Medical schemes cannot cancel a person’s membership if he or she failed to disclose a diagnostic procedure that did not result in the diagnosis of a serious medical condition, the Constitutional Court has found.
South Africa’s highest court last week handed down a unanimous decision in case between the executor of a medical scheme member and Profmed.
The court ruled in favour of the member, who passed away in January last year, and whose membership was cancelled seven years ago for non-disclosure of allegedly material medical conditions. The court also awarded costs against Profmed.
The court’s decision is significant for several reasons, particularly its impact on the interpretation of non-disclosure in medical scheme contracts.
The court also held that material non-disclosure is not itself a sufficient ground for a medical scheme to terminate membership. Drawing on what the Supreme Court of Appeal (SCA) stated in Regent Insurance v King (2014), it reiterated that the scheme must also prove that the non-disclosure induced it to enter the contract.
Inducement is an insurer’s justification for entering a contract based on the information it received from the insured. In cases of non-disclosure, the insurer must prove that the omitted information was important enough that, if it had known the information, it would have made a different decision – for example, charging higher premiums, excluding certain conditions from cover, or declining cover altogether.
The court also found that the Prescribed Minimum Benefits (PMBs) are irrelevant to the determination of materiality in cases of non-disclosure.
Background the case
The dispute between the member, the late Mignon Adelia Steyn, and Profmed went all the way to the Constitutional Court after first coming before the Registrar of Medical Schemes in 2016.
Carlo Swanepoel, Steyn’s attorney and the executor of her estate, brought a substitution application before the Constitutional Court to replace her as the applicant. The court granted the application.
Steyn applied for insurance with Profmed in November 2015. In her application, Steyn stated that she had not suffered or received treatment, advice, or medication for any afflictions of the digestive system, despite having undergone a gastroscopy and colonoscopy that had resulted in a diagnosis of gastritis. Steyn was accepted as a member from 1 January 2016.
Throughout 2016, Steyn and her dependants underwent various medical procedures, collectively amounting to R400 000. The claims for these procedures were submitted to Profmed for reimbursement. In November 2016, Profmed terminated Steyn’s membership retrospectively based on the alleged non-disclosure of specific medical conditions: gastric ulcer, breast aspiration, wrist pains, and hip problems.
In a further letter in December 2016, Profmed stated that its grounds for termination were Steyn’s non-disclosure of an MRI lumbar spine, a breast aspiration, and a gastroscopy and colonoscopy for a gastric ulcer, where the final diagnosis was gastritis.
Steyn complained to the Registrar of Medical Schemes, which dismissed her complaint. She unsuccessfully appealed to the Council for Medical Schemes (CMS) and then to council’s Appeal Board, also without success.
Steyn launched an application in the High Court for the review and setting aside of the Appeal Board’s decision. The High Court granted the application, setting aside the ruling of the Appeal Board and ordering Profmed to honour the policy.
But the Full Court upheld an appeal by Profmed and set aside the High Court’s decision.
Steyn applied to the SCA for special leave to appeal against the Full Court’s decision, but her application was dismissed. She then applied for the dismissal to be reconsidered, but that application was also dismissed.
Steyn sought leave to appeal in the Constitutional Court, arguing that the matter engaged the court’s jurisdiction.
The Constitutional Court agreed. Among other things, it said the appeal raised a point of law of general public importance: whether the materiality of a non-disclosure on the objective common law test constitutes an adequate ground permitting a medical scheme to terminate membership, or whether an insurer must also prove that the non-disclosure induced it to enter the contract.
“This is an arguable point of law of general public importance, because it will govern all cases where a medical aid seeks to terminate a member’s membership on grounds of non-disclosure,” Justice Steven Majiedt wrote on behalf of the court.
Distinction between medical conditions and diagnostic procedures
The judgment provided a detailed analysis of non-disclosure, particularly in the context of Steyn’s case involving her hip arthroscopy and gastritis.
The court noted that section 29(2)(e) of the Medical Schemes Act (MSA) does not define materiality but leaves it to the medical schemes to establish rules around this. In this case, Profmed’s rules did not clearly define the standard for materiality, and the court had to rely on case law and statutory interpretation.
The court held that a duty to disclose arises when there is a medical condition or fact that a reasonable person would consider relevant to the risk being insured. This is judged from the perspective of a reasonable and prudent person, not the insurer.
In Steyn’s case, the hip arthroscopy occurred 17 months before her application to join Profmed, and section 29A(7) of the MSA allows insurers to request medical information only within the 12 months preceding the date of application. This was one of the reasons Steyn did not have to disclose the hip arthroscopy.
The judgment emphasised that non-disclosure is relevant only if the undisclosed fact is material. The test for materiality is objective and involves asking whether a reasonable person would regard the fact as relevant to the insurer’s assessment of the risk. The onus to prove materiality lies with the insurer.
The court found that mere diagnostic procedures, such as Steyn’s hip arthroscopy or gastroscopy, cannot be classified as material non-disclosure unless they reveal a significant medical condition. The court pointed out that the hip arthroscopy was a diagnostic procedure, not a medical condition, and therefore did not have to be disclosed.
Similarly, the court held that gastritis, which was diagnosed following the gastroscopy, was a common and non-serious condition that a reasonable person would not consider material. It made a distinction between gastritis and more serious conditions such as a gastric ulcer, which might have been considered material.
The court said it appeared that Profmed terminated Steyn’s membership based on a misconception that she suffered from a gastric ulcer.
But the uncontested evidence showed that the gastroscopy revealed that Steyn was not suffering from a gastric ulcer but gastritis, a common medical condition that presents as heartburn and can often be relieved by self-medication. The Registrar, the CMS, and Appeal Board overlooked the distinction between the two conditions.
Material non-disclosure must induce the contract
The judgment highlights the importance of inducement as an element in cases of non-disclosure. Specifically, it stated that an insurer must not only prove that the non-disclosure of information was material but also that this non-disclosure induced the insurer to enter the contract. In other words, Profmed had to demonstrate that if the information had been disclosed, it would have made a different decision about admitting Steyn as a member.
The court held that, under both common law and section 29(2)(e) of the MSA, inducement is required – non-disclosure alone is insufficient for termination.
While the materiality of the non-disclosure is determined objectively (what a reasonable person would consider relevant), inducement is a subjective test. It looks at whether the insurer, based on its own risk policies and practices, was actually influenced by the non-disclosure to accept the risk.
Profmed did not provide any evidence to prove that it was induced by the non-disclosure of the hip arthroscopy and gastritis to conclude the contract.
The Constitutional Court noted that Profmed’s argument sought to bypass the inducement requirement, claiming that materiality alone was enough to cancel the policy. However, the court rejected this argument, reaffirming that inducement is a necessary element and cannot be dispensed with.
Profmed also did not present any evidence regarding its approach to applicants with similar medical histories who made full disclosures. As a result, it failed to demonstrate that Steyn’s non-disclosure had any impact on its decision to accept her as a member.
PMB list is not a determining factor for disclosure
The Constitutional Court found that the PMBs are not a valid basis for determining whether information should be disclosed when applying for medical scheme cover.
The Appeal Board said gastritis and gastric ulcers are distinct conditions; gastritis is less serious and more common. It then applied the following test to establish materiality: section 29A(2)(a) of the MSA entitles medical schemes to impose a waiting period for conditions not covered by the PMBs. Gastritis is not a PMB. If gastritis had been disclosed, Profmed would have imposed a waiting period. Steyn’s non-disclosure prevented Profmed from doing so, and the non-disclosure of gastritis was consequently material.
The court rejected this logic, emphasising that the PMBs are not intended to function as a test of materiality when it comes to disclosure. In other words, just because a condition is not listed as a PMB does not automatically make it material for disclosure purposes.
The court also said that section 29(2)(e) of the MSA, which addresses non-disclosure, makes no mention of PMBs as a criterion for deciding whether something is material.
The court pointed out that the Appeal Board had improperly read the PMBs into the materiality test, where no such reference exists in the legislation. If the legislature had intended PMBs to play a role in determining materiality, it would have explicitly stated so in the Act.
Instead, the PMBs are provided for in a different section of the MSA (section 29A), which deals with mandatory cover for serious or chronic conditions. This section is unrelated to the rules governing disclosure in applications.
Appeal Board hearing was procedurally unfair
The court found that the proceedings before the Appeal Board had been procedurally unfair. Profmed had initially raised, then abandoned, the issue of Steyn’s alleged non-disclosure of her hip arthroscopy, but it had later reintroduced it during oral argument without admissible and properly adduced evidence. Steyn had thus been denied the opportunity to present evidence in response, violating her right to a fair hearing under the Promotion of Administrative Justice Act.
In addition to granting Swanepoel’s substitution application and leave to appeal, the Constitutional Court set aside the Full Court’s order in favour of Profmed and substituted it with an order dismissing the scheme’s appeal, with costs.
This is a victory for all against these bullies of insurance. I hope it goes a long way I ensuring that clients get what they have for with their hard earned cash. Had a similar case against and insurance company where my life cover was terminated. Reasoning I was I did not submit the medical report. This was despite me submitting email of my doctor to them and him agreeing to submit whatever they required.
I also had Profmed refuse to pay for my crown to be replaced/glued back onto a pin as these told me i had not disclosed I had a crown done 33 years ago. They eventually paid. You must challenge every dispute.