The question of full disclosure at the time of application, as well as during the term of a policy, came to the fore in a recent article published in Rapport. After first repudiating a death claim for R10 million on the grounds of non-disclosure, the insurer, after consultation with the Ombudsman for Long-term Insurance, reviewed its decision and paid the claim.
Background
The insured took out two policies in August and November 2019. Prior to this, his GP diagnosed depression, but a psychiatrist diagnosed his condition as “panic” three months after taking out the first policy. According to the insurer, he also failed to declare an ulcer that developed after taking out the policies.
The insured died in a motor vehicle accident on 5 August 2021. According to his wife’s lawyer, the insurer declined the claim on the grounds of non-disclosure of the above health conditions.
The Rapport article states that the insurer “admitted in writing” that, if the client had disclosed that he was diagnosed with depression, it would have implemented a 12-month waiting period. The article points out that the claims were only submitted 21 and 24 months after application.
On Friday, 1 April, the insurer confirmed to Rapport that it had decided to pay the claim after senior management held discussions with the Long-term Ombud.
Precedents
Readers may recall the Ganas case in 2018 that also involved a claim being declined because of non-disclosure, despite the insured being shot by criminals in front of his family. The insurer indicated that, if the real facts had been disclosed at application stage, it would have declined the application.
At the time, there was a huge public and social media outcry, which resulted in the insurer changing its approach to such claims and undertaking “…to pay claims where the deceased was a victim of violence, despite the fact that there had been non-disclosure of information at application stage which would entitle it to decline the claim”.
The LT Ombud agreed with the legal basis on which the claim was declined but raised a number of other considerations which had to be borne in mind, including the “Didcott principle”, named after the late Judge John Didcott.
In its subsequent annual report, the LT Ombud expanded on this.
What are the governing principles?
“An applicant for a life insurance policy must give all material information in the application form. This is a fundamental principle which is founded on an insurer’s legal right to be informed of all the material facts in order to enable it to properly assess the risk involved in an application.
“The test for materiality was prescribed in section 59 of the Long-term Insurance Act, 52 of 1998. Information is regarded as material if a reasonable, prudent person would consider that it should have been correctly disclosed to the insurer so that the insurer could form its own view as to the effect of such information on the assessment of the relevant risk.
“In the exercise of its equity jurisdiction, this office is a strong proponent of the view that, in the event of a non-fraudulent misrepresentation, the policy should be ‘reconstructed’ to what it would have been if there had not been a non-disclosure.
“Insurers agree to the application of the Didcott principle. Sometimes it happens that an insurer agrees to consider the application of the Didcott principle, but argues or produces evidence that the policy in question cannot be reconstructed because, if the insurer had known the truth, the policy would not have been issued at all. We accepted this argument after obtaining an independent reinsurer’s opinion on the underwriting criteria applied in the Ganas case.
“Our office will not allow an insurer to ‘shut its eyes to the light’ or to adopt a supine attitude towards information in an application form which should alert the insurer to make its own enquiries. Such inaction on the part of an insurer may be interpreted as a waiver by it of its entitlement to the information.”
Ombud’s recommendation
“The legislature should reconsider the current non-disclosure legislation. If it is of the view that an insurer can only escape liability on the ground of a non-disclosure that, if there is a causal connection between the non-disclosure and the insured event, it is a matter for the legislature to deal with. Until that happens, this office applies the law as it stands, with due regard to our equity jurisdiction, which enjoins us ‘to have due regard to considerations of equity’ (Rule 1.2.4) and to ensure that ‘subscribing members act with fairness and with due regard to both the letter and the spirit of the contract between the parties’ (Rule 1.2.7). The legislature should, at the very least, give consideration to the introduction of the Didcott principle into legislation.”
It appears that this has not happened yet.
Ombud’s advice to clients:
- Give full information in the application form.
- Rather disclose more than only the information required in the application form.
- If you do not understand a question, make enquiries or say in your answer that you do not understand the question.
- If you are not certain of your answer, make enquiries or say in your answer that you are not certain thereof.
- Once the contract has commenced, the duty of disclosure ends, and any new circumstance arising thereafter that affects the insurer’s risk is for its account and does not have to be disclosed by the insured.* However, the duration of the duty of disclosure can be contractually extended and modified. For instance, an insured may be bound to disclose to the insurer any change in his or her occupation or the commencement of his or her engagement in hazardous pursuits, even if these occur after the commencement of cover.
*I am not sure that this applies to all contracts and will probably differ from insurer to insurer.
