The Irish High Court confirmed that an insurer is entitled to rely on additional reasons for declining liability under a policy, although not included in the original rejection letter, and only raised in the context of subsequent litigation.
The insurer, under an income protection plan providing cover for disability, rejected the insured’s claim on the basis that the insured was not totally disabled by reason of sickness or accident. The rejection was challenged and litigation ensued.
The insurer, in the course of the litigation, then sought to also rely on a misrepresentation made in the course of review of the claim.
The insured argued that the insurer is not entitled to do so, because it did not rely on that misrepresentation in making its decision to reject the claim.
The court said that a misrepresentation can be taken into account even if it arises subsequent to the initial claim being made and its initial refusal, where the misrepresentation is consciously or recklessly made to mislead the insurer. On the facts it was found that no misrepresentation had been made.
The position would be no different under South African law.
South African insurers, in articulating the basis of a rejection of a claim, would not be prevented from subsequently disputing the claim on an alternative basis which existed at the time of the original rejection then unknown to the insurer and not relied on at that stage, as long as it is not incompatible with the previous reason.
An insurer may be held to have waived its rights to rely on an alternative basis for rejection where, aware of the alternative basis for rejection, it elects not to reject on that alternative basis.
A reservation of the entitlement to reject on an alternative basis, and no waiver recordal in that regard is a useful addition to a rejection letter.
The case is Houlihan v Friends First Life Assurance Company Limited.