Archaic rules on critical illness under review

Ancient and confusing contract law which prevents policyholders claiming on critical illness insurance because they failed to disclose unrelated medical information is being reviewed.

 

The Law Commission has described insurance contract law as muddled, and launched a consultation. Insurance law has long been criticised for its lack of clarity, archaic rules and potential to cause unfairness to the policyholder. Their aim is to see if underlying law can be changed to produce more fairness.

 

The review has been started following the case of a man who was refused payment when his wife died of leukaemia. Insurers ruled her critical illness insurance policy was void because she had failed to disclose she suffered from reduced hearing due to unrelated ear infections. The financial ombudsman overturned that decision, so insurers had to pay up.

 

Disputes over non-disclosure are most common on critical illness, travel and private medical insurance. Insurers and intermediaries warn potential customers that they must disclose all relevant health information. Where problems start is what a customer believes is not relevant, may be regarded by an insurer many years later, as relevant. As the law stands, if there is any failure to disclose, the insurer can refuse to pay the customer. The Financial Ombudsman argues that customers shouldn't be expected to disclose things unless it is reasonable to do so. Unfortunately, the definition of what is reasonable is itself  open to debate and uncertainty.