OnePath Life has been taken to court for allegedly breaching its duty to act with utmost good faith in the handling of an income protection (IP) claim that it rejected on grounds of fraudulent behaviour from the insured. 

The Australian Securities and Investments Commission (ASIC) is seeking financial penalties from the insurer in the proceedings filed in the Federal Court, accusing the Zurich-owned business of a list of failures including not informing the insured she could turn to the Australian Financial Complaints Authority to appeal the decision. 

ASIC says the action marks the first time it has sought financial penalties for claims handling failures since new laws commenced in 2019. 

The strengthened provisions allow the regulator to pursue “harsher civil penalties and criminal sanctions” under ASIC-administered legislation, including the Insurance Contracts Act. 

Zurich says it acknowledges the court proceedings and is “considering the matters raised by ASIC in its concise statement and is committed to working constructively through the court process”. 

According to the ASIC concise statement, the insured acquired the IP and life insurance policy in 2016 through an ANZ financial adviser. At that time, OnePath Life was owned by the bank until May 2019, when Zurich acquired the business. 

The insured had submitted her IP claim in November 2018 for a shoulder injury she had sustained in February 2017, which OnePath accepted and began paying the benefits accruing from June that year. 

But the insurer then commenced a “non-disclosure investigation” into an earlier injury, also on the shoulder, that the insured had before she bought the OnePath policy. OnePath did not inform the insured about this investigation. 

The concise statement says OnePath Life subsequently sought more information from the insured about the earlier shoulder injury and medical records from her GP and orthopaedic specialist. 

OnePath Life obtained a statement of claims from the insured’s previous health fund containing references to admissions to hospital between May 2001 and November 2005. 

Hospital records obtained showed six admissions during the period 2001 to 2005 “variously referred to as being for suicidal ideations, overdose and self-harm”, the concise statement says. 

OnePath Life later sought a retrospective underwriting opinion that concluded had the insurer been aware of the hospital admissions, it would have declined the insured’s request for IP and life insurance cover at standard rates. 

“Ultimately, OnePath Life decided not to pay out the policy on the basis that the customer has acted fraudulently by failing to disclose the hospitalisation,” ASIC says. 

The ASIC concise statement says OnePath failed to make clear to the customer it was concerned that the lack of disclosure was fraudulent and failed to fully investigate her explanation for the non-disclosure, including failing to speak to the ANZ adviser about the completion of the application for the insurance. 

“If an insurer is concerned a customer has engaged in fraudulent non-disclosure, 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,” ASIC Deputy Chairman Sarah Court said. 

Click here for the concise statement.