Corporate regulator sues Cbus over unresolved insurance claims

The corporate regulator is suing embattled construction industry superannuation fund Cbus Super for not processing death and disability insurance claims in a timely manner, costing thousands of members a total of $20 million.

The Australian Securities and Investments Commission has launched Federal Court proceedings against Cbus after it failed to identify – and then prevent – the delays that affected 10,000 members since August 2022, according to documents lodged in the court on Tuesday.

ASIC has taken Cbus Super, whose chairman is former federal treasurer Wayne Swan, to the Federal Court.Credit: Michael Quelch

ASIC has alleged 56 per cent of total and permanent disability claims (about 4500) by December 2022 had not been resolved within a year, while 53 per cent of death benefit claims (about 2000) had taken more than a year to settle.

Only 11 per cent of claims were less than three months old, ASIC has claimed. In a report lodged with the regulator last year, Cbus conceded the delays led to members losing about $20 million.

“Even though Cbus was aware of inordinate delays affecting thousands of members and claimants, it failed to take prompt and effective action to prevent and/or reduce such losses,” the corporate watchdog said in court documents.

“ASIC also alleged that Cbus failed to lodge a ‘reportable situation’ report with ASIC in relation to its conduct within the time required by the Corporations Act. Further, ASIC alleges that Cbus lodged a ‘reportable’ situation report with ASIC, and subsequently clarified that report, which contained statements making the report and clarification false or misleading.”

In a statement, Cbus apologised for the delays in processing claims, acknowledged they had added to the distress of members and their families, and promised to do better.

The super fund said it had been co-operating with ASIC during its investigation, and called on the regulator to engage in alternative dispute resolution to avoid “protracted litigation”.

“Cbus has implemented a number of measures that are reducing delays, and is committed to further improving management of insurance claims,” the fund said. “Cbus has established a compensation program for affected members which is being implemented now.”

The fund has so far finalised 6000 of the claims and paid over $755 million in benefits. In the past financial year, CBUS accepted more than 3600 claims and paid out $384 million.

Cbus, which has about $94 billion in assets and more than 920,000 members, has been under pressure recently after this masthead exposed corruption, intimidation and criminal infiltration in the construction workers’ union, the CFMEU.

Cbus is the default super fund for the construction industry and along with employer and other union representatives has CFMEU directors on its board.

The prudential regulator in August ordered Cbus and two smaller building industry funds to get an independent review of whether their seven CFMEU-linked directors were fit to sit on the board and had acted in the best financial interest of members.

Cbus now finds itself in the crosshairs of the corporate regulator, which has alleged the fund’s management was aware since February 2020 that the company it had outsourced claims management to wasn’t resolving them expeditiously.

Reports to Cbus’ board did not “suggest any cause for alarm and gave the impression that any problem was being adequately addressed” until August 2023, according to ASIC.

“During the relevant period, claimants who were experiencing stress by reason of their injuries or the death of a loved one suffered harm by reason of the delays in processing of death benefits and [disability] claims,” ASIC filed with the Federal Court.

“Along with the added stress and uncertainty caused by the delays, this harm included financial loss by reason of the lost opportunity in having access to monies during the period of delay, among other things.”

In a submission to a parliamentary inquiry two years ago, Cbus said it accepted 97 per cent of disability claims and 100 per cent of claims for death benefits, noting that rate was “much higher” than that of most other funds and “significantly higher” than with insurers.

In a statement, ASIC said more than 10,000 members’ claims were delayed by at least 90 days and put the broader superannuation industry on notice about timely service.

“We allege Cbus failed its members and claimants at their most vulnerable time, and we are taking this case to protect all those vulnerable Australians trying to access the financial support to which they are entitled,” deputy chair Sarah Court said.

“The systemic failure by superannuation trustees to deliver essential member services in a timely manner is a key priority for ASIC and we will continue to take action to hold trustees to account.”

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