CR31 Imputation of knowledge – dread disease claim


• Imputation of knowledge – dread disease claim submitted due to multiple sclerosis – claim repudiated on grounds of non-disclosure of material information – claimant alleges that the material information was verbally conveyed to the agent – could the doctrine of imputation of knowledge come to the assistance of the insured?

The complainant applied, on 29 March 1993, for an endowment policy with occupational disability benefits. The application was made via an agent of a bank, X and was accepted by the insurer, Y. The complainant applied for a second whole life policy including dread disease benefits on 16 June 1993. This was a special offer available only to existing policyholders and issued at standard rates.

The insured, who was diagnosed with multiple sclerosis, submitted a dread disease claim under the second policy during February 2003.

The insurer rejected the claim and cancelled both policies from inception, because it believed that the insured had not disclosed information that was material to the assessment of the risk.

The insured alleged that he verbally informed both agents of his full medical history at each application stage.

It was clear from the application forms that no medical information was recorded.

The insurer uncovered medical reports confirming that the insured was diagnosed with tranverse myelitis (an acute attack of spinal cord inflammation involving both sides of the cord) in 1986.

In the insured’s initial correspondence with this office, he chronologically and comprehensively outlined his medical history from 1984 until a second diagnosis of multiple sclerosis was confirmed in 2002. These disclosures were not made on the application forms. The office initially and provisionally upheld the insurer’s decision to reject the claim due to non-disclosure of material information.

The insured consistently and fervently alleged that he had informed both the bank’s agent and the insurer’s agent of his full medical history.

The question, which arose in the assessment by the office, was whether the doctrine of constructive knowledge (imputation of an insurance agent’s knowledge to his principal) could assist the insured.

In respect of the first contract, the fact that he allegedly told the bank’s agent that he was diagnosed with transverse myelitis would be irrelevant because the agent’s knowledge could not be imputed to the insurer and we, as an office, did not enjoy jurisdiction over the bank.
In respect of the second contract, the question of “imputation of the agent’s knowledge”, did, however, arise because the information was disclosed to an agent of a subscribing member. There was, however, uncertainty as to exactly what was told to the insurer’s agent by the insured and in particular whether he disclosed that he was diagnosed with tranverse myelitis in 1986. This issue had to be clarified before the question of imputation of knowledge could be addressed.

The insurer’s agent reported that:

“In the course of our discussion he was clear as to the status of his health at that time and discussed his medical history. When asked if he had disclosed all the information to Standard Bank (who applied for the policy) he answered in the affirmative and showed me a copy of a letter from [the insurer] accepting his application for inception date 1/4/1993.

I would then have queried if his health had changed in any way or if he had been declined or loaded on any other policy. He answered in the negative and was proud of the fact that he was living a healthy life and was very fit, being a triathlete. I would then have presented him with the special offer form and asked him to read through it and sign where indicated. Which he did.

The application was submitted in good faith by [the insured] and myself.”

When the insurer was pressed as to whether the insured specifically mentioned the tranverse myelitis to him, no further clarity was forthcoming.

The insurer, notwithstanding being invited to do so, did not specifically deny the complainant’s direct allegations; the probabilities were neutral; and the office accordingly had to accept that the information was indeed conveyed to both the agents concerned. The office thus made a provisionally ruling that:
• the non-disclosure was, objectively speaking, material;
• the disclosures made to the bank’s agent could not be imputed to the insurer;
• the disclosures made to the insurer’s agent could be imputed to the insurer, as he acquired such knowledge in the normal course of his activities as the insurer’s agent. Consequently there was a duty on him to convey such information to the insurer which he failed to do;
• the knowledge that he thus obtained had to be imputed to the insurer; and
• the insurer was entitled to repudiate liability under the first but not under the second contract.

The insurer challenged our provisional ruling but its counter arguments, although considered, did not persuade the office to deviate from it first ruling. Nevertheless, all efforts were made to find a pragmatic solution to the problem. The insurer very fairly agreed. The matter was finally resolved by agreement that the first policy would be reinstated and that the disability benefit would be paid under this policy. All premiums under the second policy were refunded from inception because, at the time the insured was first diagnosed with multiple sclerosis in 1995, this condition had not been included as a major dread disease under the second policy; it was only added during October 1996.