When Can a Medical Scheme Cancel Membership for Non-Disclosure?

Feb 4, 2025 | News

This article was placed in FAnews: www.fanews.co.za

By Natasha Naidoo | Director and Jason Berkowitz| Associate

In a unanimous decision recently handed down by the Constitutional Court, it was held that a medical scheme cannot cancel membership for failure by a member, during the underwriting process, to disclose a diagnostic procedure she had undergone which did not result in the diagnosis of a serious medical condition.

The member completed the application form with the assistance of her husband and a representative of the medical scheme. The medical questionnaire stated that:

… any misstatement in, or omission from this form may lead to refusal to admit any claims for treatment given, suspension, or termination of membership. A 12-month condition-specific waiting period may be applied to any condition declared, subject to the requirements of the Medical Schemes Act, 1998. It is essential to declare all conditions/illnesses/symptoms, no matter how insignificant they may seem … Disclosure is not limited to the example conditions cited below. Related, consequent, and suspected conditions must also be disclosed.

Non-Disclosure

In response to whether the member suffered from any diseases, medical conditions or disorders, or had received any treatment, advice and/or medication for “any affection of the digestive system, liver, and gallbladder (e.g. gastric ulcers, hernia, poor digestion, gallstones, spastic colon)”, the member answered in the negative.

She was accepted as a member of the medical scheme on 1 January 2016. Her membership was terminated with retrospective effect from date of inception following submission of her claim for various procedures which she underwent in 2016. Termination was based on her failure to disclose a gastroscopy and colonoscopy which resulted in a diagnosis of gastritis in March 2015.

The Journey of the Complaint

The member exhausted all avenues, and the matter was adjudicated upon in multiple forums.

She first lodged a complaint with the Registrar of Medical Schemes following termination of her membership by the medical scheme. The complaint was dismissed, and subsequent appeals to the Council for Medical Schemes  and the Appeal Board in 2017 were also unsuccessful, with both bodies finding the non-disclosures material.

In 2021, the High Court, Western Cape Division ruled in favour of the member, declaring the termination unlawful. The decision was, however, overturned by a full bench in April 2022. The member sought to review the decision, however, her attempts to secure leave to appeal to the Supreme Court of Appeal were denied.

The matter came before the Constitutional Court in March 2024. Leave to appeal was granted and the court ruled that the medical scheme’s termination of the member’s membership was unlawful.

By the time the matter had reached the Constitutional Court, the member had passed away. The argument put forward by the executor of her estate was that disclosure of the gastroscopy and colonoscopy was unrelated to the specific benefits claimed from the medical scheme. Further, the medical scheme had failed to lead evidence in support of its contention that the alleged material non-disclosure had influenced its decision to accept her as a member of the medical scheme.

Establishing Materiality and Inducement

The dispute centred on whether the medical scheme was induced into contracting with the member based on incomplete information provided during the underwriting process, and further whether such non-disclosure had caused it to enter the contract. It also focused on the broader question of the insurer’s evidentiary burden in establishing materiality and inducement.

The Court acknowledged that the member underwent tests which were diagnostic in nature, such as a gastroscopy and a hip arthroscopy. However, it held that there was no obligation to disclose these procedures during the underwriting process. The Court noted that the gastroscopy identified that the member was suffering from gastritis which was not equivalent to a diagnosis of a gastric ulcer, making it immaterial. Similarly, the hip arthroscopy, performed in 2014 was unrelated and was performed outside the required 12-month condition-specific waiting period applicable in terms of section 29A of the Medical Schemes Act, 1998.

The court unequivocally reaffirmed that the insurer bears the burden of proving that non-disclosure of a material fact influenced its decision to contract with the insured. This principle aligns with the findings in Regent Insurance Company Limited v. King’s Property (2014) and section 53 of the Short-term Insurance Act, 1998 which set out that an insurer claiming inducement is required to prove that it was induced into contracting with the insured.

Adding to the complexity of the case was the recognition that medical schemes play a crucial role in granting access to healthcare. Termination of membership, therefore had significant implications not only for the member in this matter but also for public access to essential healthcare services. This influenced the court’s decision in granting leave to appeal and highlighted the importance of transparency and fairness in disputes of a similar nature.

The court highlighted the following considerations:

  • Insurers and medical schemes must present cogent evidence of their standard practices in accepting risks similar to those presented by a person who applies for membership. The absence of such evidence undermines claims of inducement.
  • Evidence must be led in support of the contention that the undisclosed information was directly material to the underwriting process and that it had the effect of altering either the decision to accept the risk or the terms on which the risk was accepted by the insurer

The medical scheme failed to demonstrate that it was induced into entering the contract with the member due to non-disclosure of material facts. The court found that the medical scheme did not provide sufficient evidence of its underwriting approach to similar scenarios. The court held further that termination of the member’s membership by the medical scheme was unlawful and upheld the High Court’s decision that the medical scheme honour the terms of the contract.

The judgment underscores that insurers and medical schemes cannot rely on general assertions of materiality and inducement. Termination of a contract of insurance on the grounds of non-disclosure must be substantiated with concrete and specific evidence linking the non-disclosure of material facts to the insurer’s decision-making process.

Key Take-Aways

The decision is aligned with the principle that the common law and statutory tests for non-disclosure and misrepresentation are identical. The insurer must establish both materiality and inducement whether it is in terms of the Short-term Insurance Act, 1998 the Long-term Insurance Act,1998 or the common law.

Avoidance of policies on the grounds of non-disclosure must meet the stringent burden of proving that the non-disclosure was material and furthermore that it induced the insurer into contracting with the insured in circumstances where the insurer would have declined to enter into the contract or entered into the contract on different terms and conditions.

Insurers must meticulously record their decision-making processes, ensuring that they are able to demonstrate how specific facts influence their acceptance of risk. Documentary evidence is required in support of the evidentiary burden of proof that must be discharged by insurers.

Policyholders must ensure full and honest disclosure of all facts that are relevant or potentially relevant to the cover sought during the application or underwriting process.

Conclusion

This decision builds on established principles of material non-disclosure and inducement, reinforcing the dual burden of proof on insurers. By affirming the subjective nature of the inducement test and the requirement for concrete evidence, the court promotes fairness and accountability between insurer and policyholder.

This judgment strengthens the procedural safeguards for policyholders and provides a robust framework for resolving disputes in the interests of all parties.

The case is Swanepoel NO (Executor in Estate Late Mignon Adelia Steyn) v Profmed Medical Scheme (CCT 336/22) [2024] ZACC 23 (9 October 2024)


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