CR169 Waiver – non-disclosure
Waiver – non-disclosure- special offer to members of a medical aid scheme – risk to be assessed on the basis of medical records -whether insurer waived its right to a full disclosure of material facts
The complainant was the spouse of the life insured who took out a policy with Company X. The insurer published details of a special introductory offer to members of a particular medical scheme (AB). The offer concerned their policy providing life, severe disease and capital disability cover.
In terms of the promotion material:
“An introductory offer makes accessible (no questions; no medicals) for those who have been part of AB for more than a year. Other AB members are also being offered access, but may be required to answer routine medical question.”
As far as AB clients were concerned, two sets of underwriting rules applied:
“1. AB clients who have belonged to AB for more than 12 months. These clients will not require additional medical questionnaires or information to be submitted with their application …Through AB it is possible for us to assess their risk category accurately and offer them the advantages of a unique dynamic underwriting model.”
“2. AB clients who have belonged to AB for less than 12 months. Although we have access to information about these clients, the clinical information available is insufficient. Therefore they will need to answer medical questions on the application form and—based on their answers those questions—medical questionnaires may be required. Refer to the intermediary’s underwriting aid supplied which will help you determine which questionnaire your client may need to complete.”
At the time in question the insured was a member of AB for less than 12 months, viz 4 months.
The insured’s broker, Mr P (who was employed by a bank) alleged that during October 2000 Mr E, whom he thought was an employee of Company X, gave him the name of the insured as one of the persons qualifying for Company X’s special offer. Mr E was actually employed by Company XY. XY was an independent company entrusted with the distribution of X’s products.
Before the insured submitted his application Miss F (also employed by XY) informed Mr P per fax that the insured qualified for R4 million cover. The fax read:
“Kwotasie vir mnr [complainant]. Hy kwalifiseer vir volle R4 000 000 dekking. Ek het sy kwotasie getrek soos dit reeds onderskryf is met die relevante keurings-risiko kode.
The insured’s broker alleged that their understanding was that the insured was accepted for purposes of the special offer in spite of the fact that the complainant strictly speaking did not qualify for it. They were in other words brought under the impression that underwriting had already been done on the basis of the limited information in AB’s records. Mr E confirmed that this was how he explained the position to Mr P.
The insured decided to take up the “offer” in full and he submitted an application form (entitled “Spesiale Aanbod”). The broker filled in this form, including section F dealing with medical questions, by copying information he got from the insured’s application for AB membership. According to the form, section F had to be filled in by all applicants. The answers were all correct except for one question that was left unanswered.
It transpired that it was X’s policy to extend a special offer of R4m cover only if an applicant had submitted an application form and answered all the medical questions in the negative.
The application for insurance was accepted by X without requiring the insured to complete any additional medical questions or to undergo a medical examination .
The insured apparently suffered a stroke and he lodged a claim under the severe illness benefit. X repudiated the claim mainly on the grounds that the insured failed to disclose material facts pertaining to his health.
It was common cause that the insurer’s defence rested on non-disclosure of material facts and not any wrong answer to a question in the proposal form. We also accepted that the non-disclosed facts were of a serious nature and therefore material. We understood the main issue to be whether the insurer could be held to have waived its rights to full disclosure. In this context we noted that X in its promotional materials made it quite clear that its special or introductory offer “(no questions; no medicals)” was open only to persons who had been members of AB for more than a year and that other AB members had to answer additional medical questions. Hence X did not actually intend to dispense with full disclosure in respect to AB members with less than 12 month’s standing. This left us with the task to determine whether X had by its conduct created a reasonable impression in the mind of the insured that it had waived its right to full disclosure despite the fact that he did not actually qualify for the special offer. This would amount to ostensible rather than actual waiver.
In assessing this case we were to a certain extent guided by the decision AA Mutual Life Ass Association v Singh 1991 3 SA 514 (A).
The insurer’s contention was that there was no reasonable reliance on waiver. In deciding the question of waiver we identified two main issues. The first main issue was:
(a) whether the employees of XY by their representations (especially the fax in question) created the impression in the mind of the insured that he had been accepted for purposes of the special offer and that the risk had been assessed on the basis of the limited medical information contained in the records of AB;
(b) whether that impression was a reasonable one.
The second main issue was:
(i) whether the representations by XY had been authorised by X;
(ii) if the representations had not been so authorised, whether X was estopped from raising lack of authority on the part of XY.
X did not provide us with a satisfactory answer to the question why the fax had been sent to the broker and also why the offer of R4m was extended even before an application form had been submitted. In any event, X contended that the fax could not be interpreted to mean that the insurer intended to waive its rights to a full disclosure. We duly considered the background promotional material which proclaimed “no questions: no medicals” and also that underwriting would be done with reference to the applicant’s health record kept by AB. In our view a reasonable man would have believed that the fax was intended to convey that the insurer, in its zeal to canvass the insured’s business, limited its rights to a full disclosure and assessed the risk by relying on the medical records kept by AB in respect of the insured despite the fact that the insured did not in fact qualify. An important consideration is that the fax contained no warning that the assessment of the risk was merely provisional and subject to correction.
According to the broker and the complainant they actually interpreted the fax in accordance with this interpretation. Indeed the broker testified that he reverted to XY for clarity and he that was then assured that the insured’s risk profile had already been assessed. This allegation was not refuted.
The insurer on the other hand suggested that, because the insured answered the medical questions in section F of the application form, he must have realised that his application could not be treated on the basis of his AR’s medical records alone. It was pointed out to X that the application form required all applicants to fill in this section. No adverse inference could therefore be drawn from the fact that the insured answered the medical questions.
In the circumstances we suggested to the insurer that the insured’s conclusion was reasonable and that issues (a) and (b) should be decided in the insured’s favour. This made it necessary to obtain clarity on the second main issue.
According to Company X company XY was an independent company and therefore it was not responsible for their actions. However, XY — a company with a name rather similar to that of X— was entrusted with the distribution of X’s products. As such they clearly had authority to inform clients and their brokers about the nature and provisions of the products marketed. The fax and information supplied by their employees were prima facie within the parameters of their mandate.
We suggested that if the employees of XY had no actual authority to make the representations they made, the insurer nevertheless was estopped from denying their authority. These officials were permitted and enabled by X to conduct its business. The insured and his broker alleged that they genuinely believed that they spoke on behalf of X.
Company X countered by contending that the insured suffered no prejudice for purposes of estoppel. We suggested that the mere fact that the insured entered into the contract on the strength of these representations, was sufficient to constitute prejudice. We added that the insured refrained from disclosing material information precisely because of his impression that X had waived its rights in this regard. Had he disclosed the information he would possibly have been able to procure proper cover albeit at a higher premium, whether from X itself or from another insurer. That opportunity no longer existed. We accordingly believed that issue (ii) should also be decided in the insured’s favour.
We arranged a round table conference with X during which it was decided that X was not entitled to cancel the contract on the grounds of misrepresentation but that it had to consider the severe disease claim on its merits.