The Non-Disclosed MRI: Materiality, Remedy and the Producing Agent
A 52-year-old policyholder dies of a glioblastoma 14 months after taking out a $750,000 twenty-year term policy. Underwriting was non-medical because the sum assured sat below the $1 million fluids threshold. On claim, the insurer obtains GP records: the deceased reported persistent headaches and was referred for an MRI five months before the application; the scan was performed three weeks before it; the diagnosis was given to him two months after it. The application asked whether he had 'ever been referred for investigation of, or diagnosed with, any neurological condition' and the recorded answer was No. The writing agent has produced $1.3 million of annual commission for nine years. The beneficiary is the widow, who was not involved in the application. The contestability period is two years. The insurer's practice is to consider proportionate remedies where non-disclosure is found but is not clearly deliberate.
1. Was the non-disclosure material, and what would a reasonable underwriter have done with the true facts?
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Materiality is established; effect is not.
The question asked about referral for investigation, and he had been referred and scanned. The recorded answer was false on its face.
A prudent underwriter would plainly want to know that a 52-year-old applicant had persistent headaches and an MRI. So materiality is satisfied.
But the remedy turns on what the true facts actually were at the application date, and there are two possibilities:
- The MRI already showed a mass. A reasonable underwriter would have declined or postponed. Causation is direct, and the policy would never have been issued on these terms.
- The MRI was reported as normal or non-specific. The true facts would have been 'investigated, no abnormality found'. Many underwriters would have accepted at standard or with a modest loading, possibly with a GP report.
So the critical next step is to obtain the radiologist's report, not to decide the claim. Do not reason from the outcome (a glioblastoma) backwards to the underwriting decision - that is hindsight bias, and it is exactly what a court or ombudsman will test. Also check whether the deceased could reasonably have understood 'referred for investigation' to cover a scan already completed; wording disputes are common and cut against avoidance.
2. What remediation options exist and how do you choose between them, given the widow's position and the contestability period?
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Four options, in ascending order of severity.
- Pay in full. Defensible only if the MRI was normal and the non-disclosure did not affect the terms. Weak, but honest.
- Proportionate remedy. Pay the sum the premium would have bought at the correct rating. If the true facts warranted a 50% loading, roughly $500,000 is payable. This is the most defensible middle path where intent is not provable.
- Rescind and return premium. Available for fraudulent non-disclosure, but harsh where the beneficiary is innocent and did not sign the application.
- Avoid entirely. Highest litigation risk; expect to lose if the MRI was unremarkable.
Choosing. Get the MRI report first. Then ask whether the deceased's state of mind was dishonest or merely confused - headaches are non-specific, and a man awaiting results may genuinely not have understood the question to cover a completed scan. Where intent is unclear, proportionate remedy is usually the proportionate outcome, and it is the one a regulator is most likely to view as fair.
The widow. She is a beneficiary, not a party to the misrepresentation. Even where avoidance is legally available, consider whether the reputational and conduct cost is worth it. Document the reasoning either way.
The clock. Contestability does not immunise you - it obliges you to decide within it. Once you pay, you cannot reopen the decision later.
3. What does the agent's role require you to investigate, and what are the consequences if he knew?
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Establish who completed the application before you form a view. A producer with nine years and $1.3 million in commission has an incentive to avoid declines, but incentive is not evidence.
Questions to answer from the file:
- Was the application completed by the agent or by the customer through an e-signature or tele-interview? The audit trail settles it.
- Did the agent have any document, note or conversation mentioning the headaches or the referral? Check his emails, call recordings and the customer's own correspondence.
- Did the customer volunteer something the agent recorded as 'no, not really'? Look at scanned notes and any handwritten amendments.
- Was a GP report or medical evidence ever requested and then waived?
If he knew: treat it as a conduct breach. Consider termination of the agency, review his other business for a pattern of suppressed disclosures, and assess whether other policies were procured on false information. Report through the appropriate conduct channel; non-disclosure by a producer is a different matter from non-disclosure by a customer.
If he did not know: the finding stays with the customer, and the agent should be told why the claim was treated as it was, so he does not repeat a flawed sales conversation. Either way, the wider lesson is that a non-medical limit is a control, not a saving - review whether the $1 million fluids threshold is still appropriate for the risk profile.