Non-disclosure – what information is sufficient to satisfy the duty of disclosure?
This is another example of the application of the principle dealt with in our 2003 annual report and also in a paper delivered by Annemi Slabbert at the disability workshop during the course of the year (available on our website). For sake of completeness quotes from the authoritative work “MacGillivray on Insurance Law” are repeated:-
“..Insurers may be presumed to know facts which are reasonably clear to them from information in their possession, even if not expressly mentioned by the assured. They may be presumed to know matters which they have the means of learning from sources available to them.” (10thEdition, page 442)
“Assuming that there is a material fact apt to be disclosed the rule is satisfied if the assured discloses sufficient to call the attention of the insurer in such a manner that they can see that if they require further information they ought to ask for it. So, if reasonably sufficient information has been placed before them, they cannot take advantage of failure to follow it up. If they shut their eyes to the light, it is their own fault.” (7th Edition, p279).
The policyholder (then aged 39) disclosed in a standard medical report, completed as part of his application for the policy, that he smoked ±20 cigarettes per day and that his father age 64, “had a stroke”. The insurer requested and was provided with a serum cholesterol test result reading of 7.3mmol/l.
On the strength of this information the insurer informed the broker, who acted on behalf of the applicant that a health loading had been applied to the death benefit and a cardio-vascular exclusion to the dread disease benefit. They were requested by the broker to review their decision. This was clearly done because the policy was thereafter issued at standard rates without any exclusions or limitations.
A claim for the dread disease benefit was submitted when the insured suffered an acute coronary event. The insurer denied liability on the ground of non-disclosure of material information. He was informed that the information on which the decision was based, was – a history of significant hyper-cholesterolemia since 4 years before commencement of the insurance; intermittent treatment with a cholesterol-lowering agent, and that he was a heavy smoker of 20-30 cigarettes per day. The wording used in this letter of the insurer’s is almost an exact repetition of the words in a report by the cardiologist who became involved at the time of the event. In the same report the cardiologist indicate that his opinion regarding hypercholesterolemia is based on a cholesterol reading of 7.3mmol/l at the age of 36 (3 years before the commencement of cover). The only information regarding treatment that was supplied by the insurer is a pharmacy record of the dispensing of four weeks’ supply of a cholesterol-lowering agent during the year before the insured applied for the particular cover.
The issue in this matter is therefore whether the information which was known to the insurer (i.e – a family history of parental stroke at relatively young age, substantial cigarette smoking and a considerably elevated cholesterol (7.3mmol/l) in a 39 year old man) was not sufficient to bring to the attention to the insurer that if they require further information they ought to ask for it. It is not in issue that the information on which the insurer relied at claim stage was available at the time of their consideration of the acceptance of the risk and could have been obtained in the same manner it was obtained when the claim was investigated.
In correspondence between our office and the insurer during the consideration of the matter, the insurer emphasized that there was a significant difference in assessing a risk on an incidental finding of raised cholesterol to that based on an applicant with poor response to treatment.
It was, however, our perception that the issue was whether the confirmed reading of significantly elevated cholesterol at the time of the consideration of the risk together with the other known factors as indicated were not strongly indicative of the probability of a history of higher risk which ought to have been investigated from reasonably available sources at that time.
A significant and rather puzzling aspect which has not been explained is that based on the evidence at its disposal the insurer initially imposed a cardiovascular exclusion in respect of the dread disease benefit. When requested to reconsider this decision the response of the insurer was to issue the contract without the exclusion. No attempt was made to obtain information of a prior history of cholesterolemia or treatment.
We requested the opinion of an independent highly respected cardiologist with knowledge of insurance matters whose evaluation includes the statement –
The insurer’s decision to offer this contract at standard rates is distinctly unusual and suggest a “generous attitude to acknowledge risk factors”.
The general criticism against “underwriting at claims stage” seems to apply in the circumstances of this matter.
The insurer was informed that it was our opinion that the duty to disclose was satisfied in the particular circumstances.
The full amount of the cover was paid to the insured.