Assessing disability claims fairly
3rd Jun 2021
For too long, claims assessors acted with impunity when dealing with disability claimants due to the lack of specific qualifications required or formal professional standards. Yet claims assessors have the power to determine the outcome of disability claims, making medical and legal decisions.
In the past, the only check on the powers of claims assessors was the insurers’ internal operational guidelines, which often prioritised the minimisation of the insurer’s liability. These issues were all laid bare in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Banking RC).
Two important Banking RC outcomes of relevance to claims assessors include:
- That claims handling of insurance products regulated by the Australian Securities and Investments Commission (ASIC) now require an Australian Financial Services Licence (AFSL) under s911A of the Corporations Act 2001 (Cth) (Corporations Act).
- A recent Federal Court decision referred by the Banking RC which established the statutory obligation of utmost good faith under the Insurance Contracts Act 1984 (Cth) (IC Act).
Taken together, a high legal standard now exists for claims assessors to operate fairly in making assessments.
Claims handling is now a financial service requiring an AFSL to operate. This licence requires claims assessors to comply with s912A of the Corporations Act: assessing claims ‘efficiently, honestly and fairly’.
ASIC interprets this to mean handling and settling insurance claims fairly, transparently and promptly in a way that supports claimants.
These standards are guided by the Life Insurance Code of Practice (Code).
Disability claimants regularly experience claims assessors’ tardy communications and lack of urgency in assessments, along with their requirements for claimants to provide excessive documents. Under the AFSL and the Code, claims assessors must act without undue delay and justify ongoing need for information from claimants on a regular basis.
There are strict compliance timeframes:
- Within ten business days of being notified, claims assessors are required to explain to claimants the claim process and the general timeframe for a decision.
- At least every 20 business days, they are to inform claimants of the progress of their claim.
- Claims assessors must make an initial decision (unless unexpected circumstances apply):
- within two months after the notification or waiting period (whichever is later) for income protection claims; and
- no later than six months after the notification or waiting period (whichever is later) for all other disability claims.
They must also explain any adverse findings and give claimants an opportunity to respond and provide additional information.
ASIC v TAL: Utmost good faith
Section 13 of the IC Act implies an obligation of utmost good faith into insurance contracts. While no set criteria exists in determining duty compliance, the High Court has suggested that insurers must act ‘fairly and decently’.
In the recent Federal Court decision of ASIC v TAL, in determining whether TAL’s claim assessment breached the obligation Allsop CJ examined TAL’s retrospective underwriting process, ie. determining a claimant’s eligibility for cover at the time of the claim instead of during the application process. The claimant was unable to work due to cancer and she claimed on her income protection policy. TAL, while assessing the substantive claim, retrospectively underwrote her policy without notifying the claimant. Upon discovering apparent non-disclosures of unrelated mental health matters, TAL (relying on s29(3) of the IC Act) avoided the policy from inception and threatened to recover sums paid.
Allsop CJ found that TAL’s conduct fell below community expectations of fairness and decency and thus breached its utmost good faith obligation. His Honour confirmed that insurers do not need to act dishonestly to breach the obligation. They are required to act consistently with community standards of decency and fairness, and with due regard to the insured’s interests. It was held that ‘arbitrary, capricious and unreasonable conduct … fall[s] short of community expectations of fairness and decency’ (at ).
Following the Banking RC recommendations, various amendments were made to the IC Act. These amendments, combined with the requirement for claims assessors to hold an AFSL and Allsop CJ’s comments in ASIC v TAL, provide advocates with important consumer protections to assist in advancing client claims.
While insurers often opt to avoid policies in circumstances of non-disclosure or deny claims on the basis of onerous and unjust policy terms, this may be inconsistent with their utmost good faith obligation.
For example, in a claim for physical injuries involving alleged non-disclosure of mental health issues, if community expectations dictate that non-disclosure of depression requires a fair application of appropriate remedies if certain requirements are met under s29 of the IC Act (eg. varying the policy to exclude mental health claims and admitting the physical claim on its merit), then insurers avoiding policies in order to avoid all liability would be inconsistent with their obligation of utmost good faith. Likewise, reliance on onerous policy terms in circumstances where such an action is against community expectations may be precluded (s14 of the IC Act).
The recent developments are timely reminders that the IC Act provides valuable consumer protections to those claiming disability benefits.
Liam Hanlon is an associate lawyer working for Maurice Blackburn’s Superannuation and Insurance practice where he acts for consumers in litigated TPD, income protection, general insurance and financial services disputes.
Dr Benjamin Koh was the chief medical officer and whistleblower at CommInsure, the life insurance division of the Commonwealth Bank. Benjamin has contributed to the parliamentary inquiries into whistleblowing protections and life insurance. He has also assisted financial advisors and insureds in claims dispute resolutions and is currently on a short paralegal contract with Maurice Blackburn.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).