Equity CR307
Group scheme – claim under group disability scheme repudiated on grounds of late submission – late submission policy provision in principle enforceable, unless considerations of equity demand otherwise – equity ruling not fair to insurer in the particular circumstances.
Background
1. The complainant, a general labourer, worked for a construction company. He was covered for disability as a member of a group disability scheme arranged by the employer. From 2005 his vision deteriorated, and he had eye surgery for glaucoma on 29 March 2007. He did not recover well, and a report from Medi Vision dated 11 June 2007 stated that he needed more surgery, but was “legally blind” and unfit to work, and that it would be dangerous for him to continue working. Three months later the employer asked him to complete some documentation for a disability claim, which he did. The employer had to complete other documentation, and the employer’s broker (which administered the disability scheme for the employer) only forwarded the claim documents to the insurer on 26 May 2008.
2. The policy required submission of a claim not more than 4 weeks after the waiting period. The waiting period was defined as “A period of absence from the employer’s service equal to 6 consecutive months calculated from the commencement of the member’s absence from work”. As the complainant’s absence from work had started on 29 March 2007 the claim was therefore submitted some seven months late, and the insurer declined it.
3. The complainant’s representative appeared to accept that this was contractually correct, but she asked that we find either the employer or the broker liable to pay the benefit, on the grounds of “dereliction of duty”.
Discussion
4. We pointed out that we did not have jurisdiction over the employer or the broker, only over the insurer. The claim was lodged outside the time stipulated by the policy, and such a stipulation must in principle be enforced by our office, the only exception being if the circumstances of the case were such that fairness to both parties required us to exercise our equity jurisdiction in favour of the complainant.
5. In considering the exercise of our equity jurisdiction, we had to take into account the circumstances relating to both parties. Thus for example we had to examine whether the insurer was prejudiced by receiving the claim beyond the prescribed period, as for example may happen when a delay makes it difficult for an insurer to properly examine the circumstances around a claim. Other factors to be considered would be the degree of lateness, the reasons for the lateness and whether the complainant/employer was to blame for the delay in lodging the claim.
6. Although we did not have jurisdiction over the employer, in deciding whether to exercise our equity jurisdiction vis-a-vis the complainant and the insurer we could obviously take into account any reasons given by the employer as to why the claim was lodged late. A letter from the employer indicated that the hospital had delayed in providing a specialist report after the 11 June 2007 report from Medi Vision. As the complainant’s representative herself pointed out, however, the employer knew of the seriousness of the complainant’s condition after receiving the June report. In her view the employer was grossly negligent in not sending in the claim as soon as the June report was received. We agreed that there did not appear to be any compelling reason for the employer’s delay.
7. In the absence of good reasons why the employer or the broker had lodged the claim late, we had to investigate the other relevant circumstances. We then wrote to the insurer, pointing out that the prospects for success on the merits appeared to be strong, and that the period of delay of seven months, while not merely a fraction late, was not considerable. We asked the insurer to provide us with a detailed submission as to how and why it considered that it would be prejudiced if we made a ruling based on equity that it should pay the claim.
8. The insurer advised that the employer had terminated the cover with it on 30 June 2007 (during the waiting period for the complainant’s claim), and transferred the scheme to another insurer. On termination the insurer had asked the employer to provide a list of potential disability claims, which arose while the insurer was still on risk. The complainant’s name was not on this list. The insurer’s legal obligations towards the employer (as the policyholder) were then terminated. At that stage the insurer had already had to pay out more for claims received than it had received by way of premiums. In general terms, the insurer argued, if employers did not suffer the consequences for not submitting claims within the contractually agreed time frames, they could be incentivised to delay their claims to get lower premiums if they switched insurance companies (as in this case), or negotiated new risk premiums, because the higher the historical claims rate, the higher the future premiums.
9. The insurer pointed out that the delay in this case was not due to its conduct, but to that of the employer (the policyholder). The complainant was not left without a remedy as he could institute a negligence claim against the employer with the assistance of the Legal Aid Board. The insurer’s view was that the employer was in a financially strong position, and could afford to make amends for its mistake. It would therefore be more appropriate for the employer to compensate the complainant, rather than the insurer having to be placed in an even greater loss position.
10. In the absence of good reasons for the late lodging, and in view of the insurer’s arguments as to the prejudice it would suffer if we were to make a ruling against it, we decided that in this instance it would not be fair to the insurer to make an equity ruling against it.
Result
11. We made a provisional ruling in favour of the insurer. We received no further submissions from the complainant, and the file was closed.
SM
March 2011
