The Federal Court has ruled TAL Life “breached its duty to act with utmost good faith” in the handling of an income protection claim in 2014, in civil proceedings lodged by the corporate regulator.

But it dismissed the Australian Securities and Investments Commission’s (ASIC) other allegation that the insurer engaged in false or misleading conduct.

ASIC commenced actions against the insurer in December 2019, after it carried out an investigation following a referral from the Hayne royal commission.

The policyholder, whose name is withheld to protect her privacy, made the claim in January 2014 after she was diagnosed with cervical cancer. She was a self-employed healthcare worker who had bought the policy through comparator iSelect a few months earlier, with the application approved in October 2013.

TAL avoided her policy on the basis that she had failed to disclose an unrelated prior medical history after obtaining her health records. The insurer said she had breached her duty of good faith under section 13 of the Insurance Contracts Act.

ASIC alleged that the insurer avoided the policy without first giving her notice of a retrospective investigation into her medical history or offering her an opportunity to address the concerns raised before rejecting her claim.

Chief Justice James Allsop in his ruling last week said “insureds are not only risks, they are people”.

“TAL failed to act towards [her] with decency and fairness in reaching its decision without giving [her] a proper opportunity to put material to TAL,” he said.

On TAL’s threat to recover more than $24,000 that had been paid to the woman, Chief Justice Allsop said the actions amounted to “a lack of decency and fairness”.

“The payments were all made after the commencement of an investigation by TAL into the validity of the policy on the grounds of possible non-disclosure or misrepresentation,” he said.

“In the light of the failure to tell [her] of the investigation (with the possible consequences of obligation to repay, should there be an avoidance) she had no reason to believe that she could not spend these modest sums in sustaining herself.

“She was given no opportunity to arrange her affairs to protect herself.”

ASIC has responded to the court ruling, with Commissioner Sean Hughes saying the regulator “expects those involved in handling insurance claims to act consistently with commercial standards of decency and fairness, ensuring claims are handled in a fair, transparent and timely manner”.

TAL has also issued a response to the court ruling.

“At all times during the claims assessment process we endeavour to employ an empathetic and sensitive approach and communicate fully with our customers, and we have previously acknowledged that aspects of the handling of this claim fell below those standards,” TAL said.

“This is not representative of the claims experience we endeavour to provide for our customers, and we continue to refine and improve that claims experience to provide the best possible support for our customers and community.”

Click here for the court ruling.