Case 607118

Brief Facts

The Complainant had a heart attack in 2017 and made a claim on his trauma policy which covered a ‘heart attack’ as defined . The Insurer rejected the claim as the Complainant’s condition did not meet this definition.

As required by the LICOP, in addition to the policy definition, the insurer also assessed the claim under the LICOP heart attack definition and found that the condition did not meet that definition either.

Specifically, whilst the Complainant met some requirements of the policy definition i.e. he had had increased cardiac enzymes for example, there was no evidence that he met any of the other definitional requirements such as ECG changes, new pathological Q waves or left ventricular ejection fraction below 50%.

In short, the insurer declined the claim on the basis that whilst there was obviously some cardiac event, the relevant heart attack definition (either under the policy or LICOP) had not been met. Such an approach was of course consistent with well-known Court of Appeal authority being MLC Limited v O’Neill [2001] and Larwint Pty Ltd v Norwich Union Life Australia Ltd [2007].

The Complaint sought relief from AFCA.

The AFCA Determination

AFCA accepted that the Complainant did not meet the relevant heart attack definition in the policy or LICOP but nonetheless went on to examine whether fairness required that the benefit should be paid in any event.

In this regard, AFCA concluded that neither the policy or the LICOP definition reached what it considered to be the minimum standard of heart attack definition, being the Universal Definition of Myocardial Infarction (heart attack) which was ratified by the medical community in 2012. Briefly, this definition is met if there is an elevation of cardiac biomarkers above the 99th percentile with at least one other criteria, such as symptoms of ischaemia, being present. Importantly there seemed to be no dispute that the Complainant met this definition.

This lack of alignment with the UD, did not according to AFCA, represent good industry practice (see the next bullet point). It then concluded that the benefit should be paid on the basis of the following considerations:

• AFCA noted ASIC Report 498 had found widespread confusion amongst policyholders about the extent or limits of their cover and that they were sometimes misled about coverage by insurers. It noted ASIC’s expectation that insurers will apply appropriate sales practices to life insurance sales and ensure that policy documents are clear and understandable.
• A similar situation to the present was considered as a case study by the Financial Services Royal Commission. In that case, the FSRC found the limitation in cover was not clear from the policy wording, the policy definition was not the universal heart attack definition and importantly, the insurer had promoted the policy as covering heart attacks without being clear that such cover was restricted to severe heart attacks. The FSRC made findings that in failing to update its heart attack definitions, the insurer had ‘engaged in conduct that fell below community standards and expectations’ and that additionally it had breached the misleading and deceptive conduct provisions in the Australian Securities and Investments Commission Act 2001 because its sales material did not make it clear that only heart attacks of a specific severity were covered.
• Against this background, the Complainant’s reasonable expectations were not met in this case because:
  • the policy states that he was covered for a ‘heart attack’, however, it was not clear to anyone who is not a medical practitioner that not all heart attacks were covered.
  • despite ‘significant public controversy’ about heart attack cover in trauma policies, the insurer had not taken any steps to inform the complainant that he was only covered for ‘severe’ heart attacks.
  • in the circumstances, it was reasonable for the complainant to expect to be covered if he had ‘what doctors understood to be a heart attack’.
• AFCA declined to follow the decision in Larwint because in that case, the Court of Appeal did not consider a range of considerations (such matters were obviously not pleaded) that AFCA was so bound to consider including the insurer’s disclosure duties, utmost good faith duties, good or current industry practice and fairness.
• Likewise AFCA declined to follow previous FOS determinations which had applied the trauma definition in the policy because two of those determinations pre-dated the ‘public controversy’ and ASIC Report 498. The remaining FOS determination had not, in AFCA’s view, considered good industry practice and the universal definition of heart attack, with the result being that those determinations were also ‘not consistent with good industry practice’.

Implications

Clearly in this decision AFCA has pivoted on simply following the authority set by O’Neil and Larwint that trauma benefits are not payable unless the policy (and LICOP) definitions are met. Rather AFCA has flagged it is going to consider a range of extra – contractual matters including most critically, the currency of the relevant definition in relation to current medical consensus and how the product was sold and marketed, something which incidentally, Hodgson J foreshadowed in O’Neil when he said:

The construction adopted by the President has the effect that the cover only relates to the more major attacks that can be detected by the methods specified (in the policy). However, if at some time in the future those methods became discredited, and diagnosis of heart attacks was by some quite different means, it would be a matter of concern if a continuing policy of this kind became ineffective. It may be that that problem would be dealt with, not as a matter of construction of the contract, but as a matter under the Trade Practices Act concerning the conduct of the insurer in promoting these policies. However the question for us is purely a matter of construction.

This represents a concern for life insurers who obviously now face the prospect (before AFCA at least) of being on risk for a different trauma event to one they thought they had insured noting that trauma definitions are set precisely and priced accordingly. It also illustrates the ongoing exposure risk in maintaining a trauma profile that does not reflect the most up to date medical consensus in relation to defining the underlying conditions (obviously the industry has been grappling with this complex issue in context of legacy polices for some time). Having said that, we do not believe that this decision sets a precedent that all trauma benefits are payable simply because a customer (and their treating doctor) has an expectation that a defined condition has been met. It has not come to that.

Rather, we believe that consistent with the reasoning in this decision, AFCA will not disregard the policy definition absent there being a clear and unequivocal ‘universal’ medical position on the underlying condition, which differs from the policy definition. Even then, it is arguable that insurers can still argue that their policy definition should apply in circumstances where in initially selling the product and in ongoing communications, it has made it abundantly clear that the relevant definition only covers the most severe cases.

Additionally, it should also be noted that, in line with another AFCA Determination 620284 (link here), AFCA will not apply ‘universal’ definitions to trauma claims made and determined before such universal definitions are relevantly agreed upon i.e the AFCA approach will not be retrospective.