Precedent (Australian Lawyers Alliance)
PROTECTING CONSUMERS FROM EXCESSIVE INSURANCE CLAIMS-HANDLING TACTICS
By Alexandra Kelly
The recent CommInsure scandal and the release of the Financial Rights Legal Centre Guilty until Proven Innocent report have shone a light on the aggressive, abusive and excessive claims-handling tactics of general and life insurers. How can solicitors help their clients work their way through the claims and dispute process?
In March 2016, the Financial Rights Legal Centre (FRLC) released its report Guilty until Proven Innocent: Insurance Investigations in Australia. The report details a litany of abuses ranging from incredibly long interviews (sometimes over five hours in length) and long dispute processes (averaging close to 18 months) to investigators bullying and threatening policyholders, prejudging their guilt and treating consumers like criminals. The onerous demands of insurance investigations have led to high numbers of consumers withdrawing their claims not because of any admission of fraudulent behaviour, but simply because the process is too burdensome or invasive for many consumers to bear.
There is no doubt insurance fraud does take place. But, equally, some consumers whose claims have been rejected or where fraud has been alleged wish to dispute such rejections and/or findings of fraud.
Consumers whose claims have been denied can choose to commence proceedings in court or, alternatively, dispute the findings with the insurer and utilise the Financial Ombudsman Service (FOS). This article provides practical insights into disputing an insurer’s decision in FOS where the insurer alleges fraud, and describes some of the steps that need to be taken.
DISPUTING A CLAIM REJECTION
If an insurer rejects a claim, the insured has the right to request its reasons in writing under clause 7.19(a) of the General Insurance Code of Practice (General Insurance Code). The self-regulatory General Insurance Code commits insurers to uphold minimum standards when providing their services and details insurers’ obligations to their consumers.
When requesting reasons, the insured should also request a copy of all of the evidence that the insurer is relying on to deny the claim, including expert reports, transcripts and audio recordings. If the insurer refuses to provide the evidence, clauses 7.19(b) and 7.19(c) of the General Insurance Code, as well as the duty of utmost good faith, can be relied upon to argue that the insurer should provide this information.
To have the insurer’s decision reviewed by the insurer, a written complaint to the insurer’s internal dispute resolution (IDR) section needs to be made. In the complaint, all of the concerns and inconsistencies that the insurer has set out in its letter rejecting the claim need to be addressed, including any statements that have been taken out of context by the investigator.
If the complaint to an insurer’s IDR department has been rejected, it is then recommended to raise a dispute with FOS because:
1. It is free.
2. It is independent.
3. It can make a determination that is binding on the insurer. This means that if FOS decides the insurer has to pay, then it has no choice but to comply.
THE FINANCIAL OMBUDSMAN SERVICE
FOS is not a court – it is an alternative to court and provides an independent means of dispute resolution which is not bound by any rules of evidence. The FOS is subject to its Terms of Reference and its operational guidelines, which can be found on its website.
When hearing cases and making determinations, the FOS will consider legal principles, applicable industry codes, good industry practice and previous relevant decisions. FOS, however, is not bound by those decisions: cl. 8.2 Terms of Reference.
Complaints regarding a claim, including complaints about the conduct of the investigation, can be made to the FOS before a final decision is made by an insurer. However, it should be noted that such complaints can add significant time to a claim being determined, as the ombudsman may take some months to determine the issue.
The FOS expedites all general insurance disputes in which the insurer alleges fraud by referring them to an ombudsman working for the FOS or ‘fraud referee’ to make a determination without first making a recommendation, which they would ordinarily undertake for a general insurance dispute. Where fraud is alleged under the FOS Operational Guidelines, the matter will be referred to the ombudsman at an early stage and interviews arranged with the parties: cl. 7.3a(i) FOS Operation Guidelines.
Determinations made by the FOS are binding upon all financial service providers if the consumer accepts the determination. A consumer can choose not to accept the determination, and retains the right to take action against an insurer under the common law: cl. 8.7(b) FOS Terms of Reference.
In the FRLC’s experience, the FOS ombudsman working on the matter will generally take the following approach in making a determination:
1. First, the ombudsman will look to see whether the insured has, on the balance of probabilities, established that an insured event has taken place.
2. Secondly, the ombudsman will examine whether there is a financial motive; that is, is there evidence to suggest that the policyholder may receive a financial benefit from a false claim.
3. Third, the ombudsman will take into account the forensic evidence available; for example, a forensic locksmith’s report in relation to the use of coded keys, or other reports that may contradict the insured’s version of events.
4. Finally the ombudsman will examine the credibility of the insured, including looking at inconsistencies in statements and witnesses to establish that the insured may not be providing accurate information.
THE FRLC’S ADVICE ON INVESTIGATIONS
1. Establish the insured event
It is critical to remember that an insured event always needs to be established by the insured.
The recent decision of Supreme Court of New South Wales, Court of Appeal, in Sgro v Australian Associated Motor Insurers Ltd held that the insured had failed to satisfy the court that an insurable event had occurred and if it was found that the probability that the vehicle was stolen was equal to the probability that it was not stolen, then the insured had not succeeded in his or her claim.
At first instance, the trial judge held that the insurer was entitled to refuse the claim under s56 of the Insurance Contracts Act 1984 (ICA). She declined to make a finding of fraud, but held instead that the insured had not been honest and candid in answers he had given in relation to the claim.
According to Meagher JA, with whom McDougall J also agreed, the trial judge had erred in concluding that the insurer could refuse payment of the claim because of false statements as to the whereabouts of the insured and his vehicle. To be entitled to rely on a defence under s56(1) of the ICA, the insurer had to plead and prove that any false statement was knowingly made by the insured for the purpose of inducing it to pay his claim. Meagher JA states at 57:
‘A finding of fraud, including fraud for the purposes of s56 of the ICA, involves a finding that a person has been untruthful and deliberately so, with the intent of obtaining a financial gain. It is a finding of seriously wrong conduct. If a finding of fraud is to be made, it should be made clearly and the reasons for the finding articulated, and a statement that “for whatever reason” the insurer is entitled to refuse a claim under s56, will not satisfy this fundamental requirement.’
2. Co-operate with the insurer
At all times, the insured needs to act with the duty of utmost good faith – the common law concept of the ‘duty of utmost good faith’ now codified under s13 of the ICA – and provide all relevant information supporting a claim.
What this means for an insured is that they need to be open, honest and transparent and they need to co-operate with the insurer regarding all requests for information to support a claim, including participating in interviews, supplying receipts or other evidence of their loss.
In some circumstances, an insurer may decline a claim due to the insured’s failure to co-operate with the claim, or inconsistencies in their evidence, rather than alleging fraud.
It is not uncommon for insureds to be given a list of documents to obtain and provide to the insurer. A typical list of documents for motor vehicle claims can include criminal history, driving record, proof of purchase of the vehicle, registration papers, toll receipts, three months of bank statements and three months of telephone records.
The extent of the information requested can sometimes be overwhelming for insureds, and many of them question whether the insurer has the right to request such information, and to such an invasion of privacy.
The question was recently addressed by the Court of Appeal in Lowery v Insurance Australia Ltd. In this matter, the plaintiffs commenced proceedings relying on the terms of the policy and the theft and destruction of the vehicle. The defence to the claim relied upon an allegation of a failure to co-operate with the respondent’s investigation of the claim, in part by not providing information and taking part in an interview regarding the claim, resulting in the insurer’s position being prejudiced. The insurer did not allege fraud, but the credibility of the insured and the insured’s son were in issue.
The insurer issued subpoenas for telecommunication records for a six-month period surrounding the insured event, the Roads and Maritime Authority for driving records for the four named parties, (including the insured’s, the insured’s son’s and the car park attendant’s), and the Commissioner for Police for criminal records.
The Court of Appeal held variously that the scope of the subpoenas was too broad, and given the pleadings and affidavits filed, served no legitimate forensic purposes.
In coming to its decision, Basten J observed at 11 and 23-4 that:
‘the mass creation of electronic records of transactions provides new and growing sources of information about individuals with a high degree of particularity as to place and time. Relevantly for present purposes, electronic records of mobile communications fall into this category. (Records of electronic payments fall into a similar category.)’
‘However, the justification for seeking such records of communications, other than those between the four named parties, is the ability to identify where a particular individual (or at least his or her telephone) was, if in use, at a particular time. There is a sense in which it appears that such an exercise may have been sought to be undertaken, because it could be. There was no submission that any of the four individuals concerned was believed to be at any place, other than they had indicated, at or about the time the vehicle was taken. The potential intrusion in privacy was not warranted by any identifiable forensic purpose.’
‘[However], a different conclusion may have been reached on the telecommunication records had the subpoena been limited to communications between the identified mobile phone numbers within a reasonable period on either side of the day of the incident. A period of three months on either side was not reasonably justifiable.’
It is important to remember that few consumers will have the means to commence proceedings in court. In our experience, if, for some reason, a policyholder is unable to provide information the insurer has requested, they should write to the insurer stating why they are unable to provide the information and set out the attempts they have made to obtain the information. If they are concerned about the scope of information requested, the policyholder should try and limit the information they provide, with agreement from the insurer. It is not advised that they refuse to provide information at all.
An insured does not have an obligation to obtain information held in another person’s name, nor to compel their friends and relatives to answer questions from an investigator.
3. Co-operate with an interview request but impose reasonable limits
An insurer investigating a claim may request that the insured take part in an interview. The purpose of an interview is to obtain from the insured their version of events, and there is a requirement to be interviewed. The insured can, however, impose some reasonable limits to the interview process. Specifically, the insured should:
• request that the interview be held in a neutral location to make it easier for them to leave if the they need to;
• set a maximum time for the interview in advance of, say, one or two hours. Once this time is up, they should leave. We are concerned that excessively long interviews can lead to consumers being fatigued, and to them providing inconsistent statements which are then used by the insurer to decline the claim;
• feel entitled to say “I don’t know” or “I don’t remember” where they do not know the answer. However, they are not advised to unreasonably prevaricate or obfuscate, as their credibility could be called into question. Nor should they guess an answer when they are unsure;
• take their time to think through questions before answering;
• make the investigator aware of their uncertainty if they are unsure of an answer to a question;
• make any estimations clear to the investigator;
• request an interpreter if English is their second language, or if they would feel more comfortable communicating in a language other than English;
• have a support person to accompany them if they would like one;
• request breaks if they need them;
• ask for a digital copy or transcript of the interview with the investigator, if it is being recorded. The policyholder can also record the interview themselves;
• not sign anything that they are unsure about; and
• seek legal advice before and after the interview.
Insurers cannot force third parties to agree to be interviewed and cannot rely on the refusal of a third party to be interviewed as a basis for rejecting a claim alone. However, if evidence of third parties assists in establishing an insured event and they do not co-operate, the insurer will view this with suspicion.
NOT HAPPY WITH THE CLAIMS PROCESS?
While consumers regularly raise issues with the investigation process, these are rarely directly addressed in the FOS’s dispute determinations. Further, bad claims-handling processes do not mean that a claim will be paid where the insured has not proven their loss.
The FOS does provide compensation for non-financial loss (cl. 9.3 FOS Terms of Reference) with respect to particularly egregious examples of poor investigator behaviour. However, this type of additional compensation is conservatively awarded and is limited to $3,000.
Poor investigator behaviour, delays and other issues are potential breaches of the General Insurance Code and its requirements to handle claims in an honest, fair, transparent and timely manner. Code compliance is managed by the Code Governance Committee (CGC) and policyholders can report alleged breaches of the Code to the CGC (GICOP 2014, s13.1). A complaint to Code Compliance, however, will not result in a claim being paid, or being paid more quickly.
For more information, see Guilty until Proven Innocent: Insurance Investigations in Australia http://financialrights.org.au/publication/ and www.insurancelaw.org.au.
Alexandra Kelly is Principal Solicitor of the Financial Rights Legal Centre. EMAIL: email@example.com PHONE: Insurance Law Service 1300 663 464 (for consumers).
  NSWCA 262 (2 September 2015).
  NSWCA 303 (30 September 2015).