‘Getting to the heart of the matter by way of a heart to heart’.

The advice

Some time ago, and with the assistance of an insurance adviser, Eva and Andre had secured life, trauma and total and permanent disability (TPD) insurance with insurance company A. Andre had $500,000 in life cover, $23,000 in trauma (standalone) cover, and $500,000 in TPD (standalone) cover. In 2012, Eva and Andre met with another insurance adviser, Richard, about their insurance requirements.

Richard advised Eva and Andre to move their life and trauma cover to insurance company B, but replacing the TPD cover with income protection cover. The premiums were slightly less with insurance company B. Richard left Eva and Andre with insurance company B’s application form and asked them to answer the questions in the form about their health.

After taking out cover with insurance company A, Andre had developed a heart condition. This remained well controlled by medication, and Eva and Andre had made healthy improvements in their lifestyle. However, Eva and Andre did not disclose Andre’s heart condition on insurance company B’s application form.

When insurance company B later discovered Andre’s heart condition, it said it could no longer insure his life, endorsed the policy with exclusions and increased premiums. Eva and Andre cancelled the cover with insurance company B.

Eva and Andre’s version of events

Eva and Andre thought that a form they signed when they met with Richard meant he would seek:

a) a copy of their full medical records, and

b) information from insurance company A about information Andre had told it about his heart condition. 

They also thought Richard would ‘fill in’ any gaps in the information they disclosed on insurance company B’s form, with any further information from their medical histories he considered important. Eva and Andre also said Richard asked them the question ‘are you currently healthy?’. They answered yes, because they were.

Richard’s version of events / view

Richard highlighted that the form Eva and Andre signed did not instruct Richard to seek their medical records, give him access to their records, or any other information about their health histories (except what they disclosed on insurance company B’s application form). Richard also said his standard process is to ask clients whether they have ever suffered from any health issues.

Richard also said that:

  • insurance company B’s application form asks customers to disclose information about current health issues and any pre-existing health issues, and
  • Andre had signed a declaration in insurance company B’s application form that he understood the duty of disclosure.

The complaint

Eva and Andre felt that Richard had not done enough to advise them about their duty of disclosure and had a real feeling of disappointment about what had happened, particularly because they were acquaintances of Richard. Overall, Eva and Andre felt they would have been better off if Richard had never provided them advice.

Eva and Andre were subsequently able to secure cover for Eva which met their requirements and sufficient life cover for Andre’s life. However, they were unable to secure cover to match the income protection they thought Andre had taken out with insurance company B, or insurance cover akin to the trauma/TPD cover he had held with insurance company A.

Eva and Andre came to FSCL with their complaint. Although Eva and Andre said they took on some responsibility for the situation they found themselves in, they felt they were now exposed to risk in the event that Andre had an issue with his heart in the future. Eva felt particularly exposed, because if something happened to Andre she would be the one left paying their mortgage and other living expenses.

The conciliation

We reviewed all of the information on the file and considered the complaint could benefit from a conciliation conference to see whether an agreement could be reached to resolve the complaint.

We noted that Eva and Andre had not actually suffered any financial loss because Andre had not yet had cause to make an insurance claim. If we were to issue a decision, we could only decide on liability, that is, a decision about the contribution of both parties to the problem. Any decision on compensation and the amount of compensation would need to be made at some time in the future, in the event that Andre suffered from a claimable health event. We noted this was not an ideal situation for either party because the issue would be ‘hanging over’ both parties’ heads.

Our case manager facilitated a conciliation conference attended by Eva and Andre, Richard, and Richard’s professional indemnity insurer’s lawyer. The conciliation setting provided the opportunity for Eva, Andre and Richard to have a good ‘heart to heart’ on the issues in the complaint. At the conciliation, Richard agreed to assist Eva and Andre in applying to other insurers and use his contacts to try and get Andre back cover on the same or similar terms as he had previously. The complaint remained with FSCL’s conciliation process while this occurred.

Unfortunately, Richard was unable to assist Andre in securing sufficient cover, and our case manager then assisted the parties in reaching a negotiated resolution to the complaint.

The outcome

Eva and Andre agreed to accept $20,000 from Richard in full and final settlement of their complaint. This amount was based on a rough calculation estimating the risk of Andre suffering a TPD claim, and trauma events under insurance company A’s policy. That is, looking at what position Eva and Andre would have been in if they had not taken advice from Richard to begin with, in conjunction with the risk of Andre having a claimable event.

Insurance company A’s TPD policy wording essentially would have required Andre to be close to a vegetative state to be eligible to claim, so the risk of him having a claimable event under that part of the policy was very low. Andre had a greater chance of having a claimable trauma event under the policy.

The $20,000 payment also included an element for stress and inconvenience (the most our CEO being able to award if issuing a decision on a complaint being $2,000).

Although a payment of $20,000 was not the outcome Eva and Andre had hoped for, it was a sum of money they could put to use now. There was a chance they could have received more than $20,000 at some point in the future, however, there was also the chance they would never have cause to make a claim. Acceptance of this amount also meant Eva and Andre could put the complaint behind them.

Our insights

The issue in Eva and Andre’s complaint, being the risk of suffering a financial loss in the future is a difficult issue to resolve because it involves making calculations based on average risks of particular events. Conciliation is a good way to resolve these types of complaints.

Advisers should make sure they fully explain the duty of disclosure to their customers. Simply stating to clients they have a duty of disclosure, or relying on the wording of an insurance company’s application form may not actually mean the client understands the extent of their disclosure requirements.