Income protection, insurer on enquiry

Tell your insurer, or adviser, your full medical history and write it down.

Income protection reinstated

In 2001, Robert* arranged life insurance and income protection cover, with the help of a bank adviser. When Robert completed the application, he didn’t declare any medical conditions.

Years later, when Robert was diagnosed with a chronic medical condition and couldn’t work, he made a claim under his income protection policy.

The insurer obtained Robert’s medical records and found several consultations relating to chronic headaches prior to him arranging the insurance. The insurer avoided the policy and retained all premiums paid, because Robert had not disclosed information about his headaches. Three independent underwriters confirmed Robert’s non-disclosure was material. They said, if they’d known about Robert’s headaches, they would have asked for more information and the cover would not have been provided on the same terms as offered.

However, the bank confirmed that when the policy was arranged, Robert told the bank adviser he suffered from regular headaches and had recently had an MRI scan.

As the bank adviser was the “representative of the insurer” (section 10 of the Insurance Law Reform Act), the bank and the insurer were regarded as having notice of all information the bank adviser knew. The law says if the insured tells the insurer enough information to prompt the insurer to ask more questions, provided that what is conveyed indicates there is more information to be obtained, and the insurer does not do so, the insurer cannot rely on non-disclosure. In this case, Robert disclosed to the bank adviser that he had regular headaches requiring an MRI scan. The independent underwriters advised that they would have requested further medical information if they had been told this.

The insurer was not entitled to avoid the policy on the basis of non-disclosure. The insurer reinstated Robert’s policy and arranged to assess his income protection claim.

Complaint upheld.

*Names have been changed.

See the full case study.