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ombudsman news

issue 61

April/May 2007

insurance case studies - non-disclosure, reckless or inadvertent-

Over the years, ombudsman news has regularly set out our approach to complaints involving non-disclosure. This is the situation where, when applying for (or renewing) insurance, a customer fails to answer a question to the best of their knowledge and belief, and as a result fails to reveal a relevant fact, or misrepresents their situation.

We are continuing to receive a significant number of cases involving non-disclosure, especially in relation to protection insurance. And we regularly receive queries - from both insurers and consumers - on aspects of non-disclosure. So we hope this selection of case studies, focusing on the distinction between reckless and inadvertent non-disclosure, will prove helpful.

Recklessness, as we use it in this context, derives from the meaning it has in law. It is a familiar and well-used term that arises in civil and criminal cases as well as in legislation. There is no statutory definition but the term has been applied in the courts on a consistent basis for many years. In a 1967 case, Lord Diplock offered the following definition:

"It must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted."

The important point - evident from this and other cases - is that recklessness denotes a degree of not caring whether a disclosure is true or false. This contrasts with the situation where a lack of sufficient care and attention has resulted in an incorrect answer being given - regardless of how incorrect that answer may be. In issue 27 of ombudsman news (2003) we said "non-disclosure is clearly reckless if a policyholder appears not to have had any regard for accuracy when completing the proposal form". This remains our position.

For us to conclude that a consumer's non-disclosure or misrepresentation when applying for a policy was reckless rather than inadvertent, we must be satisfied from all the evidence (including that relating to any conversation, marketing documentation, other advice or paperwork available at the time to the consumer), that in answer to a clear question the consumer:

  • did not care whether their answer was true or false and
  • understood, if only in a limited way, that an answer was required, that it was important to the insurer and that there was a consequence to it.

Signing an application form without reading it, and then leaving it with someone else to fill in, would be an example of recklessness. But it would not be reckless to sign an application form without reading it if it had been filled in by an intermediary, when you genuinely believed the intermediary had accurately recorded all of your answers.

case studies

non-disclosure, reckless or inadvertent-

issue 61 index of case studies

  • 61/1- life and critical illness insurance - back and neck problems - inadvertent non-disclosure
  • 61/2 - income protection insurance - non-disclosure after application had been made
  • 61/3 - life and critical illness insurance - asthma - inadvertent non-disclosure
  • 61/4 - life and critical illness insurance - smoking - monitoring of blood pressure - no non-disclosure
  • 61/5 - life assurance - alcoholic counselling - reckless non-disclosure
  • 61/6 - life assurance - incorrect height and weight given - deliberate non-disclosure

61/01
life and critical illness insurance - back and neck problems - inadvertent non-disclosure

Mr F took out life and critical illness cover in June 2002. Just five months later, in November 2002, he suffered a heart attack and submitted a claim to the insurer.

However, the insurer refused to meet the claim, on the grounds that Mr F had been reckless in failing to disclose basic information on the application form. It said that after reviewing his medical records, it had discovered that Mr F failed to disclose recurrent problems with his back and neck. He had also failed to disclose that he had made a previous application for similar cover, from a different insurer. That application had never gone ahead but had been deferred, as the insurer had asked for further information which Mr F had never provided.

Mr F complained that the insurer's stance was unreasonable. He said he had simply forgotten that he had made the earlier application. And he had forgotten to mention that he had been referred to an orthopaedic consultant two years earlier for back and neck problems. He pointed out that he had mentioned on the form that he suffered from depression. He had also disclosed that his mother had heart problems. And he added that, at the time he had applied for the policy, he had been going through a particularly traumatic period caring for his wife and son, both of whom had been seriously ill.

complaint upheld
We established that Mr F's back and neck trouble had arisen after his wife had become quadriplegic, following an accident, and he had started having to lift her. And around the same time that Mr F had been referred to an orthopaedic consultant for his neck and back problems, he had been having to accompany his young son (who had a rare disease) on a number of hospital appointments.

Mr F had only the one consultation with the orthopaedic consultant, who had advised him to continue for a time with physiotherapy and medication. We accepted that, in the circumstances, Mr F had simply forgotten to mention the consultation on his application form. And we thought it understandable that Mr F had not thought he had needed to mention these back and neck problems when answering a question on the form about "back, spine or recurrent joint disorder". So we accepted that his failure to disclose this information had been inadvertent.

Mr F did not dispute that he had failed to disclose the earlier insurance application. He said he had simply overlooked this. At the time of this earlier application (1998), he had been fully occupied caring for his wife and family. He had not had time to follow up the insurer's queries and to provide the clarification it needed before it could proceed with his application.

In support of his case, Mr F provided a letter from his cardiologist. This said that if Mr F had been asked to undergo a medical examination when he applied for his current policy in 2002, it was unlikely that this would have led to a diagnosis of coronary heart disease.

We decided that Mr F had not shown a reckless disregard for his answers - his oversights had been inadvertent. In the circumstances, the insurer needed to make a proportionate response. In other words, it should rewrite the policy on the terms it would have offered Mr F if it had known the full facts at the outset. In this particular instance, it would have excluded spinal conditions from the disability benefits provided under the policy. It would not have excluded heart attacks or refused to cover Mr F at all.

So we said the insurer should reinstate Mr F's policy - adding the spinal condition exclusion - and deal with the claim. Since no exclusion applied to Mr F's heart attack, the firm had to pay the claim in full (less any premium refund), with interest.

61/02
income protection insurance - non-disclosure after application had been made

In April 2002, Mr J applied for income protection insurance. He answered "no" in response to a question on the application form about whether he had received any medical treatment or had any medical consultations in the previous two years. He gave the same answer when the question was put to him during the medical examination that the insurer arranged for him in June 2002.

The application form contained a warning, reminding him he had a duty to inform the insurer immediately if - as a result of anything that happened before the start of the policy - he needed to change any of his answers.

In August 2002 Mr J developed a serious condition which he had not suffered from before. He had a number of consultations about it with his doctor, who prescribed treatment in September 2002 and certified Mr J as unfit to work for the next two months.

The insurer said it sent Mr J a letter in October 2002, confirming its acceptance of his application and asking him if there had been any change in his medical condition since he completed the application form. The policy started a week later.

Just over a year later, Mr J developed leukaemia. The insurer rejected his claim, saying he had been reckless in failing to disclose the medical condition that had arisen in August 2002. The insurer said it would not have been prepared to cover him if it had known about this condition.

Mr J said he never received the insurer's letter in October 2002. And he said that, in any event, the medical condition that had arisen in August 2002 had nothing to do with his claim for leukaemia. Unable to reach agreement with the insurer, Mr J referred his complaint to us.

complaint rejected
We thought it probable that the insurer had sent the letter in October 2002, even though Mr J could not recall receiving it. So we considered that by sending this letter, and by including the warning on its application form, the insurer had given Mr J adequate warning of the need to disclose any changes to his health since he had applied for the insurance. However, we noted that the insurer had not sent him a copy of his original application form with this letter, so that he could assess what changes were relevant to the insurer.

We decided that Mr J had not intended to mislead the insurer. We took into account how close - in time - the emergence of the new medical condition in August 2002 and the outcome of the consultations were to:

  • the date when he applied for the insurance
  • the acceptance letter and
  • the start date of the policy.

Although, in the light of the warning letter, he should have understood the need to disclose his new condition, we recognised that a duty to disclose information after an application has been accepted is a particularly onerous requirement that few consumers anticipate.

In this case we considered that, despite the insurer's warnings, Mr J had not fully understood the need to inform the insurer of any changes to his health. So his non-disclosure had been inadvertent rather than the result of a reckless disregard for the truth of his answers.

The usual remedy for inadvertent non-disclosure is to allow the insurer to rewrite the policy on the terms it would have imposed, had it known the full facts. In this case we were persuaded by the insurer's evidence that it would not have offered Mr J any cover at all, had it known about his new medical condition. So we concluded that it was fair for the insurer to:

  • refuse to consider the claim
  • cancel the policy from the outset and
  • refund the premiums that Mr J had paid.

61/03
life and critical illness insurance - asthma - inadvertent non-disclosure

Mrs B applied for life and critical illness cover in March 2000 during a face-to-face meeting with a representative of the insurer, who completed the application for her.

Several years later, after Mrs B developed breast cancer, the insurer declined her claim on the grounds of reckless non-disclosure. And it avoided the policy (in other words, treated it as if it had never existed).

The insurer said this was an instance of reckless non-disclosure because Mrs B had failed to mention that she suffered from asthma, even though several of the questions on the application form should have prompted her to disclose this. It said that if it had it known about her asthma, it would have increased the premium.

Mrs B challenged the insurer's decision. She said she had informed the representative about her asthma at the time she applied for the policy. He had said the insurer was not interested in such "run of the mill" matters. He had told her there was no need to mention the condition because it was fully controlled by an inhaler and she had never had to use a nebuliser or go into hospital because of it. The insurer disputed this - and said it had a statement from the representative confirming that he would never have suggested that an applicant omitted details of any health matter, however trivial.

complaint upheld
We found that Mrs B had disclosed her asthma on a separate application she'd made to the insurer a few months later, through a different representative. It was clear from her medical records that Mrs B's asthma was well-controlled, and she had never needed to use a nebuliser or go into hospital because of it.

We also noticed that the application form, which the insurer's representative had completed for Mrs B, contained several mistakes. These included the fact that he had ticked the box indicating that Mrs B was a non-smoker but had also stated that she smoked an average of five cigarettes a day.

Mrs B had disclosed her asthma in a subsequent application to the same insurer, so we accepted that she had not intended to keep quiet about the condition. And in view of the mildness of her asthma, it was plausible to believe that the representative might have told her there was no need to mention it.

We could not be certain what had happened during the meeting between Mrs B and the insurer's representative. It was clear that the representative had guided her through the application. The mistakes on the form suggested that he might not have captured accurately all the information that she gave him. However, he insisted that he had followed the correct procedure. We thought it likely that there had been a misunderstanding about what information needed to be disclosed on the form.

Mrs B had signed the declaration stating that the information on the form was true, to the best of her knowledge and belief. We were persuaded by the evidence that she had assumed the representative had recorded her answers correctly, so she had not thought she had any reason not to sign it. In any event, she had not been given a copy of the answers to check before signing.

In the circumstances, we were unable to conclude that Mrs B had been reckless in her approach to the application. There was nothing to suggest that she had not cared whether her answers were true or false. So we concluded that any non-disclosure was likely to have been inadvertent.

We required the insurer to meet the claim on a proportionate basis. In this case, that meant the insurer should calculate the premium that Mrs B would have been charged, if her asthma had been disclosed on her application form. It should then pay a proportion of her claim, equivalent to the proportion of this premium that she had actually been charged. It should also pay her interest on this amount.

61/04
life and critical illness insurance - smoking - monitoring of blood pressure - no non-disclosure

When Mr L applied for life assurance in July 2005 he stated that he had not smoked within the previous 12 months. Asked about any medical consultations, he said he had sought advice about a hernia that had subsequently required surgery. He also disclosed that there was a history of hypertension in his family.

Five months later he submitted a claim for oesophageal cancer. The insurer rejected the claim, on the grounds of reckless non-disclosure, and it avoided the policy. It said that when looking into his claim it discovered that he had previously been a heavy smoker. It accepted that he had now stopped smoking. However, there was a record of his regularly having smoked one cigar a day at the start of the 12-month period in question. The insurer said Mr L should also have disclosed that his blood pressure had been monitored in the period between 8 June and 18 July 2005.

Mr L said he had only smoked cigars very occasionally since giving up heavy smoking in 1994. And he insisted that he had accurately stated on the application form that he had not smoked at all in the previous 12 months. He did not deny that his blood pressure had been monitored for a few weeks. But he said this had only been done in advance of - and in connection with - the hernia operation.

complaint upheld
On his application form, Mr L had provided clear details of his impending hernia surgery and also the family history of hypertension. He had obviously given some attention to the application form and taken it seriously in this respect. The insurer had not sought any additional information about these matters, either on the form or subsequently.

The blood pressure monitoring had clearly been simply a preparatory step before the surgery for his hernia. It had been considered a necessary precaution because of the family history of hypertension. Mr L had disclosed both the surgery and the history of hypertension, so we did not consider that he had also been obliged to disclose the blood pressure monitoring. There was no separate question that would have required specific disclosure of it, and in any event the results of the monitoring had not merited any medical follow-up.

Mr L submitted evidence from his GP, who said he could not recall his conversation with Mr L and accepted that he might have misunderstood Mr L's history. The GP also said that the computer system on which he entered details of patients' tobacco consumption was unable to record a minimum consumption of less than one cigar or cigarette per day. We were satisfied, on a balance of probabilities, that Mr L had told the truth when he stated that he had not smoked in the 12 months before July 2005. So we concluded there had not been any non-disclosure in relation to his smoking. We required the insurer to meet Mr L's claim in full.

61/05
life assurance - alcoholic counselling - reckless non-disclosure

Mrs M took out two life assurance policies in November 2002. One was in her sole name and the other was a joint policy with her husband. Both application forms contained the questions:

"Do you consume alcoholic drinks-"

"Are you currently receiving any medical treatment or attention-"

"Have you ever sought or been given medical advice to reduce the level of your drinking-"

Mrs M answered "No" to each question.

Several years later Mrs M died. The insurer would not meet Mr M's claim because it said Mrs M had failed to disclose that, since 2000, she had been receiving treatment from a consultant psychiatrist in relation to "cessation of drinking". She had also failed to disclose that she had been attending Alcoholics Anonymous meetings. The insurer regarded Mrs M's non-disclosure as deliberate or reckless, and it avoided both policies.

Mrs M's representatives argued that she had stopped drinking in 2002. The consultant psychiatrist stated that he had been monitoring Mrs M's abstinence and not giving "medical advice" about reducing her drinking. He also said that he had advised Mrs M that her alcohol dependency should not be considered as an illness. However, the insurer contended that Mrs M should have realised that her history of drink problems was relevant to the insurance.

complaint rejected
We decided that Mrs M had been entitled to answer "No" to the question, "Do you consume alcoholic drinks-" She was not consuming alcohol at that time. On the question "Are you currently receiving any medical treatment or attention-" we were satisfied that she had been receiving medical treatment or attention from her consultant psychiatrist in relation to drinking. However, we recognised that her consultant's approach was to minimise any suggestions that his role was medical, and we accepted that her incorrect answer to the question had probably been made innocently or inadvertently.

We accepted that Mrs M had stopped drinking before 2002, but it was clear that she had continued to seek regular advice to support her decision to eliminate alcohol. So we thought her answer to the question, "Have you ever sought or been given medical advice to reduce the level of your drinking" was incorrect. We did not agree with her representatives that advice on maintaining her abstinence was not advice "to reduce the level of her drinking". We concluded that there was no evidence that Mrs M had deliberately given the wrong answer to this question. But neither was it likely that her answer had been innocent or inadvertent.

In our view, she could not have stopped to properly consider the question or her answer. Had she done so, we thought it unlikely that she would have given the answer that she did; the question would have raised issues that were fresh in her mind, and that we believed she knew were important to the insurer. We therefore regarded Mrs M's answer as reckless non-disclosure.

We accepted that the insurer would not have issued either policy if it had been aware of the true facts. Its decision to decline the claim and avoid both policies had therefore been justified.

61/06
life assurance - incorrect height and weight given - deliberate non-disclosure

When Mr K took out life assurance, he stated that he was 6 feet tall and weighed 16 stone. Following his death from a blood clot at the age of 37, just five months after taking out the policy, the insurer discovered that Mr K's actual height was 5'9" and his weight was over 21 stone. Mr K had also failed to inform the insurer about his kidney stone and gout. The insurer said that if it had known the full facts, it would have loaded the premium by 275%. It considered that his answers amounted to either reckless or deliberate non-disclosure and it avoided the policy.

complaint rejected
We had no reason to suppose that Mr K had not understood the form he was completing. We noted that, in response to clear questions about his health, he had failed to provide relevant information. As far as the information about his height and weight was concerned, the evidence suggested that he was aware that he was obese. We established that his weight had been recorded as 25 stone in May 1999, 24 stone in September 1999 and 21.2 stone at the post-mortem, less than five months after he had stated on the form that his weight was 16 stone.

We were satisfied, on a balance of probabilities, that at the time Mr K signed the application form he could not have believed his weight was only 16 stone. Nor could he have believed he was 6 feet tall. The disparity between his actual weight and height and the information he gave on the form was so great that it was difficult to accept that he had been unaware of it. We decided that the insurer was entitled to avoid the policy on the grounds that Mr K's non-disclosure had been deliberate.

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ombudsman news issue 61 [PDF format]

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.