A case recorded in the National Financial Ombud Scheme’s 2025 annual report shows how a dispute over policy wording, longstanding payment practice, and contractual interpretation can produce different outcomes at ombud and appeal level.
The matter concerned an income protection policy under which the policyholder claimed he was entitled to a fixed annual increase of 10% to the benefit once the claim was in payment. The insurer maintained that post-claim increases were limited to inflation, measured by the Consumer Price Index (CPI), and capped at 10%.
Mr G applied for an income protection policy on 1 February 2007, which started on 1 April 2007, providing a monthly benefit of R45 000. He chose a 5% compulsory annual premium increase and a 10% voluntary annual benefit increase.
The policy stipulated that once a claim began, benefit increases of 10% a year would apply, limited to CPI. Mr G became ill in July 2007, and his claim was approved, with the first payment made on 22 July 2008.
From 2008 to 2019, the insurer paid Mr G a fixed 10% annual increase. It then claimed that the benefit should increase by CPI, limited to 10%, and the 10% increase was because of a system error. The insurer did not seek to recover the overpaid amounts.
Life Division finds for the policyholder
The NFO’s Life Division obtained an independent legal opinion addressing both quasi-mutual assent (reliance theory) and the contra proferentem rule as alternative grounds for holding the insurer liable to pay Mr G a 10% annual benefit increase.
(Contra proferentem is a contract-interpretation rule that says if a contract term is ambiguous, a court will interpret it against the party who drafted the contract. In plain English: the drafter usually bears the risk of unclear wording.)
Under the reliance theory, the quotation explicitly reflected a 10% benefit increase without any limitation to CPI. This, together with policy references to a 10% increase and the insurer’s consistent payment of a 10% annual increase over many years, made it reasonable for Mr G to believe he was entitled to a fixed 10% increase during a claim.
Although the insurer argued it intended only CPI-linked increases capped at 10%, the Division concluded that Mr G was entitled to rely on the insurer’s undertaking and impression created over many years.
Alternatively, it found that the policy wording was ambiguous. One sentence promised a 10% annual increase, while the next limited increases to CPI, creating a contradiction that could not be reconciled. Applying the contra proferentem rule, the ambiguity had to be interpreted in favour of Mr G as the non-drafter. The insurer’s conduct in paying a 10% increase for 11 years further supported this interpretation.
The insurer rejected the provisional ruling, arguing that neither quasi-mutual assent nor contra proferentem applied when the policy documents were read as a whole.
The Division concluded that the insurer had not presented a substantive counter-argument to overturn the provisional ruling. As a result, the provisional ruling was confirmed as the final ruling.
The insurer applied for leave to appeal, which was granted.
Appeal Tribunal reaches a different interpretation
The Appeal Tribunal reconsidered the policy wording relating to voluntary benefit amount increases and the clause dealing with post-claim benefit increases. It accepted the insurer’s argument that voluntary benefit amount increases applied only to pre-claim increases in the insured benefit amount, linked to higher premiums, and were distinct from increases to benefits once a claim was in payment.
The Tribunal acknowledged that the contentious clause dealing with post-claim increases was poorly drafted and prima facie ambiguous, because it referred both to a 10% annual increase and a limitation to CPI. However, applying the principles of contractual interpretation, it held that the clause could be sensibly construed to mean that post-claim benefits increased annually by CPI, capped at 10%.
The Tribunal found that the clause clearly applied to post-claim benefits (“once the benefit payments have started”), and its intended purpose was to protect against inflation without requiring additional premiums.
It rejected the application of the contra proferentem rule, holding that the ambiguity was resolvable by considering the policy as a whole and its object.
Although the insurer had paid increases exceeding CPI for 11 years, the Tribunal accepted that these payments were made in error and did not constitute a waiver or representation that the insurer would forgo its right to limit increases to CPI.
Accordingly, the appeal was upheld, the ombud’s determination was set aside, and Mr G’s claim was dismissed.
