19 policies taken out over 16 years – FSCL investigates the ability of a person with an intellectual disability to enter into contracts of insurance

The complaint

In June 2013 Anton contacted FSCL on behalf of his cousin Brian. Anton complained that an insurance company, Coverit Limited (“Coverit”), had incorrectly sold Brian around 19 policies. Anton explained that Brian was disabled and did not understand the insurance he had bought.

Anton also explained that Brian appeared to have a number of policies providing cover for the same things meaning he was over-insured, and had insurance that was not fit for purpose (for example, income protection insurance, when Brian was on a limited income from an invalid’s benefit).

We referred Brian’s complaint to Coverit, which confirmed that following an internal investigation in November 2012, it had cancelled a number of policies issued to Brian in 2011. Coverit said it still wanted to internally investigate the policies Brian had been sold between 1995 and 2011.


Coverit’s further investigation and view on the complaint

Coverit said that the medical evidence provided by Anton showed that Brian had been diagnosed with epilepsy and non-fluent dysphasia (a form of language disorder). Coverit said that the evidence provided by several professionals who cared for or assisted Brian showed that Brian helped to look after horses, assisted with household chores, did crosswords, watched television and read newspapers. Coverit argued this meant Brian had the capacity to enter into the insurance contracts.

Brian’s father, Ed, who had been Brian’s primary caregiver, died in 2011. Coverit said that the evidence showed that Ed had managed Brian’s financial affairs until Ed’s death. Coverit concluded that Brian entered into the policies between 1995 and 2011 upon both his own personal judgment and the advice of his father.

In addition, Coverit said that at the time Brian entered into the insurance contracts, it only knew about Brian’s epilepsy condition and it was not apparent that Brian had an intellectual disability.

Coverit also said that Brian had never been sold an income protection policy, and all the policies he had were in relation to sickness and accidents. Coverit said that people are able to take out the policies Brian had, even if they are on WINZ benefits.

Coverit also pointed outthat Brian had claimed on some of the benefits under the policies over the years.

Lastly Coverit said that its offer to repay the premiums on the policies taken out since 2011 was a gesture of goodwill and did not mean that it accepted that any policies had been mis-sold to Brian.



We spoke to one of Brian’s doctors, Dr X, who confirmed that although Brian had not undergone any formal assessment of his cognitive function, he expected that formal testing would confirm that Brian had some sort of intellectual disability.

Dr X also confirmed that Brian had difficulty following simple instructions. Any instructions Dr X gave Brian would need to be repeated and written down, and this was more to do with Brian’s comprehension, than memory.

Dr X confirmed that Brian would not be able to read the policy or the fine print, and would not be able to understand the basic insurance concepts of risk, and paying an insurer to accept certain risks. Dr X also confirmed that Brian could never hold a job in the community.


Suggested resolution

We suggested that Coverit should make an ex-gratia payment to partially refund Brian for the premiums he had paid over the years.

We agreed that as Coverit was not on notice that Brian had a disability, in a strictly legal sense, Coverit may not need to refund the premium in the circumstances. However, we do not only look at the law, but also at what is fair and reasonable in all the circumstances of a complaint, and at good industry practice.

We suggested that an ex-gratia payment may be warranted because:

  • Brian had significant cognitive disability.
  • Having interviewed Brian personally, our case manager was of the view that Brian did not understand basic concepts of insurance, such as risk, cover and exclusions.
  • Coverit’s argument that because Brian could look after horses, assisted with household chores, did crosswords, watched television and read newspapers, meaning that Brian could understand insurance contracts – was a ‘bit of a stretch’.
  • Brian was sold a number of policies which appeared to be double ups.

We also suggested that any refund should be discounted to reflect:

  • the benefit Brian had received from having claims paid, and
  • the fact that Brian’s father was present when some of the policies were taken out.

Coverit said it was prepared to offer Brian a $3,000 refund without any admission of liability and upon Brian and Anton agreeing that the policies were at an end and no further claims could be made.

Anton and Brian accepted the offer and the complaint was resolved.