The NSW Court of Appeal has upheld an earlier decision in favour of an insurer who declined a TPD claim on the grounds of a pre-existing condition.
In the case of Preston v AIA Australia, the appellant, a carpenter who took out a life insurance policy with AIA Australia, took the insurer to court for refusing to pay his TPD claim. The original judgement found in favour of the insurer, because the insured’s injury did not meet the policy definition of ‘accidental injury’. This decision has now been upheld by the NSW Court of Appeal.
The client, Mr Preston, took out a Priority Protection policy with AIA Australia in 2008. The benefits under the policy included term life insurance (for which a separate premium was payable) and an ‘Accident Only’ Total Disablement benefit.
In his application for insurance, Mr Preston disclosed that in 1997 he had fractured both his legs when he fell off a ladder. He stated that the treatment had included ‘surgery, pins and plates inserted’. The policy was issued on standard terms in April 2008.
In 2009, Mr Preston suffered an injury to his left ankle and, as a result, was unable to continue his work as a carpenter.
Mr Preston lodged a claim on his insurance but it was denied because the new injury was found to have been caused in part by a pre-existing injury.
Mr Preston brought court proceedings against AIA Australia, despite the claim process not having been fully resolved. AIA Australia noted that continued requests for further documentation from the client were not heeded.
Mr Preston argued that he had become totally disabled as a consequence of the injury to his left ankle on 6 May 2009 and that this injury was unconnected with the injuries sustained in 1996, from which he had fully recovered.
…the wording of the Policy, like many similar policies, is very restrictive
The Primary Judge found that there were two causes of the insured’s admitted disablement. The first of these was the 1996 injury, which had occurred well before the commencement of the policy. The second was the 2009 injury. His Honour concluded that the insurer’s reliance on the existence of a pre-existing injury as a ground for denial of liability “…was squarely within the questions for determination, and fairly litigated”.
The Court of Appeal found that Mr Preston had a pre-existing physical condition that was susceptible to aggravation, and the aggravation contributed to his total disablement, and therefore upheld the Primary Judge’s decision.
In handing down the Court of Appeal’s decision, Judge Gleeson noted that the policy wording was ‘very restrictive’:
“…the wording of the Policy, like many similar policies, is very restrictive. No doubt this came as a surprise to the appellant when the insurer denied cover.”
Judge Gleeson continued:
“Whether the appellant was misled when taking out the Policy was not an issue in these proceedings; nor was it argued that the insurer’s conduct in apparently failing to draw to the insured’s attention, in clear and plain language, the restrictive terms of the cover provided under the Policy might have constituted unconscionable conduct. Hence these possible avenues for ameliorating what may seem a harsh result were not open before the Court below or on appeal.”
The appeal was dismissed and Mr Preston ordered to pay the insurer’s costs.
For full details of this case, click here to visit our Case Studies Library.
To read the Court of Appeal’s findings, click here.
Can’t help but think that if the “pre existing injury” was deemed to be of concern for future claims(which it turned out to be) then sensible & preemptive underwriting practice would have seen the original policy issued with amendments or exclusions….client expectations could then have been realistic & manageable could they not?? On the information available this looks like a pretty tough outcome which in turn probably doesn’t do much for consumer confidence at all!!
What chance does a consumer have of knowing how and when a pre-existing condition might contribute or further aggravate a later condition that has serious consequences?
Paul, Carl
If you read the judgement (point 3), pre-existing conditions were apparently excluded as part of the standard policy wording.
The definition of “Accidental Injury” in the Policy required a physical injury which results solely and directly and independently of a pre-existing condition or any other cause in total disablement.
This came down to a medical determination only, read the full case (link at the bottom of the story). The client insisted that the ankle injury was completely seperate to the 1996 injury; NONE of the medical professionals agreed with him.
Yes it’s a shame for the client but in the end the correct decision was made by AIA, and two courts.
The real shame is the poor legal representation or advice Mr Preston had, because even the Judge opined that misleading or unconscionable conduct could have been an avenue for the courts to consider in providing some degree of compensation.
I agree with Ben insofar as the correct decision was made via the terms of the policy. I also agree with the Judges comments that “the restrictive terms of the cover provided under the Policy might have constituted unconscionable conduct.” And on that basis can’t wait so see the outcome of future claims against some of the Direct Insurance policies currently on the market.
This is a really poignant illustration of the importance of quality advice rather than a cheap product. The key concern of course is that AIA were correct in denying the claim under the terms of the policy, but that doesn’t make it a reasonable product; doesn’t make it a reasonable outcome for a client and pretty much guarantees that “Insurance Companies” in general get another coat of tar on their dirty reputation of “never paying” or always “squirming out of claims.”
There’s a few key points to my post, first is, how many clients actually understand the need for quality advice when it comes to a grudge purchase such as Life Insurance? Very few I would suggest.
Second is, how many clients will blame themselves for a poor purchase choice or even the adviser for a poor product choice? Again I’d suggest very few, they’ll blame the insurer as a company, not the specific product that they chose.
More importantly and third, how many of our key regulators have any better an understanding of these problems than the client? None that I can see so far.
Finally, when will the industry stand up as a group and make a move against junk products? If this product was safety boots it would have been outlawed for being made of paper instead of steel, if it were food the company would have been closed for selling it almost off but not telling the client. But it’s insurance and not understood and warnings about reading PDS’s are a joke because no-one reads the instruction manual and even when they do they don’t understand it. How could a client understand that “pre-existing” is a condition that occurred 20 years ago and that they’ve fully recovered, or that a congenital heard defect is pre-existing even if not actually known about?
I don’t believe that it’s reasonable to sell something like this on the basis of “something is better than nothing” or “it’s affordable” because it offers too high a likelihood that claims will be unsuccessful vs successful. I understand it’s designed like that to keep it cheap but that’s the issue really. AIA is a reputable company with quality products and they’re not the only company offering products like this alongside much higher quality products but why? Why is that an acceptable product to offer to such an ignorant market?
Quality advice is the key, not cheap products. Clients should not so easily be able to make such a poor product choice unassisted.
Once the direct insurance products that accept applications for cover with either no or very little assessment or underwriting start experiencing the volume of claims from uneducated or misinformed policyholders, it will be a feeding frenzy for the lawyers.
The general pre-existing condition exclusion clauses that will not identify specific pre-existing conditions due to the lack of underwriting or advice will have a disastrous effect not only on the financial outcome for those claimants, but on the public’s perception of the validity of risk insurance as all risk product will unfortunately be swept up in the groundswell of media scrutiny.
Rob and Craig, if you look at paragraph 7 of the judgement, it says that Mr Preston was covered under the AIA Priority Protection Policy. That is a ‘bells & whistles’ product sold through licensed financial advisers, not some junk product sold direct to consumers. It would seem that quality advice didn’t help in this instance. Who recommends taking an ‘Accident Only” TPD benefit rather than the full version covering sickness and accidents, without a pre-existing condition clause?
Instead of bagging the insurance company for declining a claim that an appellate court agrees was not covered by the policy, people should be asking about the quality of the advice and the consumer’s preferences.
TechnicalView: Clients don’t always take good advice. There are several potential reasons why the client ended up with Death with Accidental TPD. Without the Statement of Advice we won’t know what they are.
I reserve opinion until I see the judgment but here are a few questions
1 Was there an adviser involved. Check your PI sir/madam
2 Was this policy underwritten by AIA (?) or was it a direct special
3 If it was issued on standard terms then AIA clearly intended to rely on the pre-existing condition exclusion without the “warning” of an individual exclusion.. Hence the judges comments
4 As an adviser of some life experience, I know that two broken legs in a fall some years before will probably still have plates screws inserted. The fracture itself puts strain on joints everywhere in the body up to and including the hips, without the plates still inside. My point is a professional adviser, if there was one in this case, should/would have cautioned the client of a possible claim outcome. Arthritis had probably already appeared.
Per se, AIA were contractually able to do what they did. That exclusion clause is as old as the hills and advisers should understand its meaning. Those words “directly and independent “are the killers, and advisers should know that, yet I am aware of some of our colleagues who think its OK when a client cant get IP cover for skeletal reasons to offer accidental IP as a solution
We should have the guts and professionalism to be truthful with these clients up front
Having read the whole saga, feel the life company underwriters did not do their job professionally as there were no exclusions applied, nor did they attempt to get more details from the medicos about the injuries in 1995/6.
This then enabled the client and the inexperienced adviser not to understand the ramifications. The Life company did not want to spend the additional monies to seek the info from the medico & knew dam well that they could rely on the wording to not pay the claim continually.
A poor reflection on our industry which damages it yet again!!
Exclusions should have been issued so all knew where they stood!!!!
Sometimes the adviser will recommend the cheaper accident only product but more often it is resulting from the underwriting decision.
It is often considered better to offer something then to decline the full featured product with no alternative. Who knows what the client was told at point of sale by his adviser, I trust the SOA is comprehensive.
I completely echo Carl’s words, who cares if a pre-existing condition contributes? The fact of the matter is another injury caused by a company has made things worse.
I am not sure why you would bother putting a tpd claim any way. I recently say first hand an insurer actively seeking to deny a claim, I have seen first hand the evidence.
The situation
1. I had about $500k life and TPD cover through my employers super fund
2. The policy had no mental illness exclusions
3. The policy in fact had a no pre-existing condition that expired after 5 years
4. I was in the fund around 10 years paying both income and life and TPD the whole time
5. I have no family history of mental illness
6. The policy is a kind of Hybrid Any/own occupation definition
7. When I claimed they I had one independent examination and One supplied by my own treating specialist(both psychiatrists)
8. My own specialist gave an unequivocal will not be returning to work in any capacity in any time
9. The independent specialist gave a highly qualified opinion with a number of conditions precedent that would need to be meet if I was to return to any capacity in 3-5 years, I am currently 56 and the oldest living male member of my family in 3+ generations, and the first to make 50. (genetic heart dieses)
10. The claim was rejected based solely on the independents condition precedent opinion, with no reference to my own treating specialist , or how any of the conditions precedent could be meet.
11. There is reasonable evidence to suggest the insurer actively sought to deny the claim, I make this point from the following facts
a. The Independent specialist report was received by the insurer on 5/9/14
b. The insurer then sought further details of my medical situation over 10 years back( way past the pre-existing time limit for the policy) , which was passed on to the Independent specialist who , wrote back to the insurer clearly stating the medical conditions 10 years ago bore no relevance to the claim
c. The Insurer then went to my employer (I am also in the process of making a work cover claim) and asked what they had turned up , so they sent the report that my treating specialist had sent the insurer in July – No new information
12. The claim was rejected on the 17th of December purely on the independents assessment with no reference to the treating specialist
14. I have never made any personal insurance claim before at any time
15. The claim was for chronic depression , anxiety ect ect
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