I came across an alarming article on the Straits Times of a cancer patient being denied of a full compensation.
This was due to a failure to declare her diabetic condition when she upgraded her hospitalization plan.
It was a happy ending for the patient in the end – AIA investigated that it was a slip up from its agent and honoured the claim.
Nevertheless, it is a good case study to explore some underlying issues that is essential to know when dealing with insurance.
Why AIA is able to deny the claim? Is it correct?
The article reveals that all consumers have a duty to disclose information that will affect insurance terms.
Sounds familiar? It refers to the principle of Utmost Good Faith that we have covered previously.
In that blog post, we have mentioned the following.
This is especially critical when you are filling up the proposal form.
If you breach this principle by misrepresentation (i.e. lying on the proposal form), the insurer reserves their right to avoid the policy.
There was a misrepresentation made in the hospitalisation policy upgrade form, causing a breach of utmost good faith. This, in turn allows the insurer to avoid the policy and also the claim payout.
Hence, AIA’s position can be legally substantiated.
That is without taking into account of the agent’s mistake.
Based on the newspaper report, the compensation is $75,000 based on terms of her previous Gold Max C plan.
Why did AIA not avoid the C plan?
When the customer first signed up for C plan, she was not diagnosed with diabetics.
Hence, the proposal form for C plan was made in utmost good faith and the insurance cover was valid.
Although C plan should have been replaced by the A plan, but A plan never did exist (due to breach of policy).
Thus, AIA had to treat the C plan as a functioning policy if it had decided that the A plan was invalid.
Hypothetical question – If AIA did not make full payment, what can Mdm Ng do?
Mdm Ng is the innocent victim of her agent’s mistake, no matter if the mistake is on purpose or not.
Thus, it is only just for her to seek full compensation as per what her Gold Max A plan should rightfully cover.
She can seek legal recourse against AIA and the agent for the full recovery of the hospitalization expenses.
The agent is a tied financial advisor who is contracted to AIA to seek insurance business on its behalf.
He/she is authorized by AIA to enter into an insurance contract with clients and thus, has the power to bind AIA to an agreement (at least within the scope of power given).
Therefore we are of the view that AIA is likely to be liable to pay for Mdm Ng as the misrepresentation has been made due to the negligent act of its agent.
In the event that AIA is not legally liable to pay for the compensation, the agent must be responsible for the misrepresentation made.
Negligent act by a financial advisor will be covered by the agent’s Professional Indemnity insurance and thus, Mdm Ng does not have to worry about the financial state of the agent.
Of course, all these above are what if speculation.
Nevertheless, it is still good to know that legal redress is possible in Singapore for such instances.
While I am not a legal adviser, the insurance principles should make it a solid case.
Friendship sold for personal interest?
The most disheartening thing about this and many other insurance scam stories are that they usually involve friends.
30 year old friendship is involved in this particular case.
How much does it worth?
Probably not much since commissions for hospitalization plans are not high.
A lesson to learn from this is that, when your adviser is earning commissions from your sale, he or she is faced with the eternal dilemma of protecting his/her or your interest.
Mark Lee once said that 4D has a 50-50 possibility – you either win or lose.
You can bet that Singapore Pools wins most of the time.
Likewise, only a small amount of agents will pick your interest first.
So you wanna choose an Insurance Agent?
Ending on a good note
It is not all gloom.
From this, we note how a comprehensive hospitalization cover when done properly, can ease one’s medical burden,
Other than this declaration mistake, the agent has ensured that Mdm. Ng can afford the hefty private hospital bill.
That, my friend, is clearly the power of having the proper insurance coverage.
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