In general terms yes. There is a but in there though, and it is a big one.

When you applied for your policy, did you; tell the truth, the whole truth and nothing but the truth? If you did, you are probably ok and have nothing to worry about, if you are unsure read on.

In English law, and carried through to New Zealand law, is the basic principal of good faith and truth when talking about contracts.

For Example

Something I have seen, an international student acquires a false drivers license from their home country and uses this to get their New Zealand drivers license from NZTA. Is this a valid identification document and drivers license?

The student thought so because the relevant authority issued the license, fact is, it is not. For the average person you might think it is valid too. Because it is not a fake and if presented with it, you could not tell it was not valid.

The Law's view

Under law it was acquired under false pretences therefore it is not a valid license. Other road users and people relying on the integrity of the identification and licensing process behind a drivers license would also agree, so do I.

Because a document or contract is real and issued by the relevant authority, if it is acquired through deception or false/fraudulent/faked documentation, it does not make it valid.

There is a concept in US Law called fruit of the poisonous tree; it is a legal metaphor to describe evidence that is obtained illegally. You may have the right answer and the right information but the reason you got there is based on illegal or unjustified means. If you have a situation of 'fruit from the poison tree' then everything from it can be thrown out, this is where we get back to your policy.

Your insurance application

If in your application for insurance cover you did not disclose everything asked for by the application questions, you may find yourself without the cover you expected you had, as the insurance company cancels your cover from policy inception for non-disclosure. Often you will have also wasted the premiums you have paid.

In a non-disclosure situation the insurance company has no obligation to refund you any premiums paid. From their point of view, you have cost them time and resources that have an impact on them too.

Non-disclosure

Non-disclosure is the key reason you hear people complain about life insurance companies, the policyholder did not tell the truth, medically or financially, and were found out. It is human nature not to take responsibility in these situations and as the life insurance company is a faceless organisation it is easy to blame them, and unfortunately, people often do.

There was a recent situation where Christchurch earthquake property claim got out of shape. The owners were quoted by a builder something like $1,900-$2,000 per square meter to rebuild their house to the same standard they had, the property owner submitted the claim for $2,400 per square meter. The insurance company objected, asking the property owner why they inflated the claim, the answer which came back was surprising. Something like "I'm allowed to dream aren't I". Clearly they were trying to take the mickey, some would say good on them, others would frown on this. As policy holders you would eventually foot the bill for this, and if you take it to the extreme it's just plain old fraud.

Loss or entitlement?

Insurance companies and their policies are there to serve a purpose and it works very well when it is used for the right reasons and situations. Where it all gets interesting and out of shape is when there are feelings of entitlement, this starts a chain reaction of not listening, followed by anger and then resentment, followed by court.

In this property case, it ended up in court and it got quite public. The reality was the insurance company was being quite reasonable working through the claim, the property owner did not agree and took them to court.

The resulting decision from the court reduced the original insurance company offer by around $100,000, a win for the insurance company a loss for the property owner. This was not the insurers doing, but the clients and the application of the law by the judicial system. Either way the insurer will get the short end of the stick, as they have not paid what the client expected to get at claim time.

What about you?

If you are facing some of these sorts of situations, try to take the emotion out as much as possible. I do appreciate it is about you and your loved ones or possessions, so it is difficult. If you do it will help your perspective; the insurance company will not be emotional about it.

The people working at the insurance company you talk to will generally be empathetic but not necessarily sympathetic. Even if they were sympathetic, they probably cannot change the answer as it is based on contract terms and the evidence presented, an emotional argument will not work.

What really is non-disclosure?

It is the admission of a material fact in an insurance application form that would change an insurance company's offer of cover from the one you have.

What does this mean for you?

It could be a medical condition or situation in your past, not just the last 5 or 10 years but since you were born. More of an issue for insurance benefits where you are still alive to claim, but this does not mean you limit it for life cover only. If you have a question on the application form and you think maybe, say yes and give as much detail as you can. It may mean nothing, it might mean something; that is for the insurance company to decide, they are the one taking the risk.

It could be the financial evidence used to justify why you need the cover you applied for. In some situations, you need to provide financial evidence at application time, others at claim time. Make sure you can in both situations when you are applying for cover. No point having the cover if you cannot prove you need it when you have to at claim time.

It could be what you have been up to. That run in with the law when you were 20 something, a past DIC charge or conviction, financial defaults, poor credit history, bankruptcy or any other activity where you might present an increased risk to the insurer or financial institution and they have specifically asked about it in the application form.

What you do also matters, not so much your job, but what you do outside your normal work duties. Professional sports, motor racing, competitive activities and extreme sports for example.

Doubts?

If you have any doubt about what you have or have not told an insurance company or financial institution, get in touch with us, we will check it out and advise you on where you stand.

We do this all the time for our clients, on their existing and older policies, and it gives them piece of mind that the cover they have will work for them. 

A couple of media articles on the subject:

• This one, talks about some of the claim situations and the outcomes over the last 14 years.
• This one, is a bit tongue in cheek but raises the issue of information accuracy.

The information is only intended to be of a general nature and should not be relied upon in any part without obtaining full details of the products and services by contacting Willowgrove Consulting Limited. All product and service details, terms, conditions and other information are subject to change at anytime without notice. Terms, conditions and fees apply to the various products and services and are available on request. A disclosure document will be provided to you on request free of charge.