ASIC lobs MLC with lawsuit over mishandled claims and premiums

The regulator has flagged a string of new court actions after lobbing a legal case against MLC over alleged financial harm to more than 260,000 insurance customers.

ASIC deputy chair Sarah Court says consumers should be able to trust their insurers, and the commission is ready for more court action.

The corporate regulator has flagged it will initiate a string of new court actions in coming weeks, as it urged financial-services companies to take notice of its legal case against MLC over alleged financial harm to more than 260,000 customers.

The Australian Securities and Investments Commission on Friday lobbed a damning civil action against majority Nippon Life-owned insurer MLC relating to inadequate systems and thousands of alleged breaches of its legal obligations spanning 1999 to 2020.

The action, if successful, may lead to penalties in the tens of millions of dollars for MLC, Nippon and 20 per cent owner National Australia Bank.

ASIC estimated MLC’s failure – to pay life-insurance benefits to 297 eligible customers, update medical definitions, notify customers about premium or policy changes or properly refund premiums — had left customers out of pocket by a combined $17.5m.

Given the long timeframe, about $10.1m of that falls within the court’s allowable period.

“We are really wanting these big companies to sit up and take notice and get these things fixed, and we think taking court action is the way to do that,” ASIC deputy chair Sarah Court said in an interview.

“The courts need to impose a significant penalty to deter others from engaging in similar compliance failures … it shouldn't take either the customer or the regulator to come along and clean up that mess. The responsibility and onus is absolutely on the insurer to make sure they deliver on the promise that the members are paying for.”

Sarah Court, ASIC deputy chair.

Ms Court noted that while ASIC had tilted away from its “why not litigate” mantra, it was in no way retreating from taking matters to court, where warranted.

“We are very strongly going to be taking matters to court where that is warranted, the only message that we were gently trying to send was that there may be circumstances where it‘s appropriate to issue an infringement notice or accept an enforceable undertaking where that can quickly, efficiently and proportionally dispose of a matter,” she said.

“But we are certainly not moving away from litigation and indeed between now and Christmas there will be many more matters that I expect to be (started) in court.”

In a statement, MLC Life Insurance noted it had self-reported issues to the regulator and now fully repaid customers for its systems issues.

“Where we fall short in doing the right thing for our customers, we communicate with them and remediate our errors promptly,” the company said.

“MLC Life Insurance will carefully consider the claims by ASIC and is committed to working constructively through the legal process.”

Nippon bought 80 per cent of MLC Life from NAB in 2016, the same year a range of issues were self-reported to ASIC.

ASIC’s court document says MLC failed to pay a life insurance benefit to 297 eligible customers who were undergoing rehabilitation after an insured injury or disability.

It also claims the company failed to update its definition of “severe rheumatoid arthritis” in a timely way, resulting in 12 customers being denied insurance cover and MLC having to update the definition in more than 190,000 policies.

Other alleged failures include not notifying more than 800 customers of changes including annual premiums rises or lapsed policies, and not providing full refunds to about 260,000 customers who cancelled their loan insurance policies or paid out their loans.

The statement of claim mentions a failure by MLC to have appropriate systems and controls, and notes a range of potential breaches of the law including making representations that “were false and misleading”.

Ms Court said consumers needed to be able to trust insurers to pay their benefits in times of need and keep them informed about changes to their policies.

“This case alleges failures by MLC, over many years, to ensure a reliable delivery of basic and everyday insurance services,” she added.

Ms Court provided the example of an MLC customer diagnosed in 2013 who had their claim declined several years later due to an outdated definition of “severe rheumatoid arthritis”. Just last year, MLC paid the customer entitlements in the order of $195,000.

“That is an example of the human impact.”

The ASIC case against MLC follows actions against a spate of other insurers, including TAL, that led to a court finding this year that it had breached duties to customers over insurance claims handling. Separately, ASIC has started action against Insurance Australia Group for alleged failure to honour discount promises made to customers.

The legal case against IAG centres on the insurer not passing on discounts to more than half a million NRMA customers.

Several insurance cases and scandals were raised at the Hayne royal commission in 2018.

A case management court hearing date for the MLC matter is yet to be set.