Death Claim – Policy Lapse

The assured who was involved in a road accident had died on 23/5/2016 due to head injuries and poly trauma. The assured’s wife submitted a death claim to the insurer. The insurer rejected the claim on the grounds that the policy had lapsed on 11/7/2015 due to non-payment of premium at the time of the assured’s death.

Investigation and Findings
The claimant contended that the assured had paid the monthly premiums through salary deduction until May 2016. The assured’s salary deduction and also payment history that was furnished by the assured’s employer showed that the last premium payment was made in May 2016.

The Mediator highlighted the findings to the insurer who acknowledged that the premiums were received until May 2016 even though the assured’s policy has lapsed. The insurer offered to refund the premiums paid from July 2015 to May 2016 to the claimant. However, the offer was rejected by the claimant.

The Mediator observed that:-
(i) The insurer had issued a lapse notice dated 11/7/2015 to the assured, to inform him that the policy has lapsed on 11/7/2015. The notice had also stated ‘Please ignore this Lapse Notice if payment has been made’;
(ii) The assured had continued to pay the premiums to the insurer until before his death;
(iii) The insurer had received the premiums unconditionally and had only agreed to refund the premiums received after the dispute was highlighted by the Mediator. The insurer should not have received the premiums after the policy had lapsed.

The Mediator was of the view that by accepting the premiums after the policy lapse date, the insurer had clearly waived the requirement of strict adherence to the payment terms, in particular, the terms as to the intervals within which payment of the premium (days of grace) was to be made. Therefore, it was inequitable for the insurer to accept the premium payments unconditionally from the assured during his lifetime, and to later avoid the policy on the grounds that the policy had lapsed at the date of death. The insurer’s reasoning that the insured had defaulted in the payment of premiums on or before its due date was incorrect as it was established that the premiums were paid until May 2016.

The insurer agreed with the Mediator’s observation and settled the claim.

Above case study is extracted from OFS Annual Report 2016.