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. 

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10 Comments

Kind of a moot point given we have a public health system. Every time we pay taxes that is our "insurance premium". Anyone who pays more on top of this to a private insurance company is a fool.

This article is focussed on income protection. If you become incapacitated to the point of not being able to work, you'll have no luck getting recompense for lost earnings out of the public health system and will be at the mercy of waiting lists until you can be put right, if at all.

Canton, the author specifically mentioned income protection insurance, not health insurance. The public health system won't help you pay your million dollar mortgage or pay for a new manager for your small business if you're unable to work. There totally are good reasons to have private insurance. Maybe not for you, but everyone's situation is different.

Try waiting years for referrals only to be told your cancer is now untreatable in the public system, due to shortages. Private insurance enables several people to save their own lives through enabling choice and access to medical treatment that the public service cannot provide in a timely manner if at all (personal experience is more family death due to poor & non existent health access, those with insurance though got their cancer detected & treatments done early, of that group many even worked for the public system so they knew their chances).

To each his or her own then. I suspect all those National voters who smiled with glee at the tax cut the wealthy were getting didn't realise that their own health system was being gutted??

I think you'll find that many people have benefited from their medical insurance and have received a diagnosis / treatment much faster. Do you know someone who has gone through the public health system with no previous history and have been put in the waiting list and received a very late diagnosis? New Zealand has grown rapidly over the past 20 years and our health system has clearly not kept up. Medical cover is for people who take control and don't solely rely on the government.

And if the in house legal team cannot find a 'reasonable " get out clause or delay, there is always the premium excess and subrogation to compensate. Absolutely agree that reading the fine print ,using a magnifying glass if necessary is important,.however if the fine print still contains the same wording ,the likely legal decision the same ,the legal battle to overcome the insurance company often with decreasing finances and increasing emotional turmoil is possibly over before it commences.

Indeed for example insurance companies are often very specific to the type and stage of cancer yet you have to be a medical professional to understand the grading & necessary tests in oncology needed, a layman or customer has no hope of understanding the policy terms as stating "Gleason score greater than 6 or having progressed to at least clinical TNM classification T2N0M0" or " Binet stages A or B, or Rai stages 0, I or II". These documents are intended to be read and understood by a medical professional who specialises in that area.
Likewise "signs and symptoms of ischaemia which are consistent with myocardial infarction; or - new serial ECG changes with the development of any one of the following: ST elevation or depression, T wave inversion, new left bundle branch block (LBBB), or, pathological Q waves; or - imaging evidence of new loss of viable myocardium or new regional wall motion abnormality." is not something a person buying the policy can be expected to understand or distinguish (as often medical records are not available to the patient in this detail).
Often specialists provide a brief statement to the patient & broad summary, e.g. just x cancer or heart attack. However if a medical professional is handling treatment they should be able to handle & explain the medical policy that covers the treatment payment. If a patient has a medical policy that requires certain tests it behoves the medical professional to perform those tests. Unfortunately though NZ medical system cannot even cope to provide even basic tests and surgical procedures necessary for the policy. Patients are essentially damned if they are expected to direct & ensure the right tests are done.

I agree but it is even more simple than that. Look at what the limits are for some treatments on health insurance policies. $500 for a CT scan but in reality it can be $1500. How is the average person who as limited or no experience supposed to know what they normally cost. Before anyone suggests they ask, there would be hundreds of these questions to ask. Another one is $xk for private chemotherapy treatment. The reality is the availability of private chemotherapy is very limited. It is also difficult for insurance companies as the contracts have to be tight otherwise they are open to abuse which can be a major problem for other customers as the premiums need to go up etc. It can't be as simple as if you get cancer you get $x as some cancers can be very minor like some types of skin cancer. You can't just exclude skin cancer because some can be very serious. It is an incredibly difficult area.

Surely what is "reasonable" and an "opinion" is robust and challengeable via the Insurance Ombudsman if the insurance company is interpreting it in a cavalier manner. Therefore the words should not be messed with especially as we are told there are legal precedents on what they mean in different situations. Perhaps the main point is some readers here don't understand that the effect of a specific injury or illness will very from one person to another partly dependent upon what type of work is engaged in to earn income. For instance the effect of a hernia will be quite different for a clerical worker than a builder. I don't think it possible to specify every disability known to man and the specific effect they might have on each different occupation category. At least not without a huge schedule to add to a policy document.