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ISO Case Studies - August 2012

This month’s case studies look at issues around the commencement of a policy.

Tuesday, September 11th 2012, 2:45PM

CASE STUDY 20: (“P” is Participant insurer and “C” is Complainant)

The commencement date of a policy is crucial for determining whether there is cover and, at times, the extent of any such cover. This is particularly important for health or income protection products where exclusions for pre-existing conditions often exclude cover for any condition directly or indirectly related to a symptom, doctor’s visit or treatment prior to the  commencement of the policy.

Complaint No:  112539
Year: 2007
Casebook Index:  Non-payment of premium, reinstatement of policy, pre-existing condition

What happened?

On September 2005, C arranged health insurance with P. 
On August 14, 2006, P wrote to C, advising her that her policy would expire on  September 17, 2006 and inviting her to renew the policy, by completing an enclosed renewal form.  P said medical conditions that had occurred during the policy’s term would be covered, provided C renewed the policy “with no lapse in cover”.
On September 10, 2006 (C said  September 18, 2006), C visited P’s agency and completed an application to renew the policy. She also paid the annual premium.  On the application, C entered a start date for the policy of September 10, 2006.  P renewed the policy for the period  September 10, 2006 to September 19, 2007.
On February 2, 2007, C was admitted to hospital. C made a claim to P for the hospital costs. 
In April 2007, P advised C that the policy did not cover “conditions that were present prior to the start date of [the] policy”.  The policy start date was September 20, 2006 and, as C suffered from the condition prior to that start date, the claim was not covered by the policy (“the decision”).
Why was there not continuous cover?
In May 2007, C wrote to P and said, as she had moved from Auckland to Hamilton, she did not receive the letter from P of August 14, 2006, advising the policy would expire.  She said, on September 18, 2006, she travelled to Auckland, to P’s agency, to renew the policy.  However “as [she] thought the end of [the] … policy … was on  September 19, 2006, [she] wrote down the start date as September 10, 2006”.  She said the agency’s representative did not tell her the importance of the start date.
On May 29, 2007, P wrote to C and said it had reviewed the claim and was maintaining the decision.  P said “[w]hen there has been a gap in … cover … the medical conditions … claimed for in previous policies become ‘Pre-Existing’ and excluded from subsequent policies.”
The case manager found that P’s actions were correct in terms of the policy wording.  But as the result was extremely harsh in all of the circumstances, the case manager discussed the situation with P.
P decided that, as C had chosen to continue cover with P, it was willing to offer an ex-gratia settlement of the claim costs and to deem the policy cover continuous. C accepted the settlement offer. 
Result Complaint settled

When discussing annually-renewable health and income protection policies with clients, it is important clients appreciate the implications of any gaps in cover and how the commencement date of a policy can effect what is/ not covered under the policy.

CASE STUDY 21: (“P” is Participant insurer and “C” is Complainant)

To avoid any issue regarding the commencement of a policy, clients should be informed that unless they pay the premium immediately that it is likely that the policy will not be in force until they pay the premium.

Complaint No:  112597
Year: 2008
Casebook Index: Evidential issues, non-payment of premium, whether policy in force

What happened?

In June 2007, C arranged insurance for his vehicle by telephone with P. Because C did not have a credit card, it was agreed that he would visit one of P’s branches one week later and pay the premium.  P agreed to provide cover, subject to the terms and conditions of its policy.
Before P received the premium payment from C, the vehicle was stolen. C made a claim to P. 
P declined the claim, because no cover existed, as the premium had not been paid.
Was a contract formed even though the premium was not paid?

During the initial telephone conversation, C proposed his vehicle for cover and P agreed to provide cover on certain terms.  Accordingly, the case manager believed a valid contract was formed. 
However, the commencement of cover under the policy was conditional upon the premium being paid.  Specifically, the policy stated that the contract would begin when P accepted the proposal and the premium was paid (“the condition”).
The courts have determined that a condition of this nature must be clearly expressed and must be communicated to the insured “from the outset”.  Therefore, the issue was whether P told C, during the initial telephone conversation, about the condition.
Did P provide C with sufficient information regarding the requirement to pay the premium?

P provided a statement from the staff member with whom C had the initial telephone conversation, in which she said, “[o]n at least three occasions I explained to [C] he was not covered until the account was paid”.  However, C maintained he “was not advised that no cover existed until the premium was paid”. 
In situations where there is contradictory evidence, the ISO’s ability to investigate is limited.  Unlike a court of law, the ISO Scheme is unable to resolve conflicts in evidence. 

It is an informal scheme and, therefore, unable to assess credibility.  Because of this limitation, the case manager had to rely on the documentation provided.

Could P demonstrate that it had told C?

Unfortunately, P did not record its telephone conversations and it did not have a standard script, requiring specific questions to be asked and requiring important information to be given.

P provided some documentation regarding its procedures when insurance was arranged. However, the case manager did not believe these documents proved that C was told about the condition.

P sent C a policy document and a letter which contained information about the condition; however, C did not receive these until after the loss occurred and, as such, they did not assist in determining whether P told C about the condition “from the outset”.

There was no independent evidence that the staff member, on this particular occasion, told C about the condition.  Accordingly, because it was unable to prove it told C about the condition from the outset, P was not entitled to refuse to meet the claim on this basis.
P requested a review of the decision in the assessment, because it believed it had done all it reasonably could to ensure C was aware of the condition. However, the ISO was concerned at the lack of evidence that the condition was brought to C’s attention.
The condition was not on P’s website; C did not receive a copy of the policy confirmation and premium notice until after the vehicle was stolen and a claim was made; and C only received a policy document with P’s letter of declinature. 
The only way he could have known about the payment condition was if P informed him by telephone.  P and C held diametrically opposed views about whether he was so informed.
On all of the available evidence and making a fair and reasonable decision in accordance with paragraph 5.7 of the Terms of Reference, the ISO did not believe P had met the onus of proof to the requisite standard that it did all that was reasonable to bring the payment condition to C’s attention.
Result Complaint upheld

This is an unusual case, in most instances there is clear evidence that C was told that the policy will not commence until the premium is paid. If you are discussing this with your client you can demonstrate this by putting your advice in writing and making file-notes of all conversations.

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