- An insurer paid a policyholder a fixed 10 percent annual increase on income protection benefits for 11 years before later saying the payments were a system error.
- The National Financial Ombud ruled in favour of the policyholder, but an appeal tribunal later found the policy only allowed increases linked to the Consumer Price Index, capped at 10 percent.
- This case shows why it’s important for consumers to read insurance policies carefully and challenge any differences as soon as they appear.
A man who received annual 10 percent increases on his income protection benefit for more than a decade lost his fight to keep those increases after an appeal tribunal ruled that the insurer had been paying him incorrectly.
The case, featured in the National Financial Ombud (NFO)’s annual report, shows how unclear policy wording can create very different interpretations of an insurance contract. It also highlights that long-standing payment practices do not necessarily change what a contract legally provides.
More than a decade of annual increases
“Mr G” took out an income protection policy in February 2007. The policy started two months later and promised to pay him R45 000 a month if illness left him unable to work. He became ill shortly afterwards, submitted a claim, and started receiving benefits in July 2008. Every year after that, the insurer increased his monthly benefit by a fixed 10 percent.
That continued without interruption for 11 years. Then, in 2019, the insurer told “Mr G” that the annual increases had been made by mistake. The insurer said the policy did not guarantee a fixed 10 percent increase. Instead, it argued that increases after a claim were meant to follow the Consumer Price Index, with a maximum increase of 10 percent a year. “Mr G” took the dispute to the National Financial Ombud.
Ombud rules in the policyholder’s favour
The dispute centred on conflicting wording in the insurance policy. An independent legal opinion looked at the doctrine of quasi-mutual assent, also called the reliance theory, and the legal principle of contra proferentem, which says unclear contracts should be interpreted against the party that wrote them.
The Ombud found that “Mr G” had every reason to believe he was entitled to a fixed 10 percent increase. The quotation referred to a 10 percent increase, the policy used similar words, and the insurer had paid the increases consistently for over a decade.
The Ombud ruled that the insurer had to keep paying the fixed annual increases because any uncertainty in the contract had to be read in the customer’s favour. The insurer appealed the Ombud's decision.
Appeal tribunal comes to a different conclusion
Although the appeal tribunal agreed that the policy wording was poorly drafted, it found that the contract, when read as a whole, supported the insurer's interpretation. The tribunal said the policy distinguished between voluntary benefit increases before a claim, which required the policyholder to pay higher premiums, and increases paid after a successful claim.
It found that post-claim increases were intended to protect the value of the benefit against inflation by following the Consumer Price Index (CPI), subject to a maximum annual increase of 10%, rather than guarantee a fixed 10% increase every year.
The tribunal also found that the insurer's payments over the previous 11 years resulted from a system error and did not change the parties' contractual rights. The appeal was upheld, meaning the client's future benefit increases would be linked to CPI, capped at 10%.
However, the insurer did not seek to recover the additional money already paid to Mr G. It also agreed to calculate future CPI increases using the higher benefit amount that resulted from the earlier payments, leaving him better off than he would otherwise have been.
Ombud urges consumers to stay alert
Denise Gabriels, Lead Ombud of the NFO’s Life Insurance Division, said consumers should not assume that long-standing payment practices are always correct.
Consumers must protect themselves by reading carefully, documenting promises, monitoring payouts and challenging differences early. Trust is important, but in insurance, vigilance is essential.
She encouraged consumers to read policy wording carefully, get important promises in writing, seek professional advice when needed, and raise concerns as soon as they notice any differences between their policy and what is being paid.
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