Momentum claimed that the deceased had failed to disclose that he had suffered from high blood sugar levels. The company cited non-disclosure as the reason not to pay the claim.
However, following a public backlash, Momentum subsequently decided to pay the claim in keeping with a new solution it has developed for families of clients who’ve died in violent crime, which will see them receive up to R3m in life claims, even if they haven’t fully disclosed health issues.
An insurance claim may be rejected even if the non-disclosed information has no bearing on the occurrence that initiated the claim.
The Ombudsman for Long-Term Insurance, Judge Ron McLaren, says there is a common misconception that the non-disclosure of material information by an applicant for life insurance has to be linked to the claim event in order for the insurer to be able to repudiate the policy.
“This is not so,” he said, adding the reason why the cause of the claim is irrelevant to the non-disclosed information, has to do with the insurer’s initial decision to grant cover.
“When one applies for a policy and is asked questions about his or her health, hobbies, etc, the insurer relies on the answers to these questions to assess the risk it is asked to take on.
“If the questions are answered incorrectly, or incompletely, it is a pre-contractual misrepresentation. The insurer, when it becomes aware of the true facts regarding an applicant’s health or hobbies, can repudiate the policy, that is, cancel it from inception.”
The Ombudsman said it does not matter whether the non-disclosure or mis-disclosure was intentional or not. The fact is that the insurer had relied on the wrong information to decide whether to grant cover or not and, therefore, can cancel the policy.
He gave the example of a proposer for an insurance policy who answers “no” when asked whether he suffers, or has ever suffered, from raised cholesterol. The insurer issues the policy. Six months later, by chance, the insurer finds out that the proposer had suffered from raised cholesterol for many years and was on treatment for it.
“The insurer can immediately cancel the policy because of the non-disclosure, despite the absence of any claim.
“This demonstrates that the cause of a claim is irrelevant to the non-disclosed information because there has been no claim.
“It is because the insurer was misled that it has the right to repudiate the policy. The causal connection is between the non-disclosure and the conclusion of the contract and not between the non-disclosure and the claim event,” the Ombudsman said.
Had the true status of an applicant’s health or hobbies been disclosed, the insurer would have been able to determine whether the risk was either too high, and the policy thus declined, or whether the risk could be mitigated by loading the premium or placing an exclusion on the policy.
The Ombudsman said his office adhered to fairness jurisdiction. In terms of this, where there is non-disclosure, the insurer has to reconstruct the policy when it becomes aware of the non-disclosure (also called the “Didcott principle”).
If the insurer would have issued a policy if it knew the true facts at application stage, albeit on different terms, then it should also do so when it becomes aware of the true facts at any stage, even at claim stage.
“If the insurer would have issued a policy, but with a premium loading i.e a higher premium, then the insurer must now reconstruct the policy on that basis.
“The insurer can’t just repudiate the policy.
“It is very unfortunate if a policy is repudiated and a claim is not paid, because of non-disclosure,” he said.
Supplied by Office of the Ombudsman