Sins of Omission
by Leslie Buchbinder
IFA magazine, November 2011
We all know the feeling. Shuffling through the mail after a hard day at the office. Finding the routine renewal notice from the insurance company - and checking the premium to see how much it's gone up, before filing it away.
Your clients know the feeling too. Which is exactly why you, as their adviser, need to get them to focus for a few moments on that renewal notice. Because what may seem like administrative chore could suddenly become the most important document in their lives. I know, because I spend a lot of time with clients who say 'if only!'
Sometimes people forget to mention changes in their circumstances which make all the difference between an insurance company paying, or not paying, when the worst comes to happen. Omitting to mention changes is different from material non-disclosure. But how are they different?
Let’s say a client buys some expensive jewellery for his wife for a significant birthday and forgets to list it when renewing his home contents insurance. If the jewellery is stolen in a subsequent burglary and he claims for it, the insurer is likely to reject the claim on the basis that the specific item was not nominated in the Policy Schedule. The item of jewellery was simply not covered by the Policy.
Then there is the case of the executive taking out critical illness cover who omits to mention the fact that, for example, he consulted a heart specialist about a significant cardiac condition a few years earlier. If he subsequently makes an insurance claim following a serious heart attack, the insurer could reject his claim on the basis that he failed to disclose to the insurer significant information that was material to whether or not the insurer would have taken on the risk in the first place. Or, if the insurer had been willing to take on the risk, it would have been for a substantially higher the premium..
This may all seem very black and white, but the wording of an insurance claim is extremely important. I want to make it abundantly clear than under no circumstances should an insurer be lied to or deceived. But getting advice on what information must be included in any claim form submitted to an insurer, and how to word this information, is critically important. I have been involved in cases where significant disability claims have been paid out, while others, that seemed identical, were not. The difference in outcomes was likely caused or contributed to by the way the claim form was completed..
If an insurer rejects a client’s claim that’s not the end of the road.. A client seeking legal help can have a letter written to the insurer demanding a full explanation of the basis of rejection of the claim. The grounds on which the claim has been rejected may be able to be contested and other arguments raised in support of the client’s case. If the insurer still refuses to accept the claim in part or in whole then, the client may then have the option to commence legal action against the insurer for breach of the insurance contract and/or on other grounds, which the insurer will be required to defend.
Whilst current statistics suggest that around 70% of these kinds of disputes are settled during the course of the litigation and mediation process that occurs before going to trial, given the protracted nature of the process and the potentially high legal costs associated with it, clients would be well advised to use the services of a fixed price fee lawyer. Doing so provides more peace of mind about costs, and also helps ensure that the momentum of the action is maintained.
After years of faithfully paying their insurance premiums are clients forgiven the sin of omission? I’ve seen insurance companies reject claims by loyal clients of many years standing. Whatever the policy wording, insurers do have the discretion to waive potential defences to claims made under insurance policies and nevertheless pay out the claim. But I wouldn’t count on it!
Renewal notices should never be seen as a routine chore. They deserve quality time and proper consideration. Contrary to popular belief, the two words you never want to hear a client say to you are ‘if only!’
Leslie Buchbinder is a Director of Bowen Buchbinder Vilensky,