CR259 Disability – insured running a business in which he contributed 70% labour


Disability – insured running a business in which he contributed 70% labour – on becoming disabled he carried on with the business, but could only do so by employing people to do the manual work – nevertheless totally and permanently disabled – failure to notify insurer of change in occupation during currency of the policy – insurer thereby prejudiced.

The complainant had taken out two policies, one offering income protection and the other a lump sum for an occupational disability. The claims under the policies both arose from a back injury. In this regard the complainant had had an isolated incident of back pain when in August 2001 he lifted a heavy piece of metal while building a trailer. It was the first he had ever experienced. The next instances of back pain were in December 2001 and January 2002, followed by sporadic back pain in the period from 2002 until 2006. None of these instances had been ongoing. On the contrary, on each and every occasion the pain had been managed satisfactorily with medication and had disappeared.

Due to a serious deterioration in his back condition in 2007, however, he was rendered unable to continue working. When making a claim under each of the policies the insurer declined to pay.


As to the income protector benefit

Its inception date was in April 2000, and on the proposal form the complainant had indicated that his occupation was the running of a business which required 80% administrative duties, 25% supervision and 5% travel. The policy contained a term requiring him to notify the insurer should he change his occupation at any time after the policy came into effect.

A couple of years later the complainant sold his business because competition had made it no longer viable, and he undertook another kind of business entirely, one involving carpentry in which he himself undertook a substantial portion of the manual work. When later making his claim, he stated that the carpentry business required 10% administration by him, 10% supervision, 70% manual work and 10% travel. It was not in dispute that, because he had simply overlooked doing so, the complainant had omitted to notify the insurer of the change.

The insurer raised three defences.

In the first place it sought initially to rely on the non-disclosure of the incident where when the complainant had hurt his back in August 2001. Because that incident occurred subsequent to the inception date of the policy in April 2000, however, the insurer’s reliance on non-disclosure was misplaced.

Secondly, the insurer relied on the term of the policy that provided, in order to qualify for the benefit concerned, that the policyholder had to be “totally and permanently” incapable of earning an income, whether from his own occupation or any other occupation for which he was suited. The insurer contended that the complainant was neither totally nor permanently incapacitated, relying on the fact that, after the serious deterioration to his back condition in 2007, he had not given up the carpentry business, but on the contrary had continued running it. In order to do so, however, and because he himself could not contribute any manual work, he had then been required to employ people to carry out the manual work. The office pointed out, and the insurer accepted, that in these circumstances the complainant’s back condition had in fact rendered him totally and permanently incapacitated within the meaning of the definition in the policy.

Lastly, the insurer sought to claim that the complainant’s failure to notify it of his change of occupation, which without question prejudiced it, entitled it to resile from the policy contract. When the office took this up with the insurer, however, it conceded that had it been notified of the change of occupation, it would not have cancelled the policy but would instead have adjusted the amounts of the benefit to accord with his new duties in the business, especially the manual component. The insurer calculated and tendered the reduced benefit on this basis, which the complainant accepted.

As to the occupational disability benefit

The inception date of this policy was in December 2001 and the only issue in the claim under it was non-disclosure. It was not in dispute that when the complainant applied for the policy he had not disclosed the incident in August 2001 when he suffered back pain as a result of lifting the heavy metal object. He maintained, however, that he had been under no obligation to make the disclosure, relying on the fact that it had been the only incident prior to the inception of the policy, that it had in any event been an isolated incident brought on by the lifting of a heavy object, that although the resultant pain had been severe and was accompanied by acute muscle spasm, it had satisfactorily been treated with medication, that he had not been referred for x-rays or any specialist treatment, and that it had not therefore been an ongoing problem.

The office was unable, however, to agree. It pointed out that in terms of the provisions of section 59 (1) (a) of the Long-term Insurance Act of 1998, the complainant was required to have disclosed any illness, injury or condition which was “material” to the risk that the insurer was being asked to undertake. It then quoted subsection (b) of section 59 (1), which defined as material any non-disclosure that “a reasonable, prudent person would consider to have been necessary to disclose 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”.

The office in any event pointed out that the complainant had failed to answer three questions of those that had been specifically posed in the proposal form. In the first, he had been asked whether he had ever suffered from or been treated for “any disorder of back pain”; in the second whether he had ever “consulted any doctor…or received any form of medication … or drugs for any reason other than for influenza or cold”; and lastly whether there were any circumstances not already mentioned which may affect the risk on the proposed cover. He had answered all three questions in the negative and the office pointed out that in all of these circumstances, the non-disclosure concerned had been material.

The office added that it could not reject the insurer’s contention that, had it known of the severe back pain incident that had occurred only four months before the inception of the policy, a “back exclusion” would have been placed on the policy. To take account of the fact that the incident may have been an isolated one, the underwriters would have been prepared to review the exclusion after inception of the policy if circumstances warranted it. Because the complainant again suffered back pain in December 2001 and January 2002, however, it was fair to accept that the exclusion would not have been removed.

In conclusion, the office pointed out that, while for the rest the non-disclosure did not avoid the policy, the claim for the incapacity concerned could not be upheld because of the back exclusion.

January 2009