A Westpac customer who made an unsuccessful claim on her living insurance policy after undergoing surgery for breast cancer in 2020 and then radiotherapy last year has won her dispute with the insurer.

Westpac had declined her claim on the ground that her policy excluded her type of breast cancer, known as ductal carcinoma-in-situ.

But the Australian Financial Complaints Authority (AFCA) says Westpac relied on an outdated medical definition to reject the claim, ruling the insurer must pay the claimant the full trauma benefit plus interest.

AFCA says Westpac did not assess the claim against a definition which reflects current medical practice, describing it as “inconsistent” with good industry practice.

It notes the insurer issued a new and upgraded trauma policy in 2019 but did not apply the revised terms in relation to breast cancer to the complainant’s policy.

AFCA says its review of the updated policy terms shows that a full trauma benefit for carcinoma in situ of the breast would be paid if a claimant has breast-conserving surgery and adjuvant therapy such as radiotherapy and/or chemotherapy.

Before the 2019 policy revision the claimant would not have been entitled to a benefit under the terms of her policy as it specifically excluded all tumours which are histologically described as pre-malignant or showing the malignant changes of carcinoma in situ.

“The complainant meets the requirements of the up-to-date medical definition in the 2019 policy,” AFCA says in its ruling. “It follows that she should be paid the full trauma benefit.”

In her complaint the claimant referred to the findings of the Hayne royal commission, which recommended that insurers should pass on upgrades to all customers.

AFCA says it reviewed the royal commission’s hearings and provided information to Westpac about a similar case in relation to a rejected claim made under a Comminsure trauma policy.

The resolution service invited Westpac to make a submission to a few questions, including whether it considered passing the 2019 updated cancer definition to customers with policies similar to the one held by the claimant, and whether it was unfair not to apply the revised definition to the claim.

Westpac did not fully answer these questions, AFCA says, noting it had instead pointed out the royal commission reviewed outdated medical conditions in insurance policies but did not make a finding that all policy upgrades should be passed onto all customers if the policy terms do not require it.

The insurer also says the complainant’s policy did not have an automatic upgrade provision and as a consequence the company is not required to pass on upgrades. It was therefore irrelevant whether the medical definition was outdated or not.

AFCA says it agrees that Westpac is not required to pass on all upgrades from later policies to people with earlier and different policies. But it says an upgrade to replace an outdated medical definition is different.

“Such an upgrade is intended to maintain the existing cover,” AFCA said. “For example, where a definition requires treatment of a particular kind, but that kind of treatment is no longer provided or becomes much less common in current medical practice, the cover provided by the policy will be reduced unless the outdated medical definition is replaced.

“That distinction explains why good industry practice requires an insurer to assess trauma claims under a definition which reflects current medical practice.”

Click here for the ruling.