ASIC v TAL Federal Court decision highlights poor practices of insurers in relation to mental health

Public Interest Advocacy Centre

The Chief Justice of the Federal Court has strongly criticised the way insurance company TAL handled the legitimate income protection claim of a woman suffering from cancer.

TAL initially paid the woman’s claim, but then cancelled her policy after obtaining her medical records and finding that she had visited a psychologist. They argued that this constituted evidence of an undisclosed mental illness, even though the woman’s psychologist confirmed that she had not received any diagnosis.

In a judgment handed down on Tuesday, the Federal Court found that TAL failed to comply with the duty to act with utmost good faith in the way in handled the claim.

‘People who have followed medical advice and sought the support of a psychologist, should not have to worry about how it will affect their income protection insurance if they make a claim for an unrelated condition,’ said PIAC Principal Solicitor, Michelle Cohen.

PIAC represented the woman when TAL’s conduct was investigated by the Banking Royal Commission in 2018.

Overall, the Federal Court found that TAL failed to act with decency and fairness in the handling of the woman’s claim.

The court found that TAL breached the duty to act in utmost good faith under the Insurance Contracts Act in a number of ways, including by failing to tell the woman they were investigating her medical history for the purpose of considering the validity of the contract, and by not giving her an opportunity to respond.

The court also found that TAL failed to consider the real financial and emotional impact of their actions when, while the woman was suffering from a catastrophic illness, they repeatedly threatened to recover the money they had already paid.

PIAC Principal Solicitor, Michelle Cohen, said that ‘the court’s decision highlights the poor handling of mental health issues by insurers and the need for greater accountability’.

For over eight years, PIAC has assisted consumers to challenge unfair decisions by insurers through its Mental Health and Insurance Project, working with Beyond Blue and Mental Health Australia to drive systemic change.

‘Our work over many years has shown that insurers need to lift their game and take a fairer approach to the way they handle claims around mental health. Otherwise there is a real chance that people will be discouraged from seeking help when they need it.’

‘No-one should have to go through a gruelling and stressful legal process to have their legitimate insurance claims recognised. It shouldn’t be up to individuals to hold the life insurance industry to account. It’s critical that there are public accountability measures for insurers, such as enforceable codes of conduct, and greater oversight at an earlier stage from regulators such as ASIC,’ added Michelle Cohen.

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