This case concerns the fog of confusion that sometimes occurs when communicating with members about finding lost super and consolidating accounts. So who was best placed to deal with this fog?
The member thought she was agreeing to the trustee finding "lost super" and the trustee thought it had approval to consolidate the member’s account balance in another fund (not lost super) into its own fund. The member wished to be paid the transaction costs she incurred in reinstating her account balance in the other fund. The trustee refused to do so and it was this trustee decision that was under review. The background facts were that the trustee ran a competition amongst its members designed to increase its funds under management by assisting members to consolidate their super into the fund. The prize was an iPad and the competition was run by a third party provider.
The member entered the competition and, in doing so, signed the following consent:
"I consent to [Trustee] using my TFN to facilitate consolidation of my super amounts, including by using the ATO facility and contacting other super entities or RSA providers. I note that [Trustee] may provide my TFN and other information to the ATO for the purposes of searching its lost super members register and its super guarantee and SHA special account records and that [Trustee] will receive the result of that search."
The member states she received an undated "success letter" on 29 July 2014 which advised her that the ATO search had been successful and asked her to check and sign the attached form and return it in the envelope provided. The member thought the success letter was only in respect of lost super, whereas, in fact, it was her balance in another fund and she had no desire to consolidate that into the fund.
The success letter had been automatically populated with information provided by the ATO and it gave the name of the trustee of the other fund instead of the name of the super product to which the member was familiar. She simply misunderstood the information provided to her and, accordingly, agreed in writing to the transfer taking place. On 19 August 2014, the trustee provided the member with another letter containing additional details. It was this letter that gave the member an opportunity to understand that the situation was no longer about lost super. The member asserted, and the Tribunal accepted, that this letter was not received by her until 27 August and “by this time, the fog had weaved its havoc” and the transaction costs had been incurred.
The Tribunal held that the trustee had the capacity to properly advise the member but had decided to delay doing so “presumably for cost-efficiency reasons” and had relied on “straight through processing”. Given this, the Tribunal decided that the trustee ultimately bore responsibility for failing to properly inform the member and it ordered the trustee to pay the transaction costs, together with interest at the fund’s cash rate, by way of compromise into the member’s other fund.
This case concerns the insurer’s decision to delay paying out a $400,000 death benefit and the trustee’s decision to agree with the insurer’s actions. The Tribunal found against both the trustee and the insurer.
The deceased member had completed a binding death benefit nomination in favour of his two children who were the complainants in this case.
In December 2008, the member applied to increase his death cover which was accepted by the insurer in February 2009. The member was then diagnosed with cutaneous lymphoma and mycosis fungoides in mid-July 2010 and this illness caused his death on 3 December 2012. The death certificate recorded, amongst other matters, that he was suffering T-cell lymphoma mycosis fungoides for “years”. This caused the insurer to question whether the deceased may have breached his section 21 duty of disclosure obligation pursuant to the Insurance Contracts Act 1984 (Cth) when applying for the increased death cover.
The insurer was advised of the death in March 2013 and in April 2013, commenced inquiries to ascertain if non-disclosure was an issue. This resulted in the deceased’s treating general practitioner writing a letter dated 22 April 2013 confirming the deceased “was diagnosed by Dr [name] (dermatologist) on 25 June 2010 and it was confirmed by Dr [name] Haematologist [sic] on 13 July 2010”. The insurer received this letter on 16 May 2013.
Instead of accepting the treating doctor’s evidence as to when the deceased first became aware of his illness, the insurer advised the trustee it needed additional information – effectively five years of medical records. The issue before the Tribunal was whether asking for further medical records and the delay that this caused was reasonable.
The Tribunal noted that the three-year anniversary of the increased death cover contract was 25 February 2012 and that pursuant to sub-section 29(3) of the Insurance Contracts Act, only fraudulent non-disclosure entitled the insurer to avoid paying out the insured amount.
The test for fraudulent non-disclosure is contained in the High Court’s decision of Briginshaw v Briginshaw  HCA 34 and the Tribunal concluded that, in the context of the high standard of proof required by this case, the letter from the treating general practitioner that the insurer received on 16 May 2013 “was sufficient for a reasonable insurer to conclude that no fraudulent non-disclosure had been perpetrated”. Accordingly, the fact that the insurer persisted in its interrogatory efforts was unreasonable.
The Tribunal concluded that if the insurer had acted appropriately, it would have accepted the evidence of the deceased’s treating doctor and paid out the benefit by the end of May, namely 15 days after receiving the letter. It therefore held that the insurer unreasonably withheld payment of the benefit from 30 May 2013 to 17 December 2013 and interest was now owing for that period pursuant to the penalty interest provisions inherent in section 57 of the Insurance Contracts Act.
The decision of the Tribunal not only required the insurer to pay the relevant interest amount to the trustee, but also for the trustee to independently confirm the accuracy of the insurer’s interest calculation, and then to pay the two children this additional money in the same manner as it had paid the original death benefit on 2 January 2014.
This devil is always in the detail. Here the Tribunal had to decide whether the trustee’s decision to not refund the cost of insurance premiums was fair and reasonable. It decided that some refund was required but this was not exactly the result the member wanted.
The member sent a letter to his former fund on 3 September 2003 requesting his death and disability insurance be cancelled and advising of a change of address. The trustee changed its records regarding his address and wrote to him on 5 September advising that if he cancelled his insurance he would no longer be eligible to join the defined benefit option. The Tribunal found this letter conveyed the impression that the insurance had already been cancelled by saying – “Should you elect to reinstate your insurance cover…” and “By relinquishing your insurance cover…”. The letter did not clearly advise that his cover would only be cancelled if he signed and returned an enclosed form. It was therefore reasonable for the member to think his cover had been cancelled by his earlier actions.
The trustee never received the form from the member and it never followed him up even though it had clear instructions to cancel his insurance. For this reason, the Tribunal concluded it would have been fair and reasonable to refund his premiums from 3 September 2003 – but the facts get more convoluted at this point.
The former fund introduced new insurance arrangements effective 1 July 2004. Communications were sent to members from May 2004 to the effect that members would get automatic cover but could opt out if they so wished. This meant that had the member’s cover been cancelled in September 2003, it would have been reinstated effective 1 July 2004 unless he had taken action to opt out once more.
The Tribunal then considered all the communication materials the member had received from July 2004 to March 2014 (when cover was eventually cancelled), including annual statements from the former fund and the fund that clearly showed insured death and disability amounts and insurance premiums being deducted from his account. The member submitted he simply did not read his statements carefully. The upshot of all this was the Tribunal decided it was fair and reasonable for the trustee of the former fund to introduce automatic cover on 1 July 2004 and the member was only entitled to recover the premiums from 3 September 2003 to 1 July 2004. He was not entitled to recover the premiums that were deducted for nearly the next 10 years.
This article was first published in Super Funds, 1 February 2017.