The Ombudsman for Long-term Insurance (Olti) may issue a final determination where a long-term insurer challenges the correctness of a provisional determination. The Olti issued five final determinations in 2022, summaries of which it published in its annual report.
In the following case, at issue was whether the life insured enjoyed full life cover even though the underwriting process had not been completed.
The complainant was one of the nominated beneficiaries under a policy issued by Old Mutual Alternative Risk Transfer on 5 October 2020 with a commencement date of 1 November 2020. The complainant’s mother was the policyholder and the life insured. Her mother died on 25 December 2020.
Old Mutual Alternative Risk Transfer declined the death claim based on a pre-existing condition.
The insurer said the life insured died of a Covid-19-related illness before the policy was underwritten and quoted the following clause in the policy:
“Where the policy has not been underwritten, a claim will not be admitted if the claim arises directly or indirectly from a pre-existing condition, which is any condition that existed preceding or during the application for life cover, for which the life insured has:
- consulted a medical practitioner or specialist, or
- taken prescribed medicine, or
- received treatment, surgery, or advice, or
- been on a waiting list for medical treatment, or
- manifested symptoms which would have caused a reasonable person to seek advice, or
- received a terminal prognosis; or
- an on-going medical condition of which the life insured is or ought to be aware.
This includes, but is not limited to, the conditions listed in the pre-existing conditions appendix, as well as Covid-19-related symptoms or illness.”
There was no evidence that the life insured suffered any Covid-19-related symptoms or illness before the commencement of the contract, and Old Mutual did not argue this point.
Instead, the insurer submitted that, “Covid is excluded prior to a policy completing underwriting, as the underwriting process is still considered as part of the application process. All pre-existing conditions are only covered post the outcome of the underwriting process, as that concludes the application and full risk assessment.”
Olti disagrees with OM’s interpretation
The Olti’s adjudicators did not agree with Old Mutual’s view that “Covid is excluded prior to a policy completing underwriting”. The adjudicators held that this is true only if Covid-19 was a pre-existing condition, for the following reasons:
- The introductory sentence of the above-quoted clause sets the context: “where the policy has not been underwritten, a claim will not be admitted if it arises from a pre-existing condition”;
- The clause goes on to explain what a pre-existing condition is;
- Followed by: “This includes, but is not limited to, the conditions listed in the pre-existing conditions appendix, as well as Covid-19-related symptoms or illness”; and
- The word “this” can be ascribed only to a “pre-existing condition”, as previously explained, and Covid-19 is given by way of example, along with the conditions related to HIV listed in the pre-existing conditions appendix.
If the drafter wished to exclude Covid-19 as a stand-alone condition, it had the opportunity to do so clearly by stating it as a separate, stand-alone exclusion.
The adjudicators concluded that the basis on which the claim had been declined was invalid, and a provisional ruling was issued, ordering Old Mutual to reconsider the claim.
OM: underwriting had not been completed
In its response, Old Mutual set out the purpose of the exclusion, stating it was implemented by the reinsurer “when the Covid-19 pandemic struck, as product providers were unable to price that risk, with Covid being an unknown disease at the time”.
It went on to explain the underwriting guidelines that would have applied if the person had tested positive and that the applicant would not be covered for Covid-19 during the underwriting process.
The insurer concluded: “… the crisp reason for decline therefore has been – and remains – the fact that underwriting was not completed, and therefore cover was limited to accidental death and not full life cover.”
The significance of the word ‘maintain’
The adjudicators found that the wording of the contract did not support the insurer’s intent to exclude Covid-19-related claims where the underwriting process had not yet been completed.
The wording was such that for Covid-19-related claims to be excluded, the condition must have existed prior to or during the application for life cover. In other words, the Covid-19-related symptoms or illness must have been a pre-existing condition for a claim to be excluded.
The insurer’s letter of 5 October 2020, under cover of which the policy contract was sent to the life insured, stated the following, and the policy contained a similar provision (emphasis added): “Remember, in order to maintain the full benefits of your cover, you must complete the underwriting process within 90 days.”
The use of the word “maintain” signified that the life insured was already enjoying the full benefits of cover, subject to the pre-existing condition exclusion, even though the underwriting process had not yet been completed.
In a final determination, the Olti concluded that Old Mutual’s reason for declining the claim was not supported by the wording of the contract, and the insurer should admit the claim.
Old Mutual agreed to admit the claim and paid the beneficiaries their share of the R300 000 benefit.
