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Friday 19 November 2021

21-310MR ASIC sues MLC Life Insurance for multiple insurance failures

ASIC has commenced civil penalty proceedings in the Federal Court against MLC Limited for insurance policy and service failures resulting from poor systems and controls.

ASIC claims that MLC’s failure to implement appropriate systems and controls resulted in unpaid insurance benefits, premiums being charged without notice and underpaid refunds. ASIC alleges MLC’s conduct led to over $17.5 million in financial harm to over 260,000 customers.

ASIC Deputy Chair Sarah Court said, ‘Consumers should be able to trust insurers to pay their full benefit in times of need and keep them informed about significant changes to their policies. This case alleges failures by MLC, over many years, to ensure a reliable delivery of basic and everyday insurance services.

‘Insurers need to make sure they have adequate systems and controls to manage risk and administer their insurance policies correctly. Too often, we are seeing consumers harmed by implementation issues, legacy IT systems and failures resulting from poor governance and culture.

ASIC will look to take enforcement action to ensure these systems improve,’ concluded Ms Court.

ASIC alleges that from 1999 to November 2020, MLC failed to:

  • pay a life insurance benefit, known as a ‘rehabilitation bonus benefit’, to 297 eligible customers who were undergoing rehabilitation following an insured injury or disability;
  • update its definition of ‘Severe Rheumatoid Arthritis’ in a timely way, resulting in 12 customers suffering from Severe Rheumatoid Arthritis being denied insurance cover and MLC having to update the definition in over 190,000 insurance policies;
  • notify over 800 customers that their annual premiums had increased, their premiums were overdue, or that their insurance policies had been cancelled or lapsed; and
  • fully refund premiums to over 260,000 customers who had cancelled their loan insurance policies or paid out their loans.

ASIC claims that MLC breached its obligations as a financial services provider and its duty to act with the utmost good faith when handling claims. ASIC is seeking declarations, pecuniary penalties and other relief from the Federal Court.

MLC has advised ASIC that it has remediated customers impacted by the alleged conduct.

The date for the first case management hearing is yet to be scheduled by the Court.

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Concise Statement

Originating Process

Background

Poor claims handling and the failure of life insurers to update medical definitions in their insurance policies to accord with current medical practice were both issues considered by the Financial Services Royal Commission.

ASIC’s INFO 253 assists firms to understand how the claims handling and settling services reforms may apply to them.

This action follows ASIC’s recent cases against Youi Pty Ltd, TAL Life Limited and Insurance Australia Limited (IAL):

  • In November 2020, the Federal Court declared that Youi breached its duty of utmost good faith in its handling of a building and contents insurance claim lodged by a policyholder (20‑302MR).
  • In March 2021, the Federal Court found TAL Life breached its duty of utmost good faith when handling an insurance claim (21‑042MR).
  • In October 2021, ASIC commenced civil proceedings against IAL in the Federal Court concerning IAL’s failure to honour discount promises made to its customers (21‑270MR).

Editor's note:

The first case management hearing will be heard before the Honourable Justice Moshinksy at 9.30am on Friday 4 February 2022.

Last updated: 02/12/2021 12:26