AFCA Determination 674068

Key Takeaways

What constitutes the occurrence of the insured event in trauma cover, with its heavy focus on scientific diagnostic criteria, has always been the source of much of the controversy that swirls around this product. The additional wrinkle on this controversy arises when regardless of the policy terms, an argument can be made that the relevant condition arose before cover cessation. Here, s54 looms large as a basis on which, regardless of the policy terms, a benefit may still be payable.

Brief Facts

The insured entered into a critical illness policy with the insurer in February 2016 but later cancelled it in February 2018. In the meantime, from July 2016 onwards, symptoms emerged of what would later be diagnosed as a form of malignant cancer that was a critical condition under the policy. Importantly, the formal diagnosis did not occur until August 2018 upon receipt of the relevant histopathology report, six months after the policy was cancelled.

The insured’s claim was declined by the insurer on the basis that she did not suffer a critical condition diagnosed during the period of cover.

The insured complained to AFCA.

The Policy Wording  

The policy provided:

When we will pay

‘if the life insured suffers a critical condition (see below) while this insurance is in force, we will pay you the critical illness benefit or a proportion of the benefit if indicated below’.

Further

‘a benefit is not payable until a critical condition meets the terms of its definition. In some cases, a critical condition must progress to a certain point before it satisfies the relevant critical condition definition.

All critical conditions must be diagnosed by a specialist and confirmed by [the insurer’s] medical adviser.’

And later at the end of the list of Critical Conditions 

‘The life insured has a critical condition:

• for surgical conditions when the surgery actually happens; and
• for all other conditions, when the condition is first diagnosed as meeting its definition’.

AFCA’s Determination

Contractual Construction

The insured did not dispute that her cover was cancelled prior to the diagnosis of the critical condition. Her position, supported by unchallenged medical evidence, was that although it was not diagnosed until later, she suffered the critical condition while the policy was in force. She argued that the ’When we will pay’ provision of the policy required that she suffer the condition while the policy was in force and not that it be diagnosed while the policy was in force.

The insurer relied upon the later provision specifying that an insured has a critical condition when it is first diagnosed to argue that its liability to pay the benefit was by reference to the date of diagnosis and that the diagnosis must occur during the period of cover for a benefit to be payable.

AFCA considered not only the wording of the policy, but the positioning of particular clauses in the policy. It found, largely by reference to the context in which the extracted clauses sat within the policy itself, that the contractual obligation to pay a benefit was linked to the suffering of the critical condition, and that the clause requiring the diagnosis simply operated to provide that payment be made after the condition is first diagnosed.

AFCA concluded that the terms and intent of the policy was to pay a benefit if the condition was suffered whilst the policy was in force and not when it was first diagnosed.

S54 of the ICA

AFCA also considered whether the failure to be diagnosed while the policy was in force was a post contractual act or omission within the meaning of s54 of the ICA and therefore could not be relied upon by the insurer to refuse to pay the claim unless it could reasonably be regarded as capable of causing or contributing to the loss.

AFCA found that the date of the diagnosis did not cause or contribute to the loss. It went on to consider the insurer’s argument that s54 would not provide relief as it does not operate to restrict or limit the insured risk. The insurer’s position was that the insured risk was the suffering of the diagnosed conditions, and with no diagnosis there was no insured event.

AFCA found that the essential character of the policy was to provide a critical illness benefit for an insured suffering a critical condition (in this case malignant cancer) whilst the policy was in force and it was not to provide a critical illness benefit for an insured diagnosed with malignant cancer whilst the policy was in force. The diagnosis was relevant to the timing of payment and quantification of the benefit. It did not modify the cover for critical illness suffered by an insured whilst the policy was in force, and therefore was not an inherent restriction or limitation on the policy cover or the complainant’s claim as was argued in FAI General Insurance Company Ltd v Australian Hospital Care Pty Ltd (HCA 2001).

Nor did the fact that the claim was made after the cancellation of the policy have the effect of preventing a claim. The period of cover was not found to limit the duration of the contractual rights and duties of the parties and the expiry of the contract of insurance did not discharge the contractual rights. The contract still subsisted and if its terms had been met, the parties continued to be entitled to require performance of relevant obligations under it, notwithstanding that the period of cover had come to an end.

Implications

Unlike the heart attack case reported on in our April bulletin, here AFCA has not relied upon its overarching fairness provisions, but rather has found the claim is payable based upon the terms of the policy itself and s54 of the ICA.

Seeking to narrow critical illness liability to the date of diagnosis rather than date of occurrence is of course a permissible contractual construct and the wording here did make that point, of course although not clearly enough for AFCA’s liking. Where the real difficulty lies with diagnosis based triggers in the critical illness product however, is s54 and the fact that moving the date forward to when the critical illness event occurred, rather than when it is formally diagnosed, is really a classic and predictable operation of s54. In such circumstances, absent some dispute about the date of occurrence or the s54 prejudice carve out applying, it is difficult to see AFCA or indeed a court reaching a different decision to the one here in terms of the application of s54.