CR347 Non-disclosure Complainant failing to disclose relevant medical condition

CR347
Non-disclosure

Complainant failing to disclose relevant medical condition – cover granted on standard terms – complainant subsequently disclosing diagnosis in servicing alteration application – was the underwriting agent’s failure to notice the “change of health” disclosure inadequate underwriting?

Background

The complainant had at application stage failed to disclose that two months before applying for cover he had been diagnosed with BMD (bipolar mood disorder), and cover was granted on standard terms. Five months after inception of cover he applied for an increase in the cover amount (as his occupation and salary had changed) and for this purpose completed a servicing alteration form. In that form, in response to a question whether he had experienced a change of health since policy commencement, he purported to disclose the previously undisclosed medical condition. Two different underwriting agents in the insurer dealt with the application. The first had noted the change in occupation and the “change in health” but had only asked the complainant to complete an occupational questionnaire. Somehow its second underwriting agent only concentrated on the occupational questionnaire and overlooked the “disclosure” of the BMD. Increased cover was granted without any underwriting and on standard terms.

It was about three months later, when the complainant submitted a claim, that the insurer became aware of the non-disclosure and its subsequent error of having granted increased cover without any underwriting despite the purported disclosure on the servicing alteration form. The claim was repudiated and the policy reconstructed. The complainant insisted that as he had “rectified” his earlier non-disclosure by making the disclosure via the servicing alteration form, the insurer should meet his claim in the increased cover amount. He further argued that he had reasonably relied on the insurer’s “decision” to grant an increase of his cover without underwriting, and had believed that the earlier non-disclosure had thereby been rectified.

Discussion

We accepted the insurer’s explanation that, since the servicing alteration had not been dealt with by only one underwriting agent and the first one had noted the change in health and in occupation and had requested the complainant to complete an occupational questionnaire, the second underwriting agent was not negligent in only noting the occupational changes and reviewing their impact on the risk. We further held that if a long period of time had passed between the date of commencement of cover and the date on which increased cover was applied for, the underwriters would have been expected to exercise greater caution and to be on guard in dealing with the application.

Decision

We upheld the insurer on the basis that had there been no non-disclosure at application stage, the insurer’s subsequent error at servicing alteration stage would probably not have occurred. We further found that the purpose of completing the servicing alteration form was in fact to apply for increased cover rather than to cure the initial non-disclosure.

We, however, expressed displeasure at the inconvenience caused to the complainant by making a compensatory award against the insurer in the amount of R30 000, because on the insurer’s mistake the complainant had cancelled a policy he had with another insurer which he had taken out before the BMD diagnosis and which had offered him better income continuation cover than the reconstructed policy.

Result

The insurer paid the compensatory award.

CNN
February 2013

CR347
Underwriting

Complainant failing to disclose relevant medical condition – cover granted on standard terms – complainant subsequently disclosing diagnosis in servicing alteration application – was the underwriting agent’s failure to notice the “change of health” disclosure inadequate underwriting?

Background

The complainant had at application stage failed to disclose that two months before applying for cover he had been diagnosed with BMD (bipolar mood disorder), and cover was granted on standard terms. Five months after inception of cover he applied for an increase in the cover amount (as his occupation and salary had changed) and for this purpose completed a servicing alteration form. In that form, in response to a question whether he had experienced a change of health since policy commencement, he purported to disclose the previously undisclosed medical condition. Two different underwriting agents in the insurer dealt with the application. The first had noted the change in occupation and the “change in health” but had only asked the complainant to complete an occupational questionnaire. Somehow its second underwriting agent only concentrated on the occupational questionnaire and overlooked the “disclosure” of the BMD. Increased cover was granted without any underwriting and on standard terms.

It was about three months later, when the complainant submitted a claim, that the insurer became aware of the non-disclosure and its subsequent error of having granted increased cover without any underwriting despite the purported disclosure on the servicing alteration form. The claim was repudiated and the policy reconstructed. The complainant insisted that as he had “rectified” his earlier non-disclosure by making the disclosure via the servicing alteration form, the insurer should meet his claim in the increased cover amount. He further argued that he had reasonably relied on the insurer’s “decision” to grant an increase of his cover without underwriting, and had believed that the earlier non-disclosure had thereby been rectified.

Discussion

We accepted the insurer’s explanation that, since the servicing alteration had not been dealt with by only one underwriting agent and the first one had noted the change in health and in occupation and had requested the complainant to complete an occupational questionnaire, the second underwriting agent was not negligent in only noting the occupational changes and reviewing their impact on the risk. We further held that if a long period of time had passed between the date of commencement of cover and the date on which increased cover was applied for, the underwriters would have been expected to exercise greater caution and to be on guard in dealing with the application.

Decision

We upheld the insurer on the basis that had there been no non-disclosure at application stage, the insurer’s subsequent error at servicing alteration stage would probably not have occurred. We further found that the purpose of completing the servicing alteration form was in fact to apply for increased cover rather than to cure the initial non-disclosure.

We, however, expressed displeasure at the inconvenience caused to the complainant by making a compensatory award against the insurer in the amount of R30 000, because on the insurer’s mistake the complainant had cancelled a policy he had with another insurer which he had taken out before the BMD diagnosis and which had offered him better income continuation cover than the reconstructed policy.

Result

The insurer paid the compensatory award.

CNN
February 2013

CR313 Non-disclosure – Claim for Disability Income Benefits

Non-disclosure CR313

Claim for Disability Income Benefits– should a consultation during 2005 have been disclosed, and was it material to the risk.

BACKGROUND

On 25 May 2008 the complainant applied for a policy which offered inter alia Disability Income Benefits and which commenced on 1 July 2008. During February 2010 she submitted a claim for the Disability Income Benefits. In the claim form she stated that she had been suffering from depression since the middle of November 2009, and that she had consulted a psychologist and a psychiatrist during January 2010 after attempting suicide.

During the course of its investigation into the validity of the claim, the insurer became aware that the policyholder had consulted a psychologist in 2005, and the psychologist mentioned in a report that the policyholder had “shown symptoms of depression over the years”. Neither these symptoms nor the consultation had been disclosed on the complainant’s application form of 25 May 2008. The complainant’s claim was repudiated by the insurer, who advised her that the policy would be re-issued with a mental health exclusion.

The policyholder then lodged a complaint with our office. Included in the complaint was a further report from the psychologist in which the psychologist stated that it had only been for marital problems that the complainant, accompanied by her husband, had consulted her in 2005, and added that while the policyholder had displayed symptoms of depression at that stage, they were not serious enough for a formal diagnosis of a Major Depression Episode to be made. The psychologist explained that at the time he had therefore merely recommended that the complainant should contact her GP with a view to obtaining medication, which the policyholder did not do.

DISCUSSION
The insurer was requested to re-consider its decision in the light of the further report, but declined to alter its position.

The matter was then discussed at adjudicators’ meeting. The opinion of the meeting was that there had not been a material non-disclosure.

The first relevant question in the application form was framed:
“Do you have, or have you ever had, trouble with or disorders of:

4.5 Your nervous system (e.g. concussion, paralysis, fits, blackouts, depression, anxiety, persistent headaches)?”

It was for marital problems that the complainant together with her husband had consulted the psychologist in 2005, and the meeting’s view was that marital problems do not amount to a problem or a disorder of the nervous system. There had furthermore been no diagnosis of depression.

The second question was:
“4.10 Have you sought medical advice during the past five years in connection with any symptom or condition, or been a patient in a hospital or nursing home or undergone any medical examination (including ECG, X-ray examination or specialised laboratory test ) not mentioned above?”

This question related to the seeking of medical advice for a symptom or a condition, and in the meeting’s view a consultation with a psychologist for marital problems did not fall within the ambit of the question.

CONCLUSION
The insurer was informed that it was our opinion that the claim should be assessed on its merits, and that the policy should be reinstated with no exclusion relating to mental health. This the insurer agreed to do, and the claim was subsequently paid.

DSM
March 2011

CR306 Non-disclosure – Equity – new policy issued as replacement

Non-disclosure CR306

Equity – new policy issued as replacement – old policy cancelled – non-disclosure in application for new policy, and new policy cancelled – can claim be entertained on the replaced policy?

Background

1. The complainant’s wife, Mrs P, had a policy covering death and dread disease. On 30 June 2009 she made an application, on the advice of her broker, to combine her policy with that of the complainant because it would offer her a better premium rate with no loss of benefits. The replacement policy was issued on 21 July 2009, and the replaced policy was cancelled with effect from 16 July 2009.

2. In October 2009 Mrs P was diagnosed with Motor Neuron Disease. When she instituted a claim for the payment of the benefit under the existing policy, it was repudiated on the basis that she had answered “No” to the following medical questions that were contained in the application form:
“DO YOU HAVE, OR HAVE YOU EVER HAD, TROUBLE WITH DISORDERS OR DISEASE OF (IF YES, PROVIDE DETAILS):

7. Your skin, muscles, bones, joints, limbs and spine?

8. Have you been hospitalised or had any other examinations for reasons not already mentioned including genetic testing or tumour markers, or sought medical advice for any ongoing medical problems?

9. Do you intend consulting a doctor/ medical professional in the next eight weeks, for conditions or symptoms not already disclosed, or is any future surgery planned?”

3. In their response, the insurer stated as follows:
“ ..Mrs P started getting pains in her left knee progressing to calf and ankle and underwent X rays and was treated with physiotherapy and Acupuncture. This information has been confirmed by Mr. P in his initial letter to you. This information was not disclosed on the application dated 30 June 2009. Further, on 17 July 2009, Mrs. P underwent a series of Blood tests and the results were found to be abnormal. In terms of the application any change in
Health, e.g. Blood tests prior to the acceptance of risk has to be made available to our underwriters. Based on the fact that Blood Tests had been requested, had our underwriters known, they would not have given a decision on the risk and in turn waited for the results. On seeing the results the policy would not have been issued on its current terms and further requirements would have been requested. As such our Underwriters withdrew the initial terms on issue of the contract and the contract was cancelled with effect from inception for the reasons of material non-disclosure.”

4. In denying liability under the new policy the insurer therefore relied on its cancellation on the grounds of non-disclosure.

5. The insurer submitted that no claim could be entertained on the old policy either because it had been cancelled on 16 July 2009, and clause 9 stipulated:
“Claims procedure

In order for a claim to be assessed the applicable Benefit and the Contract must be in force at the time the condition is diagnosed as well as when the claim is submitted.”

6. The complainant claimed that when applying for the new policy his wife had nothing to disclose, saying that:
“At best, the only possible problem that Mrs P could have ‘disclosed’ was a niggling knee problem which one experiences all the time and is mostly ignored by a reasonable normal person. Particularly if the lifestyle is sport related as is the case with our family. And presuming that the knee problem was disclosed, it follows that Liberty would have ordered x-rays of the knee to be done and possibly blood tests. It is a fact that the results would have been negative.”

Discussion
7. In view of nature of the disease with which Mrs P was diagnosed, our office referred the matter at its own expense to an independent specialist who made the following observation:
“Mrs P had presented to Dr A in January 2009 with symptoms sufficiently impressive to warrant extensive screening tests, retrospectively shown to have been unhelpful, but later proven to be non-specific early manifestations of MND. The diagnosis was made after a second neurologist, alert to the unique and diagnostic features of MND, diagnosed the disease. Mrs P had significant motor dysfunction and discomfort during the months preceding her referral to an orthopaedic surgeon in June 2009…”

8. The independent specialist’s report was forwarded to the insurer for comment, but the insurer refused to review its decision.

9. The matter was considered at a meeting of the office’s adjudicators as a result of which:
9.1 The office took the view that the insurer’s decision to decline the claim on the basis of material non-disclosure in respect of the new policy was justified.
9.2 In respect of the old policy, however, the office concluded that the insurer’s decision to decline the claim on the basis that that policy was cancelled before Mrs P was diagnosed with a motor neuron disease was unfair. For the following reasons the meeting took the view that this was an appropriate case for the application of its equity jurisdiction:
9.2.1. Mrs P had already had the symptoms of the motor neuron disease prior to the cancellation of the policy and there was no evidence to suggest that those symptoms had existed prior to its commencement. In support of this the meeting relied on the report of the independent specialist as set out in paragraph 6 above.

9.2.2 Mrs P could not have lodged her claim under the old policy prior to its cancellation. She had not been aware that she had or was developing motor neuron disease as the disease is considered to be an insidiously progressive neurological disorder which is not diagnosable for months and in any event not until clinical features unique to the disease enable a diagnosis to be made. According to the specialist’s report, laboratory tests would have been unhelpful in this regard.

9.2.3 Clause 9 of the claim procedure, which requires a diagnosis to have been made while the policy is in force, presumably assumed that the average life assured would not delay in obtaining a medical diagnosis, and that such a diagnosis would be relatively easy to make. In Mrs P’s case she was not to blame for any delay, and happened to have contracted a serious disease that, through no fault on her part, took time and was extremely difficult to diagnose.

9.2.4 The meeting considered it relevant to note that the new policy contained almost the same benefits that were provided in the old one, and pointed out that had Ms P not decided to replace it she would have been entitled to claim the benefits and the insurer would have been obliged to assess her claim.

Result
10. The unanimous view of the meeting was that a provisional determination should be made requiring the insurer to assess the claim on its merits. The insurer complied with the provisional determination and agreed to pay the benefit.

NS
March 2011

CR290 Non-disclosure Pre-existing conditions – whether insured had failed to disclose relevant information.

CR290
Non-disclosure

Pre-existing conditions – whether insured had failed to disclose relevant information.

BACKGROUND

In June 2006 the complainant’s wife (“the deceased”) applied for and was issued with a R2 million life policy. She passed away in November 2006 as a result of SLE (lupus), an auto immune disease. In the period preceding the application for the policy she had consulted a specialist surgeon and a specialist physician, and tests had been done by a pathologist. After a series of consultations when the deceased had complained about hypertension, the specialist physician had suspected SLE in December 2005, and the pathologist’s tests, conducted earlier in 2006, indicated signs of polmyositis and SLE. While no definite diagnosis had yet been made, these features showed at least that SLE was suspected. When applying for the policy in June 2006, however, the deceased did not disclose either that the specialist physician had suspected SLE, or the results of the tests that had been done by the pathologist. All she disclosed was her hypertension.

The insurer repudiated the death claim, relying on the abovementioned information and on a letter from the deceased’s doctor furnished at the time of her death. In the letter the doctor stated that the deceased’s symptoms in August 2006 “had been evolving over the previous six months”, which of course confirmed that the deceased would have had these symptoms prior to the inception of the policy. The insurer stated that had it known about the possibility of an SLE diagnosis, it would have deferred the deceased’s policy application until a definitive medical conclusion was reached. The complainant claimed, however, that the doctors she consulted before taking out the policy had never informed the deceased of the suspected SLE.

DISCUSSION

An insurer has the right to cancel a policy in the case of a mis- or non-disclosure by a proposer, if it is material. As to the question of materiality the office relied on section 59(1)(b) of the Long-term Insurance Act, 52 of 1998, which states that:

“The representation or non-disclosure shall be regarded as material if a reasonable, prudent person would consider that the particular information should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk”.

A provisional ruling was made that a reasonable, prudent person in the position of the deceased would have considered it necessary to disclose:
• that the specialist physician had expressed the opinion that she may have SLE even if no final diagnosis had been made;
• that the specialist physician and the pathologist had made it known to her that positive markers of SLE were found in her blood;
• that she had consulted a specialist surgeon;
and that these non-disclosures had therefore been material.

The complainant was not satisfied with the ruling. He questioned the specialist physician’s statement that she had informed the deceased of the suspected SLE diagnosis. He in any event argued that the nature of SLE is such that the diagnosis is a very complex process – the symptoms mimic other illnesses and a diagnosis would require a careful review of the patient’s entire medical history together with an analysis of results obtained in routine laboratory tests; he complained that the specialist physician had not done this but had simply based her suspicion of an SLE diagnosis on the blood tests.

CONCLUSION

A final determination was made by the office which confirmed the provisional ruling. We found that on the probabilities the deceased would have been informed by the specialists of their views. We explained to the complainant that a definitive diagnosis of SLE was of itself not decisive. What we stressed was the deceased’s failure instead to disclose such information as she had received from the specialist physician, which would have alerted the insurer at least to the possibility that she may have SLE. The application form had in any event posed the specific question:
“Is there predisposition to any complaint or are there any circumstances not disclosed above, however trifling, connected with your past or present state of health which may affect future state of health or susceptibility to injury?”

and we underlined the fact that the deceased’s negative answer was incorrect, and that a reasonable person would have disclosed the abovementioned information as being relevant to the assessment of risk.

The complainant was not satisfied, and applied for leave to appeal against the decision. The Ombudsman was of the opinion, however, that there was no prospect of success in an appeal and declined the application.

JP/BG
October 2009

CR291 Non-disclosure Complainant’s refusal, after lodging his claim

CR291
Non-disclosure

Complainant’s refusal, after lodging his claim, to consent to the insurer obtaining a report from the specialist who had treated him – office unable to support the complainant.

BACKGROUND

At all times the complainant held a life policy that also offered sickness benefits. He had previously made a claim, citing depression as the cause, and was duly paid the sickness benefit.

He subsequently applied for and was granted increased benefits, after which he lodged a second claim with the insurer for the sickness benefits, this time citing crack addiction and depression.

In the circumstances the insurer suspected that the depression relied on in the first claim had possibly also been associated, as in the second claim, with crack addiction, and that his failure to disclose such crack addiction when applying for the increased benefits, despite relevant questions in the application form, amounted to a material non-disclosure. To investigate this the insurer required the complainant to furnish a written consent authorising it to obtain from the specialist the report she had prepared when she treated him on the first occasion. The insurer had in fact been furnished with such a consent at the time the complainant made his first claim, but when the insurer approached the specialist with it she refused to furnish her report without a fresh consent.

The complainant refused to furnish a fresh consent, which prevented the insurer from investigating the non-disclosure it suspected. It therefore refused to consider his claim, and the complainant then lodged a complaint with the office.

DISCUSSION

The policy gave the insurer the right to terminate it and to decline any claim, in addition to certain other relief:
• if it suspected that at the time he applied for the additional benefits the complainant omitted to give full information regarding the state of his health or his past medical history that may materially have affected the insurer’s assessment of the risk, and

• if after informing him of its suspicion and after considering his response it is satisfied that its suspicion is well-founded.
In defending its stance the insurer relied on these provisions.

The complainant persisted in his refusal to furnish a fresh consent, claiming that the information was irrelevant and in any event confidential. The office pointed out to him that the insurer’s suspicion was not unreasonable, that it was hardly allayed by his persistent refusal to furnish a fresh consent, and that in the circumstances the insurer had the right to investigate the possibility of a non-disclosure. We added:

“In this regard (our) office is obliged to accord parties the same rights as they would have had if the complaint had instead been dealt with in a court action, and in a court action the insurer would have had the right to subpoena the specialist and to call her as a witness. Our office does not have the power to issue subpoenas, and in the light of your refusal to furnish a fresh consent you are seeking to deprive the insurer of that right, something which (our) office cannot countenance.”

CONCLUSION

A final determination was issued in terms of which the complainant was given a further week within which to furnish a fresh consent, and in which the office warned the complainant that a failure to do so would entitle the insurer to take such steps as to the repudiation of the claim, the cancellation of the policy and the limitation of other benefits as the policy or the law justifies. The office did not hear any further from the complainant and closed its file.
BG
October 2009

CR269 Non-disclosure – when knowledge of representative will be imputed to insurer

CR269

Non-disclosure – when knowledge of representative will be imputed to insurer – constructive knowledge –representative of insurer appointed to assist applicants for insurance in filling out proposals – thereafter to enter such information on an electronic form for assessment by underwriters – representative being told of a relevant condition but failing to enter it on electronic form.

BACKGROUND

For proposals for insurance the insurer made use of a process which required that a so-called “underwriting schedule” be completed in writing and signed by the applicant, whereupon the information entered on the schedule would then be entered on an electronic application form used by the insurer’s underwriters to evaluate the risk.

In the underwriting schedule the complainant, as applicant, had disclosed a heart disorder controlled by medication. The representative of the insurer who assisted the complainant with the completion of the written application failed thereafter, however, to correctly enter the information on the electronic application form. As a result the insurer’s underwriters were not made aware of and did not consider the heart condition when the risk was evaluated.

The insurer’s stance was that the risk would not have been accepted if the underwriter had been aware of the condition and contended that there had therefore been no consensus between the parties, that no contract had resulted, and that no more than a refund of premiums would be appropriate.

DISCUSSION

The information obtained from the insurer confirmed that it had itself devised and implemented the particular process. It’s own representative, the person who had assisted the complainant in filling in the underwriting schedule, had also been responsible for entering the written information into the electronic version. It was therefore not in issue that the knowledge of the heart condition had been acquired by the insurer’s representative in the course of her duties as agent on behalf of her principal, the insurer. It followed that it was part of her duty to communicate the information concerned to the principal. The requirements for the application of the doctrine of constructive knowledge (see “General Principles of Insurance Law” Reinecke et al, paragraphs 501 and 501 – pp 357-360) were in the circumstances present. In accordance with this doctrine the knowledge of the intermediary is imputed to the insurer.

CONCLUSION

The insurer accepted the office’s provisional ruling and agreed to consider the claim on its merits, which it later admitted.

EdB
January 2009

CR270 Non-disclosure – complainant unaware of his condition

CR270

Non-disclosure – complainant unaware of his condition – his doctor having failed to inform him thereof, and having further failed to disclose it in the medical certificate accompanying the proposal form – misrepresentation was therefore by independent third party, not applicant for insurance.

BACKGROUND

In 2003 the complainant had signed a proposal for cover inter alia for severe illness benefits. The form provided that, in answering the section containing health questions, the complainant warranted the correctness of his answers. One question asked whether the complainant had ever had high blood pressure, disease of the blood vessels or a circulatory disorder, and another whether he had ever had to consult a doctor. In both the form he signed and the accompanying medical form his doctor filled in and signed, it was disclosed that since 1997 the complainant had suffered from hypertension, that medicines had been prescribed, and that the complainant had been symptom free since.

The complainant suffered a heart attack in 2007 and lodged a claim. It was then disclosed that when in 1998 he had consulted his doctor for the hypertension, he had diagnosed, not simply the hypertension, but also that it had given rise to a transient ischaemic attack. Because this had not been disclosed in the application the insurer repudiated liability.

DISCUSSION

The complainant lodged a complaint with the office, and upon enquiry he explained that he had not been aware of having suffered a transient ischaemic attack, that he did not understand medical terms, and that all the doctor had told him in 1998 was that he had suffered no more than hypertension. When approached the doctor confirmed that he had never explained to the complainant that he had suffered a transient ischaemic attack, and admitted that he himself had failed to disclose, in the medical certificate that accompanied the complainant’s proposal in 2003, that he had suffered such an attack.

Section 59 (1) (a) of the Long-term Insurance Act provides of course that a non-disclosure will not affect the obligations of an insurer unless it is such as to be likely to have “materially” affected the assessment of the risk. And section 59 (1) (b) stipulates that for such purpose a non-disclosure will be regarded as “material” if “a reasonable prudent person” would consider that it should be disclosed so that the insurer could form its own view on the assessment of the risk.

The office pointed out to the insurer that, for the purposes of materiality, the “reasonable, prudent person” referred to in section 59(1)(b) is neither the insured not the insurer, but a hypothetical person standing in the shoes of the applicant for insurance, with the knowledge and appreciation that a lay person would possess of the features an insurer would take into account in assessing the risk. The office went on to say:

“It would appear that (the complainant) was unaware, at the time of the incident in January 1998, that he had suffered from TIA. …it appears that he experienced the episode as one of dizziness. He was told by his doctor that his blood pressure was too high and he was put on medication to control this. He has remained on chronic hypertension medication ever since and disclosed this on the application form. It would seem that a reasonable prudent person in the circumstances of (the complainant) would not have considered the episode of dizziness, which he was told was due to high blood pressure, and which occurred some 5 years earlier, to have been material information that should have been disclosed, especially in view of the fact that he did disclose his ongoing hypertension and treatment…”

As to the question whether the doctor’s failure to disclose the TIA on the medical form could be seen as non-disclosure by an agent of the insured, the insurer advised the office that it viewed the doctor as neither the insured nor the insurer’s agent, but as an independent third party. In these circumstances the doctor’s failure to disclose could not amount to misrepresentation by the applicant.

CONCLUSION

The insurer agreed and undertook to assess the claim. Having done so it contended that the condition claimed for was not one covered by the policy, because it did not in particular fit the definition in the policy of a heart attack, heart transplant or open heart surgery. The office made a provisional determination upholding the contention and the complainant conceded that it was correct.

SM
January 2009

CR271 Non-disclosure – bipolar mood disorder

CR271

Non-disclosure – bipolar mood disorder – dispute about whether diagnosed before inception of the policy – onus on insurer.

BACKGROUND

Through her employment the complainant was a policyholder in a group scheme for which she was covered inter alia for permanent disability. The policy’s inception date had been in November 1995, and it was more than seven years later, in March 2003, that she became unable to work any further. When she then lodged a claim under the policy, for which she was at all times represented by her husband, the cause of her disability was stated to be bipolar mood disorder.

There was no dispute about her condition and the fact that she was permanently and totally disabled. The insurer denied liability, however, on the ground that when taking out the policy in 1995 the complainant failed to disclose that she had been treated for, and was suffering from, the very disorder that in 2003 caused her disablement. Its stance was that although it would have been prepared to issue a policy had a proper disclosure been made in that regard, it would have done so on “very different terms”, and would in particular have excluded all disability cover.

DISCUSSION

In alleging the non-disclosure the insurer was unable due to the passage of time, however, to find and therefore to produce the application that had been filled out by the complainant when she proposed the insurance in 1995.

The insurer’s allegation that there had been non-disclosure was based instead on what it contended must be deduced from the information contained in the various documents attached to the claim when it was lodged with the insurer in February 2007. In this regard the doctor who signed the medical report, Dr V, stated therein that her condition was bipolar disorder and in answer to the question when it had been diagnosed said that it was in 1998. In the section of the claim signed by the complainant’s husband on her behalf her husband stated, however, in answer to the question when it had been diagnosed, that it was in September 1989. The insurer claimed that these answers were sufficient to prove that the diagnosis of bipolar mood disorder had been made prior to the inception date of the policy in September 1995, in particular in 1989.

When the complainant’s husband’s attention was drawn to his answer in the claim form that “the condition” had been diagnosed in 1989, he responded by denying the accuracy of that statement, and by confirming Dr V’s statement that the symptoms had started in 1998. He added that although the complainant had consulted a Dr J in 1989, it had been for no more than depression and stress.

The view of the office was that although the complainant had been treated for depression and stress by Dr J in 1989, all that could be deduced therefrom was that the complainant had had symptoms of what was possibly some or other mental disorder at that stage. There was no indication, however, as to how serious those symptoms had been and there was certainly no indication that she had been diagnosed with bipolar mood disorder at that stage. Such a disorder could also not be deduced, furthermore, from the manner in which the complainant’s claim form had been filled in. The relevant answer on the form signed by her husband might well have been the result of his mistaken understanding of the term “diagnosis”. The year, which at best must have been an estimation, did not in any event accord with the year 1998 furnished by Dr V as being the date on which the diagnosis had been made, and which was more likely to have been the accurate date. According to Dr V, the symptoms of bipolar mood disorder had only commenced in 1998, and he had first seen her for that condition in 2003.

The office invited the complainant’s husband to provide further details about the consultation with Dr J in 1989, but hardly surprisingly he was unable to do so.

CONCLUSION

In all of the circumstances the office’s provisional ruling was that there was insufficient on which to conclude on a balance of probability that the condition of bipolar mood disorder had been known to the complainant when she applied for insurance in 1995, if indeed it had ever been diagnosed before then.

Despite a further search, the insurer remained unable to trace the application form or itself to make contact with Dr J. In the circumstances the insurer accepted the provisional ruling, and duly paid the claim.

SM
January 2009

CR231 Non-disclosure – Policy cancelled on grounds of non-disclosure

CR231

Non-disclosure – Policy cancelled on grounds of non-disclosure- alleged re-instatement of policy after death of insured life – reinstatement abortive

Background

By virtue of a buy and sell agreement, the complainant took out a policy on the life of his business associate for an amount of R3m.

When a disability claim was lodged under another policy, the insurer discovered that the insured life had experienced abdominal problems since September 2005. He had consulted a doctor who recorded the result of a CA 199 Tumour marker blood test as being 47. The insured furthermore on 29 September 2005 consulted a specialist who noted “a history of abdominal discomfort.” This doctor performed a gastroscopy. A chronic peptic ulcer and a fundal ulcer were diagnosed. Thereafter the insured consulted yet another doctor.

In view of the fact that the insured failed to disclose the consultations he had with several doctors, the insurer cancelled the abovementioned life policy. Its decision was communicated to the policyholder in a letter dated 3 March 2006.

The insured life was eventually diagnosed with stomach cancer within a month after applying for the insurance and he died on 21 March 2006. A death claim was lodged on 7 April 2006. The insurer rejected this claim on 13 July 2006 and confirmed its earlier cancellation of the contract.

Before receiving the insurer’s letter of rejection, dated 13 July 2006, the policyholder’s broker on 18 April 2006 wrote to the insurer’s Claims Department, challenging their decision of 3 March 2006 to cancel the contract. No mention was made in this letter of the fact that the insured life had in the meantime died.

On 18 May 2006 the insurer sent a letter to the policyholder confirming the “Reinstatement of the Contract.” The letter informed the policyholder that the contract had been “amended in accordance with your request” and that with effect from 1 April 2006 “…the attached schedule and annexure (if any) replace, or are added to, the corresponding provisions in the policy…” It also informed the policyholder that no liability will be incurred unless “… all contributions due are received.”

The policyholder paid the premiums as requested.

Assesment

The first question to be decided was whether the insurer had the right to cancel the policy on the grounds of the non-disclosures alleged by them.

Our conclusion was that the symptoms experienced by the insured and the consultations he had were of such a nature that a reasonable person would have disclosed it to the insurer. The insurer was therefore fully justified in cancelling the contract on 3 March 2006.

Since the contract had been lawfully terminated, we took the view that mutual agreement was necessary to revive the contract.

The insurer explained that it did not intend to renew the contract and that its letter of 18 May 2006 was sent in ignorance and error. Consequently, it contended that there was no actual agreement to reinstate the policy with retrospective effect. The complainant on the other hand responded that he understood the letter precisely in that sense and that he paid the overdue premiums in that belief.

The question thus arose whether the insurer by its conduct induced a reasonable belief in the mind of the policyholder that the contract had been reinstated on the terms alleged by the complainant. Could the insurer, in other words, be held liable by virtue of the reliance approach towards contractual liability?

When the insurer wrote its letter of 18 May 2006, the insured life was already dead. We took it for granted that in principle one cannot insure the life of a dead person. It is a matter of a supposition common to both parties. A possible exception could be where there is uncertainty whether or not the life to be insured is still alive and the parties specifically agree to cover the life insured whether dead or alive.

In the present case there is in the insurer’s letter of 18 May 2006 no reference either to the death claim or the fact that the insured life may or may not be alive. Neither does it profess to agree that the insurer’s cancellation of the contract was unfounded. The letter in reality purports to be no more than a systems generated reinstatement letter for non-payment of premiums.

RESULT

We ruled that the insurer’s letter of 18 May 2006 could not reasonably be interpreted as an offer to cover the person in question whether or not he is alive. Hence, it provided no basis for holding that the insurer reasonably led the policyholder to believe that there was a new contract to cover the dead person .

In the special circumstances of the case we nevertheless found grounds for ordering the insurer to pay compensation for bad service.
MFBR
May 2007

CR199 Non-disclosure – whether the insured disclosed sufficient

CR199

• Non-disclosure – whether the insured disclosed sufficient information to have complied with his duty of disclosure

Background

The insured, 57 years old at the time, was the life insured under two policies which the insurer purported to cancel, retaining all premiums paid, on the grounds of non-disclosure,.

The policies were initially taken out for purposes of business in 1998 and 1999 respectively. Both policies had back exclusions and were subsequently ceded to the insured.

The insured was diagnosed with Parkinson’s disease in 2000. He continued working in a reduced capacity until 2003 but because of his inability, due to the disease, to perform his occupation as a strategic planner in marketing, he instituted a claim for a disability benefit in 2004.

The insurer refused the claim and cancelled both policies. The stated reason was the non-disclosure of a visit the insured had recently made to a neurologist, after he experienced back and neck problems and tremors in his hand. The neurologist had sent the insured for scans and x-rays and also suggested urine and blood tests. He prescribed a course of physiotherapy which in the insured’s own view and that of the physiotherapist was successful. For that reason the insured had not returned to the neurologist and had also not arranged for the suggested urine and blood tests.

The neurologist at claim stage mentioned that he had suspected early Parkinson’s disease but had not advised the insured of this suspicion at the time. In this regard a note submitted by the neurologist after enquiries by our office stated that there had been “diminished arm swing on the right and tremor quite prominent with walking. The features suggest early Parkinson’s and to investigate fully with regard to onset of Parkinson’s at such a young age.”

On both application forms the insured had disclosed that he suffered from neck and back problems. He completed a back questionnaire on the first application. In it he disclosed that he had seen a physiotherapist and received treatment for the problem. But he omitted to mention the visit to the neurologist nor had he disclosed the tremors in his hand.

At the time of the second application the broker sent a letter to the chief underwriter of the insurer in which it is disclosed that the insured’s “stiff neck” might in fact be stress-related.

It was as a result of the disclosures about these problems that the back exclusions were imposed on the policies.

The insured submitted several affidavits from friends and business associates in support of his assertion that he was completely unaware at the time that he manifested the symptoms of early Parkinson’s disease. If he had been so aware, so he said, he would not have left his fixed employment in an advertising agency at a high level in order to start his own business in 1999.

Discussion

The pertinent issue was whether the non-disclosures of the visit to the neurologist and the tremors warranted the repudiation of the policies, having regard to the positive disclosures made by the insured.

After considerable debate in our office and after seeking an opinion from an outside medical expert, our office came to the conclusion that the insurer’s repudiation was justified. We were, however, of the opinion, contrary to the view expressed by our medical expert, that the insured had not been aware that he suffered from early Parkinson’s disease and that he had not fraudulently withheld information of his visit to the neurologist. The policies were taken out for business purposes and we accepted that this was not a case where the insured knowingly non-disclosed information in the hope of benefiting from it at a later stage. Even though we regarded the non-disclosure as non-fraudulent we could not find in his favour since fraud by the insured was not a legal prerequisite for the repudiation of a policy by the insurer.

This office has in the past held the view, as it did in this case, that where a visit to a specialist doctor is not disclosed it would normally be regarded as evidence of material non-disclosure. In this case there were also specific questions relating to insured’s visits to specialist doctors which the insured answered negatively since he regarded the disclosure of his back and neck problems and the visits to the physiotherapist as sufficient disclosures.

The insured, confronted with our conclusion that the insurer was entitled to repudiate liability under the policy notwithstanding his “innocence”, asked us to liaise with the insurer about a possible ex gratia payment.

Result

We did so and were gratified that the insurer was prepared to make an offer of settlement of a third of the benefit on each policy, plus a return of premiums, less costs incurred. This amounted to R280 683. The insured accepted the offer in full and final settlement and the case was closed.

JP
November 2006