Recently we have acted on behalf of a number of different clients in relation to disputes with life insurers, where insurers have sought to avoid insurance policies (and therefore decline claims) on the basis that the insured has breached their duty of disclosure to the insurer.
Life insurance policies vary, but usually provide for a once-off payment upon the death of the insured, or when they are diagnosed with a terminal illness. In most circumstances, life insurance policies are taken out for the benefit of those other than the insured, usually to ensure the future financial security of their family members or dependants.
For death benefit claims, it is commonly the responsibility of the beneficiaries of the policy (rather than the executor of the estate) to make a claim on the life insurance policy. Where an insurer declines a claim, it is usually the beneficiaries of the policy who bear the burden of contesting the decision. These are particularly sensitive claims; beneficiaries are usually grieving a loss, shouldering financial responsibilities pending the outcome of the dispute, typically have limited details to provide about the circumstances in which the insurance was obtained, and often need to engage with the medical records of the insured, which to some can feel like a violation of the deceased’s privacy.
Paramount to minimising the risk of a future dispute with an insurer, is for the insured to ensure that they understand their obligations regarding what disclosures they need to make to their insurer and comply with them at the time of obtaining or renewing the policy. Insured’s should also make sure they understand exactly what the policy insures for (and what exclusions apply), keep good records of communications with the insurer and the broker (if any), store the policy documents safely and keep beneficiaries informed of who the insurer is and information that might be relevant to making a claim on the policy.
What is your duty of disclosure?
Before entering a contract of insurance, an applicant for insurance has a legal duty to disclose certain matters to the prospective insurer. If the applicant fails to make the required disclosures, the insurer might have grounds to reject a claim in part or in whole.
The Insurance Contracts Act 1984 (Cth) sets out the rights and obligations of insurers and insured’s in relation to general contracts of insurance and applies to life insurance contracts. Under the Act, an applicant is required to disclose to the insurer “every matter that is known to the insured, being a matter that:
a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or
b) a reasonable person in the circumstances could be expected to know to be a matter so relevant.”
In simple terms, an applicant is required to disclose everything that might be relevant to the insurer in deciding whether or not to offer insurance coverage to the applicant. The duty of disclosure applies on each variation, extension or renewal of the policy. Precisely what needs to be disclosed will vary from policy to policy, but generally it includes being scrupulously truthful and forthcoming about one’s medical history and any previous accidents suffered. This is so even if the medical conditions have resolved, or are being properly managed, or there are no obvious injuries that are a result of an accident. If you are in doubt about the relevance of a matter; disclose it. While this may affect the premiums charged, it reduces the risk of the insurer declining a claim in future.
How will the insurer know if I have complied with my duty of disclosure?
Most insurers require that an insured provide authorisation to the insurer to access the insured’s medical records. The authority provided usually permits the insurer access to your medical information at any time. In determining a claim, the insurer will usually obtain the medical records of the insured and cross reference that information with the disclosures made on the application for the policy. If the insurer identifies relevant matters that were not disclosed, it may purport to decline the claim. The insurers sometimes seek to avoid a policy even if the cause of death is ultimately unrelated to the matters that were not disclosed to it.
What happens if you fail to comply with your duty of disclosure?
Typically the consequences of breaching the duty of disclosure are not felt until a claim is made on the policy. If an insurer rejects a claim on the basis that the insured has breached his or her duty of disclosure, we recommend the insured or the beneficiaries of the policy seek legal advice as soon as possible.
Navigating the legislation that governs the rights of insured’s in circumstances where there is an alleged non-disclosure or misrepresentation is complex. Furthermore, insurers often impose short deadlines for responding to determinations, and early intervention by solicitors can assist with managing the demands of insurers and ensuring beneficiaries get timely advice about the merits of pursuing the case and their options for contesting an adverse determination by the insurer.