In the past insurance companies have been known to follow the provisions of insurance policies to the very letter, regardless of the circumstances or consequences. In the new consumer centred era this has changed and have the courts also contributed by setting some principles.
To place the significance of the Didcott-principle in perspective, regard must be have to the basics first. In South African insurance law there is a duty of the insured to disclose all risk relating to his or her insurance cover to enable the insurer to determine whether it is willing to undertake such a risk and provide their client with the requested insurance cover. If an insurer feels that the risks involved are too great it may deny the client any coverage, or the insurer may increase the client’s monthly premium to balance the acceptance of great risk. Should it later transpire that the client failed to disclose certain facts that were material to the insurer’s investigation into whether or not it is willing to provide insurance coverage to the client, insurers may, and have done so regularly in the past, cancel the insurance agreement and refuse coverage as a result of a material breach of such an agreement.
The issue of which facts are considered to be material enough to allow insurers to cancel an insurance agreement was considered in Mutual and Federal Insurance Co Limited v Oudtshoorn Municipality 1985 (1) SA 419 (A) in which matter the court determined that one must ask whether a reasonable person, an average Joe, would think the information is material or important enough that it should be brought to the attention of the insurer for the insurer to adequately assess the risk it is considering to undertake on behalf of their client.
However, to decide which facts are material enough to disclose to insurers is not always clear or easy. In long term insurance or so-called life insurance disputes involving complex and often novel diseases or disabilities it is not always easy or clear which symptoms are actually related to a specific disease or disability and when exactly the first symptom that could have pointed to this disease or disability appeared. For example, in case number CR231 adjudicated by the Ombudsman for Long Term Insurance the insured client had experience abdominal problems since September 2005, and kept silent about numerous consultations he had with doctors over the years in his life insurance questionnaire. The client was eventually diagnosed with stomach cancer within a month after applying for life cover and died on 21 March 2006. The insurer refused life coverage based on non-disclosure of material facts (the numerous doctors’ consultations) and did the ombudsman found that the symptoms and consultations were of such a nature that a reasonable person would have disclosed it to an insurer as it would have affected the insurer’s ability to assess damages. Another example is case number CR153 in which a client instituted a disability claim with his insurer based on his inability to continue with his profession as strategic planner due to Parkinson’s disease. The insurer refused the requested claim on the basis that the client never disclosed previous visits to a neurologist after the client started to experience problems with his back and neck and had tremors in his hand. According to the client he was completely unaware that he suffered from early Parkinson’s disease and because back and neck pathology were excluded from his disability insurance policy he did not think it necessary to inform his insurer. Under these circumstances the ombudsman found that the client innocently non-disclosed his medical condition and that he has indeed not been aware of the fact that he already suffered from early Parkinson’s disease, and although silence about a visit to a specialist doctor would normally constitute material non-disclosure, the ombudsman instructed the insurer to make an ex gratia payment under these circumstances y offering the client a third of his coverage.
To allow for and appreciate the difficulty in diagnosing certain diseases or disabilities the courts have slowly but surely adopted a less letter-of-the-contract approach to insurance cases. In Pillay v SA National Life Assurance Co Ltd 1991 1 SA 363 (D) judge Didcott suggested that:
where an insurer had been misled but it would in any event have entered into the contract albeit on different terms, it was not entitled to rescind the contract but had to be satisfied with a lesser remedy. The purpose of such a remedy would be to make good the loss suffered as a result of the misrepresentation. The insurer could for instance deduct from the claim the additional premiums it would have charged had it known the true facts. Another possibility would be for the insurer to keep the premiums as it was but to reduce the sum insured. Or to add to the contract an appropriate exclusion on which the parties would have agreed.
In short, this suggestion became known as “The Didcott-principle” – a principle that in essence expect from the insurer to be creative and innovative with the structuring of premiums and payments to their clients.
This principle found further backing in the consumer protection framework created by the Financial Services Board (FSB) as published in their Treating Customers Fairly policy, specifically aimed at the financial services industry such as the insurance industry. Amongst other this policy advocate: the fair treatment of customers which must be central to any corporate culture; the meeting of the needs of identified consumer groups such as the diseased or disabled; the provision of clear information about insurance policies for instance; the ensurance that advice is suitable and takes account of a client’s circumstances and that clients should not face unreasonable post-sale barriers such as when clients want to claim in respect of their insurance policies.
Although opposition to the above has been experienced in other courts (Sherwin Jerrier v Outsurance Insurance Company Limited 2013 JDR 0562 (KZP)) the reaction of the financial sector clearly indicated that it is still committed to the fair treatment of their customers.
The unexpected health (and other) challenges life often throws one’s way should therefore be met with extraordinary legal solutions and is it a relief that our courts appreciate these difficulties and are willing to accommodate people as best it can.
by Marietjie Botes