and the policy documents handed to the customer.

Where the meeting takes place away from the offices of Barloworld, the adviser will print the full complement of documents for a variety of transactions and will make

use of the documents which satisfy the needs of the customer. In the case of Mr Leighton, it was this latter procedure that was adopted. 
The meeting took place at Mr Leighton’s restaurant on 20 October 2004. The respondent proceeded to offer various debt protector policies, including the policy
which would provide benefits in the event of death. All relevant terms and conditions were explained. Having discussed each policy cover in considerable depth, the customer asked the adviser to arrange certain cover.

In consideration of this, the adviser requested the customer to read and sign the declaration and proposal and took great care in ensuring that the customer properly read and understood what was in the document, which was prepared in plain language and printed in reasonably large font.

On completion of the transaction, the policy document was handed to the customer. The signed proposal and declaration was placed in the adviser’s file.

According to the respondent, based on the above, the complainant’s allegations were groundless. The respondent however, did not attach any supporting documentation. In its response, the respondent advises that it does not have a written record of advice.  

4. The issues

1. Was the financial service rendered in compliance with the FAIS Act and the General Code of Conduct?

2. In the event it is found that the services were rendered in violation of the FAIS Act and the Code did such violation occasion complainant’s loss?

5. The determination

Section 2 of the FAIS General Code of Conduct stipulates that an FSP must at all times render financial services honestly, fairly with due skill, care and diligence, and
in the interests of clients and the integrity of the financial services industry. Section 8(1) (a) and (b) of the FAIS General Code of Conduct stipulates that a
FSP other than a direct marketer must, prior to providing a client with advice take reasonable steps to seek from the client appropriate and available information
regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice and conduct an analysis, for purposes of advice, based on the information obtained.

Section 9 of the FAIS General Code of Conduct stipulates that a FSP must maintain a record of advice which must reflect the basis on which the advice was given.

Section 7 of the FAIS General Code of Conduct provides that a FSP must provide a reasonable and appropriate general explanation of the nature and material terms
of the relevant contract or transaction to a client and whenever reasonable and appropriate, provide to the client any material contractual information in the
possession of the provider. The FSP must also provide appropriate information of the nature and extent of the benefits to be provided, any exclusions of liability and restrictions or circumstances in which benefits will not be provided.

In order to demonstrate compliance with the above, a FSP is required in terms of Section 3(2)(a)(i) of the FAIS General Code of Conduct to have appropriate procedures and systems in place to record such verbal and written communications relating to a financial service rendered to a client.  Other than the proposal form, the affidavit and the specimen of the Personal Debt Protection declaration, drawn from the website by respondent, the ombud’s office was not furnished with any other document in relation to this matter to support the respondent’s contention that it complied with the FAIS Act and the Code whilst rendering the financial service. The ombud found that the requirement to act with due skill, care and diligence includes the ability to seek from the client pertinent information which would justify the decision to recommend a particular product. The
ombud further found that had Ms Redelinghuys applied her mind, it would have been clear that the income that Mr Leighton relied on for the application for credit comes from self employment. Redelinghuys, in her affidavit, admits that she delivered Mr Leighton’s vehicle at his restaurant, during which visit, the paperwork for the transaction was finalised. It would thus be incorrect to say that Mr Leighton failed to disclose that he was self employed as that information would have formed part of the credit application approval process, which Redelinghuys herself handled. What occurred here is that Redelinghuys failed to apply her mind to the situation and therefore failed to advise the client appropriately. Had she done so, she would immediately have realised that the product was inappropriate to Mr Leighton’s circumstances.

The ombud found that as there is no proof that any of the material terms of the contract were disclosed to Mr Leighton, the probabilities favour the complainant’s version that the product was sold to them as a normal life cover and not properly disclosed to Mr Leighton that this policy provides decreasing life cover, in line with outstanding indebtedness due to Wesbank in terms of the instalment sale agreement. The above all serve to indicate that Mr Leighton was not put in the position to make an informed decision.

The ombud found that the respondent had not maintained a record of advice reflecting the basis on which the advice was given. The affidavit is not a valid record of advice and therefore cannot be accepted as such. The record of advice is often the sole piece of evidence to shed light on what actually happened at the time. The ombud found that the financial service was rendered in violation of the FAIS Act and the FAIS General Code of Conduct. The ombud found that the loss is the outstanding balance on the debt due to Wesbank as at date of Mr Leighton’s death. According to Wesbank, the outstanding balance at date of Mr Leighton’s death was R27 265.86.

The complaint is therefore upheld.