Lawyer welcomes insurance contracts law review, citing policies that give insurers discretion to over-ride a medical opinion to avoid paying a claim

By Tim Gunn*

I would like to commend the new government for recognising the "significant problems" caused by New Zealand's insurance contracts laws, and committing to a review of them accordingly.

In my experience, most people don’t read or understand the terms and conditions in their insurance policies. They are completely unaware of the way those words will later be interpreted by the insurance company. 

This is particularly evident in disablement or income protection policies. These polices allow you to insure against loss of income. The idea is that if you get sick or injured the insurance policy provides you monthly payments until you can get back to work. Therefore, you can pay the mortgage and keep the lights on when you are at your most vulnerable. 

Maybe it is time to have a look again at that policy. If you look closely at the wording of that disablement or income protection policy you might get a rude shock.

Disablement polices require you to be unable to work. Simple right? But who decides that you are disabled and unable to work? 

Your policy will probably contain words like “in our reasonable opinion” or “to our complete satisfaction”. This means it is the insurance company that has the discretion as to whether you are disabled (and therefore meet the policy standard). 

In short, it can tell you if you are disabled. That’s right – the insurance company tells you if you can claim on your policy. This is the industry standard wording for these types of polices. If you have an “any occupation” policy, you will have this type of wording.

We commonly encounter people who are unable to work, but their insurer has declined the claim on the basis that, in their reasonable opinion, the person does not meet the policy standard. 

For example, a doctor has a condition affecting his arms. As a result, he can't use his hands and isn't medically able to do surgery. The insurance company, legitimately, employed an occupational therapist to scope the doctor’s role. They find that a portion of the role can still be undertaken. The insurance company declines the claim on the basis that he is not disabled - he could still see patients on ward rounds and fill out forms.

How about the person with chronic stress issues? All the treating doctors agree on the diagnosis. The person is riddled with issues and cannot face work. However, the doctor employed by the insurance company disagrees with the other doctors. The insurance company therefore declines the claim. 

Nothing in the insurance company’s actions are unlawful. This point has been tested in court and the insurance companies have prevailed. Remember those words in the policy – “our reasonable opinion”.

The law is that an insurance company must make a reasonable decision and not the right decision. All the insurance company needs is an expert willing to say you are not disabled.

How is that fair? The insurance company gets the sole right to decide if you are entitled to claim on your policy. Surely this is a clear conflict of interest.

In the absence of consumer-focused insurance laws, policy wordings that clearly favour the insurer have been drafted. I hope that the “significant” undertaking by the government will shed light on these unfair terms. 

I invite everyone to look at their own polices to see what is hidden in the fine print.

*Tim Gunn is a Senior Solicitor at Shine Lawyers.