What Is Income Protection?

Personal income protection policies are generally taken out by individuals seeking some security for their families should they be unable to work, or are part of a company plan created to provide an additional benefit to an employee.

With the first, the individual has the ability to look over a number of different plans to make a decision, but in my experience, it seems so much is decided on the advice of insurance brokers who handle the policies. The individuals many times simply defer to the insurance agent’s advice and rarely seek the advices of a lawyer familiar with such policies before taking the policy on.

With the second, the employee generally has no say in the group policy taken out and does not even know much of what is provided until one day there is need to seek the support of the policy.

Our firm has handled litigation for clients who have unfortunately been denied entitlement to the benefit.

Two recent examples may be of assistance to those in a similar position.

First Example – Personal Income Protection Claim Denied

Brigitte was employed by a company that provided her with income protection cover under a company group policy. She was injured in 2 unrelated accidents, and eventually was unable to return to work. She requested cover under that group policy and it was denied.

She also sought compensation for her accident injuries and that was denied.

She came to us, and we decided to litigate one dispute at a time. We succeeded with the accident litigation and then turned to the income protection claim.

Efforts to resolve it peacefully failed, and we proceeded with litigation. We looked over the way the insurer had approached the issue of capacity and was amazed at the way they had addressed her entitlement to the benefits under the policy.

As a former insurance lawyer, I am very aware that the policy of insurance for income protection creates a very responsibility on the insurance company to act in good faith. An aspect of that duty is to ensure it seeks to make any decision in conformity with the terms of the policy. Not what it thinks it should say, but what the policy actually says.

With Brigitte, the insurer had gone off and asked a medical expert for his advice as to whether Brigitte had the capacity to return to work in general. The expert said yes, However, that is not what the policy said would be the basis for insurance benefits.

The policy hinged the entitlement to the benefits on whether Brigitte had the ability to perform all of her key work duties. In other words, if she could not do one of her key work duties, the benefits would be granted.

So, it was incumbent on the insurer to do 2 things:

• Find out what Brigitte’s key work duties were; and
• Ask the medical expert whether she could do All of Them.

If the insurer had followed that process, the decision to accept the claim would have been straight forward, – YES!

You see, Brigitte’s accidents had left her unable to drive, as she was on too much pain medication and the likelihood was such was permanent. Driving to and from clients was a key role of her sales position with the company.

It took some time for the insurer to realise its error, even after appointing lawyers to defend the claim. We had to educate their law firm and barristers of the error in their decision process and how as such Brigitte was pretty much guaranteed to win at court.

In light of the behavior of the insurer, Brigitte wished to receive a payout of her benefits under the policy, and end any relationship with the insurer. The payout was very financially supportive to Brigitte.

Second Example – Personal Income Protection Claim Accepted and then Later Payments Stopped

Peter is self-employed and as such, obtained a supportive income protection policy. It was an expensive one, but Peter was seeking to ensure the financial health of his family should he not be able to work at all, or in part.

Peter suffered a health condition, and claimed on the policy. At first the claim was for total benefits while he was unable to work and then on partial benefits when he was able to work a few hours each week.

The insurer accepted the claim, and all seemed to be going well for a few years. Then all of sudden, Peter started to experience unusual requests from the insurer to track his activities, both at work and at home. He complied but he became uneasy. Without warning, one day he was told his benefits would be cut off. There had been no medical reports from his doctors commenting on his capacity to work full time, and no medical report organised by the insurer to address the issue.

The insurer simply on its own decided he had the functional ability to return to full duties.

The decision made by the insurer was so bad, that we could not understand what was going on.

Litigation was commenced immediately, and when we looked over the claims file we noticed that the insurer had hired a Canadian Company to coach it on how to set up an insured for a termination of benefits. The claims process had turned from one to assist Peter to one on how to seek to end his support.

It was so obviously a bad determination that the lawyers hired by the insurance company had no difficulties conceding the decision to terminate benefits could not be maintained.

Peter truly needed the benefits, and remains uncertain how long he will be able to work part time. For his family’s financial safety, he had the policy benefits reinstated and back benefits paid.

His main concern is whether the insurance company will honour its obligations into the future, and we cannot guarantee such conduct. Peter has asked us to be there for him in the future and we have agreed to look over all of the insurer’s conduct going forward.

There are 2 thoughts that flow from this experience with Peter:

• An awareness from my insurance days, that companies say no to many individuals who are entitled to benefits with the hope that some will not contest the decision, and they will make a greater profit even when they have to pay litigation costs on those who do contest the decisions. Such is what I believe has occurred with Peter, and there will be many persons out there who have been cut off by this insurer from income protection benefits who should never have had the benefits terminated.
• The second is the total disregard the insurer had to the terms of the policy in relation to seeking expert medical advice on Peter’s ability to work, from a heath perspective. The insurer knew of its duties and simply set them to one side. This is extremely troubling in light of the high duty of care imposed on these insurers to take care of the persons who have entrusted the financial safety of their families to them.

Final Thoughts

These income protection claims are in my opinion very sad examples of what insurance companies are doing within our community.

The problem has been recently highlighted in recent investigations the Australian Investment and Securities Commission (ASIC) that insurance companies have not been handling fairly claims for Total and Permanent Disability (TPD). While such claims are different to income protection claims, both are products supplied by insurance companies who stand to gain financially if valid claims are denied.

Dealing with TPD claims from such policies alone ( as opposed to such policies under a Superannuation Fund) the ASIC found that one company had denied 37 % of its claims, while the industry average was 16 %.

There is no way that the unnamed company could have so many insureds with invalid claims, and the high denial rate most likely reflects a company policy to avoid as many claims as possible.

Such is what I felt with Peter’s claim. There was no desire to honour the responsibility to support Peter, and instead a self-interest to cut off an insured simply because it was costing the company what the company had agreed to provide in the first place.

I have acted for insurance companies in the past, and have to say that I would be greatly satisfied to act against an insurance company that has failed to live up to its obligations under a policy. Insurance policies represent a high level of trust – we give the insurance companies our hard earned funds with the hope we will never need them, but when we do, we have to have them meet their obligations.