Bank right to reject insurance claims over failure to declare diabetes

Categories:

Insurance, Advice & information, Bank decisions,

Summary:

Horace emigrated to New Zealand from Samoa in 1990. He was diagnosed with diabetes in 2012 and died in 2023 of a heart attack. A coroner found his diabetes contributed to his death. Horace had two life insurance policies at the time of his death, sold through his bank in 2016 and 2017. When his estate claimed on the policies, the underwriter declined the claims, saying Horace had not disclosed his diabetes when he applied for them. Horace had had a policy that pre-dated his diabetes, but he had cancelled it when he bought another policy from the bank in 2014. The estate complained that the bank was responsible for his medical history not being disclosed to the underwriter and was liable for the estate’s claims on the policies. The estate said the bank did not follow correct processes when selling the policies, had not asked Horace questions about his health or did not correctly record the answers, and had not warned him about the risks of failing to disclose existing conditions and cancelling existing policies. It asked us to investigate.

Published:

May 2025

Our investigation

Horace had two policies at the time of his death, but he had completed four applications for insurance between 2014 and 2017 following his diagnosis with diabetes. Each application asked about his lifestyle and health. We were able to obtain three of the applications and found no mention of his diabetes or other information relevant to his condition on any of them. We considered it unlikely the bank failed to follow the correct process on three separate occasions. In any event, the bank sent him copies of the questions and answers at the time and told him to review them and let the bank know if any information was missing. Despite English being Horace's second language, he had signed various agreements with the bank between 1995 and his death, all of which included acknowledgements that he understood the agreements. There was nothing to suggest he did not understand those agreements, or that he alerted the bank to this.

The estate said the bank had led Horace to believe new insurance policies were a requirement of new lending, but the bank’s records showed he had sought loans independently of his insurance applications. It also complained that the bank failed to warn him about the risk of cancelling existing policies. However, the only replacement policy of consequence was a policy taken out in 2014 replacing the policy pre-dating his diabetes. We lacked sufficient information to determine what was discussed in 2014, including about whether he was warned about the risk of replacing a policy, but we noted that the answers he gave on his application at that time suggested he had a clean bill of health and that replacing his existing policy would not have any impact on his coverage or any subsequent claim.