Key takeouts

  • The Australian Securities and Investments Commission (ASIC) has commenced civil proceedings against TAL Life Ltd (TAL), for alleged contraventions of the ASIC Act (ss12DB(1) and 12DA(1)), the Corporations Act (s1041H(1)), and the Insurance Contracts Act (s13(2)) in avoiding an income protection claim.  
  • ASIC is seeking civil penalties in relation to the alleged breaches of s12DB of the ASIC Act and declarations in relation to s12DA of the ASIC Act, s1041H of the Corporations Act and s13 of the Insurance Contracts Act. 
  • ASIC's investigation arose from a referral from the Financial Services Royal Commission.

ASIC has commenced proceedings against TAL Life Ltd

On 17 December, the Australian Securities and Investments Commission (ASIC) announced that it has commenced proceedings in the Federal Court against TAL Life Ltd (TAL) in connection with TAL's handling of a claim made under an income protection policy.

ASIC’s investigation arose out of a referral made by the Financial Services Royal Commission (FSRC).

[Note: TAL was an insurance case study considered by the FSRC. See: Financial Services Royal Commission Final Report, Volume 2 at p331. TAL's response to the findings proposed by Counsel Assisting in relation to TAL following the Round 6 hearings is available on the FSRC website here.]

Background

According to ASIC, TAL provided an income protection policy to a woman who was later diagnosed with cervical cancer. She then sought to make a claim under the policy.

TAL issued a claims pack to the woman, requiring that she provide authorities enabling TAL to: a) obtain and access all of her medical records; and b) any information required by TAL from any insurer, employer or accountant or other relevant holder of information.

According to ASIC, TAL then launched an investigation into the woman's medical history and avoided her policy on the basis of purported non-disclosure or misrepresentation.

ASIC allegations

[Note: The Concise Statement and Originating Process which detail ASIC's allegations in detail are available on the ASIC website here.]

Claims pack representations

Broadly, ASIC alleges that TAL's investigation into the woman's medical history was based on 'false statements' in the claims pack, in that TAL (allegedly) expressly or impliedly represented that it had a right to require the information sought, when this was not the case.

More particularly, ASIC contends that TAL:

  • made a false and/or misleading representation in connection with the supply of financial services in contravention of s12DB(1) of the Australian Securities and Investments Commission Act 2001 (ASIC Act);
  • engaged in conduct that was misleading/deceptive or likely to mislead/deceive in contravention of s12DA(1) of the ASIC Act;
  • engaged in conduct that was misleading/deceptive or likely to mislead/deceive in contravention of s 104H(1) of the Corporations Act 2001 (Corporations Act); and
  • failed to act with the utmost good faith in contravention of s13(2) of the Insurance Contracts Act 1984 (ICA) by failing to act with the utmost good faith.

The manner in which TAL avoided the policy

ASIC also alleges that in sending a letter to the consumer in which it avoided her policy (for purported non-disclosure of a depressive condition) TAL: a) avoided the policy without first offering her an opportunity to address concerns; and b) accused her of breaching her duty of disclosure and her duty of utmost good faith under the ICA. ASIC contends that the manner in which TAL avoided the policy contravened s13(2) of the ICA (the duty of utmost good faith).

Relief sought

ASIC is seeking civil penalties in relation to the alleged breaches of s12DB of the ASIC Act and declarations in relation to s12DA of the ASIC Act, s1041H of the Corporations Act and s13 of the Insurance Contracts Act.

Possible penalties?

ASIC notes that the maximum penalty for a breach of s12DB (false or misleading representations) at the time of the conduct is 10,000 penalty units ($1.7million).

Law reform?

Following earlier consultation, the government recently released a draft Bill and regulations — [exposure draft] Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2020 Measures)) Bill 2020: claims handling; [exposure draft] Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers) (Claims Handling and Settling Services) Regulations 2020: claims handling – for consultation.

The proposed legislation would: 1) remove the exclusion of insurance claims handling and settlement services from the definition of a 'financial service' in the Corporations Act 2001; 2) make handling and settlement of an insurance claim, or potential insurance claim, a 'financial service' under the Corporations Act 2001; and 3) tailor application of the existing financial services regime to the new financial service of handling and settling an insurance claim. Consultation will close on 10 January.

The draft legislation proposes to implement Financial Services Royal Commission recommendation 4.8 (removal of the insurance claims handling exemption). (For a summary of the draft legislation see: Governance News 04/12/2019 at p14.)

ASIC comments that it supports the draft Bill 'as improving the conduct engaged in by or on behalf of insurers during the claims handling and settling process'.