better banking

Case - 46583

2016 - 2017

Insurance

Loan protection insurance

Ms B took out a loan and loan protection insurance through her bank. Several years later, Ms B, who was deaf, had a cochlear implant. The implant became infected, causing Ms B severe pain and preventing her from working. She claimed on her insurance policy, but the bank had difficulty getting information from her doctor, and after a few months of waiting assessed the claim on the available information. The bank declined the claim, saying it considered the disability – the infection – was caused by a pre-existing condition, her deafness. The policy excluded pre-existing conditions.

Ms B said she wasn’t claiming for being deaf, but for the effect of the infection. The bank then got some information about her medical history from the Accident Compensation Corporation, and paid Ms B’s claim for seven months as a gesture of goodwill (nine months having elapsed since she made the claim). But the bank wouldn’t reconsider the claim unless it got further information from her doctor. At this point, the bank realised the policy excluded pre-existing conditions but not conditions linked to them. This meant it was irrelevant whether the infection was caused by deafness because the infection itself had to be pre-existing, which it was not, in order to be excluded. The bank didn’t tell Ms B this.

Ms B couldn’t understand the decision and complained to us.

We believed the bank had misled itself by asking whether the infection was caused by a pre-existing condition, and we thought it fair for the bank to pay out her claim up to the point it realised it was asking the wrong question, a period of nine months. Subtracting the seven-month payment left a total of two months’ insurance entitlement. We also thought the bank should pay out for any subsequent time Ms B couldn’t work because of the infection, and should also compensate her for the inconvenience and stress caused by its incorrect decision to decline her claim.

However, it became apparent that Ms B had other pre-existing health problems that also contributed to her not working after she got the infection. She was entitled to claim insurance only for the period when the infection was the sole reason she couldn’t work. We asked the bank to reconsider its decision based on medical records that Ms B’s doctor had now provided. The records showed there were just three months in which the infection was the sole reason Ms B couldn’t work. Nonetheless, the bank offered to pay Ms B another two months’ insurance entitlement and $500 compensation for inconvenience, which she accepted.