The estate of a woman who made a trauma claim for breast cancer has lost its fight over a subsequent death claim because she died before cover could be reinstated.

The woman lodged the trauma claim after being diagnosed on October 18 2019. Insurer Zurich paid $55,125 on December 11 2019, which reduced her death cover to nil.

The policy included an accelerated buyback option enabling death cover to be repurchased after 12 months. The woman applied for reinstatement on November 3 2020, but died on November 27.

Her estate lodged a death claim, which was denied. Zurich said death cover was not in place, because it could not be reinstated until December 11 2020 – a year after the trauma benefit was paid. This was outlined in the product disclosure statement.

The woman’s estate turned to the Australian Financial Complaints Authority, arguing the 12 months should run from the date of diagnosis and the death claim should be paid.

The complainant said a premium refund from Zurich was for premium paid since the diagnosis date – which was the date the woman satisfied the policy terms.

“[The insurer’s] refund of premium back to the date of diagnosis is entirely consistent with the intention that ‘payment’ means the date an insured satisfied the policy terms,” the complainant said.

“[This] construction ... allows time for [the insurer] to assess the information provided before making payment of any benefit.

“It would be inconsistent with the commercial and social purposes of the policy for the payment of a benefit to be contingent on a factor such as the time it takes to assess the claim which is outside an insured’s control and within the control of an insurer.”

But AFCA does not accept this argument, and says the policy terms are “clear and unambiguous”.

“I do not consider the date to which the insurer refunded premium a relevant factor in interpreting the intention of the policy,” the authority’s ombudsman writes in a ruling. 

“The premium refund is a separate entitlement under the policy, and the accelerated buyback death option does not refer to that entitlement.

“I accept there may be circumstances where the insurer’s claim delay could be a relevant consideration. For example, if it had delayed paying the trauma benefit for months, an attempt by it to apply the ‘12 months after payment of the trauma benefit’ provision to avoid paying a death cover claim may have been in breach of its duty of utmost good faith under section 13 of the Insurance Contracts Act.

“However, the insurer did not delay paying the trauma benefit.”

AFCA also says section 54 of the Insurance Contracts Act does not assist the complainant, because the insurer “has not sought to decline the claim based on an act or omission by the complaint after the contract was entered into”.

Click here for the full ruling.