New industry guidelines on non-disclosure and TCF for
protection policies
This guide is based on the law of England and Wales. It was
last updated on 28th February 2008.
The ABI has drawn up guidelines intended to reduce the number of
declined claims in life, critical illness, income protection and
other long-term protection insurance contracts.
"Non-Disclosure and Treating Customers Fairly: Claims for
Long-term Protection Insurance Products" published on 9th January
2008, advises insurers on the approach they should take when
deciding whether or not to pay a claim.
The guidance goes beyond the current legal position in many
respects. It also shadows some of the proposals for law reform for
consumer insurance put forward by the English and Scottish Law
Commissions.
Categories
The paper categorises breaches of the insured's duty to disclose
information to the insurer as innocent, negligent, or deliberate or
without any care.
In each case, the information omitted (or misrepresented) must
be material, in that it would have induced the insurer to make a
different underwriting decision. Notes on the typical
characteristics of each category are provided as well as some
illustrative examples.
In line with the Law Commissions' proposals, an innocent
non-disclosure is where the insured acted honestly and reasonably
in all the circumstances, including any individual circumstances
known to the insurer. In such cases, the insurer should pay the
claim in full.
A non-disclosure is negligent where the insured failed to
exercise reasonable care. This can range from mere oversight to
serious negligence. The test is whether a reasonable person in the
circumstances would have known the information was incorrect and
was relevant to the insurer.
In such cases, the insurer should apply a proportionate remedy
which will depend on what the underwriting decision would have been
had the information been disclosed.
Only where the insured acted deliberately or without any care is
the insurer entitled to avoid. But it will need to have a
"robust case". The insurer must be able to show on the balance of
probabilities that the insured knew or must have known that the
information was incorrect and relevant to the insurer or that the
insured did not care whether it was or not.
Assessing claims
The guidance advises insurers to try to understand the reasons
for a non-disclosure as far as possible. They should ask the
insured why the information was incomplete or incorrect before
making any judgment about the category.
Various factors also need to be taken into account, such as
whether the relevant questions were sufficiently clear and concise.
Was an intermediary involved? If so, what was the intermediary's
role? Was the insured given a chance to check the answers? Were
adequate warnings given?
Insurers also should take into account that consumers may not
have a full understanding of their medical history and so should
rely on only the most obvious cases of medical non-disclosure.
Insurers asking for medical or other information in order to assess
a claim should also have legitimate reasons for doing so, and
ideally keep a record of those reasons.
The guidance, which was drawn up in consultation with the
Financial Ombudsman Service and ABI members, came into effect on
9th January 2008 for all new and existing protection insurance
policies.
Contact: Bruno Geiringer (bruno.geiringer@pinsentmasons.com /
020 7418 7306)
See:
Non-Disclosure and Treating Customers Fairly: Claims for Long-term
Protection Insurance Products
See also: Proposals for reform:
pre-contract information and warranties, an OUT-LAW
Guide
