An insurer assessing a life insurance claim may have valid reasons to defer its decision regarding payment to the beneficiaries until it obtains necessary information from third-party investigations, such as police officials. There is a rise in publicised cases of murder for insurance, and life insurers are right to defer payment in appropriate circumstances. However, the High Court ordered payment to a beneficiary under a life insurance policy, when payment had been deferred for four years.

The claimants were the sons and beneficiaries of the deceased, who was murdered in November 2020. They submitted a claim for the death benefits under the policy, which amounted to R400 000, to be shared equally between them. However, the insurer was informed by the SAPS during December 2020 to stop all insurance payments concerning the deceased, as their investigation revealed that the first claimant’s evidence during the police investigation did “not add up” in relation to whether the deceased was in or outside his vehicle when he was shot, and it was discovered that the first claimant had taken out policies on the life of his father.

In deferring payment, the insurer relied on a clause in the policy that reserved its right to investigate claims or await the outcome of third-party investigations and to defer its decision to admit or refuse a claim until such investigations are completed. 

By the time that the summary judgment application was heard, the  insurer had paid the capital amount to the claimants, including the second claimant’s interests and costs, but it maintained reliance upon the deferment clause in relation to the first claimant’s claim for interest from the date of demand in September 2022 and costs.

The court rejected reliance on the deferment clause.  A balance of the factors of delay, prejudice and fairness to both parties is needed when assessing whether a deferment of payment is justified.  The court found that the balance of fairness favoured the first claimant, who had been waiting for almost four years to receive payment, and that the delay was not reasonable especially since the insurer only followed up on the status of the police investigation after the application for summary judgment was made.

This judgment serves as a cautionary for insurers, even if their policies contain deferment clauses. While deferment may be valid in certain circumstances, payment should not be withheld indefinitely. Insurers have obligations to process claims within a reasonable time, such as in terms of policyholder protection rules, and should be proactive in following up on the outcome of any police investigations and conduct independent assessments of claims as far as possible. Reliance upon deferment clauses must be reasonable in the circumstances.

Basdeo v Discovery Life Limited (2024) Western Cape High Court case number 13781/2024