MetLife has lost a claim dispute after it accidentally issued incorrect policies and charged the wrong premiums.

The Australian Financial Complaints Authority (AFCA) says the terms were “agreed, valid and binding” as MetLife had “offered these terms and the complainant accepted them.”

MetLife said last year it could not proceed with the life, total and permanent disablement (TPD) and income protection (IP) covers unless the policyholder accepted higher premiums.

But AFCA says it was “not fair or consistent with the law” for MetLife to now attempt to “benefit from its own error to the complainant’s detriment” and vary the policies based on its own error and without her consent.

“The insurer would be acting in breach of contract and its obligation to act with utmost good faith if it does so,” AFCA said.

The complainant held two MetLife group life policies with an option to continue to be covered should she leave her employer. In August 2017, MetLife issued her a continuation policies for an IP policy with a $10,875 monthly benefit and a life and TPD policy for a $521,975 benefit.

But in July last year the insurer said the woman’s continuation policies and premiums were incorrectly calculated and she should have been issued with other policies based on different rate tables.

“It is solely the complainant’s choice as to which policies she prefers, and the insurer is bound by her choice,” AFCA ruled.

Moving forward, MetLife should calculate her premiums on the rate tables it used to calculate the initial and second policy years, and use the same methodology on an ongoing basis.

MetLife waived the complainant’s premiums throughout the dispute.

See the full ruling here.