In South Australia in recent years, the Courts have made it clear that insurers must act with the utmost good faith when considering income protection claims made by insureds who are disabled from earning (s13 Insurance Contracts Act).
A leading South Australian decision was Bonnin v TAL Life Ltd [2013] SADC 98, a decision of District Court Judge Costello in relation to Mr Bonnin who contracted a rare form of blood cancer. He resigned from his position as managing director of a number of companies and scaled back his involvement, but roughly at the same time set up a clinic and research institute in Perth with the aim of treating/curing his cancer.
He made claims for payment of income benefits under income replacement policies, and the insurer disputed his entitlement, saying that he was not entitled to benefits, and that he had been working and earning income within the meaning of the policies.
Judge Costello allowed his claim, and dismissed the insurer’s counterclaim, following High Court authority, which said:-
“An insurer’s statutory obligation to act with utmost good faith may require an insurer to act, consistently with commercial standards of decency and fairness, with due regard to the interest of the insured…
Utmost good faith will usually require…affirmative or positive actions on the part of a person owing a duty of it.”
In many cases, claims of this kind follow a pattern along the following lines:
- A claim is made.
- Sometimes the claim is met.
- The insurer ultimately realises the likely outcome and the substantial potential of the claim.
- The insurer casts about for a variety of ways to minimise the claim, or discourage the claimant from proceeding.
- The insurer’s tactics may include the use of forensic accountants / enquiry agents / insurance defence doctors.
- It may seek to engage in lengthy and circuitous correspondence aimed at deterring the claimant from proceeding.
- Large amounts of costs may be incurred defending court proceedings in an effort to discourage the claimant.
- The matter is resolved by a payment to the insured on the eve of trial, or at a mediation.
- The result can be very favourable to the insured.
Importantly, if an insurer acts in this way it may be in breach both of its obligation to deal with the utmost good faith and also possibly guilty of unconscionable conduct, contrary to section 12CB of the ASIC Act. It may also be liable for interest pursuant to section 57 of the Insurance Contracts Act.
An entitlement to benefits under an income protection policy is an important asset, and one upon which many self-employed persons rely for security. Although insurers are adept at finding loopholes upon which they seek to deny liability, in many cases prosecution of such claims result in a worthwhile outcome, which can be achieved promptly and cost effectively.
Cowell Clarke has significant experience in income protection insurance claims and dealing with insurers in this setting. If you need any assistance, or have clients who have had claims of this kind rejected by insurers, please do not hesitate to contact us.