Policy Cancelled, Still Paid! Landmark Ruling

In a decision set to reshape the understanding of critical illness insurance, Australia’s financial services ombudsman has ruled that policyholders may still be entitled to compensation even if a serious illness is formally diagnosed after their insurance policy has been cancelled. The ruling directly challenges the long-held assumption that the timing of diagnosis alone determines eligibility for insurance payouts.

The case was adjudicated by the Australian Financial Complaints Authority (AFCA), which examined the claim of a man who had maintained trauma (critical illness) insurance coverage for nearly a decade, from August 2011 until August 2020. During the period in which the policy remained active, the insured individual experienced repeated neurological symptoms, commonly referred to in medical terms as “neurological deficits”. However, these early warning signs were not conclusively identified as a specific disease at the time.

Following the cancellation of his policy in 2020, the man was formally diagnosed with multiple sclerosis (MS) in February 2021. He subsequently submitted a claim under his former trauma cover. The insurer, Zurich, declined the claim on the grounds that the diagnosis occurred outside the coverage period and that the policyholder had not demonstrated the required number of neurological episodes while insured.

AFCA, however, took a markedly different view after reviewing extensive medical documentation and expert testimony. A neurologist who assessed the patient in December 2020 expressed confidence that the onset of MS could be traced back to March or April 2019—well within the policy period. The authority emphasised that MS is a condition renowned for its slow and often ambiguous development, with early symptoms frequently mistaken for less serious ailments.

In its determination, AFCA made it clear that the insurance contract did not stipulate that a definitive diagnosis must occur during the term of cover. Instead, the decisive factor was whether the illness itself existed during that period. The ombudsman rejected Zurich’s interpretation of the policy as overly narrow and inconsistent with its wording.

The policyholder passed away before the dispute was resolved. His estate, represented by the executor, continued the complaint and ultimately secured a ruling in favour of the beneficiary.

AFCA summed up its reasoning succinctly, stating that insurance is not purchased for the moment a disease is named, but for the profound and often life-altering consequences that such conditions bring.

Legal and insurance experts believe the ruling will serve as a significant precedent, particularly for claims involving progressive or difficult-to-diagnose illnesses, reinforcing consumer protections across the insurance industry.

Key Case Facts at a Glance