September 28, 2015
Have you ever been mucked around with an insurance claim for months, only to be asked for more (irrelevant) information that’s difficult or impossible to obtain, or to arrange interviews between your insurer and a third party that’s beyond your control? Ever had your property repaired urgently by an independent and reputable third party, only to have your insurer offer to reimburse you just a fraction of the cost? Been stranded overseas with no cover and no money? Frustrating isn’t it… In dealing with some recent claims, we inevitably came across a myriad of complaints about these very things online, so we thought we’d throw a few pointers out there to help our followers.
In this post, we’re concerned only with general insurance, as opposed to life insurance, for example. General insurance includes, but is not limited to, travel, motor vehicle, home building or home contents insurance. We’re also concerned only with retail insurance, which are insurance products offered to individuals and some eligible small businesses. If that fits your circumstances, read on, but otherwise, the points raised here may be irrelevant to you.
What we’ve seen recently is a huge spike in major delays in the processing and payment of claims. It appears that the larger the claim, the more likely it is to be delayed, and also the greater the length of the delay. Similarly, the more likely it is to be denied, and the more likely the quantum (amount payable) is to be disputed. For example, while an insurer may deal with a motor vehicle claim totaling only a few thousand dollars in a matter of days, a client recently came to us after a $45,000 travel insurance claim had been dragging on for four months, and another after a $120,000 motor vehicle claim had been dragging on for almost nine months. Needless to say, this can present far more than an inconvenience for the insured.
As you may have guessed, the primary tool employed to facilitate this has been requests for further information not entirely relevant, or almost impossible to obtain, and typically at the last second when the claim seems to have otherwise been dealt with (sometimes after months of toing and froing).
There are obvious financial benefits to be derived by insurers in denying or delaying insurance claims, and given recent trends, you can assume that your insurer will explore every possible avenue to enable this when it comes time for your next claim, if recent trends are anything to go by. As these disputes typically involve the major corporation (possibly with the help of their in-house lawyers) vs. mum or dad, we’re focused here on three basic issues that can help you go it alone: namely, limiting delays; pushing liability; and negotiating quantum.
There are several sources of law that will be relevant to any dispute. First and foremost, the contract documents, including the “Product Disclosure Statement” (“PDS”) and policy wording, are the obvious starting point (although not the be all and end all). As these will be different in each case owing to the nature of the insurance, the type of cover and the circumstances of each insured, specifics in this regard are beyond the scope of this post, but we will touch on them. The second source is obviously legislation, and we consider particularly the Insurance Contracts Act 1984 (Cth) (“the Act”). Thirdly, we have the common law (case law) principles. Finally, we consider additional sources of similar effect to contract provisions, such as the Insurance Council of Australia’s (“ICA”) General Insurance Code of Practice (“the Code”), that applies to signatories to it (most major Australian insurance companies, who in turn own most of the smaller ones also).
First things first – section 21 of the Act provides that the insured has a duty to disclose all relevant matters – being matters a reasonable person in the circumstances would be expected to know were relevant – before entering into an insurance contract. Be sure to comply with this to the fullest extent possible, or it could work against you when it comes time to making a claim, in terms of both giving rise to extended delays and, in the worst case scenario, excluding you from cover. Note that the duty has an ongoing effect, meaning it pops up again each time a policy is renewed or extended. Further, tucked away somewhere in the contract documents will be a clause requiring the insured to comply with the insurer’s reasonable requests in the event of a claim, including by way of providing relevant documents and participating in interviews or providing statements. The latter is important, because in most cases, timeframes for dealing with complaints are pegged to the date when the insurer comes into possession of all “relevant information”.
As to time, the insurer does not simply have the leisure of getting around to the claim when they feel like it. Apart from the contract documents, the Code places various obligations on insurers that have the effect of contractual provisions, and are therefore enforceable. Although the effect is technically stated to be that of a contract between the insurer and the ICA, as opposed to a contract between the insurer and the insured, those provisions can be enforced by either making a complaint to the Code Governance Committee (“the CGC”), who can investigate the complaint and impose sanctions on the insurer for breaches, or the Financial Ombudsman Service (“the FOS”), who can make binding and non-appealable determinations as to the actual claim itself and the manner in which it is handled.
The Code requires that insurers deal with claims in a timely manner in general. Some key timeframes are as follows:
a. Where the insurer does not require any further information or assessment, they must determine the claim (accept or deny it) within ten business days of receiving the claim.
b. If they do require further information or assessment, they must, within ten business days of receiving the claim, notify you of what they require, and appoint a loss assessor or loss adjuster (if necessary).
c. If they appoint an “external expert” to assist them with the claim, that expert must furnish its report to the insurer within twelve weeks of their engagement.
d. Once they have all of the “relevant information”, they will determine the claim.
e. The determination of the claim will occur within four months of receiving the claim, unless “exceptional circumstances” apply (including, but not limited to, a fraudulent claim or reasonable suspicion of fraud, a failure on the part of the insured to respond to reasonable requests, or difficulties in contacting the insured beyond the insurer’s control), in which case, determination of the claim could occur within twelve months of receiving the claim.
f. If the insured can show that they are in urgent financial need of the insurance cover they are entitled to under the policy, the insurer will fast-track the claim, and make advanced payments within five business days.
Reading the fine print, it is clear there are some loopholes. For example, an “external expert” is not only a loss assessor or adjuster, and could be a private investigator. As such, there is no time limit on the appointment of the external expert, and consequently, the insurer could decide to appoint them just before the end of the fourth month, on the basis that they say the insured has failed to provide all relevant information and they therefore suspect fraud, for example because they have discovered a loosely-connected person who may not even have been a material witness to the event in question. Similarly, point f above could be argued by the insurer to be qualified in that the insured first has to prove liability and quantum, rendering it effectively useless and even then, no further guidance is provided as what exactly “fast-tracking” means.
Notwithstanding the above, the Code provides that insurers must also conduct claims handling in an honest, fair and transparent manner, and that they will only ask for and rely upon information actually relevant to the determination of the claim. Further, section 13 of the Act provides a mutual obligation on both parties to act with the utmost good faith towards each other with respect to any matter arising under or in relation to a contract of insurance, including adherence to the time frames set out in the Code, and section 14 prohibits a party from relying on a provision of the contract if the manner in which it was relied upon amounts to a failure to act with the utmost good faith. A failure to adhere to these obligations on the part of the insurer gives ASIC the power to impose significant penalties for breaches of the Act, including banning orders or the suspension of the insurer’s Australian Financial Services License, in addition to giving rise to the exercise of powers by the CGC and / or the FOS. This provides a significant qualification on the insurer’s ability to take their time.
Perhaps more importantly, pursuant to section 57 of the Act, interest on the claim may be payable by the insurer (currently at the rate of 11% per annum), if the insurer withholds payment for any unreasonable period of time. Needless to say, this can provide a great incentive to the insurer to expedite matters.
In light of the above, it is clear that you can exert some influence over the time your claim takes to be processed. At the outset, look at the terms of the contract documents to get an idea of what is relevant to your particular claim. Provide any and all relevant documents and information to the insurer as soon as possible. Write to them setting out what the claim is about, and what is relevant and what is not. Clearly demonstrate financial hardship if you have it. Provide supporting documents for everything. Ask them what they need, what the issues they perceive are (if any), and how long they will take. Keep onto them and follow them up every few days. If you think something requested is undoubtedly irrelevant, you can write to them and explain why, stand your ground, and direct the insurer to continue to determine the claim immediately. Cite the applicable provisions of the Act and / or the Code and / or the contract documents, as the case may be, and put them on notice that you may seek to claim interest. That should get their attention…
If the matter does not progress as planned, and you feel the insurer is actually being unreasonable, as opposed to simply not being in a position to meet your own ideal timeframe, tell the insurer you wish to make a complaint or have the matter escalated to their internal dispute resolution team. They will then have only fifteen business days to determine the particular complaint. If you genuinely believe the outcome is unreasonable, or there are further delays, you can either progress it to stage two of their internal dispute handling system (which is largely the same process in most cases), or apply for external dispute resolution. In terms of external dispute resolution, the FOS is usually the best bet, given their power to consider substantive aspects of the claim and their ability to award the reimbursement of legal costs (generally up to a value of $3,000) and interest. Obviously, you can expect that an insurer will not offer or agree to pay interest in private negotiations, or even to mention that you may be entitled to it, and as the CGC and ASIC are primarily concerned with the insurer’s compliance issues, as opposed to your claim, the FOS is favourable, especially because it is a no or low cost process that is relatively safe for consumers. However, not every dispute falls within the jurisdiction of FOS, and they have a discretion to decline to hear some claims, so their terms of reference should be checked carefully before proceeding.
When it comes to quantum, the contract documents will usually provide certain alternatives for the insurer and / or the insured to choose from. For example, in the context of motor vehicle claims, it may be that the insured can choose from a list of insurer-authorised repairers to take the vehicle to, or the insured can have the vehicle repaired by their own repairer, and the insurer will reimburse the insured for the “fair and reasonable cost of repairs”. No matter what type of policy, there are certain common law rules and principles to be applied – it is never just a case of what the insurer says goes. To take motor vehicle insurance as an example again, the common law says that actual invoices or quotes or invoices from a reputable, independent third party repairer are prima facie evidence of the reasonable cost of repairs payable to the insured, and the onus is on the insurer to show, through credible evidence, that this is not the case or that, in circumstances where the repairs have already been attended to, that the insured did not act reasonably or otherwise failed to mitigate their damages. Different principles apply depending on the nature of the insurance product and the terms of the contract documents, but the fact remains that the insurer cannot unilaterally determine what should be paid.
As to liability itself, again, the contract documents will usually set out precisely what is covered and what is excluded (i.e. a motor vehicle claim where the driver was drunk). Normally, determining liability should be a straightforward exercise, although of course, that may not always be the case, especially where terms are open to interpretation and the insurer seeks to take advantage of this. It is worth noting that, in addition to the duty to act with the utmost good faith, the common law says that, generally speaking, any ambiguity in a contract of insurance should be resolved by adopting the construction most favourable to the insured person. In other words, where a term or provision is open to two or more reasonable, legitimate meanings, the one that least favours the insurer would usually be upheld and enforced by a Court.
With respect to both quantum and liability, much in the same way as enforcing reasonable timeframes, an insured has the option of standing their ground and disputing the insurer’s decision or position. In addition, an insured has the option of making privileged settlement offers. After all, subject to the mandatory, non-excludable provisions of the Act discussed above, the determination and payment of any claim is a contractual issue, which is open to negotiation. As such, provided you know the rules, in most cases you will always in a position to question everything, stand your ground and push for a better outcome. However, if and when things break down regarding quantum or liability, the preferred enforcement option is litigation in Court (funds permitting of course), as a Court will consider the legal intricacies of the issues, whereas the FOS is less formal and more general, and all other bodies tend to focus more on compliance issues rather than substantive issues. However, as a potential order to pay the insured’s legal costs become relevant (and possibly a risk) with Court-based remedies, you should always consult your lawyer before proceeding.
As always, please feel free to contact us about these or related issues.