Sins of Omission, Business in Practice
by Leslie Buchbinder
Business In Practice magazine, the Australian Physiotherapists Association, Issue 2, 2012
We all know the feeling. Shuffling through the mail after a hard day at work. Finding the routine renewal notice from the insurance company - and checking the premium to see how much it's gone up, before filing it away. Even though it’s human nature to focus mainly on the cost of the renewal and ignore the rest of the document, the reality is that we need to consider a lot more than the dollars and cents of the next year’s premium. Unpopular though this recommendation may be, it’s really worth spending just a short while focusing on that renewal notice.
What may seem like routine paperwork could suddenly become the most important document in your life. I know, because I spend a lot of time with clients who say 'if only!'
Why do they say this? Because what they treated at the time as an apparently boring piece of administration work turns out to be one of the most expensive mistakes of their working lives. Spending just a few minutes checking the details and reflecting on what has happened in their practice since the last renewal document can mean all the difference between dealing with life’s inevitable challenges with relative ease, or suffering serious financial hardship. Physiotherapists and other health care workers can forget to mention changes in their circumstances which make all the difference between an insurance company paying, or not paying, when the worst comes to happen. Omitting to mention changes is different from material non-disclosure. But how are they different?
Let’s say you buy an expensive, but portable, item of new equipment for your practice. When your contents insurance renewal paperwork arrives, because you made the purchase nearly a year ago and don’t spend much time thinking about new capital items, you forget to list it on the renewal document.
Some weeks later there is a burglary. Apart from having to deal with repairing the damage to your clinic and all the disruption and trauma caused by the break in, when you put in your claim for the stolen equipment, the insurer rejects the claim. The reasoning is quite simple: the specific item was not nominated in the Policy Schedule. It is therefore simply not covered by the Policy.
Maintaining an inventory of all items to be listed on a contents insurance policy may seem a tedious task, but it’s an important one. And the bigger the practice and more equipment and more sophisticated expensive equipment you have, the more critical its importance.
Forgetting to mention an item on your Policy is, in insurance speak, an ‘omission.’ Material non-disclosure is rather a different matter.
To illustrate, let’s use the case of the physiotherapist taking out key person insurance cover. This is a sensible precaution in most practices, particularly where the injury or death of a key member of staff would have a major impact on the profitability and/or sustainability of the practice as a whole.
In this illustration, the key person, who used to play sport at a professional level, does not mention in completing an insurance proposal form the fact that he consulted a medical specialist about an injury to his back a few years earlier. Having not had any back problems for years, perhaps still active in sport and regarding himself as super fit, the back injury simply doesn’t cross his mind when he completes the paperwork.
Fast forward to a Friday afternoon when some routine activity at work results in the key man suddenly and unexpectedly suffering a significant recurrence or aggravation to his back injury What at first impression seems to be a minor injury seems a lot more problematic after medical examination – he is told by doctors he may have to be off work for months.
If he subsequently makes an insurance claim, the insurer will request a full medical report, including historical records. The chances of having the much earlier back injury discovered are high – at which point the insurer may reject his claim on the basis that he failed to disclose significant information that was material to whether or not the insurer would have taken on the risk in the first place or on what terms and conditions. If the insurer had been willing to take on the risk, the terms of the policy offered may have included a back exclusion or cover could have been offered but for a substantially higher the premium.
This may all seem very black and white, but the wording of an insurance claim is extremely important. I want to make it abundantly clear than under no circumstances should an insurer be lied to or deceived. But getting advice on what information must be included in any claim form submitted to an insurer, and how to word this information, is critically important. I have been involved in cases where significant disability claims have been paid out, while others, that seemed identical, were not. The difference in outcomes was likely caused or contributed to by the way the claim form was completed.
If an insurer rejects your claim, that’s not the end of the road. You can seek legal help to have a letter written to the insurer requiring a full explanation of the basis of rejection of the claim. The grounds on which the claim has been rejected may be able to be contested and other arguments raised in support of your case. If the insurer still refuses to accept the claim in part or in whole then, you may then have the option to commence legal action against the insurer for breach of the insurance contract and/or on other grounds, which the insurer will be required to defend.
Whilst current statistics suggest that around 70% of these kinds of disputes are settled during the course of the litigation and mediation process that occurs before going to trial, given the protracted nature of the process and the potentially high legal costs associated with it, you would be well advised to use the services of a fixed price fee lawyer. Doing so provides more peace of mind about costs, and also helps ensure that the momentum of the action is maintained.
After years of faithfully paying their insurance premiums could you be forgiven the sin of omission? I’ve seen insurance companies reject claims by loyal clients of many years standing. Whatever the policy wording, insurers do have the discretion to waive potential defences to claims made under insurance policies and nevertheless pay out the claim. But I wouldn’t count on it!
Renewal notices should never be seen as a routine chore. They deserve quality time and proper consideration. Contrary to popular belief, the two words I never want to hear a client say is ‘if only!’
Leslie Buchbinder is a Director of Bowen Buchbinder Vilensky,