Australia:Federal Court says insurer failed to act in utmost good faith

The Federal Court of Australia has found that one of Australia's biggest life insurers, TAL Life, breached its duty to act with utmost good faith under the Insurance Contracts Act when handling a claim made under an income protection policy, according to a statement issued by Australian Securities and Investments Commission (ASIC).

The regulator commenced proceedings against TAL in December 2019, following an investigation that arose from a Financial Services Royal Commission referral. The case related to a consumer (whose identity was the subject of a non-publication order during the Financial Services Royal Commission, referred to in the judgment as ‘Second Insured’) who made a claim under her income protection policy in January 2014 after she was diagnosed with cancer.

After obtaining the consumer’s medical history, TAL avoided her policy on the basis that she had failed to disclose an unrelated prior medical history. TAL asserted that the consumer had breached her duty of good faith under the Insurance Contracts Act. ASIC alleged that TAL avoided the policy without first giving notice to the consumer of a retrospective investigation into her medical history or offering her an opportunity to address the concerns raised before rejecting her claim.

Judgment

In his judgment, Chief Justice Allsop found that that at no time prior to avoiding the policy did TAL:

• tell the consumer it was considering her medical history;
• tell her that it was examining her medical history to undertake a ‘policy validity investigation’;
• ask her to address any concerns as to non-disclosure or misrepresentation in her answers; or
• make any additional enquiries of her medical professionals to whom the consumer had been referred about the contents of the medical records and about her condition.

The judge also found that TAL breached its duty to act in good faith by telling the consumer that she herself had acted without good faith and by threatening to recover A$24,000 ($18,705) in payments that had been made to her after the commencement of TAL’s investigation.

The judge said, “TAL failed to act towards the Second Insured with decency and fairness in reaching its decision without giving the Second Insured a proper opportunity to put material to TAL. I also consider, though it can be seen as part of the same breach, that TAL should have told the Second Insured of the investigation and their concerns and that the failure to do so in the circumstances was likewise failing to treat her with decency and fairness. TAL failed thereby to act towards the Second Insured with the utmost good faith.”

ASIC had also alleged that TAL engaged in false or misleading conduct in handling the consumer’s claim by making representations in a claims pack that it had a right, to delay processing of the consumer’s claim, and to withhold benefits under the policy until she provided certain executed authorities. However, the Court found that these allegations were not made out.

Standards

ASIC Commissioner Sean Hughes said, “ASIC expects those involved in handling insurance claims to act consistently with commercial standards of decency and fairness, ensuring claims are handled in a fair, transparent and timely manner.”

“This case was highlighted by the Royal Commission. These stories matter not just to individual policyholders, but to the reputation of the market as a whole. The community expects to be treated fairly and with dignity and respect by their insurers. The duty of utmost good faith is a long-standing core principle in the relationship insurers have with their policyholders. It fundamentally underpins the trust which consumers place in their insurers.”

Source: Asia Insurance Review