AMP, the insurance company at the centre of allegations from Australia’s Royal Commission into financial services misconduct, is being accused of unconscionable treatment of dying patients in two current insurance claims this side of the Tasman. And lawyers say there are others like it.
The accusations against AMP NZ come at a time when Consumer Affairs Minister Kris Faafoi and the financial services regulator are taking a hard look at practices in the insurance industry, particularly around unfair contract terms, harsh rules around disclosure, and sales strategies that don’t necessarily work in the best interests of consumers. Nikki Mandow reports.
Andrew Porteous was only 33 and on a $150,000 salary at an Auckland financial services firm when he first got sick in late 2015. Chest pains, difficulty swallowing, tiredness. His doctor diagnosed iron deficiency, reflux, even depression. What he didn’t diagnose was terminal cancer of the oesophagus.
Porteous was young, he was fit and there was little family history of cancer. Who’d have thought.
Less than 18 months after doctors finally found the tumour in October 2016, he was dead. He left a wife, two children under five, and a $450,000 AMP life and disability policy the company refuses to pay out on.
The case is complicated. Between getting sick and being diagnosed, Porteous was made redundant as part of a post-buyout restructure at his company. He delayed starting a new job as he tried to get on top of his health problems.
And during that period, unbeknownst to him or his wife, his life insurance policy lapsed.
After seeing a specialist and being told he had less than 12 months to live, Porteous contacted his insurance broker and was told AMP would not be paying the claim. The policy had been cancelled about a month earlier because Porteous’ work-related premiums had stopped and he hadn’t transferred to a personal insurance policy.
Porteous’ lawyer Sandra Grant, now acting for his wife and family, argues Porteous was already suffering from a terminal illness before he left his job. The reason he didn’t have an up-to-date policy was no one had told him he needed to switch. Oh, and he had (undiagnosed) cancer so severe that he could no longer play with his children like he used to – let alone worry about the small print on his life insurance policy.
Andrew Porteous’ policy document is 36 pages long and contains hundreds of clauses. He actually never received it – only a one-page summary as an appendix to his contract when he first started work in 2004. But if he had, and he had read it carefully he would have noticed a key paragraph in AMP’s argument on page 20, part F, section 14, second bullet point.
“The benefit is payable… if the person insured stopped working before cover stops (Part I) because of the injury or sickness which results in the person insured’s total and permanent disablement.”
AMP argues Porteous left his job because he was made redundant, not because he was sick.
Even so, Porteous might have been reassured, if as a healthy 21-year-old in 2004 he had scrolled forward to page 26, part I, section 22, third bullet point, because there his policy states that although cover stops “when the person insured ceases to be employed for the purposes of this policy”, the insurer is still liable “where the circumstances giving rise to the claim occurred prior to the cessation of employment”.
AMP argues Porteous hadn’t been diagnosed when he left his job. His lawyer says it’s quite clear from his oncologists that he had been suffering from cancer for weeks if not months before he was made redundant.
But AMP’s primary argument remains that his policy had lapsed by the time he made a claim.
“While we are incredibly sympathetic to the situation, we have thoroughly reviewed the case and remain firmly of the view the claim is not valid,” AMP New Zealand managing director Blair Vernon told Newsroom. “In this case, an event occurred at a time when no ongoing cover was in place, but the claimants sought to retrospectively establish a basis for a claim. We believe those attempts are misconceived.
“Our obligation has to be to those customers who continue to keep their policies in place and understand the value of keeping their insurances current.”
“It’s a question of a moral compass. You’d hope insurance companies would act at the most ethical end of the spectrum.”
The case of Andrew Porteous versus AMP Life is yet to go to court and could go either way. Legally it’s a grey area.
Certainly it’s far from the significant revelations of misconduct being highlighted at AMP’s Australian operations (notably charging clients fees for years without providing them any service, and then misleading the regulators about it).
But Grant argues that insurance companies should be making their policies clear and simple and, most importantly, acting in the best interests of consumers.
“When it’s grey, you pay,” as the industry maxim goes.
“You can’t cast [the Porteous case] as misconduct, rather it’s a question of a moral compass. You’d hope companies would act at the most ethical end of the spectrum. You don’t expect a very technical standard imposed on people trying to protect their families from the worst possible situation.
“Insurers ought not to be able to rely on the fine print.”
When it comes to ethics and the law, Grant may have a senior-level champion on her side – Consumer Affairs Minister Kris Faafoi. Late last month, Faafoi announced a review into insurance contract law aimed at improving consumer protections.
Faafoi argues consumers should have confidence in how insurance works and that interactions between parties should be “fair, efficient and transparent”.
MBIE’s discussion document for the review covers areas such as claims handling, disputes resolution, excessive sales pressure, and unfair contract terms.
While the 1986 Fair Trading Act regulates against unfair contract terms in most sectors, there are some extraordinary exceptions for insurance companies which virtually allow them carte blanche to put in any unfair clause they feel like.
For example, insurance policies can contain potentially unfair terms in relation to: the risk insured against; the sum insured; the exclusions in the contract; the way claims are settled; the need for disclosure; and (perhaps most astonishing of all) “the duty of utmost good faith that applies to both parties”.
It’s like the government is saying to insurance companies: “Go ahead and fleece the bastards.”
“There is a massive power imbalance between insurance companies and their clients. They have the big expensive lawyers and they are up against people who often don’t have the financial or mental fortitude to take them on.”
Submissions to Faafoi’s review are due by July 13 and lawyer Andrew Hooker from Shine lawyers will be among the first in the queue.
Hooker has worked in the insurance sector for more than 25 years, first for insurance companies and more recently as a lawyer acting for disgruntled clients.
He says the government review is well overdue; in fact the Law Commission produced a report in 2003 and a set of recommendations in 2004 covering many of the same issues still affecting customers today.
“There is a massive power imbalance between insurance companies and their clients. They have the big expensive lawyers and they are up against people who often don’t have the financial or mental fortitude to take them on.”
Still, he wouldn’t be putting much money on Faafoi achieving the change the sector desperately needs.
“Best of luck to him against the insurance industry, which is pretty powerful.”
He says many insurance companies started out either state-owned, or as mutual societies, owned by policyholders. But the move to corporate status has brought a corresponding focus on the bottom line rather than the customers. In fact a report by management consultants Mckinsey & Co in the 1990s steered insurance companies towards a cunning strategy now known as “delay, deny, defend” as a way to maximise profits. Insurance companies were encouraged to delay a decision, often by commissioning reports or enlisting experts, and then to offer a low settlement to a by-then desperate claimant. If anyone held out, you deny any responsibility and hit them with the big gun lawyers.
Hooker has been working on a claim involving former Christchurch accountant David Dishington, whose family has been fighting AMP for a $790,000 settlement since Dishington died of a brain tumour in 2013.
It’s another tragic case, and again it started with a misdiagnosis. Dishington’s doctors thought he was depressed, like many others in post-quake Christchurch, when in reality a growing tumour was affecting his personality, his memory and his decision-making.
Dishington’s wife Sue talks about how her husband forgot how to cook, failed to pick up his children, neglected his work, and stopped paying his bills – including his life insurance premiums.
She argues it was the brain tumour that made him make crazy decisions, like not continuing payments on an policy he’d already contributed $70,000 to over 17 years.
AMP’s Blair Vernon says Dishington had three AMP policies, all of which he allowed to lapse over a period of two-three years, with the final one stopping about six months before he died.
“Our customers expect us to act with honesty and integrity and treat them fairly and equitably, which is why we do not pay claims unless there are valid policies in place and the customer meets the requirements of the policy. To do [otherwise] would require us to step outside the terms of our policies, treat some customers differently to others and put at risk our ability to pay valid claims in the future.”
Vernon says AMP paid out $156 million in life, trauma and income protection insurance in 2017.
Hooker doesn’t agree with AMP’s decision on the Dishington claim, arguing more on the ethical than the legal side.
“Anyone with a moral code would look at it and go: ‘This is a totally unfortunate situation and this is exactly what we offer insurance for. They wouldn’t be going to look for some loophole to get out of paying. It’s wrong. They should just pay.”
Is AMP worse at paying than other insurers? Not necessarily, Hooker says, although “there are some insurers I see more of than others, and AMP is definitely at the top of the list”.
Sandra Grant says since taking on the Andrew Porteous case she has been contacted by other people who have had their claims turned down by AMP NZ based, she believes, on technical points in the fine print of their contracts. At least one has been settled by AMP and another is ongoing but the customer doesn’t want media coverage.
Grant says she has also talked to brokers working with different insurance companies who say their clients have received payouts in similar situations to those facing Porteous and his family.
AMP says of 314 complaints investigated by the insurance and Financial Services Ombudsman in the 12 months to the end of June 2017, only two were from AMP customers and neither were upheld.
Andrew Hooker says one of the most common issues he comes across involves insurance companies refusing to pay out on disability insurance.
Under the exemption, insurance companies can insert clauses letting them decide whether the sick or injured person is totally disabled or not – no matter what their doctor says.
“They might say they will pay out ‘if, in our opinion’ you are totally disabled, or ‘if we agree’ you are disabled. You might get New Zealand’s most imminent doctor in an area saying this person is disabled and the insurance company says ‘our doctor says he isn’t’.
“It’s crazy that you can have a contract where the person paying the money can decide if you are totally disabled or not. It’s like if I sell you my car and you complain there’s something broken, but it’s only deemed to be broken if I say it’s broken.
