Are you really protected by your insurance?

The Victorian Civil and Administrative Tribunal (VCAT) has found that blanket exceptions for mental illness in insurance policies can amount to discrimination under the Equal Opportunity Act, 2010. 

The Tribunal considered this question last year when a case was brought against QBE insurance by a young woman who had her travel insurance claim denied on the basis that her insurance policy excluded any claim directly or indirectly caused by a mental illness.

In 2011, seventeen-year-old Ella Ingram purchased a travel insurance policy with QBE Insurance for an overseas study trip. She had no pre-existing illnesses at that time. In early 2012, Ms Ingram was diagnosed with a depressive illness and cancelled her trip under medical advice.

QBE Insurance claimed the blanket exclusion in their insurance policy was based on detailed statistical modelling and an analysis of claims arising from a range of causes, including mental illness, which showed that there is a high risk of cancellation by reason of mental illness. As such, QBE claimed that even if it had discriminated against Ms Ingram (which it denied), the discrimination was lawful by reason of statutory exceptions under existing discrimination laws.

Legislation

The Victorian Equal Opportunity Act 2010 (as well as the Commonwealth Disability Discrimination Act 1991) prohibits discrimination because of a person’s disability when providing goods and services.

Under Section 47 of the Victorian Act, an insurer can lawfully discriminate against another person on the basis of a disability (or other attribute) by refusing to provide an insurance policy to the other person, or in the terms on which an insurance policy is provided, if:-

  1. the discrimination is based on reasonable actuarial and statistical data and, taking into account that data and other relevant factors, the discrimination is reasonable or if (and only if) actuarial or statistical data is not available or reasonably obtainable, the discrimination is reasonable taking into account any other relevant factors (actuarial and statistical data exception); and
  2. avoiding the discrimination would cause an unjustifiable hardship on the insurer (unjustifiable hardship exception).

The insurer bears the onus of proving the above defences once the complainant has proved unlawful discrimination.

Although neither QBE or Ms Ingram were aware that she might later develop depression when she was issued the policy, the Tribunal held that she was nonetheless a person for whom a disability may exist in the future, and was therefore covered by the definition of “disability” within Section 4 of the Victorian Act.

The Tribunal held that QBE directly discriminated against Ms Ingram by:-

  1. including the mental illness exclusion clause, which unfavourably treats any person (including Ms Ingram in this case) who develops a mental illness at some time during the life of the policy and makes a claim on that basis; and
  2. denying indemnity to Ms Ingram because of her mental illness. (There was no dispute that this amounted to unfavourable treatment on the basis of her disability).

‘Actuarial and statistical data’ exception not made out

The Tribunal found that QBE failed to prove that the statistical data it attempted to rely upon at the hearing existed when the policy was created, or was known to anyone involved in drafting or approving the policy wording.

‘Unjustifiable hardship’ exception not made out

In assessing the unjustifiable hardship exception, the Tribunal proceeded on the basis that if the exclusion clause were removed from the policy, the remaining terms would apply unchanged. In weighing up the considerations for the ‘unjustifiable hardship’ exception, the Tribunal found that:-

  • the community would benefit from the removal of the clause because this would lessen the stigmatising effect of negative attitudes towards mental illness; and
  • there was no proof that insurers would have to increase the price of travel insurance or bear losses for offering insurance at the current premium rates if the clause was removed.

As such, it found that the ‘unjustifiable hardship’ defence did not apply and “… the scales weigh in favour of people… being able to be properly assessed on their policy claims in the same way people with physical disabilities are assessed”.

Ms Ingram was awarded $4,292.48 for economic loss and $15,000 for non-economic loss in recognition of the hurt and humiliation caused by QBE’s stigmatising decision and the fear it caused Ms Ingram about future discrimination on the basis of her mental illness.

Beyondblue has released statistics from a survey it conducted in 2011 showing that two-thirds of respondents said it was difficult to obtain life insurance and income protection due to their mental health condition, 45% said their application for income protection was declined due to mental illness, and half either paid more or faced exclusions for mental illness claims.

If you believe that you have been discriminated against by an insurer in relation to a claim on your travel insurance, life insurance or any other policy, contact Brazel Moore Compensation Lawyers on (02) 4324 7699 to speak to an experienced compensation lawyer today.