The daily parade of banking and insurance company executives through the witness box at the Banking Royal Commission has certainly provided grist for the media mill. The revelations that these companies engaged in conduct that would be reprehensible by standards adopted by decent people will make interesting reading when collated into Mr Justice Hayne’s Final Report.

A question that has intrigued me however is how their aggrieved customers seemed to have just rolled over and accepted the denial of their lawful rights without a whimper of protest.

Apart from talk of class actions, instances of individuals aggrieved by such actions by banks and insurers taking on those institutions in the Courts are rare.  Is this because they can’t find a lawyer who will take on their matter or just because the financial balance of power convinces them they cannot win?

I believe there is scope under our current laws, particularly insurance law, for an individual harmed by some of the reported conduct of large insurance companies to seek and obtain redress.

The Insurance Contracts Act 1984 (Cth) imposes an obligation upon parties to a contract of insurance to act in “utmost good faith”[1]. Looking at some of the conduct exposed in the Royal Commission it is difficult to see how that conduct could comply with this statutory obligation. Yet reported instances of those harmed by the type of conduct that has been exposed bringing actions against insurance companies are rare.  In fact the major authority in this area involves a battle between two large financial institutions[2].

An examination of CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 (237 ALR 420) 81 ALJR 1551, both in the High Court and the earlier hearing in the Federal Court, does reveal some interesting insights into the way the Courts will deal with the duty to act in utmost good faith.

First it would seem that the duty is a mutual one owed by both the insured and the insurer and certain judges in the High Court equated it to the equitable duty to “come with clean hands”[3]. It would appear therefore to rely upon this duty a party must not have engaged in conduct that could also amount to a breach of the duty.

Second, and perhaps more importantly, a breach of this duty does not require proof of dishonesty.  Kirby J approved of Emmett J’s comments in the Federal Court, where His Honour said;

91 Putting it another way, acting with utmost good faith involves more than merely acting honestly: Otherwise, the word utmost would have no effect. Failure to make a timely decision to accept or reject a claim by an insured for indemnity under a policy can amount to a failure to act towards the insured with the utmost good faith, even if the failure results not from an attempt to achieve an ulterior purpose but results merely from a failure to proceed reasonably promptly when all relevant material is at hand, sufficient to enable a decision on the claim to be made and communicated to the insured (see, for example, Gutteridge v Commonwealth of Australia, unreported, Supreme Court of Queensland, Ambrose J, 25 June 1993).

This is an important observation as many times the complaint by an insured is that the decision making process took too long and so even if eventually a claim was accepted by the time this happened the insured had already suffered further hardship or financial loss. This is important as it heralds a possibility that an action may lie against an insurer even if ultimately, they were contractually entitled to deny a claim.

Third the party owing the duty has an obligation to act positively and cannot just be passive. In the High Court several judges acknowledged that delay in making a decision can in some cases be as damaging to an insured as denying a claim.

Overall it appeared accepted by the High Court that the duty imposed by Section 13 requires a party to an insurance contract to act, consistent with commercial standards of decency and fairness, with proper regard to the interests of the other party, as well as to their own.

Much of the conduct exposed in the Royal Commission would appear to fall short of this standard. It will be interesting to see if now, perhaps emboldened by the Commission’s findings, aggrieved insured and their legal representatives, are more inclined to press for a legal remedy for their hardship and loss.

 

This article is intended as a discussion piece and should not be understood to be personal legal advice or a comprehensive review of the relevant laws as they are at the date of publishing.

[1] Section 13 Insurance Contracts Act 1984 (Cth

[2] CGU Insurance Ltd v AMP Financial Planning Pty Ltd [2007] HCA 36 (237 ALR 420) 81 ALJR 1551

[3] See judgements of Callinan and Heydon JJ