How to win an insurance complaint and resolve a 3rd party insurance debt

Denis NelthorpeWest Heidelberg Community

Legal Service

Project Aim Project Aims

Propose a different process for dealing with insurance disputes

Improve lawyer’s capacity to resolve insurance disputes through IDR & IOS

Propose advocacy & a systemic solution for 3rd party debt

Project history Other aspects of the project

National Insurance Hotline (Consumer Credit Legal Centre )

See fact sheet: Insurance Contracts Act & Determinations

Australia wide project & project partners

Approach for the day Session Aim

Participants will understand1. How to use IDR & IOS to solve disputed claims and 3rd

party debts2. How to use Industry Code to resolve claims & write off

debts Materials

Powerpoint notes Fact sheets Case studies

Key reference material ASIC – Corporations Act Insurance Industry Code of Practice (COP)

http://www.codeofpractice.com.au/ Insurance Ombudsman ‘Terms of Reference’

(TOR) http://www.insuranceombudsman.com.au

Insurance Contracts Act See Fact Sheet: Insurance Contracts Act and

IOS Determinations

Regulation of IDR & IOS Corporations Act 2001 S 912A

A mandatory obligation for all licensees s912A(2) a dispute resolution system

Internal dispute resolution procedures, and Membership of an approved (EDR) scheme

Corporate Governance IOS - Independent Board of Directors IOS – Reporting to ASIC COP – Independent Code Compliance Committee

Facts about IDR & IOS 2,910,419 claims are made to insurers last year Rejected & Disputed Claims

63,700 claims rejected 11,800 claims disputed at IDR 1870 claims disputed at IOS Note massive slippage – includes your clients

Win / Loss Ratio 28% consumers win at IDR 36% consumers win at IOS Court comparison

Not Again!Dealing with 3rd party debt

Case study John comes to the legal service

Read the case study and answer the following question:

What is the classic legal strategy for dealing with a matter like this?

3rd party debt: classic legal strategy Client with letter of demand Respond to lawyer/debt collector

Deny liability Argue Apportionment

Advise client is judgment proof (No assets > $5000 & Centrelink income)

Consider case study: legal advice

3rd party debt: classic outcomes for clients Argy-bargy for months Debt summons to client Possible bankruptcy If lucky – A write off If unlucky - Matter disappears

Lawyer loses track Client might borrow or bankrupt

What is your experience? Bankruptcy Write it off – the debt is waived

3rd party debt: new approach Advisors

Bypass lawyers and debt collectors Go to Insurance company internal dispute

resolution process (IDR) Refer to Code – Financial Hardship Ask IDR for write off – draft letter If unsuccessful – CCLC Hotline or IOS Code

complaint – draft letter If still unsuccessful – CCLC or IOS intervention

Will only fix the code complaint with insurer

Bypass the lawyer? Is it a breach of professional ethics?

No – The Code requires referral to IDR Lawyers are subject to the Code Refer to Code of Practice

3:10 refer to ASIC & ACCC guidelines3:11 Financial Hardship3:12 financial counsellors/ IDR

Internal dispute resolution Why would you be wary of referring a client to

IDR?

Facts about IDR & IOS IDR is a specialist role within company IDR statutory requirement Amounts in dispute

51% of disputes less than $5,000 66% of disputes less than $10,000

Figures do not include 3rd party debt If matter referred to IOS

Insurer pays - consumer free

3rd party debt – new approach outcomes Clearer process Write off more likely IDR/IOS avoids Courts & legal costs Benefits for the client

Less worry Client has closure as matter is finalised

Benefits for a lawyer / financial counsellor More focused advocacy Engaged in a process that will lead to systemic

change

David v GoliathDisputed claims

Case study Susan comes to the legal service

Read the case study and answer the following question:

What would you do if a matter like this came into the service?

Would you expect the claim to be paid?

Disputed claims – Current Practice Lawyer/financial counsellor responses

Be outraged – wonder what to do? Look for expert assistance

Legal aid/pro bono barrister If unavailable –refer elsewhere

Disputed claims classic legal outcomes Clients lose

Claims are not pursued in Court or ADR Clients are out of pocket Clients lose faith in insurance

Advisors lose Clients are uninsured Poor insurance practice not addressed

Disputed claims – What to do? Claim refused: get instructions on basis for refusal

See Fact Sheet: Insurance Contracts Act and IOS determination

Refer dispute direct to CCLC Hotline Then refer to insurer’s IDR – See draft letter

Ring IOS or CCLC Hotline for IDR phone number and contact

See Fact Sheet: Insurance claims and dispute timelines If no decision from insurer in 30 days refer to Hotline

or IOS – See draft letters

Benefits of new approach System is paper based

Submissions by lawyers Appearances discouraged

Avoids a Court process Cost free to consumer and advisor Decision made in favour of the consumer is

binding on the insurer

IOS process for disputes IOS Process for dispute

TOR 8.1: Consumer Referral to IOS – 3 months TOR 8.3: Insurer has 15 days to respond TOR 8.3: insurer/ consumer exchange documents IOS Benchmark: IOS to make decision – 3-4

months IOS Benchmark: 95% resolved within 4 months

See IDR/IOS Timelines Handout & Draft letters of complaint

IOS basis for decision Basis for decision – IOS TOR 11:13

Fair and reasonable Good insurance practice Terms of policy Established legal principles

Exclusions: cross examination – testing of evidence

Outcomes – is it binding? IOS is binding on insurers not consumers Consumers retain the right to litigate

If the client thinks its unfair IOS might too! Utmost good faith - The Act Good industry practice – The Code Fair and reasonable - IOS TOR

IOS decisions are based on more than the law

Insurance Contracts Act – Utmost good faith

S13 Insurance Contracts Act 1984 A contract of insurance is based on the utmost good

faith requiring each party to act towards the other party, with the utmost good faith.

The duty requires insurers to act with due regard to the insured's

interests in situations where there is a conflict of interest.

the insured to act honestly when dealing with the insurer

The Code - good insurance practice

Code of Practice for claims See Fact Sheet: Insurance claims and dispute timeline Defines time to processes

Code 3.1: Accept or reject simple claims - 10 days Code 3.3: Update on complex claims - every 20 days Code 6.0: Claim refused – refer for IDR decision - 15 - 30

days Code 6.9: IDR Unsuccessful – referral to IOS

All reference to days= business days Illustrative case study – Customer service standards

Mary’s case

The law: Your client did something wrong Just because your client has breached the

Act or contract doesn’t mean the claim won’t succeed at IOS Disclosure Requirements Degree of Prejudice

Fair & Reasonable – IOS TOR In arriving at a determination a Panel, Referee

or Adjudicator shall have regard to what is fair and reasonable in all the circumstances; regard must also be had to good insurance practice, the terms of the policy, and established legal principle.

Determination referral: 24746“The Panel has focussed on what it believes is fair and reasonable in the circumstances and good industry practice.”

Insurance Contracts Act - Disclosure

Insured has a duty to disclose relevant information S 21A – The insurer to ask specific questions of

the insured; S 22 The insurer to provide written warning about

the consequences of non disclosure Philip’s case

Insurance Contracts Act – Breach of Contract Consumer may challenge a rejected claim where:

A term or condition of the policy is breached An alleged act or omission has occurred BUT the Insurer has NOT suffered prejudice

Insurer’s decision is subject to: S13 & S14 “utmost good faith” S35 standard cover requirements S37 requirements to notify insured of unusual policy conditions S46 & 47 forgive pre existing defect, sickness or disability due

to lack of knowledge S54 Payment based on lack of prejudice to the insurer

Conclusion Project Aim: Ensure that clients are given the

best advice when dealing with an insurance dispute

Insurer’s IDR and IOS provide an under utilised avenue for consumers to appeal insurer decisions

Still not sure what to do? Ring: CLCC HOTLINE 1300 66 34 64 IOS 1800 078 078