Boyes, Joshua --- "Observations of Underwriting the 'Risk' of Mental Health" [2023] PrecedentAULA 55; (2023) 178 Precedent 32

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Observations of underwriting the ‘risk’ of mental health

By Joshua Boyes

Mental health conditions have shed some of their stigma, giving license to those suffering symptoms to seek treatment as one would for phsycial ailments. However, practising this ‘self-care’ puts those pursuing life insurance cover at the behest of insurers’ underwriting guidelines, sometimes leading to exclusions and other barriers to what should be invaluable cover, contrary to shifting public attitudes.

Quite often, the media points to sportspeople, pop stars and other public figures taking the right steps to address mental health concerns.

The messaging often underpinning such articles is that we ought to be more open with our mental health concerns, and are permitted to take more time for self-care. Recent examples include the AFL’s initiative ‘Spud’s game: A match for mental health’;^[1] the ‘warm cheers’ of a crowd of thousands in support of singer-songwriter Lewis Capaldi at Glastonbury when he was open with his mental health experience,^[2] and even this journal, which has encouraged members of our industry to be more intune with our mental health.^[3] One question this raises for me, as a legal representative for clients pursuing disability insurance benefits, is how anyone can manage to practise self-care the way we are encouraged to and also obtain disability insurance cover that is free of exclusions.

This situation creates a divergence between the reasonable expectations of members of the public when seeking appropriate insurance cover and the real-world application of the terms, conditions and underwriting guidelines of the insurance policies made available to individuals directly or members of a superannuation fund. Too often, I receive instructions from clients who have attempted to make claims on their own but been caught out by an insurer’s view of their previous mental health. Clients often say they were never diagnosed or medicated and that the cause of the insurer’s concern is a singular or irregular attendance to a treating practitioner.

The problem, as I interpret it, is that there remains in the insurance sector an archaic view of mental health conditions, no matter how slight, as rendering applicants tarred-and-feathered with unacceptable risk. I argue that such a rudimentary appreciation of mental health is contrary to the mutual duty of utmost good faith that has stood for over two centuries, as shown in Carter v Boehm ^[4] and codified in the Insurance Contracts Act 1984 (Cth) (the Act) ^[5]. While one could exhaust themselves listing judgments on breaches of utmost good faith, Australian Securities and Investments Commission v TAL Life Ltd (No 2)^[6] provides a discussion of the surrounding case law and examination of its application.

For the purposes of this article, I refer to anecdotal evidence based on my experience bringing disability insurance claims. Clients remain anonymous due to the ongoing nature of their claims or because sense prevailed and an insurer accepted liability under the policy. These observations need to be shared, however, as they contrast the behaviour of insurers with their obligation to act in the utmost good faith and shifting public views of mental health. I split my observations of an insurer’s approach to mental health concerns into the following three categories of a claim’s chronology: application and underwriting; exclusions on the policy; and the making of a claim.

APPLICATION AND UNDERWRITING

Some prudent readers may have enjoyed delving into their own personal history by way of completing an application for insurance cover. They may have picked up that the application process for insurance cover is underpinned by requirements, most notably the insured’s duty of disclosure under s21 of the Act, which states that ‘an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant’.

Herein lies a monumental complication for the applicant, especially for those who were ‘never diagnosed nor medicated’, in working out which matters become disclosable and why.

The quantity of risk an insurer is willing to take on depends on their underwriting guidelines. Underwriting guidelines are fairly unique to each insurer and at times also involve a reinsurer.

Examples of differing views of pre-application treatment between underwriters and plaintiffs vary from, for example, treatment solicited by a chiropractor^[7] and, in another example, a plaintiff attending practitioners following family deaths and other life events with the genuine belief that the symptoms she sought treatment for didn’t identify as a material injury or illness.^[8]

It is difficult to comment on the contents of any specific insurer’s underwriting guidelines given how closely kept they are under the assertion of ‘commercial-in-confidence’ despite an insurer’s reliance on them to deny a benefit. This is the case even when it has worked against an insurer in the past, as shown in Westpac Life Insurance Services Ltd v Guirgis, where the Court provided their view on an insurer’s failure to provide the relevant guidelines, ‘a failure ... to prove the very thing the [insurer] sought to prove – namely, that its written guidelines would have prevented the writing of the policy’.^[9] The purpose of such guidelines is not only to guide an underwriter in their assessment of whether an insurer should accept the risk based on disclosures and other information known about the applicant, but also to establish later a ‘retrospective opinion’ and a basis to avoid cover, a remedy that the Act allows.^[10] More on this later.

Based on many underwriting guidelines, the questions posed on application forms can be far-reaching, addressing family history, genetic testing and the use of ‘have you ever’ in questions. By way of research, this query arose upon my own application to increase cover:

‘Apart from anything you have already disclosed, in your lifetime have you ever

• Been diagnosed with, or had signs or symptoms of; or

• Been treated (or prescribed treatment) for any of the following conditions:

Any mental health condition or fatigue-related disorder (for example: stress (including PTSD), anxiety, depression, schizophrenia or bipolar disorders; any eating disorder; any fatigue-related condition such as Chronic Fatigue Syndrome, chronic insomnia etc.’

In this extended version, one could miss the question:

‘in your lifetime have you ever ... had signs or symptoms of ... stress.’

Given what I have observed in my personal and professional experience, you would be unfathomably bold not to tick ‘yes’. As a father of two under the age of three who needs to negotiate Melbourne’s public transport system to attend a full-time job as a lawyer, I could not possibly select ‘no’ with a straight face.

The standard of a disclosure becomes even more problematic when an application is completed over the telephone or via a financial adviser. I once observed too jovial a disclosure of anxiety at work over the phone, which was not taken seriously by the insurer’s representative, leading to an alleged ‘non-disclosure’. Comments akin to ‘the financial adviser told me not to worry about it’ arise.

This section of the article is not intended to diminish an insurer’s right to know the extent of the risk they are to cover, especially as the insured amounts lead into millions of dollars based upon an individual’s capacity to work. An insurer being forced to take on unreasonable risk may lead to the breakdown of the industry entirely. What is of most concern is not the questions but the extent to which insurers may be entitled to deny or alter cover based on instances of comparatively innocuous treatment in an applicant’s mental health history.

Some guidelines require investigation into an applicant’s mental health history that go back well over a decade. Some do not provide any time consideration at all, potentially leading to an unfair and open-ended enquiry.

In one client’s recent claim experience, investigations are underway by an insurer as to whether a policy should be avoided under the Act as it is alleged that there was a failure to disclose treatment of a mental health concern 12 years prior to the application for insurance cover. That same insured person disclosed a more recent mental health concern at the application stage, and the insurer accepted the cover subject to a mental health exclusion – and the claim is being made on the basis of a physical injury. It is difficult to reconcile such an investigation with the nurturing crowd at Glastonbury.

EXCLUSIONS ON THE POLICY

Hopefully gone are the days in which ‘blanket exclusion’ provisions render polices discriminatory and inoperable, as seen in Ingram v QBE Insurance (Australia) Ltd.^[11]

However, the success of Ms Ingram in highlighting insurance law’s attitude to mental health does not easily translate when an applicant seeks to commence or increase insurance cover.

I have no qualms in disclosing that on one attempt to alter my life insurance policy for total and permanent disability (TPD) benefits, I was offered cover with an exclusion for mental health concerns. Presumably, this was based upon my attendances to a psychologist via an Employee Assist Program (EAP) to discuss concerns at work and relative isolation in the new city I then lived in. I found the consultations through this program to be enriching and empowering, aiding me immeasurably. I was not diagnosed with a condition and had no time off work. I made the application more than two years after these attendances to the psychologist via the EAP.

Upon their review of my application and the records they gathered, the insurer saw fit to offer cover with the following exclusion:

‘No Total and Permanent Disablement benefits shall be payable under this policy for any total and permanent disability, arising from or contributed to by stress (including post traumatic stress), fatigue, physical symptoms of a psychiatric illness or condition, anxiety, depression, psychoneurotic, psychotic, personality, emotional or behavioural disorders or disorders related to substance abuse or dependency (which includes alcohol, drug or chemical abuse or dependency) ...’

After much excitement, including demands for an explanation of the need for an exclusion, a request for the underwriting guidelines, and a threat to the Australian Financial Complaints Authority (AFCA), the policy was later offered without an exclusion.

Similar and excessively broad exclusions abound in different forms from different insurers and raise two concerns:

1. The expression of ‘arising from or contributed to by...’ carries the potential for an insurer to apply an exclusion upon an instance where the insured person can be understandably downcast by, say, a cancer diagnosis and/or their simple inability to work, especially seen in loyal employees feeling abandoned by their employer during a workers compensation claim. There are regular and extraordinary examples of stoicism here, but I have observed that a claim can be at least delayed, and at worst denied, by the unfairly broad extension of an exclusion.

2. The diagnosis and treatment of mental health concerns has come far enough to define one from another (for example, post-traumatic stress disorder (PTSD) found on a internalising spectrum, as opposed to psychosis found on a thought-disorder spectrum).^[12] An insurer acting in utmost good faith ought to be able to see the significant difference between a history of depressed mood, which may attract a fair specific exclusion, to the onset of PTSD upon a real and present threat to a person’s life. Under the above exclusion offered to me, this distinction was not present. To make a comparison to physical injuries, an insurer may as well be enabled to apply exclusions regarding bilateral knee injuries to oppose a claim based on a shoulder injury occurring from an entirely different event.

The problem is the strict application of a broad exclusion limiting legitimate claims in a way that is certainly not experienced in the consideration of physical concerns. It is my view that exclusions ought not to be so onerously broad. There is scope for sufficient specifications that protect both the insurer and insured.

THE CLAIM

An insured person may have received insurance cover free of exclusions but have unfortunately suffered a downturn in their health to a point of requiring a claim for the benefits that cover provides. This section focuses on the claim that is then entangled in arguments of non-disclosure and/or misrepresentation.

Section 29 of the Act provides remedies for the insurer when they have established ‘a failure by the insured to comply with the duty of disclosure’.^[13] These remedies are only available after the insurer overcomes significant hurdles, including proving that a relevant failure was fraudulent, however, examples, such as AIA Australia Ltd v Sharma^[14] abound.

What can be confusing for the everyday claimant is that such concerns in their medical history can be relied upon by the insurer despite impeccable health subsequent to the application.

An insured person may well work freely without restriction while covered by a policy for years, only to find after the making of a claim that a ‘relevant failure’ as defined under the Act was committed based on conditions occurring before the contract of insurance cover was entered into.

Marriage breakups, deaths in the family^[15] and loss of jobs have all been observed in my file work and elsewhere to have an impact on claims from delay to complete avoidance of the policy. Why are such singular episodes in an insured’s life being relied upon to suggest that they are a risk not worth accepting? Are there no grounds for an insured person to point to a flawless leave record in their employment post-application to counter allegations that their marriage breakup prior to the application was indicative of an unacceptable risk?

CONCLUSION

A contest is entrenched between the insurer and the insured when the latter makes exhaustive effort in accordance with their own obligation to act in utmost good faith, only for irrelevant or innocuous detail to be raised by the former as a shield against a life/lifestyle-saving benefit the insured has spent years believing was properly in place.

I have deliberately referred in this article to anecdotal examples from my professional and personal life to suggest that these problems can have an impact on any reasonable person seeking life insurance the moment they test the boundaries of the guidelines, whether knowingly or not.

This article is dedicated to Greg Pynt, a barrister in WA who I learned a lot from during my time there.

Joshua Boyes is a practice leader and senior associate in the disability insurance and superannuation practice of Shine Lawyers. EMAIL [e-mail].

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^[1] J Pierik, ‘“Never quite the same”: Frawley legacy lives on, but Harvey still feels the loss’, The Age (23 June 2023) <https://www.theage.com.au/sport/afl/never-quite-the-same-frawley-legacy-lives-on-but-harvey-still-feels-the-loss-20230620-p5dhvc.html>.

^[2] J Halliday, ‘Lewis Capaldi announces he needs a mental health break after Glastonbury’, The Guardian (News article, 25 June 2023) <https://www.theguardian.com/music/2023/jun/24/lewis-capaldi-announces-mental-health-break-after-glastonbury>.

^[3] T Douge, ‘Wellbeing in the legal profession’ (September/October 2020) 160 Precedent 18.

^[4] [1766] EngR 157; (1766) 97 ER 1162.

^[5] Insurance Contracts Act 1984 (Cth), s13.

^[6] [2021] FCA 193; (2021) 389 ALR 128, from [170].

^[7] Hoare v Mercantile Mutual Life Assurance Co Ltd [2000] NSWSC 1026, [70].

^[8] Dew v Suncorp Life and Superannuation Ltd [2001] QSC 252 (Dew).

^[9] [2015] VSCA 239, [56].

^[10] Insurance Contracts Act 1984 (Cth), s29.

^[11] [2015] VCAT 1936.

^[12] DJ Stein et al ‘Psychiatric diagnosis and treatment in the 21st century: Paradigm shifts versus incremental integration’ (October 2022) 21(3) World Psychiatry 393 – accessed on 28 June 2023 (https://onlinelibrary.wiley.com/doi/full/10.1002/wps.20998).

^[13] As defined by s27AA.

^[14] [2023] FCAFC 42; (2023) 408 ALR 490.

^[15] Dew, above note 8.