A $4 million claim on an insurance policy – where the insured person was diagnosed with incurable metastatic melanoma – has been denied due to the interpretation of one word.
The clause in dispute was: “will result in the death of the person insured within 12 months, regardless of any treatment that might be undertaken”. The Court held that “will” meant it had to be absolutely certain the insured person would die within 12 months. However, the person in question was still alive at the time of the appeal, more than 12 months later.
Queensland Law Society accredited specialist in succession law Christine Smyth, says that insurance is a big part of the toolkit for financial planners, but contracts are drawn by insurance companies – whose objective is to make money.
Although insurance contracts may look good at first, a lot of their terms are pregnant with meaning, and clients will often put more importance on the cost of a policy than its terms, says Smyth.
Advisers recommending insurance policies are increasingly at risk, as people look to shift blame and responsibility.
“If it comes to pass that the policy didn’t suit someone’s requirements, there is a risk – and I think it’s a growing risk – that the client will say the adviser should have known because they were the one recommending that particular policy,” says Smyth.
Advisers need to be aware of what is being asked by clients, and marry the purpose of the policy with the wording of it. Smyth warns advisers to look over the clauses that trigger the event and realise that those words have meanings that are distinguished.
She also warns planners to review their risk management procedures. “So, for example, I’d be looking at my documentation and aiming to re-word my documentation to ensure that I’m not going to be held liable where a policy doesn’t pay out because of its terminology. So I’d be making the client responsible for investigating the terminology of the policy.”