The Life Insurance Code: Key Provisions and Enforcement

1. The Life Insurance Code of Practice • Presented by Alph Edwards • & John Myatt • INSURANCE■COMMERCIAL■BANKING Key Provisions and Potential Flashpoints Presented by Peter Riddell, Partner MiniLuca

2. Introduction • Compulsory for FSC members from 1 July 2017. • Developed to promote consistently high service standards, set a framework for professional behaviour and responsibilities and protect consumers. • Provide for improved disclosure, set timeframes for claims, minimum standard medical definitions and greater transparency in communications. • Has been embraced and openly endorsed by the industry.

3. What is Covered? The Code provides a series of promises to insureds. The key ones are: • To be honest, fair, respectful, transparent, timely and ‘where possible’ to communicate in plain language. • To ensure sales of products are appropriate and refund or offer a replacement policy where an inappropriate sale has taken place. • To provide additional support for those who have difficulty with the buying process or making a claim.

4. What is Covered? • When a claim is made, to explain the claim process and provide regular updates about the progress of the claim. • To make claims decisions within the timeframes defined in the Code. • When a claim is denied the reasons will be explained in writing and information will be provided on the next steps if the decision is challenged. • Restrict the use of investigators and surveillance, to ensure legitimate rights to privacy.

5. How is it enforced? • Compliance with the Code is monitored and enforced by the Life Code Compliance Committee (“Life CCC”). • The Life CCC is made up of: a) a consumer representative (Alexandra Kelly); b) an industry representative (David Goodsall); and c) an independent chair (Professor David Welsbrot). • FOS Code Compliance and Monitoring Team are the administrator for the Life CCC.

6. How is it enforced? • Anyone (including FOS) can report alleged breaches of the Code to the Life CCC. • Companies must self report “significant” breaches to the Life CCC (10 day time limit) unless already reported to a regulator. • Customers may be referred by the Life CCC to the company complaint process for a remedy. • Unresolved breaches may become the subject of sanctions against the company by the Life CCC.

7. How is it enforced? • Sanctions can include: • Rectification • Warnings • Code audits • Corrective advertising • Publication of non-compliance

8. Potential Flashpoints • The Code makes it clear that it is not intended to “create legal or other rights” between the insured and insurer, but a legal relationship already exists between the parties by virtue of the policy. • Given the promises made in the Code, a breach of some obligations under it could arguably amount to a breach of the duty of utmost good faith under the underlying contract. • A breach of the contract may give rise to an entitlement.

9. Potential Flashpoints • Against this background, what breaches of the Code may lead to claims? • Missing time frame deadlines on paid claims could result in sustainable interest claims – noting the ‘reasonable’ test in s57 ICA will now be viewed through the lens of Code timeframe promises. Interest claims could be determined by the Life CCC under rectification power. • Loss caused by breaches of the code in relation to promises around surveillance, information requests and factual interviews. Is compensation possible? Perhaps through the rectification power of the Life CCC, BUT such damages are generally not thought to be available in Australia.

10. Potential Flashpoints • Misleading and deceptive conduct in policy sales? Code probably just restates the law in this regard as such unlikely to provide any new basis for breach. • Miscellaneous breaches of code may appear in Court pleading as particulars of breach. Will ‘minor’ breaches entitle an otherwise unsuccessful insured to costs?

11. Potential Flashpoints Authorities • A company will only use a general authority to obtain information it reasonably believes is relevant to the customer’s claim. • Companies will accept authorities that only authorise the obtaining of particular information with the warning, that this may cause delays in the assessment of the customer’s claim and may result in the company having to seek further authorities from time to time. (8.6)

12. Potential Flashpoints Access Rights • Subject to “special circumstances” customers can access the information that the company has relied on in assessing their application for insurance cover, or in relation to a claim or Complaint. (14.2) • Subject to “special circumstances”, customers can also access the reports from third party service providers that the company have relied on in assessing the application or claim. (14.3)

13. Potential Flashpoints Special circumstances • Special circumstances exist where: • information is protected from disclosure by law, including the Privacy Act 1988; • the company reasonably determines that the information should be provided directly to the treating doctor; • the release of the information may be prejudicial to us in relation to a dispute about an insurance cover or your claim, or in relation to a complaint; or • the company reasonably believes that the information is commercial-in-confidence. (14.5)

14. Potential Flashpoints Claims Handling Timeframes • Will be a point of focus in interest claims. • The term “unexpected circumstances” is broadly defined and includes circumstances such as “delays by group policy owners” and “difficulties communicating with the customer…” • Insurers will need to be in a position to justify reliance on “unexpected circumstances” exemption.

15. Potential Flashpoints Looking Ahead • Be ready for audits/requests for information and compliance. • The Code is the life industry’s commitment to mandatory customer service standards. Look to comply with intent of the Code, not just “tick boxes”. • Be aware of: • ASIC Life Insurance Claims: Report 498 • Insurance in Superannuation Working Group: Draft Code of Practice

16. Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 • Presented by Alph Edwards • & John Myatt • INSURANCE■COMMERCIAL■BANKING Developments in TPD concepts: Education, Training & Experience Relevant to Claims, Product Presented by Peter Murray, Partner MiniLuca

17. At first instance… Jones v United Super Pty Ltd [2016] NSWSC 1551 Brereton J made findings on some critical TPD concepts which appeared to deviate from accepted principles. • Facts: • Claimant ETE: left school aged 16, school certificate, qualified as tradesman roof plumber, entire work history in roofing industry • Injured back - age 29 at relevant date of assessment • Insurer denied TPD claim on basis claimant had capacity and ETE to work in non manual roles

18. Decline decision Insurer’s decline letter: “Given the member’s relatively young age and his education, training and work experiences, HRAL decided to have the member assessed by way of a functional capacity evaluation to determine what sedentary or light impacting manual duties he could perform. In conjunction with the FCE, the Member was also asked to undertake a Vocational Assessment to determine what skills he has in orders to undertake suitable or alternative employment.”

19. Decline decision Insurer’s decline letter: “Based on the examination of the Member’s education, training and previous work experience, the following vocational options have been identified for consideration: • Retail Sales (Hardware) • Courier/Delivery Driver • Console Operator • Customer Service Adviser/Telemarketer The above vocations were considered entry level positions that required no retraining; the Member was considered a very suitable candidate and had the functional capacity to undertake all four occupations…”

20. Decline decision Insurer’s decline letter: “Again, the above occupations are well within the member’s current physical restrictions and given he is only 31 years of age, it should not be a closed book that the member will not return to some form of work in the future.” A simple question answered in the affirmative: Can the Member physically perform other work for which he is suited? - Yes

21. What is the test? • Why such a simple question? – the objective capacity based TPD definition “unlikely ever to be able” • Insurer reasonably adopted the approach in Hannover Life Re of Australasia Ltd v Collella [2014] VSCA 205 “The test is not concerned with the availability of employment or work to the person – rather it is concerned with the person’s capacity to performremunerative work for which the person is otherwise suited.”

22. What is the test? What did the Court think? • Firstly, it was noted that NSW Courts “have not, at least so far, adopted this more restrictive approach.” Further… • “The Insurer’s reasons address only physical capacity and not ability having regard to Mr Jones’ psychological makeup, most significantly his fear avoidance syndrome.” • “…little heed was given to the difficulties which Mr Jones’ would encounter in competing for such employment, given what Dr Giblin described as his need for an understanding boss and very friendly work environment.”

23. What is the test? “Accordingly, the insurer’s reasons reveal a failure to take into account the impact of the plaintiff’s fear avoidance syndrome, and his competitive disadvantages and thus to take into account significant components of the plaintiff’s incapacity and properly and fairly to assess whether he was likely to be able to engage in the suggested occupations.” • Court extends the scope of the objective capacity based TPD definition.. • not simply a question of capacity to perform work.. • other things to consider..

24. Education, Training and Experience What about the suggested jobs? “The Insurer has treated the suggested occupations as work for which Mr Jones is “reasonably fitted” by education, training or experience, not on the basis that Mr Jones has any particular education, training or experience that prepares him for such work, but because they are ‘entry level’ positions for which no further education, training or experience is required.”

25. Education, Training and Experience Court’s view… • A job which an insured can do without ETE is not necessarily one for which he or she is ‘fitted by education, training or experience’. • Rather the job must be one for which the insured has been ‘prepared or shaped’ by past ETE. • In other words, the insured must have already worked in the alternative job, or something very similar to it, or have training for it, if it is to fall within the definition.

26. Education, Training and Experience • Analogy… “A surgeon whose tertiary education was in medicine and whose entire vocational history was in surgery, who lost the fine motor skills required for surgery, but was otherwise physically fit would not be reasonably fitted by education, training or experience for work as a manual labourer, even though he or she might be perfectly capable of performing it without further training.”

27. Education, Training and Experience • The notion that an insured must have done a job (or a similar job) in the past, to be ‘fitted by ETE’ for a job suggested by an insurer (noting that many entry level jobs require no ETE) seemingly created an additional wrinkle on the ETE concept, being one that insurers have previously not felt they needed to consider.

28. The Appeal Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 • The insurer appealed the decision of the NSW Supreme Court. • Basis of appeal: • Whether primary judge erred in approach to task of Court in reviewing insurer’s opinion? • Whether primary judge erred in interpretation of ETE clause?

29. The Appeal • The insurer’s appeal was dismissed • The NSWCA confirmed that a stage 1 review of the insurer’s decision in an opinion based TPD insuring clause was ‘not to assess what is reasonable and thereby conclude that any other view displays error’. • There can be a range of opinions available to an insurer acting reasonably and fairly on the material before it’ . A so called ‘merits review’ of the insurer’s decision was not permissible.

30. The Appeal • Rather the ‘criterion of reasonableness of an insurer’s decision is whether the opinion formed by the insurer was not open to an insurer acting reasonably and fairly in the consideration of the claim. • The Court rejected the notion that the relevant test was the Wednesbury test i.e. a judicial test applied to administrative decisions that is met when ‘no reasonable repository of power could have taken the same decision.’

31. The Appeal The ETE Issue • The NSWCA stated that Brereton J’s construction of the ETE clause was correct. • ‘His Honour correctly observed that the ETE clause requires the insurer to examine the occupations for which the claimant is ‘fitted’ in the sense of the occupations for which his education, training and experience has prepared him. That naturally is shaped by his vocational history.

32. The Appeal ‘unlikely ever to be able’ - The Capacity Test Issue • The Court noted that Brereton J’s comments on this issue were obiter and refrained from providing an ‘advisory opinion’ on this issue. • Arguably still open for insurer’s to strictly apply a capacity based test – uncertain whether potential competitive disadvantages in the market place need to be considered. • What seems clear however, is the need to not only consider one’s physical incapacity but also one’s mental incapacity if applicable

33. Implications • The critical development is the endorsement of the ‘Brereton view’ on the ETE clause. • A decline based on an assumption that an insured can do a job they have either not done before or have no vocational connection with, is unsound. • This is so regardless of whether they have the capacity and skills to do the job and the job is available and accessible.

34. What can we learn? • ‘job matches’ (usually made with such jobs as console operator and other entry level jobs) invariably find their way into vocational reports as suitable jobs and often form the basis of a decline. • Insurer’s will need to ensure that such TPD declines, based on jobs with no vocational connection to the insured, do not occur. • Insurers need to work closely with their vocational report providers so they know precisely what jobs do and which do not, fall within ETE principles as set down by Jones

35. For more information, please contact: Peter Riddell Partner T: 03 8600 5005 E: peter.riddell@turkslegal.com.au Peter Murray Partner T: 03 8600 5031 E: peter.murray@turkslegal.com.au INSURANCE ■COMMERCIAL■BANKING Melbourne | Rialto Towers, Level 8 (South Tower) 525 Collins Street, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Sydney | Level 44, 2 Park Street, NSW 2000 | T: 02 8257 5700 | F: 02 9264 5600 Brisbane | Level 27, 10 Eagle Street, QLD 4000 | T: 07 3212 6700 | F: 07 3212 6799 www.turkslegal.com.au