Insurer censured over breach of good faith
CANBERRA: An insurer has been censured over its lack of good faith in paying out over a valid claim.
Insurer TAL Life breached its duty to act with “utmost good faith” when handling a claim under an income protection policy by a consumer who had been diagnosed with cancer.
In a referral to ASIC of a case study in the financial services royal commission, the regulator alleged TAL had avoided the consumer’s policy on the grounds that she had failed to disclose a prior but unrelated medical history.
ASIC told the Federal Court this was done without any notice to the consumer of a retrospective investigation into her medical history, or an opportunity to address the insurer’s concerns.
“TAL failed to act … with decency and fairness in reaching its decision without giving (her) a proper opportunity to put material to TAL,” judge James Allsop said.
“I also consider, though it can be seen as part of the same breach, that TAL should have told (her) of the investigation and their concerns, and that the failure to do so in the circumstances was … failing to treat her with decency and fairness.
“TAL failed thereby to act towards (her) with the utmost good faith,” he said.
ASIC commissioner Sean Hughes said the regulator expected people handling insurance claims to act consistently with commercial standards of decency and fairness, ensuring that claims were handled in a “fair, transparent and timely manner”.
The case, he noted, had been highlighted by the royal commission, and such stories were relevant not just to individual policyholders but to the reputation of the market as a whole.
“The duty of utmost good faith is a longstanding core principle in the relationship insurers have with their policyholders,” Mr Hughes said.
“It fundamentally underpins the trust which consumers place in their insurers.”
Chief Justice Allsop also found that TAL breached its duty to act in good faith by telling the consumer she had acted without good faith, and by threatening to recover $24,000 in payments made to her after the start of TAL’s investigation.
An important aspect of the case was that, since March 2019, the Insurance Contracts Act has provided for a civil penalty when an insurer fails to act towards a policyholder with the utmost good faith. The penalty therefore did not apply to TAL’s conduct, because the consumer made her claim in 2014.
Despite this, ASIC sought Federal Court declarations to set an important legal precedent and deter similar conduct.
In his judgment, Chief Justice Allsop found that TAL never told the consumer that it was considering her medical history before avoiding the policy. Neither did the insurer tell her it was examining her history to undertake a “policy validity investigation”. And nor did it ask her to address any concerns as to nondisclosure or misrepresentation in her answers.
TAL also did not make any additional inquiries of doctors to whom she had been referred about the contents of the medical records and her condition.
While ASIC also alleged that TAL had engaged in false or misleading conduct in handling the consumer’s claim, Chief Justice Allsop ruled that these claims were not made out.
