Have you browsed through a couple of this blog’s previous posts? For example, have you read how a workcover victim is being treated by Xchanging? Have you – like me – ever wondered whether you could ‘sue’ your case manager (workcover insurance carrier) for acting in ‘bad faith‘? Have you, by any chance, read any John Grisham novels? If so, you probably have heard about successful claims made in America and in Canada against workcover insurers for acting in bad faith. The question is are such claims fact or fiction for insurers in Australia? Aworkcovervictimsdiary.com has been researching whether or not a workcover insurer owes the duty to act in good faith….
Bad Faith Claim Practices (aka unfair insurance claim practices)
Bad faith insurance practices occur when a company knowingly and intentionally denies payment of a legitimate claim by using several different tactics. These tactics include failure to investigate claims promptly and thoroughly, delaying and underpaying claims, misinterpreting policy language, and failing to communicate honestly with the insurer regarding claims. A key word in bad faith practices is “unreasonable“.
Unfortunately, many companies will continue to practice bad faith in hopes the insured will just “go away” and drop the claims
Unfair insurance claim practices can include the following:
- Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue
- Failing to acknowledge and act with reasonable promptness upon communications with respect to claims arising under insurance policies
- Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies
- Refusing to pay claims without conducting a reasonable investigation based upon all available information
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed
- Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear
- Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled to
- Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information
- Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim
A case of bad faith workcover claim practice in Australia
In July 2006 a District Court Judge in NSW determined that a workcover insurer owed a duty to act in good faith in dealing with claims under workers compensation insurance contracts. This was a novel tort which Australian Courts had previously shied away from. Other cases had considered that such claims were arguable but no judgments had been delivered confirming that such a tort existed in Australia. The decision of the District Court Judge in Garcia – v – CGU Workers Compensation (NSW) Limited established for the first time a novel tortuous liability. This, unfortunately and inevitably led to an appeal.
The duty of utmost good faith is not a new concept to insurers in Australia.
The Insurance Contracts Act 1984 contains provisions which impute an implied term in an insurance contract which obliges parties to an insurance contract to act with utmost good faith.
A breach of the implied condition in the contract will sound in damages.
However, the Insurance Contracts Act, 1984 specifically excludes any application to the workers compensation regimes throughout Australia – how CONVENIENT -not!!!!
So can a duty of utmost good faith be imputed into an insurance contract without the assistance of the Insurance Contracts Act, 1984?
Garcia, in his appeal before the Court of Appeal, was forced to argue that either the new tort of bad faith should exist in Australia or alternatively that there should be implied into the workers compensation contract of insurance an implied term requiring the insurer to deal fairly and act in good faith when dealing with claims. Garcia could not rely on the Insurance Contracts Act, 1984 to establish an implied term in the agreement requiring the insurer to act with utmost good faith. The NSW Court of Appeal handed down a decision in Garcia’s appeal on 10 August 2007.
The NSW Court of Appeal decision overturned the controversial decision of Garcia -v – CGU Workers Compensation (NSW) Limited where District Court Judge Goldring had held that a workers compensation insurer had acted in breach of good faith in failing to deal fairly with a workers compensation claim.
Garcia had been injured and a claim for workers compensation was accepted. The insurer obtained medical evidence which largely supported the claim. Further investigations were commissioned by the insurer, an investigator was appointed and a further medical examination arranged. The insurer subsequently decided to discontinue weekly payments.
Garcia commenced proceedings in the District Court claiming damages for an alleged breach of a novel tort which, according to Garcia, imposed a duty of good faith on the insurer which arose independent of the legislative scheme.
The District Court Judge accepted Garcia’s arguments which in essence introduced a novel tort to Australia – the tort of bad faith. Workers compensation insurers and insurers generally were then faced with a potential that claims could be made against the insurers if they did not act in good faith when dealing with claims.
In Garcia’s case the Trial Judge found that the insurer’s actions in ceasing periodic payments and refusing to pay for surgery to the worker’s spine at the time recommended by his doctor significantly aggravated the worker’s major depressive illness.
The Trial Judge described the approach of the insurer in the following terms:
All the evidence is, however, that the insurer . . . was already predisposed, if not totally prejudiced, against the plaintiff and used the report of Dr Hughes, which was contrary to all other medical reports, as a pretext arbitrarily to cease paying the entitlement of the plaintiff. In my view the actions of the insurer could be described as contrary to all reasonable standards of commercial behaviour and malicious. . . . In this case I conclude that the insurer did not act in good faith. It certainly had no obligation to subordinate its legitimate interest to that of the plaintiff as some of the plaintiff’s submissions seemed to suggest but it appeared to act contrary to all relevant evidence and to fail to obtain material which would have indicated that the plaintiff’s claim was justified. In doing so it did not act honestly or regard properly the plaintiff’s legitimate interests. . . . The insurer’s actions in stopping the periodic payments to the plaintiff was done in bad faith. It was malicious, reprehensible and done in total disregard to the plaintiff’s rights and of his health.
The Trial Judge then went on to award damages which included $90,000.00 for pain and suffering, medical expenses, wage loss approximating at $155,000.00, domestic assistance in the vicinity of $100,000.00 and punitive damages of $50,000.00. Punitive damages effectively punished the malicious attitude of the insurer.
The NSW Court of Appeal has now overturned the Trial Judge’s decision rejecting the notion of the novel tort of bad faith.
In rejecting the concept, the Court of Appeal has noted that Australian law has not developed to the stage that there should be recognition of a new tort which imposes a duty of good faith on an insurer operating within a statutory workers compensation regime.
Garcia, in the Court of Appeal, argued that there should be an implied term in the workers compensation contract of insurance that the insurer should act in good faith in its dealing with claims. This argument was also rejected.
The Court of Appeal noted that the Insurance Contracts Act, 1984 contains provisions which impose duties on insurers to act with utmost good faith. However, the Insurance Contracts Act does not apply to workers compensation contracts of insurance. The Court of Appeal confirmed that the statutory regime in NSW and the relationship between workers compensation insurers, employers and workers was not such that there should be imposed into a workers compensation insurance contract an implied obligation of good faith and reasonableness in the performance of contractual obligations.
The importance of the Court of Appeal’s Judgment does not end there. The Court of Appeal also confirmed that Australia has thus far not accepted exemplary damages for breach of contract and even if it was an implied term in a workers compensation insurance contract that an insurer must act with utmost good faith, a breach of such a term would not sound in punitive damages.
The end result is that the Nominal Insurer in NSW and Scheme Agents can now rest easy when confronted with claims by claimants that they have acted in bad faith in their dealings with a compensation claim.
Australia does not recognise the tort of acting in bad faith. Further, there is no term implied in a workers compensation insurance contract that the insurer must act in good faith.
Isn’t it typical again that workcover insurers are exempt? This is absolutely ridiculous!
What are your thoughts?
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