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Determination
Case number | 12-00-1054994 |
Financial firm | Zurich Australia Limited |
Case number: 12-00-1054994 17 October 2024
C held life insurance, including death and trauma cover with the financial firm (insurer). She lodged a trauma claim after being diagnosed with breast cancer on 18 October 2019. The insurer paid the trauma benefit on 11 December 2019, which reduced her death cover to nil.
The policy included an accelerated buy back option enabling death cover to be repurchased after 12 months. C applied for reinstatement of her death cover on 3 November 2020 and sadly died on 27 November 2020. The complainant (her Estate) lodged a death benefit claim.
The insurer denied the claim. It says there was no death benefit in place when C died because the 12-month period ran from the date the trauma benefit was paid such that the death cover could not be reinstated until at least 11 December 2020.
The complainant disagrees. It says on the policy’s proper interpretation, the 12 months ran from the date C satisfied the policy terms for payment of the trauma benefit, being the date of diagnosis - 18 October 2019. In the alternative, the complainant relies on section 54 of the Insurance Contracts Act, 1984 (Cth) (ICA) to ‘cure’ any issues with late claim notification.
The complainant is represented by law firm B. For brevity’s sake, the complainant and B are referred to below as ‘the complainant’ unless context requires otherwise.
Yes. The policy clearly states death cover can only be repurchased 12 months after the trauma benefit has been paid. The insurer did not delay that payment. As C died before the 12-month period had expired, there was no death cover against which a claim could be made.
No. The insurer has not sought to decline the claim based on an act or omission by the complaint after the contract (in this, case, the death cover) was entered into because the death cover was yet to recommence. Therefore, Section 54 does not apply.
The outcome is fair because the policy terms on death cover reinstatement are clear and unambiguous, and C died before the 12-month period from the date the insurer paid the trauma benefit had expired.
This determination is in favour of the insurer.
The insurer is entitled to deny the death benefit claim. It is not required to take any other action.
Yes. The policy clearly states death cover can only be repurchased 12 months after the trauma benefit has been paid. The insurer did not delay that payment. As C died before the 12-month period had expired, there was no death cover against which a claim could be made.
C’s policy commenced on 16 December 2009, and provided trauma and death cover, with an ‘accelerated buy back death option’ included.
The terms and conditions of the policy are set out in the product disclosure statement (PDS) dated 1 April 2009, as upgraded in December 2015 and May 2019. Page 17 of part one of the PDS sets out the following ‘benefit information and common information’ about the ‘accelerated buy back death option’:
This option is only available if you select Trauma cover and Death cover for a Life Insured and allows you to reinstate Death cover 12 months after a Trauma claim (rather than over a period of three years).
This and other reinstatements of cover are all explained together on page 19. Page 19 (Part 2) explains the terms and conditions of this benefit, including any limits and exclusions.
Page 19 of part two (policy conditions) of the PDS relevantly states:
If the Accelerated Buy Back Death option applies for a Life Insured then 100% of the Death cover reduced for that Life Insured as a result of the payment of the Trauma benefit can be repurchased on the date 12 months after payment of the Trauma benefit.
Following C’s diagnosis with breast cancer on 18 October 2019, her agent contacted the insurer on 23 October 2019 requesting trauma claim forms. The insurer provided the forms on the same day, along with a list of claim requirements.
On 20 November 2019, the insurer followed up C’s agent for the claim documents.
The documents were provided on 3 December 2019. On 6 December 2019, the insurer advised C the claim had been accepted.
On 11 December 2019, the insurer sent C a claim acceptance letter confirming it had paid the $55,125 trauma benefit plus a $107.86 premium refund into her bank account. The letter confirmed the trauma benefit payment had reduced the linked death cover to nil.
Accompanying the letter was a buy back acceptance form for completion, which included the following information:
Accelerated buy back death option
This option allows you to reinstate 100% of the reduced Death cover 12 months after the payment of the Trauma Benefit.
On 3 November 2020, C completed the buy back acceptance form seeking reinstatement of the death cover, but not of the trauma cover. On 27 November 2020, C died because of metastatic breast cancer.
The insurer says the policy terms regarding accelerated reinstatement of death cover following payment of the trauma benefit are clear and unambiguous. Relevantly, the death cover cannot be repurchased until 12 months from the date the trauma benefit was paid. It says in the intervening period, there is no death cover under the policy.
On the basis that it paid C the trauma benefit on 11 December 2019, the insurer submits that the death cover under her policy could therefore not be reinstated until 11 December 2020.
The insurer says it could not be expected to have assessed the trauma claim any faster than it did, given it received the claim documents on 3 December 2019 and paid the benefit on 11 December 2019. It notes that even if it paid the benefit on the day the claim documents were received, the 12-month reinstatement period would have expired after C died.
The insurer acknowledges the High Court of Australia in McCann v Switzerland Insurance Australia Limited [2000] HCA 65, found that the meaning to be given to an insurance policy must take into account the ’commercial and social purposes’ for which it is written. However, the insurer notes the court also said:
Under the guise of giving the language of a policy its ordinary and fair meaning, a court is not entitled to make a new contract for the parties at odds with that upon which they have agreed.
The insurer submits the ordinary and fair meaning of the language used in the policy concerning accelerated reinstatement of the death cover is clear and aligns with its position.
The complainant notes that the premium refund the insurer paid C on 11 December 2019 was for premium that had been paid since 18 October 2019, being her diagnosis date. The complainant submits this shows that the insurer determined the date from which C satisfied the policy terms, and therefore the trauma benefit was payable from, was the diagnosis date.
In the circumstances, relying on McCann, the complainant says:
[the insurer’s] refund of premium back to the date of diagnosis is entirely consistent with the intention that “payment” means the date an insured satisfied the policy terms.
[This] construction…allows time for [the insurer] to assess the information provided before making payment of any benefit. It would be inconsistent with the commercial and social purposes of the policy for the payment of a benefit to be contingent on a factor such as the time it takes to assess the claim which is outside an insured’s control and within the control of an insurer.
The complainant says this means that the death cover should have been reinstated from 18 October 2020, meaning it was in place prior to C’s death.
The parties disagree on the meaning of the word ‘payment’ in the phrase ’12 months after payment of the Trauma benefit’ in the accelerated buy back death option. As the PDS does not include a definition of ‘payment’, its ordinary and accepted meaning is to be applied.
I am satisfied that it is reasonable in determining the ordinary and accepted meaning of ‘payment’ to adopt the Macquarie Dictionary’s definition, which is:
1. the act of paying.
2. that which is paid; compensation; recompense
Using that definition in the accelerated buy back death option, it is clear that death cover can only be repurchased 12 months after the insurer completed the act of paying the trauma benefit. The act of paying was completed on 11 December 2019, therefore death cover could not be repurchased for inclusion in C’s policy until 11 December 2020.
I do not accept the complainant’s position that ‘payment’ means ‘the date an insured satisfied the policy terms’. That would in effect require ’12 months after payment of the Trauma benefit’ to be read as ’12 months after [qualification for] payment of the Trauma benefit’. I am not satisfied that reflects the ordinary and normal meaning of the language used or that it is necessary to insert words like ‘qualification for’ to give the policy a commercial purpose.
I do not consider the date to which the insurer refunded premium a relevant factor in interpreting the intention of the policy. The premium refund is a separate entitlement under the policy, and the accelerated buy back death option does not refer to that entitlement.
I accept there may be circumstances where the insurer’s claim delay could be a relevant consideration. For example, if it had delayed paying C the trauma benefit for months, an attempt by it to apply the ’12 months after payment of the Trauma benefit’ provision to avoid paying a death cover claim may have been in breach of its duty of utmost good faith under section 13 of the ICA. However, the insurer did not delay paying the trauma benefit.
The insurer is entitled to deny the death benefit claim. As C died before the 12-month period had expired, there was no death cover against which a claim could be made.
No. The insurer did not seek to decline the death claim based on an act or omission by C after the relevant aspect of the contract (in this, case, the death cover) was entered into because the death cover was yet to recommence. Therefore, Section 54 does not apply.
Section 54 is a broad remedial provision. It applies to contracts of insurance which permit an insurer to refuse to pay a claim because of some act or omission of the insured or another person after the contract was entered into.
Unless the act or omission could reasonably be regarded as being capable of causing or contributing to a loss, the insurer cannot rely on the act or omission to refuse to pay the claim; it can only reduce its liability to the extent it has been prejudiced by the act or omission.
However, section 54 does not operate to relieve an insured of restrictions or limitations that are inherent in the claim. An inherent restriction or limitation in a claim is a restriction or limitation which must necessarily be acknowledged in the making of the claim. As an example, the claim must be a claim under a relevant contract of insurance.
The complainant submits that section 54 applies such that the insurer is not entitled to refuse the death claim. It says:
The complainant relies on the following quote from the High Court’s decision in FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd [2001] HCA 38:
The insured, otherwise entitled to indemnity, made a mistake. The mistake was an "omission". The insured omitted to follow its normal practice. It omitted to notify the insurer when it became aware of an occurrence which might subsequently give rise to a claim. Had it not made that "omission", but observed its ordinary practice, the insured would have been fully protected in the event of a "claim" made later. It would then have been deemed to have been made during the insurance period. No relevant prejudice was suffered, or asserted, by the insurer as a consequence of the insured's "omission". To refuse indemnity in such circumstances would be completely disproportionate to the "omission" on the part of the insured. It was thus the kind of "omission" that attracted a consideration of the provisions of s 54 of the Act. It follows that the majority of the Court of Appeal were correct to hold that s 54 of the Act applied to afford relief to the insured for its mistaken "omission". Once such relief was given, the insured was entitled to full indemnity.
The insurer says section 54 does not provide to an insured a statutory entitlement to indemnity. Rather, it provides relief from the consequences of an act or omission which would, but for section 54, allow an insurer to refuse to pay a claim. The insurer’s obligation to indemnify the insured remains governed by the policy terms.
According to the insurer, the purported loss is a result of C passing away before her death cover could recommence rather than the date she lodged the trauma claim. The insurer also suggests that the entitlement to reinstate the death cover is akin to an entitlement to renew an annual insurance policy and refers to case law that says section 54 does not apply where the acts or omissions occurred before the renewal date.
The insurer also notes that in FAI, the High Court confirmed that section 54 does not operate to relieve an insured of restrictions or limitations that are inherent to the claim and said:
The restrictions that are inherent within a claim vary according to the type of insurance in issue. Under an “occurrence” based contract, no claim can be made under the contract unless the event insured against takes place during the period of cover.
Finally, the insurer submits that AFCA case 674068 is not relevant because it dealt with the date a trauma event first occurred.
There is no evidence showing the insurer denied the death claim because of late notification of the trauma claim. Rather, the insurer denied the death claim because there was no death cover in place when C died.
The High Court specifically contemplated such a scenario in FAI:
Similarly, the "omission" of the insured to take steps, prior to a loss, to elect an expanded form of cover, would not be an "omission" of the kind which would attract relief under s 54(1) of the Act. In such a case, the "reason" for the insurer's refusal to pay would be classified by the law as the absence of relevant cover between the insurer and the insured, not the "omission" of the insured to obtain a cover that was more ample.
I accept that the timing of the notification of the trauma claim affected when the trauma benefit was paid and therefore when the 12-month period before the death cover could be reinstated commenced running and concluded. However, that was a restriction or limitation inherent in the death claim.
I am satisfied that the last quote from FAI set out above disproves the complainant’s position that the policy was entered into for the purpose of section 54 in 2009.
Section 54 does not apply. The insurer did not seek to decline the death claim based on an act or omission by C after the relevant aspect of the contract (in this, case, the death cover) was entered into because the death cover was yet to recommence.
The outcome is fair because the policy terms on death cover reinstatement are clear and unambiguous, and C died before the 12-month period from the date the insurer paid the trauma benefit had expired.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. I have reviewed and considered all the information the parties have provided.
While the parties have raised several issues in their submissions, I have restricted this determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
