Posts in category: Non-Disclosure

CR90

Non-payment on funeral plan – non-disclosure of material facts

Background

The complainant is the son of the deceased insured. The deceased had concluded a funeral plan with the insurer during September 2003 following a telephonic application to the insurer. One of the questions posed by the insurer was whether the deceased insured was in good health to which she had replied in the affirmative.

It transpired that the deceased insured had been treated for breast cancer from November 2000 to July 2001 during which time she had had a mastectomy followed by chemotherapy. In October 2002 and again in October 2003 further cancer had been detected. She subsequently died in April 2004.

Discussion

Undoubtedly the deceased insured was aware of her cancer in September 2003 when she applied for the funeral plan. The crux of the problem seemed to lie in the telephonic question by the insurer to the deceased insured as to whether she was in good health. It was argued on the one hand by the insurer that the deceased insured’s medical condition was not disclosed at the time of the inception of the policy and that this amounted to non-disclosure of a material fact. On the other hand it was argued by the complainant that the telephonic question was very general and not qualified. The insured deceased could from her point of view merely have considered the question as an enquiry to her sense of well being at that particular moment and she could have anticipated that further questions concerning her health would have followed. This did not occur. In fact there were no further questions relating to her medical background.

In the circumstances we recommended, notwithstanding a forfeiture clause, that the premiums that had been paid by the deceased insured be refunded in full.

Result

The insurer accepted our recommendation and although the complainant was not entirely satisfied, he accepted the ruling.

AS
October 2005

• Non-disclosure – disability claim repudiated on the basis of material non-disclosure – incidents of minor back pain prior to the application date not disclosed.

The complainant applied for cover on 9 April 1999. On the application form he answered “no” to all health questions including the question: “Do you suffer or have you ever suffered from any of the following: Complaints of sickness of the skin, muscles, skeleton and joints, including spinal complaints, polio and any congenital and acquired disfigurement, etc?”

In 2000 he had injured his back when loading a motor bicycle onto a bakkie, and he subsequently had back surgery (spinal fusion). His condition deteriorated and he submitted a claim for disability in 2003. At this stage it was discovered that the complainant had visited his GP in November 1997, complaining of discomfort over the sacro-ileac area and coccyx. He was treated with Voltaren, Mobil and Stilpane and according to the doctor no follow-up treatment was necessary and the condition cleared up within a few days. The claim was repudiated on the grounds of non-disclosure. Only the 1999 incident was mentioned in the letter of repudiation but it appeared from the GP’s notes that the complainant had also visited him for a back complaint during 1992 when he was diagnosed with lumbago and treated with medication. Again the doctor stated that the problem was not serious and had cleared up within a few days.

The matter was discussed at an adjudicators’ meeting. The issue was whether a reasonable prudent person in the position of the proposer, faced with the question posed, would have revealed the two instances of minor back pain so that the insurer could form its own view as to the assessment of the relevant risk. The meeting was of the view that it would be helpful to obtain the view of a re-assurer even if it was not conclusive. It would not be conclusive because the appropriate test was not the reasonable underwriter but the reasonable proposer.

The underwriter responded: “In terms of my extensive experience as an underwriting consultant in terms of what the underwriter/claims consultant will apply when faced with a potential non-disclosure at claim stage is “what would the prudent reasonable man” consider discloseable. I believe it is clear in this case that with a single consultation with no sequelae at all, the average man on the street would not believe this to be something significant and requiring disclosure. At claim stage, with this past history exposed, I believe that given the reality of the consultation, the reasonable man would not be expected to disclose such information.

The view as expressed accorded with that of the office and the claim was accordingly upheld.

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• Non-disclosure – claim for disability repudiated on the basis of material non-disclosure – incorrect answer to a question in the proposal form – materiality.

This case is to be contrasted with the previous one.

The complainant applied for a whole life policy including a total disability benefit of R300 000. The proposer answered “no” to the following question:

“Have you …..ever suffered from or been treated for any of the following?
9.5 Disorder of muscles, bones, joints, limbs or spine? e.g. back pain or operations etc”

The complainant was a welder at the time and his duties were fifty percent supervisory and fifty percent manual. The application was accepted and cover commenced on 1 June 2003. In October 2003 the complainant lodged a disability claim stating the due to motor neurone disease he was unable to work as a self-employed shield metal worker.

According to the medical evidence obtained at the time of claim assessment the insured had been treated by his GP for backache in July 1998, October 2000 and January 2002. He was also treated for arthralgia in 1997 and June 1998. The GP described the insured’s backaches and pains as being of a minor nature and stated that it in no way related to the insured’s current condition.

The insurer cancelled the disability benefits on the grounds of non-disclosure.

This was again not a clearcut case but the adjudicators meeting, after considerable debate, came to the conclusion that, in contrast to the previous example, the condition was more serious. Moreover the proposer’s attention was specifically directed to backache and a reasonable proposer should have appreciated that this was a matter which the underwriter would wish to explore if backache, even of a minor nature, was experienced. The claim was accordingly not upheld.

These two cases illustrate how difficult it can be to draw the line and how relevant the exact formulation of the questions in the application form could be.

The complainant, understandably was unhappy with the outcome but as far as we know did not take the matter further.

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• Non-disclosure – payment of claim for premium waiver benefit on death of premium payer resisted by insurer, apparently on suspicion of non-disclosure; unreasonable delay.

This case illustrates that insurers are sometimes too ready to resist payment of a claim, in this case delaying for several years on a suspicion of non-disclosure.

The complainant was the owner and life insured of an educational savings policy providing life cover and an investment benefit. The policy commenced on 1 August 1998 and premiums were paid by the complainant’s father, a soldier in the SANDF. The policy provided an additional benefit of a premium waiver in the event of the death of the premium payer. The father died on 16 September 1999, and a claim was lodged in respect of the premium waiver benefit in January 2000.

Four and a half years later the claim still had not been paid. All that the insurer
told the claimant (repeatedly) was that they were still waiting for sick leave records from the SANDF and clinical records from the military hospital. The complainant also tried to get these records but was unsuccessful.

When we made enquiries the insurer advised that the deceased had died of kidney cancer/cardiac arrest, and that the date of diagnosis of the kidney cancer was not known. Until the date could be established the insurer stated that it could not admit the claim.

However, according to the doctor who had treated him at the time of death and who filled in the medical certificate in the claim documentation, the kidney cancer had been diagnosed in April 1999, some eight months after the policy commenced. It seems the insurer was nevertheless of the view that, as the policy was quite new, the insured might have known of the kidney cancer before the date of application, and it wanted to check this by obtaining records from the SANDF and military hospital, which had not replied to its requests. On application the premium payer had been asked certain health questions about his medical history and had answered “No” to all of them, including the questions about kidney disease and cancer. The insurer was thus resisting payment on suspicion of non-disclosure.

We scrutinised the documents and pointed out to the insurer that there was no exclusion relating to pre-existing conditions, and that there appeared to be no basis to suspect that any questions on the application form had been answered incorrectly; even if there were, the onus would be on the insurer to prove this. In our view the insurer had not been able to prove any material non-disclosure within a reasonable time, and the claim should be admitted and paid. The insurer agreed to pay all premiums.
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Non-disclosure – extent of duty

Background

During May 2002 the insured applied for an endowment policy with trauma and disability cover. In the application form two questions of importance were put to her. The first question was whether she has or ever had any disease of the bladder and certain other organs. The complainant answered “Ja” and added in the appropriate space “Blaas-Probleem.” Secondly, she was asked whether she has been to any hospital or had undergone any medical examinations. She likewise answered “Ja” and explained “1989-Historektomie ondergaan.1989-Blaas operasie.” At the request of the insurer the insured was examined by her doctor. The doctor reported that the insured had a hysterectomy in 1998 (not 1989 as stated in the application form). In the report the doctor also mentioned that the insured had a sling fitted in 2001 and that she underwent the Burch procedure in 2000. The doctor’s report confirmed that the insured suffered from a disease of the bladder but no further information was disclosed.

Since her hysterectomy the insured continuously suffered from incontinence. She went for physiotherapy and received collagen injections which she did not disclose to the insurer. Eventually she became disabled because of her incontinence.

The insured’s claim for disability benefits was refused by the insurer on the ground that she did not make a full disclosure of the extent of her disease.

Assessment

An insured must perform his duty of disclosure properly by making a fair presentation of the risk proposed for insurance. Where the information received by the insurer is of such a nature that it would prompt a reasonable insurer to make further enquiries, a failure to make appropriate enquiries may justify the conclusion that the insurer had waived disclosure of the material facts which such an enquiry would have revealed.

In the present case the insurer’s main contention was that although the insured did disclose in the application form that she had a bladder operation, she did not spell out that she experienced a continuous problem of incontinence and that she received ongoing treatment for this disease. However, it must be borne in mind that the sketchy information supplied by the insured had been supplemented by her doctor who mentioned in her report that the insured had a TVT sling fitted and that she underwent a Burch procedure.

Although the insured indeed did not fully disclose all the particulars of her disease, the information at the disposal of insurer’s underwriters was clearly indicative of the nature and seriousness of the insured’s disease. The insured had complied with her duty of disclosure. A reasonable insurer would have been alarmed by the facts disclosed and would have made further enquiries. This the insurer in the present circumstances omitted to do and for this reason its reliance on non-disclosure was not upheld.

Non-disclosure – change of occupation
En passant, it may be mentioned that the insurance proposer’s actual occupation may also be a factor which a reasonable proposer would regard as material in the underwriting assessment of the risk. As such it should be accurately disclosed. Likewise, there is a duty on the proposer to disclose any prospective change in occupation that may take place prior to the finalisation of the contract. When no such change is imminent the conclusion of the contract freezes the position. If the insurer wants to protect itself against any subsequent changes in occupation which may enlarge the risk it must do so in terms of the provisions of the policy e.g. by specifically or generally excluding liability if the insured should expose himself to certain defined risks, such as participating in inherently dangerous occupations or activities. Non-disclosure relates to pre- and not to post-contractual situations, unless the contract provides differently.

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Non-disclosure – what information is sufficient to satisfy the duty of disclosure?

Background

This is another example of the application of the principle dealt with in our 2003 annual report and also in a paper delivered by Annemi Slabbert at the disability workshop during the course of the year (available on our website). For sake of completeness quotes from the authoritative work “MacGillivray on Insurance Law” are repeated:-

“..Insurers may be presumed to know facts which are reasonably clear to them from information in their possession, even if not expressly mentioned by the assured. They may be presumed to know matters which they have the means of learning from sources available to them.” (10thEdition, page 442)
“Assuming that there is a material fact apt to be disclosed the rule is satisfied if the assured discloses sufficient to call the attention of the insurer in such a manner that they can see that if they require further information they ought to ask for it. So, if reasonably sufficient information has been placed before them, they cannot take advantage of failure to follow it up. If they shut their eyes to the light, it is their own fault.” (7th Edition, p279).

The policyholder (then aged 39) disclosed in a standard medical report, completed as part of his application for the policy, that he smoked ±20 cigarettes per day and that his father age 64, “had a stroke”. The insurer requested and was provided with a serum cholesterol test result reading of 7.3mmol/l.

On the strength of this information the insurer informed the broker, who acted on behalf of the applicant that a health loading had been applied to the death benefit and a cardio-vascular exclusion to the dread disease benefit. They were requested by the broker to review their decision. This was clearly done because the policy was thereafter issued at standard rates without any exclusions or limitations.

A claim for the dread disease benefit was submitted when the insured suffered an acute coronary event. The insurer denied liability on the ground of non-disclosure of material information. He was informed that the information on which the decision was based, was – a history of significant hyper-cholesterolemia since 4 years before commencement of the insurance; intermittent treatment with a cholesterol-lowering agent, and that he was a heavy smoker of 20-30 cigarettes per day. The wording used in this letter of the insurer’s is almost an exact repetition of the words in a report by the cardiologist who became involved at the time of the event. In the same report the cardiologist indicate that his opinion regarding hypercholesterolemia is based on a cholesterol reading of 7.3mmol/l at the age of 36 (3 years before the commencement of cover). The only information regarding treatment that was supplied by the insurer is a pharmacy record of the dispensing of four weeks’ supply of a cholesterol-lowering agent during the year before the insured applied for the particular cover.

The issue in this matter is therefore whether the information which was known to the insurer (i.e – a family history of parental stroke at relatively young age, substantial cigarette smoking and a considerably elevated cholesterol (7.3mmol/l) in a 39 year old man) was not sufficient to bring to the attention to the insurer that if they require further information they ought to ask for it. It is not in issue that the information on which the insurer relied at claim stage was available at the time of their consideration of the acceptance of the risk and could have been obtained in the same manner it was obtained when the claim was investigated.

Assessment

In correspondence between our office and the insurer during the consideration of the matter, the insurer emphasized that there was a significant difference in assessing a risk on an incidental finding of raised cholesterol to that based on an applicant with poor response to treatment.

It was, however, our perception that the issue was whether the confirmed reading of significantly elevated cholesterol at the time of the consideration of the risk together with the other known factors as indicated were not strongly indicative of the probability of a history of higher risk which ought to have been investigated from reasonably available sources at that time.

A significant and rather puzzling aspect which has not been explained is that based on the evidence at its disposal the insurer initially imposed a cardiovascular exclusion in respect of the dread disease benefit. When requested to reconsider this decision the response of the insurer was to issue the contract without the exclusion. No attempt was made to obtain information of a prior history of cholesterolemia or treatment.

We requested the opinion of an independent highly respected cardiologist with knowledge of insurance matters whose evaluation includes the statement –
The insurer’s decision to offer this contract at standard rates is distinctly unusual and suggest a “generous attitude to acknowledge risk factors”.

The general criticism against “underwriting at claims stage” seems to apply in the circumstances of this matter.

Recommendation

The insurer was informed that it was our opinion that the duty to disclose was satisfied in the particular circumstances.

Resolved

The full amount of the cover was paid to the insured.

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Non-disclosure – extent of disclosure required for compliance with duty to disclose information which is likely to have materially affected the assessment of the risk – applicant disclosed treatment for depression, including a suicide attempt, in response to questions contained in a questionnaire – insurer relies on non-disclosure of bulimia.

Ms T applied for a policy on 29.11.2002. A medical report was completed at application stage, as well as Asthma and Mental Health questionnaires.

Ms T disclosed that she had received treatment for depression in the proposal form. She answered “yes” to the question whether she experienced any disorder of the neurological system or any psychiatric complaint. In the medical report submitted with the proposal form, it was disclosed that she was receiving psychotherapy and that she was on medication for her condition. It was further disclosed that she was previously treated at a clinic for her depression. In the Mental Health questionnaire submitted, completed by the applicant’s medical practitioner, it was disclosed that she had previously attempted to commit suicide

Taking the information into consideration, the insurer granted the policy at standard rates and the policy commenced with effect from 01.02.2003. the policy provided death and disability benefits.

During May 2003 Ms T was hospitalised for major depression and a claim was submitted to the insurer. Additional information was requested during the assessment of the claim. In the doctor’s clinical extracts it was mentioned that he treated her for “depression/eating disorder” during 1999. The insurer then requested Ms T to complete a special questionnaire with specific reference to “bulimia symptoms”. In this questionnaire she mentioned that the symptoms started in 1994 and that she was treated for depression and bulimia since 1999.

Based on the above information the insurer cancelled the policy from inception.

The insurer denied liability on the ground that the medical information disclosed by Ms T was limited and in particular that she failed to disclose that she had been receiving treatment for an eating disorder since 1994.

The central issue was whether the information disclosed in the Mental Health questionnaire submitted at proposal stage was so incomplete that the insurer was entitled to deny liability in reliance on the information contained in the clinical extracts and the special questionnaire with specific reference to “bulimia symptoms”.

We took the view that there were two aspects to this issue. Firstly, whether there has been a failure to comply with her duty to disclose by Ms T and secondly, whether in the light of the disclosure, it was not “sufficient to call the attention of the insurer in such a manner that they can see that if they require further information they ought to ask for it”.

From the supplementary questionnaire which Ms T completed at claim stage, it appeared that she considered the bulimia to be a symptom of the depression from which she suffered, and according to her answers it was diagnosed as such. A reasonable person in her position would consider the disclosure of depression to be sufficient. As regards the second aspect we took the view that sufficient disclosure had been made to call the attention of the insurer’s underwriters to the sources of further information. As the experts they had in their possession sufficient information to realise whether further enquiries were required. They cannot take advantage of their failure to follow up on this information.

We did not suggest that the insured’s duty of disclosure should be replaced by a duty on the insurer’s part to make enquiries. However, where there had been reasonably sufficient disclosure, such as this instance, and the insurer “shut their eyes to the light, it is their own fault”.

If the information regarding bulimia was considered material, the insurer seemed to have had pointers to the sources of further information and the means of obtaining such information.

We recommended that the insurer reinstate the policy, consider the claim on the merits and pay a solatium to Ms T, which they did.

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• Non-disclosure – insurer’s right to investigate

The insured was covered in terms of a policy which provided for various benefits. A claim in respect of temporary total inability to attend to his usual professional duties was admitted and paid. In the course of subsequent enquiries to the insurer, he was informed that a possible “non-disclosure” by him at the time of application was being investigated. He also discovered that his medical practitioner received requests for specific further information.

The insured took the strongest exception to what he termed “continued harassment after the fact”. He contended that the insurer was fully entitled to conduct investigations prior to the decision to admit the claim but that, having once admitted it, the insurer was not entitled to re-open and prolong them further.

The insurer confirmed to us that non-disclosure was initially investigated but that it was decided, based on a statement by the insured at the time to honour his claim. The insurer contended that statements made by the insured during subsequent interviews created not only a suspicion but indeed the probability that the previous statement was not true. Hence the insurer requested further information from the insured’s medical practitioner.
We accepted it as trite law that the admission of a claim would not as such limit an insurer’s right to investigate an earlier failure to comply with the duty of disclosure. But it was also accepted that specific issues of non-disclosure may be condoned and disposed of during the process of the consideration of a claim. In those circumstances an insurer’s right to re-investigate or rely on earlier non-disclosure may be compromised. On the facts of this particular case it could not, however, be concluded that the aspects of non-disclosure that were later investigated were identical to the ones referred to our office earlier.

We informed the parties that the insurer was entitled to pursue its investigations and to take such steps as may be appropriate, whereupon the insured terminated the contract and the insurer, without prejudice to its rights, decided not to pursue the matter any further.

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