Secondary

When does cover commence?

The latest newsletter from the Long-term Ombud contains two cases where claims were repudiated as a result of a health condition manifesting between the date of application and acceptance of the risk.

Non-disclosure
The application was signed on 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.

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.

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.

The question that arises is how this affects the intermediary involved?

Under FAIS, you are obliged to ensure that the client understands all material information relating to the application, including the clauses mentioned above, which are standard in most applications.

In these examples, the intermediary may well have been unaware of the changed circumstances, yet could possibly be held liable for the claim being repudiated.

Please click here to read the applicable Ombud newsletter.

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