In a recent and controversial Court judgment, the Court of Appeal has confirmed a High Court Judge’s order that an insurance company pay its client’s income under an income protection policy until the dispute over policy coverage is decided by the Court.
Normally, if your income protection insurance company declines your claim, you are hit with a double whammy.
Not only is your income summarily ended, but you have to fight the insurance company without any income.
It’s hard enough paying your lawyer in the best of times. But when you have no income the battle can be daunting or impossible. And if you’re unwell to start with, the stress of the whole fiasco can be too much.
The lack of income for the length of the Court process may just be the straw that breaks the camel’s back and forces you into financial (and maybe mental) oblivion.
A cynic might say that this is what some less scrupulous insurance companies play on when they summarily decline such claims.
It seems too common for some insurers to suddenly “turn off the tap” and declare someone fit for work, sometimes on the skimpiest of medical or factual evidence. “There’s nothing wrong with you...go back to work”. Then the insured person has to embark on an expensive battle that he or she is simply unable to fund.
Eventually the insured person can no longer afford the fight and throws in the towel.
In this recent decision, the Court recognised that the insured person was financially ruined without the income and the balance of convenience supported reinstating the payments until the Case was finally resolved.
The Court of Appeal referred to some Canadian cases and in particular a comment by a Canadian Judge that:
“…the wrongful withholding of disability payments may involve more than mere money. As well as taking away comfort and security, it can cause chaos in the plaintiff’s affairs. The long term effects of the loss of security and the impoverished lifestyle caused by cessation can amount to more than mere loss of money and beyond the scope of damages.”
With the case set down for hearing, the Court of Appeal decided that, on the balance of convenience, the insurance company should continue to pay while the dispute went through the Courts.
In doing so, the Court entered unchartered territory for New Zealand insurers and for that reason the decision will be of real concern to the insurance industry.
Until now insurance companies were free to decline and force the financially strapped and income-less customer try to fight against their almost endless resources. However, it seems clear that in some circumstances the Courts will grant an interim order requiring the insurance company to continue to pay until the matter is resolved.
Before getting too excited, it is important to recognise that the grounds on which a Court will make such an order are very limited. And in this case, the insured person provided an undertaking from a relative to repay the funds should the insurance company win the main case.
But some may say that it is a step in the right direction when the refusal to pay will cause irreparable damage if not reversed. In other words, if the insured person’s affairs are such that his or her financial position will crumble before the case is heard, and that even if he or she succeeds, it may be too late, then the court may order the insurance company to continue the payments until the case is decided.
It will be interesting to see how the insurance industry reacts, and what other cases this will be applied to.
-------------------------
*Andrew Hooker is a partner in the North Shore law firm Turner Hopkins and a director of Claims Information Specialists Ltd, running an insurance information web site www.claimsinformationspecialists.co.nz
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.