How to win an insurance complaint and resolve a 3 rd party insurance debt
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How to win an insurance complaint and resolve a 3 rd party insurance debt. Denis Nelthorpe West Heidelberg Community Legal Service. Project Aim. Project Aims Propose a different process for dealing with insurance disputes

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How to win an insurance complaint and resolve a 3rd party insurance debt

Denis Nelthorpe

West Heidelberg Community Legal Service

Project Aim

  • Project Aims

    • Propose a different process for dealing with insurance disputes

    • Improve lawyer’s capacity to resolve insurance disputes through IDR & IOS

    • Propose advocacy & a systemic solution for 3rd party debt

Project history

  • Other aspects of the project

    • National Insurance Hotline (Consumer Credit Legal Centre )

      • See fact sheet: Insurance Contracts Act & Determinations

    • Australia wide project & project partners

Approach for the day

  • Session Aim

    • Participants will understand

      • How to use IDR & IOS to solve disputed claims and 3rd party debts

      • How to use Industry Code to resolve claims & write off debts

  • Materials

    • Powerpoint notes

    • Fact sheets

    • Case studies

Key reference material

  • ASIC – Corporations Act

  • Insurance Industry Code of Practice (COP)


  • Insurance Ombudsman ‘Terms of Reference’ (TOR)


  • Insurance Contracts Act

    • See Fact Sheet: Insurance Contracts Act and IOS Determinations

Regulation of IDR & IOS

  • Corporations Act 2001 S 912A

    • A mandatory obligation for all licensees

    • s912A(2) a dispute resolution system

      • Internal dispute resolution procedures, and

      • Membership of an approved (EDR) scheme

  • Corporate Governance

    • IOS - Independent Board of Directors

    • IOS – Reporting to ASIC

    • COP – Independent Code Compliance Committee

  • Facts about IDR & IOS

    2,910,419 claims are made to insurers last year

    Rejected & Disputed Claims

    63,700 claims rejected

    11,800 claims disputed at IDR

    1870 claims disputed at IOS

    Note massive slippage – includes your clients

    Win / Loss Ratio

    28% consumers win at IDR

    36% consumers win at IOS

    Court comparison

    Not Again!

    Dealing with 3rd party debt

    Case study

    • John comes to the legal service

      • Read the case study and answer the following question:

      • What is the classic legal strategy for dealing with a matter like this?

    3rd party debt: classic legal strategy

    • Client with letter of demand

    • Respond to lawyer/debt collector

      • Deny liability

      • Argue Apportionment

    • Advise client is judgment proof

      • (No assets > $5000 & Centrelink income)

    • Consider case study: legal advice

    3rd party debt: classic outcomes for clients

    • Argy-bargy for months

    • Debt summons to client

    • Possible bankruptcy

    • If lucky – A write off

    • If unlucky - Matter disappears

      • Lawyer loses track

      • Client might borrow or bankrupt

    • What is your experience?

      • Bankruptcy

      • Write it off – the debt is waived

    3rd party debt: new approach

    • Advisors

      • Bypass lawyers and debt collectors

      • Go to Insurance company internal dispute resolution process (IDR)

      • Refer to Code – Financial Hardship

      • Ask IDR for write off – draft letter

      • If unsuccessful – CCLC Hotline or IOS Code complaint – draft letter

      • If still unsuccessful – CCLC or IOS intervention

        • Will only fix the code complaint with insurer

    Bypass the lawyer?

    • Is it a breach of professional ethics?

      • No – The Code requires referral to IDR

      • Lawyers are subject to the Code

      • Refer to Code of Practice

        • 3:10 refer to ASIC & ACCC guidelines

        • 3:11 Financial Hardship

        • 3:12 financial counsellors/ IDR

    Internal dispute resolution

    • Why would you be wary of referring a client to IDR?

    Facts about IDR & IOS

    • IDR is a specialist role within company

    • IDR statutory requirement

    • Amounts in dispute

      • 51% of disputes less than $5,000

      • 66% of disputes less than $10,000

        • Figures do not include 3rd party debt

    • If matter referred to IOS

      • Insurer pays - consumer free

    3rd party debt – new approach outcomes

    • Clearer process

    • Write off more likely

    • IDR/IOS avoids Courts & legal costs

    • Benefits for the client

      • Less worry

      • Client has closure as matter is finalised

    • Benefits for a lawyer / financial counsellor

      • More focused advocacy

      • Engaged in a process that will lead to systemic change

    David v Goliath

    Disputed claims

    Case study

    • Susan comes to the legal service

      • Read the case study and answer the following question:

        • What would you do if a matter like this came into the service?

        • Would you expect the claim to be paid?

    Disputed claims – Current Practice

    • Lawyer/financial counsellor responses

      • Be outraged – wonder what to do?

      • Look for expert assistance

        • Legal aid/pro bono barrister

        • If unavailable –refer elsewhere

    Disputed claims classic legal outcomes

    • Clients lose

      • Claims are not pursued in Court or ADR

      • Clients are out of pocket

      • Clients lose faith in insurance

    • Advisors lose

      • Clients are uninsured

      • Poor insurance practice not addressed

    Disputed claims – What to do?

    • Claim refused: get instructions on basis for refusal

      • See Fact Sheet: Insurance Contracts Act and IOS determination

    • Refer dispute direct to CCLC Hotline

    • Then refer to insurer’s IDR – See draft letter

      • Ring IOS or CCLC Hotline for IDR phone number and contact

      • See Fact Sheet: Insurance claims and dispute timelines

    • If no decision from insurer in 30 days refer to Hotline or IOS – See draft letters

    Benefits of new approach

    • System is paper based

      • Submissions by lawyers

      • Appearances discouraged

    • Avoids a Court process

    • Cost free to consumer and advisor

    • Decision made in favour of the consumer is binding on the insurer

    IOS process for disputes

    • IOS Process for dispute

      • TOR 8.1: Consumer Referral to IOS – 3 months

      • TOR 8.3: Insurer has 15 days to respond

      • TOR 8.3: insurer/ consumer exchange documents

      • IOS Benchmark: IOS to make decision – 3-4 months

      • IOS Benchmark: 95% resolved within 4 months

    • See IDR/IOS Timelines Handout & Draft letters of complaint

    IOS basis for decision

    • Basis for decision – IOS TOR 11:13

      • Fair and reasonable

      • Good insurance practice

      • Terms of policy

      • Established legal principles

    • Exclusions: cross examination – testing of evidence

    • Outcomes – is it binding?

      • IOS is binding on insurers not consumers

      • Consumers retain the right to litigate

    If the client thinks its unfair IOS might too!

    • Utmost good faith - The Act

    • Good industry practice – The Code

    • Fair and reasonable - IOS TOR

    • IOS decisions are based on more than the law

    Insurance Contracts Act – Utmost good faith

    • S13 Insurance Contracts Act 1984

      • A contract of insurance is based on the utmost good faith requiring each party to act towards the other party, with the utmost good faith.

    • The duty requires

      • insurers to act with due regard to the insured's interests in situations where there is a conflict of interest.

      • the insured to act honestly when dealing with the insurer

    The Code - good insurance practice

    Code of Practice for claims

    See Fact Sheet: Insurance claims and dispute timeline

    Defines time to processes

    Code 3.1: Accept or reject simple claims - 10 days

    Code 3.3: Update on complex claims - every 20 days

    Code 6.0: Claim refused – refer for IDR decision - 15 - 30 days

    Code 6.9: IDR Unsuccessful – referral to IOS

    All reference to days= business days

    Illustrative case study – Customer service standards

    Mary’s case

    The law: Your client did something wrong

    Just because your client has breached the Act or contract doesn’t mean the claim won’t succeed at IOS

    Disclosure Requirements

    Degree of Prejudice

    Fair & Reasonable – IOS TOR

    • In arriving at a determination a Panel, Referee or Adjudicator shall have regard to what is fair and reasonable in all the circumstances; regard must also be had to good insurance practice, the terms of the policy, and established legal principle.

    • Determination referral: 24746

      “The Panel has focussed on what it believes is fair and reasonable in the circumstances and good industry practice.”

    Insurance Contracts Act - Disclosure

    • Insured has a duty to disclose relevant information

      • S 21A – The insurer to ask specific questions of the insured;

      • S 22 The insurer to provide written warning about the consequences of non disclosure

      • Philip’s case

    Insurance Contracts Act – Breach of Contract

    • Consumer may challenge a rejected claim where:

      • A term or condition of the policy is breached

      • An alleged act or omission has occurred

      • BUT the Insurer has NOT suffered prejudice

    • Insurer’s decision is subject to:

      • S13 & S14 “utmost good faith”

      • S35 standard cover requirements

      • S37 requirements to notify insured of unusual policy conditions

      • S46 & 47 forgive pre existing defect, sickness or disability due to lack of knowledge

      • S54 Payment based on lack of prejudice to the insurer


    • Project Aim: Ensure that clients are given the best advice when dealing with an insurance dispute

    • Insurer’s IDR and IOS provide an under utilised avenue for consumers to appeal insurer decisions

    • Still not sure what to do? Ring:

      • CLCC HOTLINE 1300 66 34 64

      • IOS 1800 078 078

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