DISCLOSURE & LIFE INSURANCE
~ Life Insurance & Critical Illness Deals
Your Duty / Responsibility to disclose "All relevant facts to the Insurer" pre-2013
According to rules of English law, all parties to an insurance contract stated are under a strict duty of disclosure to act in the utmost good faith. Customers must disclose all material facts (ie; any that would influence a insurance underwriter when deciding whether to accept the risk). A failure to disclose a material fact which induces the underwriter to accept the risk entitles the insurer to void the contract. However, wef 3/2013 these rules will change.
So consumers failing to disclose to their Life Insurance Providers with all relevant details about a claim is potentially one of the main causes of rejections on lifecover, critical illness or phi payouts, according to research.
Disclosure Insurance - Why aren't 100% of Claims actually honoured ?
The Financial Ombudsman has issued guidance in relation to how it applies legal principles and industry statements of practice when deciding complaints involving non-disclosure by policyholders. The guidance states that in some situations involving non-disclosure, applying the strict legal position can result in an unduly harsh outcome for the consumer.
However, this legal principle has been qualified by statements of industry practices (originally developed by the Association of British Insurers) that require insurers to ask clear questions about material facts. These statements also require that, policies should only be avoided on the basis of answers given or withheld and then only where the non-disclosure or misrepresentation was deliberate or reckless.
Although such statements have largely been withdrawn following the introduction of Insurance Conduct of Business [ICOB], they are still regarded by the Financial Ombudsman as useful examples of good industry practice.
The Insurance Ombudsman has some further typical sub categories:-
1] Fraudulent or Deliberate Non-Disclosure. Customers deliberately mislead the insurer if they dishonestly provide information they know to be untrue or incomplete. If the dishonesty is intended to deceive the insurer into giving them an advantage to which they are not entitled, then this is also a fraud and - strictly speaking - the insurance premium does not have to be returned. eg; Tell the Life Insurance Providers you are not smoking when you actually do is classed as fraudulent non-disclosure. An example of deliberate non-disclosure maybe if you think it is unfair someone who smokes 15/20 a day is also classed the same as yourself "who only smokes the odd cigarette or cigar socially once at say weekends." So decide to deliberately not tell the Insurers this, even though in reality you actually do smoke 50 days of the year.
2] Innocent Non-Disclosure. Customers act in good faith if their non-disclosure is made innocently. This may happen because the question is unclear or ambiguous, or because the relevant information is not something that they should reasonably know. In these cases, the insurer will not be able to 'avoid' the contract and (subject to the policy terms and conditions) should pay the claim in full eg; minor childhood ailments.
3] Inadvertent Non-Disclosure. A customer may also have acted in good faith if their non-disclosure is made inadvertently. These are the most difficult cases to determine and involve distinguishing between behaviour that is merely careless and that which amounts to recklessness. Both are forms of negligence. Inadvertence occurs when the customer unintentionally misleads the insurer. eg; This can occur just by failing to read and check the questions and answers thoroughly enough. When this happens there is no breach of the duty of utmost good faith.
4] Clearly Reckless Non-Disclosure Customers also breach their duty of good faith if they mislead the insurer by recklessly giving answers without caring whether those answers are true or false. An example of recklessness might be where a customer signs a blank proposal form or leaves it to be filled out by someone else. They do not even bother checking those answers ~ noting most the insurers now send to customers copies of what details were submitted. eg; The customer has signed a declaration that 'the above answers are true to the best of my knowledge and belief', but does not know or care what those answers will be.
What did I disclose on my original Application ? Unsure - Get a copy from your Insurer
Another point to consider is who completed the original application form - was this a broker on your behalf ? was it yourself ? was it your partner or a 3'rd party ? Was this an electronic web or paper based application ? Either way, if you are reading this because you are unsure what was disclosed on your initial life insurance application - it is always a good idea to look again at the copy application you have or ask your insurer for another copy if not [they will happily oblige usually free of charge].
Memory is a funny thing; trying to remember what you wrote on that original application form 10 years ago or what health issues you may have had back then is sometimes not easy. So, if you find that there are health problems you may have missed, you can always go to your doctors & ask them to check your files. [ warning - there maybe a ££ charge ]
If you then find that there maybe personal health or financial income non-disclosures, then it is best to immediately write to your insurer noting your plan reference number. Advise them what you may have omitted to mention in error on your original application. They can then decide wether or not to backdate and amend the terms of the plan offered or not. Remember doing nothing solves nothing & if you now are aware of any possible inaccuracies then this action may help stop invalidating your plan due to non-disclosure.
What may happen to any Claims with Non-Disclosure ?
When considering non-disclosure/misrepresentation cases, the Financial Ombudsman pre 2013 usually follows a 3 stage process:
1] Consideration of whether the insurer asked clear questions about the matter in dispute (for example in the original proposal form, online questionnaires or over the telephone);
2] Consideration of whether answers to those questions induced the insurer to enter into the contract, or to do so under terms or conditions which it otherwise would not have accepted;
3] Where the circumstances set out above exist, considering whether the customer's misrepresentation was an honest mistake, a dishonest attempt to mislead or due to negligence on the customers part.
Post 3/2013 - The New Consumer Insurance Act
It is anticipated the consumer will no longer have a duty to volunteer material facts with the New Consumer Insurance Bill 2013. Instead they must take reasonable care to answer the insurer's questions, as asked, both accurately & fully and if information is volunteered, that this is not misleading. This new 2013 act will set out from an Insurers perspective & the remedies where they may have induced into entering an insurance contract via mis-representation. Simply put they are anticipated to be as follows:-
The Insurer must pay the claim - If the mis-representation was both honest & reasonable
The Insurers will have to act based upon what it may have done had the consumer taken care to answer the question accurately in the first place - If the mis-representation was careless
The Insurers may treat the plan as if it never existed & decline all claims - If the mis-representation was deliberate or reckless.
Perhaps the Simple Conclusion is
"Try to Tell the Truth, the whole Truth & nothing but the Truth"
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