ASIC has commenced proceedings in the Federal Court against insurance company OnePath Life Limited (OnePath Life), alleging it failed to comply with its duty to act with utmost good faith during claims handling.
This is the first time ASIC is seeking financial penalties for a breach of this duty, following the introduction of new civil penalties in 2019.
ASIC Deputy Chair Sarah Court said, ‘Insurers play an important role in providing financial security to consumers, particularly in times of crisis. Consumers need to be confident that their insurer will act in good faith and provide procedural fairness when handling their claims. Now more than ever, Australian insurers need to focus on their claims handling procedures and ensure they are meeting their legal obligations.’
ASIC’s case involves a customer with a OnePath Life income protection policy that was obtained in 2016 with advice and assistance from an ANZ financial advisor. At that time, OnePath Life was owned by ANZ. In applying for the policy, the customer disclosed prior mental health related issues.
In 2018, the customer made a claim on the policy following a shoulder injury. OnePath Life subsequently investigated the customer’s prior medical history, which revealed more specific information about a hospitalisation for mental health issues many years prior to her applying for the policy.
Ultimately, OnePath Life decided not to pay out the policy on the basis that the customer has acted fraudulently by failing to disclose the hospitalisation. ASIC alleges that, in doing this, OnePath Life failed to act with utmost good faith in the handling of the customer’s claim by:
- Failing to make clear to the customer it was concerned that the lack of disclosure was fraudulent,
- Failing to fully investigate the customer’s explanation for the non-disclosure, including failing to speak to the ANZ adviser about the completion of the application for the insurance, and
- Failing, when it avoided the policy and denied the shoulder injury claim, to inform the customer of the right to appeal the decision through OnePath Life’s internal dispute resolution process or by filing a complaint with the Australian Financial Complains Authority.
Deputy Chair Court said that accusing a customer of fraud is a serious allegation that insurers should not make lightly. ‘If an insurer is concerned a customer has engaged in fraudulent non-disclosure, they must make their concerns explicit, give the customer the opportunity to respond and make proper inquiries into any explanation given by the customer before concluding that fraud has occurred. The insurer’s duty is not just owed to whoever the insurer considers to be a perfect policyholder.
‘Insurers deal with their consumers at their most vulnerable. This makes it crucially important that they ensure their customers understand their rights, including their rights of appeal if an insurance claim is declined,’ concluded Ms Court.
ASIC is seeking declarations of contraventions, pecuniary penalty orders, and ancillary orders.
The case has been scheduled for a case management hearing on a date yet to be set.
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Background
OnePath Life is a company which provides life insurance products such as life cover, income protection and trauma cover. OnePath Life was a subsidiary of ANZ Limited until 31 May 2019 when it was acquired by Zurich Financial Services Australia Limited.
In July 2021, ASIC secured $35 million in remediation for OnePath Life customers after OnePath Life’s poor telephone sales practices caused extensive consumer harm (21-169MR).
ASIC also has ongoing civil penalty proceedings underway against OnePath’s superannuation arm, OnePath Custodians Pty Ltd (21-350MR).
The duty of utmost good faith is an obligation that arises under s13 of the Insurances Contract Act 1984 (Cth).
On 13 March 2019, Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 introduced new penalty provisions to enable ASIC to pursue harsher civil penalties and criminal sanctions under ASIC-administered legislation, including the Insurances Contract Act.
ASIC has previously taken action against insurers for claims handling failures. In December 2019, ASIC commenced proceedings against TAL Life Limited for over handling of insurance claim (19-357MR). TAL was found to have breached its utmost duty of good faith, but as the conduct occurred before the new penalty regime, no penalties could be handed down for the breach (21-042MR).
In April 2020, ASIC sued Youi Pty Ltd for breaches of its duty of utmost good faith in handling a building and contents insurance claim made by a policyholder (20-091MR).
Editor's note:
The matter has been listed for a case management hearing on Monday 3 April 2023.
Editor's note 2:
On 3 April 2023, the matter was adjourned to 20 June 2023 for a case management hearing.