By Tim Gunn*
A reckless youth and a love affair with things that go fast, have seen me suffer several concussions which affected my mental health. This has led me to access excellent mental health services which have changed the life of myself and my family.
With the growing awareness of mental health issues and the public push to speak up, talking to doctors, councillors and friends about stress, anxiety and depression is less of a taboo. Yet if you’ve mentioned suffering any of these conditions to your doctor, but not your insurer, your travel, health, income protection and life insurance products could be worthless.
An insurer can avoid a policy if you don’t tell them about your past or current “mental health issues” even if your claim has nothing to do with innocuous complaints made in years prior.
This reality has the potential to discourage people from opening up to their doctors about any mental health concerns they may have. Gary Galambos, chairman of the NSW Branch of the Royal Australian and New Zealand College of Psychiatrists says:
“The insurance industry should be encouraging their people to see us, and be reassured that help-seeking people are help-seeking people, and are less likely to be a risk for these companies”.
The problems around mental health and insurance all stem from an archaic law that deals with non-disclosure.
Under the law, there is no distinction between fraudulent and innocent non-disclosure. An insurance company has the right not to honour a policy if the claimant did not provide all the information the company required when the policy was purchased. This is the issue of non-disclosure and has its origin in the common law dating back to the 1700’s. Yes, the current state of the law is unchanged in this area since the days of Captain Cook.
The Commerce and Consumer Affairs Minister Jacqui Dean says there must be a desire to change the law in this area, but “up until now, this impetus hasn’t been there”. This is widely inaccurate. Insurance advocates have been calling for a change for the past two decades. Indeed, since a 2007 Cabinet paper, the proposed Insurance Contracts Bill has languished for over a decade.
Since then, the UK, Australia and Ireland have enacted new legislation that specifically targets non-disclosure. Consumers there are now only responsible for answering questions asked by insurers, and any unintentional failure to disclose will not be used against them.
Insurance and Financial Services Ombudsman Karen Stevens has called for New Zealand to follow suit. She points out:
“this manner of dealing with non-disclosure is very severe in cases where someone has failed to disclose information because they forgot, or didn’t understand the questions asked. While most policies contain warnings about the duty and what happens if the duty is breached, in our experience people don’t read the policies, they don’t know what questions to ask, and they often don’t understand the consequences of failing to disclose.”
The Ombudsman further points out that the most common things people fail to disclose are their pre-existing medical conditions (39%).
She has been at pains to point out:
“For the 22 years we have provided a dispute resolution service, a constant stream of people have contacted us because their insurance claim has been declined, or their entire policy voided because they left out information on the insurance application”
What is most galling is there are clear legislative guidelines for life insurance policies in the Insurance Law Reform Act 1977. This Act covers the effect of misstatements, where you do give information, (different to a non-disclosure) in contracts of life insurance. Under a life insurance policy an insurance company can only avoid policies where statements made in the proposal or associated documents are:
- substantially incorrect; and
- material; and
- made either fraudulently; or
- within 3 years before the date of death or the date the policy is sought to be avoided, whichever is earlier.
Mental Health Questionnaire
The Law Commission has acknowledged, as far back as 1988, that there is an inescapable power imbalance between insurers and consumers and that the result of non-disclosure is wholly disproportionate to the breach. It has also been identified that the insurance companies are not incentivised to ask the types of questions that clarify what information is relevant to their underwriting procedures. This is a very polite way of saying that insurers are permitted to make questionnaires that are vague and have the potential to mislead.
I believe that the form and content of the medical disclosure questionnaires are the key reasons for the high rates of non-disclosure claims before the Ombudsmen. From the below selection of insurance declarations, even with 10 years of insurance law experience, I would struggle to answer the questions in a way that would not have the potential for future issues of non-disclosure.
1. Sovereign asks: Have you ever had any signs or symptoms of, or been tested or treated for, or diagnosed with any of the following?
Everyone has displayed “signs or symptoms” of stress, fatigue, headaches and/or sleeplessness. Who can answer no to that question? But will people think to disclose the time that they told the doctor they were feeling “stressed and depressed” as noted in the doctor’s file notes?
2. MAS does not reference signs or symptoms but uses the term “suffer”. Again it is not clear what “suffer” means. Does this mean that you have to be under a diagnosis, receiving treatment, under medication or just receiving counselling? Mental health is such a varied and individual health issue. How can we use such generic language?
3. The Kiwibank application form has a clearer set of parameters around its mental health questionnaire and removes the one-off events that may be common to many people:
4. As a point of reference, the Australian insurer MLC has a much clearer term “condition” and explains in far more detail the types of “conditions” that it deems relevant.
The argument for legislative change
There is well and truly an “impetus” for the law that deals with non-disclosure to change. Mental health is such a critical issue for New Zealanders, and the actions of insurers to hide behind an archaic notion of good faith risks undermining the work done in this area. I echo the recommendations made in a 2007 Cabinet paper to completely overhaul the law, and call for the strict control of an insurer’s right to avoid an insurance contract.
*Tim Gunn is a Senior Solicitor at Shine Lawyers.