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Expat Investor : October 2007
When it pays to bare all These case studies from the Financial Services Ombudsman focus on the distinctions drawn between 'reckless' and 'inadvertent' non-disclosure when making an insurance claim. Inadvertent non-disclosure Mrs B applied for life and critical illness cover in March 2000 during a face-to-face meeting with a representative of the insurer, who completed the application for her. Several years later, after Mrs B developed breast cancer, the insurer declined her claim on the grounds of reckless non-disclosure. And it avoided the policy (in other words, treated it as if it had never existed). The insurer said this was an instance of reckless non-disclosure because Mrs B had failed to mention that she suffered from asthma, even though several of the questions on the application form should have prompted her to disclose this. It said that if it had it known about her asthma, it would have increased the premium. Mrs B challenged the insurer's decision. She said she had informed the representative about her asthma at the time she applied for the policy. He had said the insurer was not interested in such 'run of the mill' matters. He had told her there was no need to mention the condition because it was fully controlled by an inhaler and she had never had to use a nebuliser or go into hospital warning, reminding him he had a duty to inform the insurer immediately if -- as a result of anything that happened before the start of the policy -- he needed to change any of his answers. In August 2002, Mr J developed a serious condition which he had not suffered from before. He had a number of consultations about it with his doctor, who prescribed treatment in September 2002 and certified Mr J as unfit to work for the next two months. The insurer said it sent Mr J a letter in October 2002, confirming its acceptance of his application and asking him if there had been any change in his medical condition since he completed the application form.The policy started a week later. Just over a year later, Mr J developed leukaemia. The insurer rejected his claim, saying he had been reckless in failing to disclose the medical condition that had arisen in August 2002. The insurer said it would not have been prepared to cover him if it had known about this condition. Mr J said he never received the insurer's letter in October 2002. And he said that, in any event, the medical condition that had arisen in August 2002 had nothing to do with his claim for leukaemia. Complaint rejected The Ombudsman thought it probable that the insurer had sent the letter in October 2002, even though Mr J could not recall receiving it. So it considered that by sending this letter, and by including the warning on its application form, the insurer had given Mr J adequate warning of the need to disclose any changes to his health since he had applied for the insurance.However, it noted that the insurer had not sent him a copy of his original application form with this letter, so that he could assess what changes were relevant to the insurer. It decided that Mr J had not intended to mislead the insurer. It took into account how close -- in INSURANCE CLAIM DISPUTES expatinvestor.com 18 EXPAT INVESTOR October 2007 time -- the emergence of the new medical condition in August 2002 and the outcome of the consultations were to: the date when he applied for the insurance the acceptance letter and the start date of the policy. Although, in the light of the warning letter, he should have understood the need to disclose his new condition, the Ombudsman recognised that a duty to disclose information after an application has been accepted is a particularly onerous requirement that few consumers anticipate. In this case, it considered that, despite the insurer's warnings, Mr J had not fully understood the need to inform the insurer of any changes to his health. So his non-disclosure had been inadvertent rather than the result of a reckless disregard for the truth of his answers. The usual remedy for inadvertent non-disclosure is to allow the insurer to rewrite the policy on the terms it would have imposed, had it known the full facts. In this case, it was persuaded by the insurer's evidence that it would not have offered Mr J any cover at all, had it known about his new medical condition. So it concluded that it was fair for the insurer to refuse to consider the claim and cancel the policy from the outset and refund the premiums that Mr J had paid. Reckless non-disclosure Mrs M took out two life assurance policies in November 2002. One was in her sole name and the other was a joint policy with her husband. Both application forms contained the questions: 'Do you consume alcoholic drinks?' 'Are you currently receiving any medical treatment or attention?' 'Have you ever sought or been given medical advice to reduce the level of your drinking?' Mrs M answered 'No' to each question. because of it. The insurer disputed this -- and said it had a statement from the representative confirming that he would never have suggested that an applicant omitted details of any health matter, however trivial. Complaint upheld The Ombudsman found that Mrs B had disclosed her asthma on a separate application she'd made to the insurer a few months later, through a different representative. It was clear from her medical records that Mrs B's asthma was well controlled, and she had never needed to use a nebuliser or go into hospital because of it. It also noticed that the application form,which the insurer's representative had completed for Mrs B, contained several mistakes. These included the fact that he had ticked the box indicating that Mrs B was a non-smoker but had also stated that she smoked an average of five cigarettes a day. Mrs B had disclosed her asthma in a subsequent application to the same insurer, so it accepted that she had not intended to keep quiet about the condition. And, in view of the mildness of her asthma, it was plausible to believe that the representative might have told her there was no need to mention it. The Ombudsman could not be certain what had happened during the meeting between Mrs B and the insurer's representative. It was clear that the representative had guided her through the application. The mistakes on the form suggested that he might not have captured accurately all the information that she gave him. However, he insisted that he had followed the correct procedure. It thought it likely that there had been a misunderstanding about precisely what information needed to be disclosed on the form. Mrs B had signed the declaration stating that the information on the form was true, to the best of her knowledge and belief. It was persuaded by the evidence that she had assumed the representative had recorded her answers correctly, so she had not thought she had any reason not to sign it. In any event, she had not been given a copy of the answers to check before signing. In the circumstances, the Ombudsman was unable to conclude that Mrs B had been reckless in her approach to the application. There was nothing to suggest that she had not cared whether her answers were true or false. So it concluded that any non- disclosure was likely to have been inadvertent. It required the insurer to meet the claim on a proportionate basis. In this case, that meant the insurer should calculate the premium that Mrs B would have been charged, if her asthma had been disclosed on her application form. It should then pay a proportion of her claim, equivalent to the proportion of the premium that she had actually been charged. It should also pay her interest on this amount. Non-disclosure after application had been made In April 2002, Mr J applied for income protection insurance. He answered 'no' in response to a question on the application form about whether he had received any medical treatment or had any medical consultations in the previous two years. He gave the same answer when the question was put to him during the medical examination that the insurer arranged for him in June 2002. The application form contained a "It also noticed that the application form, which the insurer's representative had completed for Mrs B, contained several mistakes". "The usual remedy for inadvertent non- disclosure is to allow the insurer to rewrite the policy on the terms it would have imposed had it known the full facts".