Former ANZ insurer OnePath Life – now owned by Zurich – sued by ASIC

The corporate watchdog is seeking financial penalties against the Zurich-owned OnePath for failing to act in good faith during a claim made when the insurer was still owned by ANZ.

OnePath Life – a life insurance company sold by ANZ just over three years ago to Zurich Financial Services – is being sued by the Australian Securities & Investments Commission for allegedly failing to act with good faith during claims handling.

The case involves a claim made by a customer of the then ANZ-owned OnePath against their income protection policy for a shoulder injury.

The claim was initially approved then subsequently denied and the policy voided after Zurich purchased the business, on the basis the customer previously had an undeclared – and unrelated – hospitalisation due to a mental health issue.

“The way insurers process and handle claims is something becoming more and more serious,” said ASIC deputy chair Sarah Court. “We are saying that if you want to void a policy then you have a duty of upmost good faith.”

ASIC will seek a financial penalty from OnePath, for which Zurich is liable. It’s the first time the corporate watchdog has attempted to use new powers that allow for a civil fine to be issued since changes to the Insurance Contracts Act 1984 were made in 2019.

What concerns ASIC the most was the opaque – at best – process in which the claim was managed before OnePath came to the “very serious” conclusion that a fraud had occurred.

“It was a serious finding to have made,” said Ms Court. “Rather than go through the process they formed the view this must be fraud.”

If a person has been found to have acted fraudulently in a previous insurance claim, it can negatively impact their ability to find insurance in the future.

Zurich said in a statement that it is considering the matters raised by ASIC.

The Federal Court will hear the customer obtained their OnePath income protection policy in 2016 with advice and assistance from an ANZ financial advisor. At that time, OnePath was owned by ANZ.

In applying for the policy, the customer disclosed prior mental health related issues. The customer made a claim against the policy for a shoulder injury in 2018, which was approved and payments began, though the insurer also began a ‘nondisclosure investigation’ into the claim.

In 2019 after OnePath was sold to Zurich, the insurer uncovered “more specific” information about the customer having been hospitalised for mental health issues many years prior to her applying for the policy.

OnePath then refused to pay out any further on the policy, which was voided on the basis that the customer had acted fraudulently by failing to disclose the hospitalisation.

The corporate watchdog will allege OnePath did not act in good faith because it didn’t make it clear to the customer that it was “concerned that the lack of disclosure was fraudulent” and didn’t investigate the customer’s explanation for nondisclosure or speak the ANZ adviser who recommended the policy.

OnePath also failed to inform the customer about their right to appeal the decision through their internal processes or through a complaint with the Australian Financial Complaints Authority.

“If an insurer is concerned a customer has engaged in fraudulent nondisclosure, they must make their concerns explicit, give the customer the opportunity to respond and make proper inquiries into any explanation given by the customer before concluding that fraud has occurred,” said Ms Court. “The insurer’s duty is not just owed to whoever the insurer considers to be a perfect policyholder.”

ASIC took similar action against TAL Life last year for a claim made under an income protection policy. TAL was found to have breached its duty to act with utmost good faith in that case whereby it refused to payout a claim made by a customer with cancer on the basis of an undisclosed and unrelated medical history.

The previous year ASIC was successful in an action taken against Youi in its handling of a building and contents insurance claim where it was found to have breached its duty of utmost good faith.

Australia’s banks have largely sold their insurance companies following the Royal Commission into Misconduct Banking and Finance revealed widespread mistreatment of customers.

ANZ last year agreed to pay a $25m penalty as a result of the Royal Commission for failing to pay its customers under the terms of its Breakfree mortgage packages, in addition to other customer repayments.