Are You Sure That You Do Not Have Cancer ?

"Life is a congenital condition", someone once said,"and it is terminal". If this were taken to a logical extreme, health and life insurance would become impossible. Sometimes, though, insurers like to test the logic.

Imagine it: you are in good health as far as you know, confirmed by the recent opinion of your own GP, and someone persuades you, as they do, that you need to buy some life insurance. So, you fill in the forms as diligently and honestly as you can, and the insurance company asks you to undergo a medical examination, which turns up nothing adverse. The policy is issued, but within weeks you have abdominal pains and before long you die of advanced pancreatic cancer.

"Wow, here is a great insurance coverage story" says Boston lawyer Stephen D. Rosenberg(from whom I learned of this case), and who would disagree ?

The life insurance policy contained a term - described as a condition precedent - under which the coverage only applied if the policyholder was in good health at the time of issuance. It was not in dispute that a)the policyholder did not know of his cancer and b) the cancer must have been present at the time of issuance. The life insurer sought to deny the claim, after his death, for the life insurance proceeds on the ground that the good health requirement was not met.

Mr Rosenberg hits it right on the head:

... what applicant would buy coverage, after being examined and having his medical records reviewed by the insurer prior to coverage being approved, if the coverage would vanish if, contrary to the knowledge of both the insurer and the insured, he was thereafter found to be terminally ill ?

The Massachusetts court agreed, but apparently had to discard precedent to do so, which is strange. It apparently invoked the "legitimate expectations of the insured" to do so, which is stranger still to a common-lawyer on this side of the Atlantic: over here, "legitimate expectations" has no place in contract law.

I doubt if the insurer would have succeeded over here, either, but to get the legal analysis right might pose problems.

Suggestions welcome !

Comments

[G.S]

Presumably, it would depend on the precise wording.

If it was a basis of contract clause, then surely the insured would be bound by his answer and therefore would not recover?

[Fergus O'Rourke]

Courts have turned against "basis of contract" clauses, and using it in such a fashion would illustrate why they have. More generally, life insurance would become a lottery if a proposer's reasonable and conscientious declaration of good health was insufficient.