13 March 2023

Non-Disclosure: A Call On The Legislature To Come To The Aid Of Policyholders.

Adams & Adams


Adams & Adams is an internationally recognised and leading African law firm that specialises in providing intellectual property and commercial services.
Non-disclosures by policyholders are rife within the long-term insurance industry. A non-disclosure can be committed fraudulently, innocently, or negligently.
South Africa Insurance
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Non-disclosures by policyholders are rife within the long-term insurance industry.

A non-disclosure can be committed fraudulently, innocently, or negligently. In any respect, the non-disclosure needs to have been material and must have induced an insurer into entering a contract of insurance to warrant the contract being avoided (cancelled). The test for materiality is an objective one, enquiring whether a reasonable person, in the position of the policyholder, would have deemed it necessary to disclose the information to their insurer.

Over the years, we have seen many sad tales of life insurance policies being cancelled due to non-disclosures on the part of policyholders. Usually, the non-disclosure relates to medical treatment a policyholder underwent prior to taking out a life policy or before renewing an existing one.

The cancellation of a life policy can have devastating consequences for those left behind. More often than not, life insurance is purchased to provide financial support and security for loved ones in the event of a policyholder's death. If the policy is cancelled due to non-disclosure, the intended beneficiaries will not receive any benefits, leaving them financially vulnerable.

The issue of non-disclosure has resurfaced for the umpteenth time in a dispute recently lodged with the Ombudsman for Long-term Insurance by a widow following the rejection of her R28 million claim due to her late husband allegedly failing to disclose that he suffered from anxiety and depression. It has been reported that the widow's husband allegedly received psychiatric treatment for a few weeks prior to the commencement of his life policy but failed to disclose this information to his insurer. Years after the commencement of the policy, the widow's husband was shot dead in an armed robbery, prompting her to claim from her husband's insurer. To her utter dismay, the insurer rejected the claim, leaving the widowed housewife and her two children financially destitute.

Whilst I do not want to prejudge the Ombud's ruling, I certainly have my doubts regarding the widow's prospects of success. I believe that the Ombud will find that a reasonable person, in the position of the deceased, would have disclosed such a medical condition to their insurer. If it is then found that the deceased's non-disclosure induced his insurer into entering the contract, it goes without saying that the insurer's cancellation can be regarded as lawful. However, would the insurer's cancellation still be lawful if it would have entered into the contract notwithstanding the deceased's medical condition, charging a higher premium to compensate for the greater risk associated with the deceased's medical condition? Unfortunately, I believe it would still be lawful. Whilst it may be lawful it would certainly not be equitable. To my mind, a more equitable outcome could be achieved by offsetting the difference in the premium the insurer would have charged had it known about the deceased's medical condition against the amount due to the deceased's beneficiary and/or excluding any claim for death resulting from suicide. Unfortunately, it is not competent for the Ombud to make such a ruling unless the parties agree thereto; the law needs to be applied as it reads which does not currently provide for this. We can therefore only hope that the legislature will come to the aid of policyholders sooner rather than later given the inequitable outcomes we have seen over the years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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