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A hard lump to swallow

Lionel held life and trauma insurance with insurer A, and in 2010 he met with his adviser who suggested he change his policies to insurer B. In 2013, the adviser told Lionel that if he signed up to a farm equipment loyalty scheme, he would get a reduction in his insurance premiums.


Lionel’s health declarations

Lionel did not want to review his insurance at that time, although he filled out a form disclosing his health history. The adviser contacted Lionel a number of times over the next six months and, in June 2014, Lionel signed up to the loyalty scheme and filled out another form confirming his continued good health (because it had been six months since he last disclosed his health information). On the continued good health form (the CGH form), Lionel disclosed he had recently seen his doctor about a work accident in May 2014, which resulted in an injury to his stomach.

It transpired Lionel had filled out an application form for, and gained insurance with, a new company (insurer C). However, Lionel had not understood he was cancelling his old policy and replacing it with a new policy; he thought he was rolling over his cover with insurance company B.


Lionel is diagnosed with cancer

Unfortunately, in December 2014, Lionel was diagnosed with cancer and started chemotherapy. Lionel submitted a trauma claim to insurer C. It declined Lionel’s claim and cancelled his policies. This was because Lionel did not disclose that following his May 2014 accident, he had also spoken to his doctor about a lump in his neck, and night sweats. Insurer C said these were symptoms of Lionel’s later diagnosed cancer.

However, Lionel said that when saw his doctor in May 2014, he ran some blood tests and gave Lionel a general health check-up. The blood tests came back clear, and Lionel’s doctor said he was a healthy 50-year old.


Insurer C overturns its earlier decision

Lionel contacted his lawyer who, over a significant period of time, and at some expense ($5,000), assisted in having insurer C overturn its decision. Insurer C paid Lionel’s claim (approximately $265,000) and reinstated his policies. The insurer accepted that when Lionel made his health declaration in June 2014, in light of his doctor’s comments, Lionel had no reason to disclose the lump and the night sweats.


Lionel’s complaint about his adviser

Lionel then complained to FSCL about his adviser. Lionel said the adviser moved him from insurer B to insurer C to earn more commission than the adviser would have earned if Lionel had stayed with insurer B. Lionel said if he had retained cover with insurer B, it would have just paid his claim meaning he would not have had to experience the further stress of not having his claim paid, while he was suffering and recovering from cancer.

Also, Lionel said that if he had retained insurer B’s policy, he would have better remaining benefits available to him under that policy. Lastly, Lionel said his adviser did not explain to him the importance of disclosure, especially when moving from one insurance company to another.


The adviser’s view

The adviser said Lionel was given ample opportunity to disclose all relevant information to insurer C, and an outline of disclosure obligations was included in insurer C’s application form. In addition, the adviser sent insurer C’s application form back to Lionel to check before sending it onto the insurer. The adviser said Lionel had another opportunity to disclose material health information when he filled out the CGH form in mid-2014.

Also, the adviser said he followed a sound advice process, and the cover with insurer C was better than the cover with insurer B. Lastly, the adviser said it was ultimately the insurer that declined the claim and cancelled Lionel’s policies, and only decided to change its view after a considerable period of time.


Our review


Comparison of insurer B and insurer C’s policies

We looked at the cover Lionel had held with insurer B, and compared that to the cover with insurer C to see whether moving to insurer C was in Lionel’s best interests. With both insurers, Lionel held accelerated trauma benefits. This meant that Lionel held overall life and trauma cover, but if he had a trauma claim paid, then this would reduce the amount of life cover left in the event he had a life claim.

We calculated that with insurer B, Lionel would have received $7,897 more in his trauma claim, and would have had $1,486 more available to him if he had a later life claim. However, we also calculated that it would have cost Lionel another $755.16 per year to have the higher level of cover with insurer B. This indicated Lionel had suffered an estimated $8,627.84 loss because of the change in insurers.

Lionel argued if he’d kept insurer B’s policy, he would have retained an early cancer benefit of $50,000 (in the event he later suffered another early cancer unrelated to the cancer he had). However, the way insurer B’s policy was worded meant that if Lionel had a claim paid under insurer B’s trauma policy, the early cancer benefit would fall away. This meant Lionel was in the same position under insurer C’s policy as he was under in insurer B’s policy (in terms of the early cancer benefit).


The adviser’s service

We thought there had been some shortcomings in the adviser’s advice process. There were no file notes to show whether the adviser had explained the duty of disclosure to Lionel in a meaningful way when he filled out the application form in late 2013. In addition, the adviser did not meet with Lionel in June 2014 to discuss any health issues in the last six months, which might need to be disclosed on the CGH form.

If more care had been done by the adviser to explain the duty of disclosure, Lionel’s neck lump and the night sweats may have been disclosed. We thought that even if insurer C had initially applied an exclusion, given it later overturned its claim decision, the exclusion could have been removed, or, Lionel may have decided not to change insurers. This would likely have meant the claim would simply have been paid under insurer B’s policy and Lionel would not have had to endure the stress he did.

We also considered whether the adviser could have done more when Lionel’s claim was declined, to speak to insurance company C about overturning its decision, rather than Lionel having to see his lawyer and incur legal fees.


Suggestion for resolution

We suggested to the adviser he might want to consider paying Lionel $10,627.84, being the $8,627.84 estimated loss in cover, and $2,000 inconvenience compensation caused by the adviser’s service shortcomings. The adviser agreed to offer $10,627.84.

Lionel did not accept the adviser’s offer. He felt he was still out of pocket because of the approximate $6,727 in legal fees he’d incurred in having insurer C’s decision overturned and since he’d come to FSCL with his complaint. Lionel also said he incurred $1,150 in medical bills in having insurer C’s decision overturned. Lionel felt $25,000 compensation was appropriate.

We spoke further with both Lionel and the adviser, and shuttle negotiated a resolution. Lionel and the adviser settled on a figure of $15,000 –an amount Lionel could live with. The complaint was resolved and the parties signed an agreement to that effect.


Our insight

We find that consumers often do not fully understand their duty of disclosure, and advisers often do not fully explain the duty or have any file notes or statements of advice summarising the advice provided. Correct disclosure is always important, but particularly where insurance is being replaced with another insurance company. This is because consumers can lose cover they would otherwise have been entitled to under the original company’s policy.