Three cases that came before the life assurance ombudsman show that not disclosing information about injuries or health conditions when you apply for cover can result in a claim being repudiated.
When you apply for cover, a life assurance company obtains your permission to access your medical records, which enables it to check whether you have been honest on your application.
Statistics released recently by the Association for Savings & Investment SA show that, in 2015, life assurers rejected almost 400 claims for death benefits. Of these, slightly more than 200 were repudiated because the policyholders failed to disclose material (significant) information.
These claims were on fully underwritten policies, where you are required to answer questions about your medical history and lifestyle, such as whether you smoke or drink, or participate in high-risk recreational activities.
The annual report of the Ombudsman for Long-term Insurance shows that, in 2015, just under five percent of the complaints to his office were about claims for death, disability or dread-disease benefits that had been repudiated because of non-disclosure.
The report shows that 55 percent of the complaints resolved by the ombudsman’s office last year concerned declined claims.
Most of the claims were declined because they did not meet the policy terms or the conditions covered (1 510), but repudiation for non-disclosure gave rise to 79 complaints involving death benefits and 42 complaints involving disability benefits.
The ombudsman’s office found wholly or partially in favour of the policyholders in 22 percent of the death-benefit cases and in 21 percent of the disability cases.
The annual report by ombudsman Judge Ron McLaren highlights three cases concerning non-disclosure dealt with by the his office.
In one case, the ombudsman found in favour of the assurer, because, when she increased her cover for severe illness, the policyholder failed to disclose she had had a test to establish her risk of breast cancer.
In the second case, the assurer relented on its decision to repudiate a policyholder’s claim once it became apparent that her failure to disclose that she took a certain medicine briefly was not material to the claim. However, her case revealed other conditions that had not been disclosed due to a delay in her application for cover being lodged and so she received only 50 percent of the insured amount.
In the third case, which the ombudsman’s report describes as “curious”, the assurer’s evidence that allegedly proved that the policyholder had failed to disclose an injury was found to be unreliable, and the claim was accepted.
The three cases highlight the need for you to disclose more, rather than less, and to be honest.
Cover approved after test results received
In the case of the policyholder who increased her dread-disease cover from R300 000 to R1.5 million, the ombudsman established that, before she increased her cover, she had had a test to establish whether she had a predisposition to developing breast cancer.
The assurer decided to pay out R300 000, instead of R1.5 million, after she claimed for a double mastectomy to reduce the likelihood of contracting breast cancer.
On her original application, the woman had disclosed that her mother had breast cancer.
Both she and her sister decided to increase their cover in July 2013 after booking the genetic tests.
The woman’s application for the increased cover was approved after she had the test and one day before she received the results indicating that she had a predisposition for developing breast cancer.
According to the annual report, the woman argued that the assurer should not reject her claim on the basis of non-disclosure, because she did not know the results of the test when she increased the cover.
But the assurer said the policyholder had a duty to disclose material information during the period between applying for cover and the date on which the cover commenced, and a reasonable person would have disclosed the information about the test, even if the results were unknown.
The woman also failed to disclose on her application for increased cover that her father had been diagnosed with prostate cancer.
The ombudsman upheld the assurer’s decision to exclude cancer from the increased cover and pay a benefit of only R300 000.
More than one condition
In the second case, the assurer declined a claim on a policy for disability, income protection and temporary income protection, despite the policyholder disclosing that she had a number of conditions, including hypermobility syndrome (looseness of the joints that can cause pain and discomfort), and was taking various medicines.
Two months after taking out the policy in 2013, she claimed for hypermobility syndrome, because she had become disabled.
The assurer discovered that six months before buying her policy, she was taking medication typically prescribed for alcoholism and detoxification, but had failed to disclose this.
According to the ombudsman’s report, the woman admitted that she had used the medication for two weeks, but she said, and her doctor confirmed, that it had been prescribed for weight loss. The woman considered it irrelevant to the application. Another doctor confirmed that the woman was not an alcoholic.
The ombudsman’s office held a hearing, and the assurer accepted the complainant’s version.
But it emerged that the woman had not disclosed all her medical conditions when she took out the policy. Her financial adviser had delayed submitting the application for more than a year, during which time her medical condition had deteriorated.
The assurer offered to pay 50 percent of the claim without admission of liability, which the complainant accepted.
Unproven Back surgery
In the third case, the policyholder was able to prove he had not withheld information and that the information the life assurer had unearthed about an alleged injury was unreliable.
The policyholder claimed for a permanent back injury a few months after the inception of his income protection policy in 2011.
The assurer obtained a report from an orthopaedic surgeon stating that, in 2008, the policyholder had an MRI scan that showed he had a prolapsed, or herniated, disc and had been admitted to hospital and had physiotherapy. The assurer said the policyholder failed to disclose this injury.
But the policyholder disputed this, saying he suffered a minor back injury at work in 2008 and saw his general practitioner, who gave him some ointment. He went back to work the next day and had no further treatment for his back.
The ombudsman’s office resolves most of its cases based on written submissions. If there are disputes of fact, such as in this case, the rules of the ombudsman’s office state that the complaint must be dismissed and the complainant has to take it to court.
However, the policyholder was able to obtain a letter from the hospital at which the assurer alleged he had been treated, stating that it was not possible for the man to have had the scan in 2008, because its MRI scanner was installed in 2012.
The policyholder also obtained fraudulent bills from a second hospital that purported to show he had been admitted.
The assurer obtained reports from the orthopaedic surgeon that he had seen the policyholder in October 2008 and 2009.
The man was able to show that he did not have a scar from back surgery and to prove that he had lived in the Eastern Cape from September 2008 to December 2009, whereas the assurer alleged he had been admitted to hospital in Gauteng.
After an informal hearing with the assurer and the policyholder, the life company agreed to assess the man’s claim.
The cases highlight that it is better to be open and honest with your assurer when you apply for cover than for you or your dependants to have to fight a rejected claim when you are ill or after you die.
Remember that if you lodge a claim soon after you take out a policy, most assurers will check to see if you were already ill or injured when you took out the policy.