Fast little loans
Beware of exclusion clauses that risk life assurers may use to unfairly repudiate your claim.
In his office’s latest “Ombuzz” newsletter, Ombudsman for Long-term Insurance Judge Brian Galgut says a life assurance company cannot adopt a high-handed approach when deciding whether or not to repudiate a claim where doubt exists over whether or not an exclusion clause can be applied.
Exclusion clauses, which state when benefits will not be paid, normally cover things such as pre-existing health conditions. So in simple terms, if you suffer from, say, a heart condition when you take out a life assurance policy, the life company is entitled to state that it will pay a benefit for all causes of death except a heart attack.
Another major exclusion is suicide, and this exclusion normally applies to the first 24 months after a policy has been issued.
But sometimes the cause of death is debatable.
Galgut says: “Where the probabilities are evenly balanced, the onus will be decisive, which means that where the assurer wants to rely on an exclusion clause, the assurer has the onus to prove that the incident in question falls within the ambit of the exclusion.
“Assurers in some instances rely on speculation rather than evidence to decline a claim.”
He says a life assurance company can rely on an exclusion, such as suicide, only “if there is sufficient evidence to support a conclusion that a claim falls within the exclusion”. Although this may seem self-evident, this requirement is not always understood or applied by life companies when they consider claims, Galgut says. “Nor is it correctly understood by all claimants.”
However, he says, there is often a lack of clear evidence on whether or not an exclusion applies. What makes these cases even more difficult is that the claimants often desperately need the money from the policy payout. The delays caused by obtaining evidence cause financial hardship and are met with resistance from the claimants.
Galgut provides three case studies from the files of his office to illustrate the problem, and to give the industry, policyholders and beneficiaries an indication of how complaints are settled.
Case study 1
The holder of a funeral policy, who was known to suffer from chronic obstructive airway disease and who had been on prescription drugs for his condition, allegedly took an overdose of his medication.
The life assurance company declined the claim based on a suicide exclusion clause, which stated: “If an insured person commits suicide (kills himself or herself) within the first two years from the start date, or from when he or she was named under the policy, the funeral benefit will not be paid.”
Judge Brian Galgut says an overdose of prescription drugs does not necessarily lead to the conclusion that the person committed suicide; the overdose could have been accidental.
“Suicide is by definition an intentional act. Suicide is also an inherently unnatural act which is contrary to human instinct. The presumption in cases of this nature is that the cause of death is accidental.
“We required more information regarding the circumstances of the overdose to enable us to make a decision. The insurer at first simply responded by stating that it was of the view that the deceased took an overdose with the intention to commit suicide.”
After the life assurance company received no response from the policyholder’s doctor about details of the prescription, the assurer stopped trying to provide evidence of suicide and made an ex gratia offer of 65 percent of the claim, which the complainant accepted.
Galgut says this case demonstrates that assurers will on occasion settle matters rather than spend time or money to obtain further information.
He says the assurance company, on which the onus rests to prove that the suicide exclusion applies, has to provide the evidence necessary to support its decision. This means that evidence of the circumstances of the death, and even of the state of mind of the deceased, may be important in weighing the evidence.
Case study 2
The policyholder was found hanging from a tree. There were no injuries other than the injury to the deceased’s neck, and there were no signs of a struggle. The inquest report drew no conclusion other than that the death was “consistent with hanging”.
Judge Brian Galgut says the death was obviously not an accident and there was no evidence to indicate that it could have been murder. The probabilities favoured the life assurance company’s conclusion that the policyholder committed suicide. Galgut upheld the assurer’s decision to decline the claim.
Case study 3
A policyholder died at the age of 59, and his personal doctor certified that his death was due to asphyxiation during a seizure.
When the life assurance company asked for more details, the doctor said he arrived at the deceased’s house after his death and confirmed that he had died some time during the night.
The doctor knew that the policyholder had suffered from epilepsy manifested by nocturnal seizures and he therefore considered asphyxiation during a seizure to have been the likely cause of death.
The life assurance company declined the claim on the basis of a policy condition that excluded death from a pre-existing condition.
But a neurologist to whom the consulting doctor had referred the policyholder stated that “death in this case appears to have occurred relatively suddenly and without collateral evidence to indicate its cause”.
According to the specialist, such sudden death is generally ascribed to a “cardiac event”. Galgut says the question of asphyxiation arose because of the policyholder’s history of epilepsy and two incidents of night seizures.
“This is a recognised but very rare cause of sudden death. In the absence of any evidence relating to the cause of death, it would be distinctly unlikely that this was the cause of death.
“An assumption by the treating doctor that this was the cause of death appeared to have been incorrect. The medical expert to whom we referred the case agreed with this view.
“In the absence of any other evidence … the reasonable conclusion would have been that the cause of death was a cardiac incident not related to a pre-existing condition.”
It was for the life assurance company to prove its reliance on an exclusion clause when declining a claim. In this instance, the assurer had minimal information on which to rely to support its decision. It had to concede its inability to discharge the onus, Galgut says.
Contact the Ombudsman for Long-term Insurance
Call: 0860 103 326
Fax: 021 657 5000
Post: Private Bag X45, Claremont 7735