IN A LANDMARK case a Spanish court has ordered an insurance company to payout 173,000€ to a Valencian woman left permanently disabled by her cocaine addiction.
The unnamed policy holder had taken out a mortgage for €180,000 with the Caja Rural in Algemesí (Valencia province) and signed up for a life insurance covering the loan, which also paid out in the event of disability, with the bank’s tied insurer, Rural Vida, S.A.
In February 2009, when the policy was taken out, the woman truthfully answered all the questions on the proposal form including the health questionnaire.
The form asked whether the policyholder was ‘fully fit to work’, ‘in good health’ and ‘did not suffer any injury or illness of a cardio-vascular, oncological, infectious, digestive or endocrinological nature – including diabetes – which required, or had required, medical treatment’. However the form contained no questions relating to mental illness.
The client had in fact been receiving treatment for possible psychosis caused by complications arising from her cocaine addiction for a number of years previous to the loan application being submitted.
Around two years later, she was diagnosed with paranoid schizophrenia, and officially declared permanently disabled.
The insurer refused to pay the sum of €171,939.45 in settlement for a permanent disability claim, saying the policyholder had not disclosed her treatment for suspected psychosis, or her drug addiction.
She sued Rural Vida, S.A., saying nowhere on the proposal form had invited disclosure about mental health or addiction – only physical illnesses, which she did not suffer.
Earlier this week the Supreme Court of Spain upheld her claim in full, citing: “The insurance company is responsible for the effects of the lack of precision in its own proposal form and the fact that, as a result of this lack of precision, it was unaware of the full extent of the policyholder’s health situation at the time of inception,”
When the document was initially signed the client had not been registered as disabled and was under the belief she had the capacity to work in full.
The lenders, Caja Rural, did not exercise its right to the settlement when it was declined , since it should rightfully have gone to the bank to pay off most of the mortgage.
This was because the lenders and insurers are part of the same banking group. Caja Rural also refused to allow the policyholder to sue the insurers on the bank’s behalf.
“For the bank not to allow a claim on its behalf arising through its own inactivity in seeking recompense from the insurer as legitimate beneficiary meant the policyholder was forced to continue making her mortgage repayments, which the purpose of the insurance policy she was paying a premium for was precisely to protect her against,” said the Court.
“This means if the bank has no interest in receiving settlement from an insurer forming part of the same company, it makes no sense for the policyholder to continue paying her monthly mortgage quotas, given that this is in fact what the insurance policy is there to cover her for.
“To interpret this situation in any other manner would be equivalent to leaving the policyholder, or her family, in an especially difficult scenario – one which she specifically took action to avoid by paying the insurance premium” said a court statement.
According to the court order, Rural Vida SA is therefore obliged to pay the plaintiff the full 173,000€ including court costs and expenses so that she can pay off her mortgage personally.