Ombuzz Issue 27: A change of health after the date of the application
A CHANGE OF HEALTH AFTER THE DATE OF THE APPLICATION
The applicant's duty of disclosure in an underwritten policy does not end when the application is completed. In terms of the common law, the duty continues until the conclusion of the contract - and the timing of this will depend on the circumstances of the particular case. Insurers also extend the duty by means of specifically contracting on a different basis. For instance, it could be stated in the application form that the duty to disclose will continue until the later of the first receipt of the premium or the commencement of cover.
Case 1
The date the application was signed – 26 August 2012.
A provision in the application form states:
"You confirm you have given relevant, complete and true information
By signing this application form, you give a formal promise (called a warranty) that
•You have given us and will continue to give us all information relevant to your application until we have accepted risk under this policy or until this policy starts, whichever date occurs last..."
The risk was accepted on 10 September 2012 and the policy commenced retrospectively on 1 September 2012.
A claim was lodged shortly afterwards for breast cancer. During investigations the insurer discovered that the complainant consulted a doctor for a breast lump on 6 September 2012.
Biopsies followed on 10 September and 12 September 2012 and after that cancer was diagnosed.
In terms of the clause stated above the insurer repudiated the policy and declined the claim.
We upheld the insurer based on the wording in the application form for the following reasons:
The backdated date of entry was 1 September 2012, but the insurer only accepted risk on 10 September 2012, which is thus the applicable date.
The consultation was on 6 September 2012, after the life insured noticed a breast lump, and the fact that the life insured had a mammogram and ultrasound on the same date, was clearly material information, in that a reasonable prudent person would have disclosed it to allow the insurer to assess the effect of the information on the risk it was asked to undertake. She had a duty to disclose this information even if she had not yet been diagnosed.
Had the insurer been informed of the breast lump, it would have deferred the decision to accept the policy until the outcome of the investigations was known. As it turned out, a diagnosis of breast cancer was made a few days later, on 10 September 2012.
If one reconstructs the policy to put the complainant in the position she would have been if she had correctly disclosed the breast lump, and the insurer then waited for the outcome of the investigations, it is clear that the application for insurance would not have been accepted.
The insurer was entitled to void the policy, and no claim was payable.
The period between the dates of application and when cover commences, can, in some cases, be quite long – even several months. The office has handled some very unfortunate cases where the life insured has had a change of health during this period and an eventual claim (even many years later) is then declined.
CONDITIONAL ACCEPTANCE
Some insurers specifically mention in the application form that the acceptance of the risk is conditional upon there being no change in health between the dates of application and the cover commencing.
Case 2
The policy was applied for in June 2009 but a medical incident i.e. hemoptysis, coughing up blood, occurred on 7 July 2009. The policy was accepted prior to 7 July 2009 but only issued on 13 July 2009. When a claim was lodged following a pulmonary embolism the insurer found out about the hemoptysis incident and it relied on the following clause in the application to void the policy:
"Should this application be accepted by the Insurer, it will be conditional upon there having been no material alteration to the facts on which the acceptance was based and no illness or injury suffered by the Life Covered between the date of this application and the date the Insurer issues your Benefit, or 30 days prior to the first premium due date elected by you, whichever is the later.".
This was not a question of non-disclosure in our view but the application of a condition. A reinsurer had given its opinion that it would have been reasonable for an insurer to have deferred the underwriting decision until more information (in the form of a further medical report) had been obtained. There had thus been a "material alteration” of the facts on which the insurer relied to accept the policy.
The insurer was entitled to rely on the abovementioned clause. The condition for acceptance of the application had not been fulfilled as there had been a material alteration of the facts. Therefore the acceptance fell away.
CAUTION
It appears that some policyholders, and possibly even some intermediaries, are not aware of the implications of a change of health on insurance cover and the continued duty of disclosure. It may be necessary for insurers to do some education and to draw attention to this aspect in their documentation. Such references usually appear in the "fine print” which is part of the declaration on the application form. This is not information to which the applicant pays particular attention, unless it is highlighted. It could also be that he/she no longer remembers what he/she read in the application form if there is a lengthy period between the application and the cover commencing.
There are some insurers which refer to this continuing duty of disclosure in their "Welcome Letter” when the policy is sent to the client. This is a commendable practice, which is more likely to elicit the required information from the applicant.
Disclaimer:
Ombuzz is published for general guidance only. The information it contains reflects our policy position at the time of publication. This information is neither legal advice nor a definitive binding statement on any aspect of our approach and procedure. The case studies are based on actual complaints we have dealt with.
