Hi Kiterdan,
As part of our Medical health assessment form, all of our students must attest to being able to swim 200m as well as 13 other "conditions" like recent surgery, asthma, diabetes, seizures and allergies etc. The students then sign to say it is a truthful statement. If they acknowledge any of the conditions we then modify the lesson or take additional precautions to reduce aggrevating the condition.
We do not individually test each students ability to swim although they often get the chance to demonstrate their swimming ablity during the course of a lesson. We have had a couple of students who were unfit and probably relied on the life jackets more than they should have. Usually "chronologically" and "circumferentialy challenged" gents, but with close supervision, the right safety gear and carefully assessing your students condition throughout the lesson, it's easy to keep em safe.
We have never had a student who couldn't swim, although I've witnessed the Japanese tourists in Hawaii often unable to swim but were determined to paddle an unstable sea kayak 2km out to sea to visit the Mokoluas (twin islands).

Hope this answers your question. Good winds,