The Long-Term Insurance Ombudsman on insurance exclusions

You should all be familiar with exclusion clauses. We’re not talking about the ‘conditions’ hiding in the fine print at the bottom (or on the reverse side) of your cellular phone contract; but rather those contained in an insurance policy. Long and short-term exclusions form part of the policy wording – plain for all to see. The problem creeps in at claims stage, when the insurer refutes the claim on the basis of the exclusion, the insured argues they know nothing about it, and the industry ombudsman determines that the financial intermediary is to blame!

In today’s newsletter FAnews Online unpacks the issue from the Ombudsman for Long-Term Insurance’s perspective. The Ombudsman published an interesting article in their March 2009 Ombuzz (Issue 10) titled, “Exclusion clauses: Who has the burden of proof?”

Getting to grips with the exclusion concept

Before we argue the merits of a particular case let’s get the definitions out of the way. The Ombudsman says an exclusion clause “allows the insurer to deny liability in the circumstances described in a particular clause.” A common long-term insurance exclusion is the pre-existing condition clause, which goes something like this:

“No claim for any benefit will be payable under this policy if the claim is related, in the opinion of the insurer directly or indirectly to a physical defect, medical condition or injury which manifested symptoms to the claimant before the commencement of this policy and which would have caused a reasonable and prudent person to seek medical advice and/or treatment. This exclusion applies whether the claimant received treatment for the condition or not.”

Pre-existing exclusions are “used in all policies where there is no underwriting,” says the Ombudsman. The reason is that insurers use underwriting – for example medical tests – to determine levels of risk and appropriate premiums for the insured pool. The Ombudsman says that contraventions of this clause are a common reason for complaint referrals to its office. In other words – there are plenty of disgruntled insurance consumers who take the fight to the insurer when claims are denied. To finalise these disputes certain medical facts must be proved by the parties to the contract.

The burden of medical proof is NOT with the client!

It seems insurers – keen to avoid paying legitimate claims – use every trick in the book to ‘shut’ the claimants out. The Ombudsman summarises this behaviour as follows: “insurers often mistakenly place the burden of producing medical evidence about the insured’s medical history on the claimant and then delay the claim when the claimant does not produce the medical evidence.” This is not how the situation should unfold.

All the claimant has to do is “provide evidence that substantiates the claim.” If they have suffered a stroke or heart attack for example, proof of the event is sufficient. “If an insurer wishes to rely on the pre-existing exclusion clause, it has to prove the existence of a medical condition prior to inception of the policy!” We guess the Ombudsman is going ‘public’ with this information because they are tired of telling insurers “in Annual Reports, in workshops and in correspondence” where the burden of proof lies!

How exclusions work in the real world

The Ombudsman provided a case study to demonstrate how insurers abuse the pre-existing condition exclusion. The deceased owned a dread disease policy (including the abovementioned pre-existing condition clause) and had nominated his wife (the claimant) as a beneficiary under the policy. The assured died on 3 September 2008 (47 years old) due to stroke – a dread disease covered on the policy. Subsequent to the death the claimant submitted a death certificate, copy of ID, personal medical attendants report, certificate of medical attendant and declaration of identity to the bank where the policy had been sold, for onward referral to the insurer. “After 2½ months [without response] the insurer eventually wrote to the complainant requesting a post mortem report and clinical evidence that the deceased had died from a stroke.” In addition, the insurer demanded “a personal medical attendant’s report to prove that the insured had not suffered from a related illness prior to inception of the policy.”

The Ombudsman notes: “After the complaint was lodged with our office we pointed out to the insurer that if it wished to rely on a pre-existing exclusion clause it would have to obtain the medical evidence it sought, itself. The insurer could not expect the claimant to search for evidence on which the insurer could rely to decline the claim.” The insurer subsequently contacted the insured’s doctor and paid the claim after finding no evidence of a pre-existing condition. It also paid some compensation to the claimant for the poor service she received.

Getting back to the burden of proof argument, the Ombudsman concludes that the claimant “has to prove the death, and the cause of death where that is relevant” while the insurer “has to prove the existence of a pre-existing condition.” The insurer has to obtain the information it requires without recourse to the claimant.

Editor’s thoughts:
We appreciate the Ombudsman’s effort to place the ‘burden of proof’ argument in the public domain; but are concerned that insurers continue to blatantly abuse the claims dispute resolution process. It seems they stall valid claims in the hope that the claimant is too daunted (or poor, or uneducated) to take matters further. What should the Ombudsman do to insurers who regularly settle claims at dispute resolution stage? Add your comments below, or send them to [email protected]

Comment on this Post

Name*

Email Address*

Comment*

 

Submit Comment