Debby Yu
The Supreme Court rendered the 109-Tai-Shang-760 Decision of May 7, 2020 (hereinafter, the “Decision”), holding that the waiting period clause in insurance practice aims to prevent the insurer from suffering the imbalance between the premium revenue and insurance payout for underwriting an insurance policy which is subject to a risk that has occurred, does not meet the underwriting criteria but continues to be in force.
According to the facts underlying this Decision, both parties entered into a life insurance contract with the Hospitalization Medical Insurance Rider (hereinafter, the “Rider at Issue”) on August 16, 2013. The insured was subsequently hospitalized for treatment at different times during the term of the insurance and could claim daily hospitalization indemnity benefit from the insurer. When the insured claimed the insurance benefit from the insurer, the claim was rejected. Therefore, the Appellant was requested to pay the insurance benefit pursuant to the Rider at Issue. The Appellant contended that it was liable for paying the insurance benefit only if the psychiatric illness occurred 30 days after the effective date of the insurance contract. The Appellee had symptoms of depression in August of the same year. On September 23 of the same year, the Appellant went to the doctor and was diagnosed with neurotic disorders (dysthymic disorder) and severe depression (collectively, the “Illnesses at Issue”). Since this shows that the Appellant had the Illnesses at Issue before the 30-day period after the effective date of the Rider at Issue expired, he was not eligible for the insurance benefit.
According to the Decision, Article 127 of the Insurance Law provides that when an insurance contract is established, if the insured has had an illness or been pregnant, the insurer shall not be liable for insurance benefits for such illness or delivery labor. The legislative objective of this provision is to prevent the moral hazard of the Appellee’s obtaining insurance when he has contracted an illness. The so-called “waiting period (or observation period) clause” in insurance practice seeks to stipulate that the insurer shall not be liable for insurance benefits for illnesses contracted during a certain period of time after the establishment of the contract. The purposes are to avoid circumstances where after the effective date of the health insurance contract, the insurer may suffer the imbalance between the premium revenue and insurance payout for underwriting an insurance policy which is subject to a risk which has actually occurred, does not meet the underwriting criteria and continues to be in force due to factors such as a lack of awareness of both the insurer and the insured, latency of the illness or the no obviousness of the symptoms, difficulties in discovery, etc. and to avoid violation of the principle that insurance should be the contract of utmost good faith. Since the waiting period clause does not violate the Insurance Law, the validity of such clause should in principle be recognized.
Moreover, according to the Decision, the Rider at Issue between the parties specifically provides: “The liability of the Company (i.e., the Appellant) for paying insurance benefits for the illnesses contracted by the Insured shall be premised upon the occurrence of the illness after a 30-day period following the effective date of the Rider has expired or after the date of reinstatement.” Therefore, the Appellant is not required to assume the liability for insurance indemnity for any illness of the Appellee that “occurred” within 30 days after the effective date of the contract. In addition, since the emergence of the Appellee’s symptoms in August 2013, the Appellee went to a doctor on September 23 in the same year and was hospitalized for the treatment of the Illnesses at Issue. The hospital estimated that the outbreak of the Appellee’s illnesses was around August 2013. The Appellant contended by questioning if the Illnesses at Issue in August 2013 were not worthy of consideration at all and if the Appellee, who had “contracted” the Illnesses at Issue in August 2013, can assert that he should be free from the constraint of the above contract on the ground that he was not aware of the illnesses or such illnesses were diagnosed after the waiting period expired and should be eligible to claim insurance benefits from the Appellant. There is room for further exploration of these issues. Failure to explore these issues in detail, the Original Trial Court was certainly questionable for jumping to the conclusion that the Illnesses at Issue contracted by the Appellee took place “before the effective date of the Rider at Issue” and making a determination unfavorable to the Appellant. Therefore, the appeal of this case is not groundless.