CR306 Non-disclosure – Equity – new policy issued as replacement
Equity – new policy issued as replacement – old policy cancelled – non-disclosure in application for new policy, and new policy cancelled – can claim be entertained on the replaced policy?
1. The complainant’s wife, Mrs P, had a policy covering death and dread disease. On 30 June 2009 she made an application, on the advice of her broker, to combine her policy with that of the complainant because it would offer her a better premium rate with no loss of benefits. The replacement policy was issued on 21 July 2009, and the replaced policy was cancelled with effect from 16 July 2009.
2. In October 2009 Mrs P was diagnosed with Motor Neuron Disease. When she instituted a claim for the payment of the benefit under the existing policy, it was repudiated on the basis that she had answered “No” to the following medical questions that were contained in the application form:
“DO YOU HAVE, OR HAVE YOU EVER HAD, TROUBLE WITH DISORDERS OR DISEASE OF (IF YES, PROVIDE DETAILS):
7. Your skin, muscles, bones, joints, limbs and spine?
8. Have you been hospitalised or had any other examinations for reasons not already mentioned including genetic testing or tumour markers, or sought medical advice for any ongoing medical problems?
9. Do you intend consulting a doctor/ medical professional in the next eight weeks, for conditions or symptoms not already disclosed, or is any future surgery planned?”
3. In their response, the insurer stated as follows:
“ ..Mrs P started getting pains in her left knee progressing to calf and ankle and underwent X rays and was treated with physiotherapy and Acupuncture. This information has been confirmed by Mr. P in his initial letter to you. This information was not disclosed on the application dated 30 June 2009. Further, on 17 July 2009, Mrs. P underwent a series of Blood tests and the results were found to be abnormal. In terms of the application any change in
Health, e.g. Blood tests prior to the acceptance of risk has to be made available to our underwriters. Based on the fact that Blood Tests had been requested, had our underwriters known, they would not have given a decision on the risk and in turn waited for the results. On seeing the results the policy would not have been issued on its current terms and further requirements would have been requested. As such our Underwriters withdrew the initial terms on issue of the contract and the contract was cancelled with effect from inception for the reasons of material non-disclosure.”
4. In denying liability under the new policy the insurer therefore relied on its cancellation on the grounds of non-disclosure.
5. The insurer submitted that no claim could be entertained on the old policy either because it had been cancelled on 16 July 2009, and clause 9 stipulated:
In order for a claim to be assessed the applicable Benefit and the Contract must be in force at the time the condition is diagnosed as well as when the claim is submitted.”
6. The complainant claimed that when applying for the new policy his wife had nothing to disclose, saying that:
“At best, the only possible problem that Mrs P could have ‘disclosed’ was a niggling knee problem which one experiences all the time and is mostly ignored by a reasonable normal person. Particularly if the lifestyle is sport related as is the case with our family. And presuming that the knee problem was disclosed, it follows that Liberty would have ordered x-rays of the knee to be done and possibly blood tests. It is a fact that the results would have been negative.”
7. In view of nature of the disease with which Mrs P was diagnosed, our office referred the matter at its own expense to an independent specialist who made the following observation:
“Mrs P had presented to Dr A in January 2009 with symptoms sufficiently impressive to warrant extensive screening tests, retrospectively shown to have been unhelpful, but later proven to be non-specific early manifestations of MND. The diagnosis was made after a second neurologist, alert to the unique and diagnostic features of MND, diagnosed the disease. Mrs P had significant motor dysfunction and discomfort during the months preceding her referral to an orthopaedic surgeon in June 2009…”
8. The independent specialist’s report was forwarded to the insurer for comment, but the insurer refused to review its decision.
9. The matter was considered at a meeting of the office’s adjudicators as a result of which:
9.1 The office took the view that the insurer’s decision to decline the claim on the basis of material non-disclosure in respect of the new policy was justified.
9.2 In respect of the old policy, however, the office concluded that the insurer’s decision to decline the claim on the basis that that policy was cancelled before Mrs P was diagnosed with a motor neuron disease was unfair. For the following reasons the meeting took the view that this was an appropriate case for the application of its equity jurisdiction:
9.2.1. Mrs P had already had the symptoms of the motor neuron disease prior to the cancellation of the policy and there was no evidence to suggest that those symptoms had existed prior to its commencement. In support of this the meeting relied on the report of the independent specialist as set out in paragraph 6 above.
9.2.2 Mrs P could not have lodged her claim under the old policy prior to its cancellation. She had not been aware that she had or was developing motor neuron disease as the disease is considered to be an insidiously progressive neurological disorder which is not diagnosable for months and in any event not until clinical features unique to the disease enable a diagnosis to be made. According to the specialist’s report, laboratory tests would have been unhelpful in this regard.
9.2.3 Clause 9 of the claim procedure, which requires a diagnosis to have been made while the policy is in force, presumably assumed that the average life assured would not delay in obtaining a medical diagnosis, and that such a diagnosis would be relatively easy to make. In Mrs P’s case she was not to blame for any delay, and happened to have contracted a serious disease that, through no fault on her part, took time and was extremely difficult to diagnose.
9.2.4 The meeting considered it relevant to note that the new policy contained almost the same benefits that were provided in the old one, and pointed out that had Ms P not decided to replace it she would have been entitled to claim the benefits and the insurer would have been obliged to assess her claim.
10. The unanimous view of the meeting was that a provisional determination should be made requiring the insurer to assess the claim on its merits. The insurer complied with the provisional determination and agreed to pay the benefit.