Federal Court of Australia deems insurer acted unfairly in the cancellation of an insurance policy and subsequent demands made for payment.

Australian Securities and Investments Commission v TAL Life Limited (No 2) [2021] FCA 193 involved a 39 year old self-employed healthcare worker who had lodged a claim under her income protection policy in January 2014 after she was diagnosed with cancer. The policy with TAL Life Limited (TAL) included a cover of $5,000 per month.

The claim was accepted. TAL then investigated their insured’s medical history, a process also known as “retrospective underwriting”, and found she had a history of depression between 2007 and 2009 which had not been included in her claim for income protection insurance. In the lodgement of her claim, the insured had completed an extensive claim form whereby she provided medical, hospital and pathology reports with respect to her condition of cervical cancer.

Upon review of the new medical documentation, TAL proceeded to reject the claim, circumvented the policy, and told the insured that she had acted without good faith in the lodgement of the claim.

In rejecting the claim, TAL failed to provide the insured with any opportunity to explain why certain parts of her medical history were not disclosed as part of the application. TAL further failed to make further enquiries with the insured’s medical practitioners about the insured’s mental health. Such investigations would have enabled TAL to assess whether her previous diagnosis of depression would have been a relevant factor in considering the risk of insuring the claimant.

Furthermore, TAL had threatened to recover the sum of $24,000.00, representing payments that had been made under the income protection policy.

By TAL accusing its insured of having acted without good faith, threatening to recover funds paid under the policy, the limited investigation that led to the decision to cancel the policy and the lack of engagement with the insured to provide her with an opportunity to address the concerns surrounding the claim, Chief Justice Allsop held that TAL had breached its duty to act with the utmost good faith as its dealings, in this instance, lacked “decency and fairness”.

His Honour further noted:

“Policies of this kind providing income protection are very important to the economic and human wellbeing of people. The legislation is, after all, about human and commercial conduct, relationships and activity. How an insurer conducts itself in its claim handling may be said to be part of the benefits for which an insured pays.”

His Honour further concluded:

”It is, however, perhaps important to recognise that the assessment of the propriety of how TAL conducted itself is to be undertaken recognising that the Second Insured was not just a contracting party (viewed in a disembodied way) with rights and obligations in law, but a person to whom, and to whose financial security, the policy was important. Such considerations do not, of themselves, create separate legal rights, but they inform the context and circumstances by reference to which standards of behaviour, set by Parliament, expected of participants in commerce, in particular here, insurance, are to be judged.”

This case stands as a reminder that consumers place trust in their respective insurers to preserve their interest and this relationship relies on the engrained principle of the duty of utmost good faith. This long-standing principle does not just refer to acts of dishonesty or engaging in false or misleading conduct, but also includes circumstances where an insurer fails to meet wider community expectations of decency and fairness.