Innocent non-disclosure still a problem: IFSO

In 2014, the man and his wife arranged life and trauma insurance when they took out a new mortgage. They cancelled their existing policies.

Three years later, he claimed on the trauma policy and for early payment of the life benefit because he was diagnosed with terminal lung cancer.

In assessing the claim, the insurer found a history of high cholesterol, gout, and impaired glucose tolerance.

It said, had he disclosed his history, he would have had cover with a 50 per cent loading.

It applied the loading retrospectively and paid out a reduced sum.

The client’s lawyer said he was not asked all of the application questions when he arranged the policy; he was told he did not need to get a medical certificate; his English was poor, and he had just wanted to please the staff. He said that he wanted to be paid the full sum insured.

IFSO noted there was disagreement about what happened at the time of application.

The client said he was only asked four of the health questions in the application and that he was told his insurance would be “transferred” and he did not need to get a medical certificate. However, the staff member involved said she went through each question with him and recorded his answers.

That left the case manager relying on the documentation of the process.

The client had signed a declaration and a replacement business form, confirming that he had checked all his answers and understood the consequences of changing insurance. He was also sent a copy of the application questions and his answers.

The IFSO case manager accepted the client probably did not understand the importance of disclosing of his medical history.

“But, no matter what the reason for the failure to disclose, the insurer is entitled to rely on its legal rights to avoid the policy or treat it as if it had never existed if the insured does not tell it about material information. The current law does not distinguish between innocent and deliberate non-disclosure and the IFSO Scheme cannot make a decision that ignores those legal rights, even if it does not seem fair, or has harsh results, in all of the circumstances.”

The case manager contacted two independent underwriters who advised they would have offered cover with a 50 per cent loading.

IFSO said that meant the insurer had been induced to enter into the contract by the non-disclosure and it was entitled to take the action it had in applying the loading and reducing the claim payout.