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Life ombudsman flooded by pre-existing condition complaints

11 May 2011Gareth Stokes
Gareth Stokes. FAnews Online Editor

Gareth Stokes. FAnews Online Editor

How many of your clients bother to read their policy documents? And if they read the documents, how many of them actually understand the provisions – particularly the exclusions. For the layperson not immersed in the financial services field the terms and conditions contained in the policies can be extremely daunting! And that’s why the financial intermediary plays such an important role in the marketing, sales and distribution of life product...

Even if your clients (and yourself) understand the terms and conditions contained in these policies they can still run into problems at claims stage. That’s when differences in interpretation between your client and the insurer come to the fore… At this stage the intermediary can assist their client by making sure complaints about claims interpretations are processed through the correct channels – first internally at the insurer – and subsequently at the appropriate regulatory body.

The Ombudsman for Long-term Insurance (Ombudsman) says that complaints about pre-existing exclusion clauses are the most common complaint brought to their office. “These clauses are generally used in policies where there is no medical underwriting of the risk,” they say. We can unpack the issue further by considering the Ombudsman’s recent determination against Clientèle Life. The insurer had refuted a claim based on their interpretation of a pre-existing exclusion clause!

A daily cash-benefit policy, by telephone...

The insured in this case held two Clientèle Life policies. The first would pay cash benefits of R400 per day upon claim event and was taken out on 1 February 2003. The policy provisions included an exclusion clause which stated: “The company shall not be liable in respect of bodily injury or sickness, directly on indirectly caused by, arising from, contributed to by, aggravated by, connected with or resulting from: pre-existing medical conditions as defined herein.” A comprehensive definition of the phrase ‘pre-existing condition’ was also included in the policy wording.

The second policy, which was applied for telephonically and commenced on 1 July 2009, provided for a daily cash benefit of R1, 000. The Ombudsman refers to the recorded sales conversation to piece together the ‘advice’ stage. During the telephone conversation the sales agent asked the complainant “Is u gesondheid goed, geen hart probleme, diabetes, hoë bloeddruk, lei aan enige reeds bestaande mediese toestande of is u altyd (?) perdfris?”, to which the complainant replied: “Ek het ‘n bietjie suiker.” He also advised the consultant he was on Glucophage… The sales agent’s response to this disclosure was: “Nee, dis in die haak.” I found it interesting at this point that the complainant failed to mention the hypertension admitted when purchasing the first policy – but the Ombudsman makes no mention of this.

The telesales agent later states: “Voorafgaande kondisies word gedek nadat u 24 premies betaal het, vir enige ander kondisie is u gedek na ses maande.” He also says: “Ons stuur ook vir u ‘n gesondheids verklaring in die pos wat u moet teken of u in goeie gesondheid is”. The form in question was never returned to the insurer by the client.

With two policies in place you’re covered – right?

The insured was hospitalised after complaining about chest pains. He subsequently underwent coronary bypass surgery… And here’s where the problems crept in. Clientèle Life refuted the first claim on the basis the complainant’s hospitalization was directly or indirectly caused by pre-existing conditions (hypertension, high cholesterol and diabetes). This decision was upheld by the Ombudsman!

But the second policy was different. In declining the claim on the second policy  Clientèle Life relied on the following exclusion clause: Hospitalisation as a consequence of pre-existing conditions as defined herein during the first two years from date of commencement of the plan will not be covered.The Ombudsman made the following provisional determination against the insured. The complainant was not hospitalised for any of his pre-existing conditions (hypertension, raised cholesterol and diabetes), but due to chest pains. Subsequent to his hospitalisation the insured was diagnosed with ischaemic heart disease for which he underwent bypass surgery. There was NO evidence that the complainant suffered from ischaemic heart disease prior to the commencement date of this policy.

The important conclusion here is that “the exclusion clause and definition on this policy do not allow a claim to be declined on the basis that the reason for hospitalisation is directly or indirectly traceable to a pre-existing condition!” The Ombudsman provisionally ruled that Clientèle Life pay the benefit under this policy. But the story doesn’t end here because the insurer appealed the decision on the basis it believed the hospitalisation was a direct consequence of a pre-existing condition…

Second battle, same result

The Ombudsman disagrees… “In interpreting the exclusion clause at issue, no reliance was placed on the wording of the exclusion clause in the first policy, as suggested by Clientèle Life,” they say. “The complainant was hospitalised due to his chest pains, subsequently found to be the result of ischaemic heart disease! The hospitalisation was therefore as a consequence of ischaemic heart disease not of a condition(s) that had existed at the commencement of the second policy!”

What Clientèle Life wanted to do was introduce a further requirement at claims stage. The Ombudsman explains: “The insurer’s interpretation means they could decline the claim if the insured is hospitalised in consequence of a condition, which in turn is a consequence of a condition that existed at the commencement of the policy!”. The clause as worded does not say this. Upon their second ‘crack’ at the complaint the Ombudsman confirmed the provisional determination, issued on 16 March 2011, and instructed Clientèle Life to pay the claim within 30 days.

Editor’s thoughts: It is often difficult to assess disability and hospitalisation claims due to the difficulty in diagnosing and defining medical conditions, the severity of these conditions and the links between conditions. To this day doctors come to different conclusion in cases where a claimant’s financial future is at stake. Do you believe your client’s dread disease and disability claims are consistently diagnosed and evaluated, especially identifying the cause and severity of the event? Please add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Cynical Simon., 13 May 2011
This illustrates the danger and falacy of underwriting at claims stage.For an "Uberimae Fides Purist" like myself who unflinchingly believes that the principle of utmost good faith applies with equal gravity to both parties involved in the entering into of an insurance or assurance contract these short cut cost saving methods aimed entirely at benefitting the assurance company ,such as issuing policies for sub standard lifes without the "expenses" of medial examinations and then by untrained and unqualified tele-sales operators are abberations which should be outlawed and discontinued .
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Added by Rob Spendley, 12 May 2011
Quite frankly what you have here is a clear example of why insurance by telesales should not be allowed. They do not have to follow FAIS rules as they "do not provide advice" and yet they target the low income and uniformed person with products that are clearly aimed at just making money for the insurer.
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Added by Kenny Williamson, 12 May 2011
I agree, the definitions etc, of illnesses, medical conditions are getting more and more complicated. i also run a website, it is difficult to try and do things via email or telephone. You need to ask the right questions and prod for information. That is why a lot of the sales people that sell directly are simply not clued up enough. However, this should be sorted after first round of regulatpry exams.
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Added by Pieter, 12 May 2011
We have had this argument over and over again in the past... When a policy is issued with the pre-existing clause, then risk factors such as high blood pressure, diabetes and cholesterol are just that - risk factors and NOT a pre-existing condition for cardiac or cerebrovascular incidents. Does the insurer imply that a person that does not suffer from hypertension will never have heart problems? If the insurer wants to use these risk factors to exclude cardiac and / or cerebrovascular incidents, they will have to build this into the pre-existing clause.
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Added by johan marais, 11 May 2011
i feel that the ombud is correct. The insurance companies got rich by refusing claims that is valid. More they always made the broker the bad ,,,,if they hide behind their interperation. GOOD FOR THE OMBUD.
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Added by clint, 11 May 2011
The policy shouldnt have been issued without the client health declaration returned and signed. Typical tele assurance syndrome. Sell sell sell. Then refute people who dont even have a qualified intermediery to support them. Its basically pillaging the masses.
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