A business owner who injured his hand at work had his insurance claim turned down after he failed to disclose his mental health and alcohol issues.

Mike, not his real name, ran a small engineering business and made a claim for an injury to his hand in March last year.

But his insurer obtained medical notes and raised concerns about his failure to disclose his mental health, alcohol use and back pain. It decided to avoid his cover because he had not disclosed material information.

The man complained to the Insurance and Financial Services Ombudsman Scheme saying his claim related to a workplace injury not his previous depression, anxiety, alcohol consumption or back strain.


But after the ombudsman asked two independent insurance underwriters to assess how the medical information would have affected their decisions to insure the man, both said they would have offered the cover on different terms.

Based on that, his medical history was considered to be material and the man's complaint was not upheld.

The man's case was one of a number highlighted in the ISFO's annual report released yesterday.

Non-disclosure is one of the biggest areas of complaints to the ombudsman. Of 320 complaints 98 related to health, life and disability insurance.

Karen Stevens, the Insurance and Financial Service Ombudsman, said that was why it supported the Government's review of insurance law and wanted to see a change in relation to non-disclosure.

"Non-disclosure means nothing to a consumer until he/she makes an insurance claim, only to find the insurer will not pay it," she said.

"Strictly speaking, the law does not provide any remedy for a consumer who has failed to disclose (either intentionally or not), material information — materiality being determined on the basis of what would be material to a prudent underwriter in assessing the risk."

Stevens said the trouble with using the prudent underwriter test is that most consumers do not know what a prudent underwriter is and or understand how risk is assessed, until it is too late.


"Consumers can be left with no policy of insurance, no realistic prospect of obtaining replacement insurance and a very real possibility of having any other policies, held with the same insurer, cancelled on notice."

Stevens said it was time for change.

"A review of the law on non-disclosure is long overdue. Legislation to bring us more in line with Australian and UK law would help protect these consumers who unintentionally leave out information."