Life insurance is taken out under the legal terminology of ‘utmost good faith’. This means that the insurance company and the person looking to take out a policy are both obliged to act in good faith.
As a result the person taking out the policy is able to assume that the policy includes what is advertised without having to sift through and scrutinise the small print of the policy contract. It also means that the potential policy holder reveals all the relevant information to the underwriter whilst they calculate the policy premium. Sadly it seems that these boundaries are regularly being tested by the insurance companies who increasingly question the honesty of their clients.
The case of Angela Stubbs is a high profile case in which the insurance company refused to pay out and accused her of keeping previous medical history from them. In 2004 her claim for 53,000pounds was thrown out by her insurance company. She had critical illness cover and was making a claim because she had suffered a heart attack.
The company refused to pay out because she failed to reveal that she had suffered a bout of depression a year before taking out the policy. Despite being unrelated the company penalised her.
Critics criticised the actions of the insurance company as they do not check their clients medical records before they take out a policy because this level of screening is considered too costly however they trawl through and heavily scrutinise them when a claim. The findings often invalidate the policy.
The Law Commission have put forward a proposal to parliament that will review the law. It aims to set a limit on how far back in the records insurers can go to reject insurance claims.
Typically insurers turn down around 20% of the claims they receive. In the case of Mr Barton the insurance company used the fact that he did not disclose a kidney test as a reason not to pay out on a claim that was made when he contracted testicular cancer. He had been tested for a hereditary kidney disease whilst at school and was not aware he had had the test when he applied for his insurance.
The company responsible said they would not have insured him if they had known and have volunteered to return the 30pounds per month policy payments and cancel the policy. Critics have seen it as an example of insurance companies seizing any opportunity to decline a claim.