The Momentum/Ganas case, which caused public outcry in November last year when the insurer refused to pay out a claim, has prompted the Ombudsman for Long-Term Insurance Ron McLaren to recommend that the legislature should reconsider current legislation.
In the Ombud's annual claims report for 2018, released this week, McLaren recommends nondisclosure legislation should be reviewed for possible improvements.
In the case of the late Nathan Ganas, Momentum refused to pay out a claim after the policy holder was shot and killed, basing the refusal on the fact that a pre-existing medical condition was not disclosed when applying for the policy. Momentum argued that it would not have issued the policy in the first place if it had known about the pre-existing condition of the applicant.
The Ombud upheld Momentum's right to repudiate the policy and decline the death claim. The public's criticism, however, centred on the fact that the cause of the claim was not connected to the non-disclosed information.
Following mounting public pressure, Momentum made a decision to pay the claim based on a change in practice. The insurer undertook to pay claims where the deceased was a victim of violence, despite the fact that there had been non-disclosure of information at application stage which would entitle it to decline the claim.
The Didcott principle
In the Ombud's view, the SA legislature should, at the very least, consider introducing the so-called Didcott principle into legislation, namely that, in the event of a non-fraudulent misrepresentation, the policy should be "reconstructed" to what it would have been if there had not been a non-disclosure.
Until that happens, the Ombud will apply the law as it currently stands, and as it did in the Momentum/Ganas case. This also means ensuring that "subscribing members act with fairness and with due regard to both the letter and the spirit of the contract between the parties" in terms of the law. Or, in simpler terms, acting fairly.
Give all info
"An applicant for a life insurance policy must give all material information in the application form. This is a fundamental principle which is founded on an insurer's legal right to be informed of all the material facts in order to enable it to properly assess the risk involved in an application," states the Ombud.
At the same time, the Ombud expects insurers to make their own enquiries if they see information on an application form which should alert them to take such steps.
"Such inaction on the part of an insurer may be interpreted as a waiver by it of its entitlement to the information," states the Ombud.
"The message we gave to prospective applicants was: Give full information in the application form. Rather disclose more than only the information required in the application form," advises the Ombud.
"If you do not understand a question, make enquiries or say in your answer that you do not understand the question. If you are not certain of your answer, make enquiries or say in your answer that you are not certain thereof."