(Updated 22 February 2022)
You may have heard in the media about insurance claims that insurers have declined for what appear to be feeble reasons. This article will discuss why claims are sometimes declined and give examples of our recent advocacy work to get our client's claims paid. At the end of the article, we offer ten less obvious ways to fight your declined claim.
Fair Go did a story in May 2018 involving a client who applied for income protection only to have a later claim declined. The insurer discovered he had not disclosed other completely unrelated (to his claim) health issues
In short, the client completed the initial application form and indicated to the insurer that he had no past or present health issues. As it turned out, he had some history of the very first two conditions listed in the application form (blood pressure & high cholesterol). He also suffered sleep apnea - a combination of conditions that insurers treat very seriously. As the client told the insurer in the original application that he was in great shape, the insurer decided there was no need to write to the doctor to confirm this.
The insurer's response when discovering the non-disclosure was to decline a later claim made by the client. The justification was that they wouldn't have offered the cover in the first place had they known about his health issues. So, although the claim stemmed from something unrelated, he still couldn't claim because he wouldn't have had the policy if all the correct information had been presented upfront.
Cancelling cover and/or declining claims is not the only way an insurer will deal with non-disclosure when they find it. For relatively minor non-disclosure, they might still accept a claim but go back and add some retrospective exclusions to a policy. They may adjust the premium or reduce a claim payment
IS IT FAIR TO DECLINE CLAIMS - NOT EVERYONE AGREES?
Insurance is just a way for a group of individuals to share the risks that they collectively face. The concept was born in Babylonian times when ship merchants would spread their risk by splitting their goods into smaller parcels and transporting them on multiple ships. If one of the vessels sank or was attacked by pirates, each merchant only risked losing some of their goods. The amount they each lost could be considered the 'premium' that we pay today. If one of the ships had a slow leak before leaving port, all the merchants would want to know about it because this would dramatically increase everyone's risk of loss.
A healthy insurance pool works the same way. All the risks 'the pool' faces need to be accurately quantified. If they aren't, everyone loses because they must pay higher premiums to cover the higher potential losses.
So, in many cases, it's reasonable to decline or adjust a policy holder's claim if they haven't fully and fairly answered all the questions they have been asked.
One of the advantages of telling the insurer everything upfront is that you are far more likely to get a better offer of cover from them at this stage of the process. They want you to buy the policy, and they aren't facing any impending claim, so everything is working in your favour. You're really at a disadvantage if they discover new information while they're considering a claim from you.
A while ago, one of our clients died unexpectedly from an undiagnosed heart condition. Besides being a smoker, he didn't present any of the usual risks associated with heart disease. When we submitted the claim to the insurer, we were amazed that the insurer declined the claim.
The insurer had written to his doctor and found in the records multiple references to the doctor's strong recommendation that he undergo a colonoscopy. The client's brother had been diagnosed with a survivable form of bowel cancer - one known to be inheritable. Our client had never had any symptoms, but the doctor just wanted to be sure.
Understandably, when applying for life insurance, our client didn't think to disclose tests he'd never done for an illness he'd never suffered. However, the application had asked about his family medical history and whether he had been advised to undergo any tests. Technically answering 'no' was non-disclosure.
The insurer then weighed in this new information with a 6-figure life insurance claim in the balance. It determined that they wouldn't have offered the cover initially until the recommended tests had been completed. So, despite his death being entirely unrelated to bowel cancer, the client having no history or symptoms and not dying of bowel cancer, his claim was declined.
One of the disadvantages of buying life insurance direct from a company or bank that employs its advisers is that the insurer's staff work for the bank/insurer. The employed adviser's first responsibility is to the employer. So when a claim is declined, they will often encourage the client to accept the decision.
If you buy your insurance through an independent adviser/broker, the situation is very different. Their first responsibility is to their client. They will not accept a decline unless overwhelming and undeniable evidence is produced to support the decision. They also have the benefit of experience. They know how the insurer has previously treated other clients with similar health issues. How other insurers would deal with the same situation, and where the weaknesses are in the insurer's position.
Going back to our client's declined claim ... Our advocate didn't accept the decision. We were convinced that the insurer was giving excessive weight to the colonoscopy and that the pending claim was possibly influencing the insurer's thinking. We then started working with the family to appeal the decision.
Between Bryan Tucker (from Decline) and the family, we provided the insurer with proof that other insurers would have accepted cover on the client despite the recommended tests. We could show them other examples where a health issue affecting just one family member didn't stop them from offering cover. We also pointed out that our client's brother's particular cancer had usually only presented in much younger people. Because our client was older, he was unlikely to be at risk.
Subsequently, the insurer overturned the decision to deny the claim, and the widow received full payment plus interest.
Sometimes the decision to accept a claim doesn't just rest on whether the client fully and frankly disclosed important information. There are many factors that can sway the decision in your favour. Knowing where to look is the key:
1. FAULTY QUESTIONS - Sometimes, the insurer's questions are so poorly structured that a truthful answer can result in unintentional non-disclosure. If you were asked, "are you taking high blood pressure medication" and you answered "no", but you know that your doctor has been encouraging you to start - is your answer non-disclosure? Strictly speaking, you don't take this medication, so answering 'no' to the question as asked is accurate. If the question doesn't elicit the ‘correct’ answer, that is not your issue.
2. ADVICE COMPLIANCE - When you applied for the cover - Did the adviser who sold you the policy satisfy all of his/her legal requirements. Were you provided with disclosure information that is required by law? Was the advice given to you in writing? Did your adviser clearly explain the importance of disclosure? Can s/he prove it? They know the importance of disclosure, but how can you if they don't tell you?
3. WHO COMPLETED THE APPLICATION - It is a terrible practice for the adviser or a staff member to complete an application on your behalf. It creates the possibility that the adviser will not record your truthful answer entirely accurately. This can happen in any circumstance but is heightened when the client or adviser is not 'English first language'. It creates another area of doubt that can be argued on your behalf.
4. CONVERSION OPTIONS - If your current policy doesn't cover the claimed issue, are there options to transfer to a policy that does? Sometimes, a transfer can occur without you needing to complete a new health declaration (called a 'conversion'). We recently had a $750,000 claim paid for one of our clients by transferring his ineligible and out-of-date policy to the company's current policy that did cover his situation. All done with the full knowledge of the insurer. As experienced advisers, we use the terms and conditions we know exist for our client's advantage.
5. VULNERABLE CUSTOMERS - Could the insured be considered a vulnerable customer? Is their English poor? Do they have an obvious language or education deficit that could make them vulnerable when applying for complex insurance? In these cases, the adviser should have taken special care with every stage. If they haven't, and some obvious mistakes have been made, the insurer could be on the hook for a claim, even if the non-disclosure is serious.
6. CLAIMS PHILOSOPHY - Does your insurance company have an 'If it's grey, we will pay' claims philosophy? If they do, your job is to focus on why you believe your situation falls into a grey area. The insurer might have this philosophy and sometimes need to be reminded of it. They might think you're case isn't grey at all, but an ombudsman, the Commerce Commission, or a court might decide otherwise.
7. MOVING GOAL POSTS - Is the insurer applying the same rationale for assessing your claim that its underwriters use when considering a new application? Suppose the company thinks that two family members need to have the same health issue before it becomes a relevant family history. In that case, they can't change this to one family member when deciding on your claim. Suppose high blood pressure that is medicated and managed well doesn't affect a person's ability to get cover. In that case, discovering you forgot to disclose this when claiming shouldn't make a difference. Ask an experienced adviser for help with this.
8. TIMING IS EVERYTHING - If you discover you have an illness or death claim after cancelling a policy, you might still be able to claim. We once helped a widow claim over $300,000 on her husband's death even though he wrote and asked for his policy to be cancelled six weeks before being diagnosed. We convinced the insurer that the client was terminally ill when he applied to cancel the policy - he just didn't know it.
9. THE WRONG POLICY - Have you discovered you don't have the kind of policy you thought you did? Can you prove that your adviser or insurance company knew, or should have known, that you wanted to cover particular kinds of risks? It might seem hard to believe, but sometimes a client asks for a pear but is eventually given an apple. If this has happened and you have not been given suitable advice in writing about a change to the recommended solution, the insurer may have no choice but to retrospectively change you to a more suitable policy. In doing so, they can't take account of any recent changes in your health.
10. UNPAID PREMIUMS - Was your policy cancelled because you missed premiums? Can the insurer provide evidence that they notified you of the cancellation in writing to the address on record? One of our advisers once worked for an insurance company that had to pay out a $500,000 claim. The insurer had previously sent notices to the client, which were returned to sender in error. When this happened, the insurer suspended all further mail. The suspended mail included a notification that the policy was cancelled for non-payment. The client hadn't paid for over six months. In many cases, failure to send out written advice of cancellation will leave the insurance company on the hook.
As you can see, there are many and varied ways to fight the decline of a claim. You must seek advice before just accepting a decision. Sometimes this might involve a lawyer, or sometimes your adviser will be the person to help.
There's no harm to seeking the help of a third party adviser in these circumstances. If your existing adviser is potentially at fault or too inexperienced to help, getting a third party involved might be essential.
DECLINE'S ADVOCACY SERVICE
Decline offers an advocacy service on a no-win-no-fee basis. If you would like us to look at your situation and give you an initial free opinion GO HERE.