Feature
Insurer remedies for fraudulent claims
by Andrew Horne and Nick Frith
I
n its recent decision in Taylor v Asteron Life Ltd, the Court of Appeal discusses the fraudulent claims rule – the first time that this rule has been considered in any detail by an appellate court in New Zealand. The court held that under this rule, a term is implied into every insurance contract, requiring the insured to act honestly when making a claim. If the insured fails to do so in any material respect, the whole of the fraudulent claim is disallowed – and the insurer may cancel the insurance policy prospectively pursuant to the Contract and Commercial Law Act 2017 (CCLA). Background This case concerns the conduct of a Mr Taylor, a self-employed insurance broker. In 1994, Taylor purchased an income protection policy with Asteron. Taylor subsequently developed a medical condition and in July 2010, he made a claim under his policy on the basis that he was “totally disabled”. “Totally disabled” was defined in his policy to mean where the insured is “unable to work in your usual occupation for more than ten hours per week”. Asteron accepted Taylor’s claim and made payments under the policy until September 2014, when Taylor failed to provide it with financial information it requested. Taylor issued proceedings, seeking a declaration that he was entitled to continuing benefits under the policy and to recover arrears of payments. Through the discovery process, information came to light which indicated that Taylor had continued to work extensively at his broking business. Asteron accordingly denied that Taylor was entitled to further payments and counterclaimed for repayment of all sums previously paid under the policy. Its counterclaim was advanced on the 30
December 2020
basis that Taylor owed Asteron a duty of utmost good faith in connection with insurance claims, which had been breached by his false statements as to the hours he worked during the relevant period.Taylor denied this. In the first instance, the High Court held that Taylor was not “totally disabled”, as defined in the policy. He was not even partially disabled, which was defined in his policy to mean that the insured is working but because of a qualifying illness is earning 75% or less of the insured’s monthly insured income. Taylor’s claims for a declaration and payment of arrears were dismissed. The High Court further upheld Asteron’s counter-claim, finding that it could recover all sums previously paid under the policy as a result of Taylor’s misrepresentations. Court of Appeal decision The High Court’s findings in relation to Taylor’s claim were upheld on appeal.The Court of Appeal agreed with the High Court that Taylor was not "totally disabled" from July 23, 2010 onwards, relying on evidence that Taylor regularly worked more than 10 hours per week during the relevant period. The court agreed that even if Taylor was totally disabled, he was not entitled to be paid any benefits because his policy provided for the amount of any monthly total disability benefit to be reduced by monthly earned income. In relation to Asteron’s counterclaim for a breach of the duty of good faith, the court noted the unusual positions taken by the parties. Asteron argued that to show a breach of this obligation, it needed to show that Taylor deliberately misled Asteron. For his part, Taylor argued that there was no dishonesty requirement; conduct falling short of dishonesty could breach an obligation of good faith. Taylor said that dishonesty had not been put in issue and that it was therefore wrong for the High Court to make a finding that he had been dishonest.
