Human rights and mental health exclusion clauses

In October 2012, Matthew travelled overseas for 3 weeks. Matthew had to return to New Zealand a week early and submitted his claim to his insurer for the $5,300 additional costs he incurred. On his claim form Matthew said the reason for his early return was an unforeseen and urgent business matter.

The insurance policy’s section on trip curtailment set out a number of situations when there would be cover. Matthew’s claim circumstances did not fit any of those sections but he could claim under the cancellation and lost deposits section of the policy. However, there was an exclusion clause excluding cover where cancellation fees or lost deposits arise from any business, financial, or contractual obligations (the business exclusion clause). On this basis, the insurer declined Matthew’s claim.

The 2016 claim

In 2016 Matthew contacted his insurer and asked it to review its 2012 decision. Matthew also lodged a complaint with the Human Rights Commission about the insurer because he considered the policy breached the Human Rights Act 1993. Matthew wanted the insurer to pay his claim and pay him $10,000 for hurt and stress.

The Australian case

The basis for Matthew’s 2016 claim was the outcome in an Australian court case that found a travel insurer had discriminated against its customer in terms of an exclusion clause relating to mental health. In that case, a young woman first developed a mental health condition after purchasing travel insurance and then had to cancel her trip. The insurer relied on a ‘blanket’ mental health exclusion, excluding any claim arising from the insured’s mental health.

The court said the insurer had to provide actuarial data to support having a ‘blanket’ mental health exclusion, and show that having such an exclusion was necessary to ensure the insurer did not suffer unreasonable financial losses. In other words, the insurer had to show that the risk of claims arising from insureds’ mental health was so risky, it was acceptable for all claims arising from mental health to be excluded. In the Australian case, the insurer was unable to meet that test.

Matthew’s insurer’s review

The insurer told Matthew it had no record of him ever making a claim in relation to his mental health. Matthew said he had written on his 2012 claim form that he curtailed his trip because of the urgent business matter, but in fact he also had to return early from his trip because he had suffered from poor mental health during the trip.

Matthew felt if he put down the full reason he had to return to New Zealand, his claim would have been rejected outright which would have caused him more distress, humiliation, and depression. Matthew said the business matter reason was a ‘convenient untruth’ for which he apologised.

The insurer declined Matthew’s 2016 claim and voided his policy because Matthew had knowingly provided false information. This was on the basis of a clause in the policy saying all information provided in support of a claim must be true and correct (the false statements and fraud clause). There was also a similar statement on Matthew’s completed claim form.

Matthew complained to FSCL.

Matthew’s view

Matthew said when he applied for cover in 2012, he disclosed that he suffered from post-traumatic stress disorder and severe depression. Matthew also said it was true he had to return home because of a business matter, but this was in conjunction with him suffering from poor mental health on his trip. Matthew was of the view the insurer’s policy was discriminatory and was void.

We wrote to Matthew and suggested the best organisation to review his complaint was the Human Rights Commission (which had by then referred Matthew’s complaint to the Human Rights Review Tribunal). The substantive issue in Matthew’s complaint was discrimination, and the Human Rights Review Tribunal (HRRT) had the specialist knowledge to decide whether the insurer had discriminated against him, or not.

Matthew did not accept this and wanted us to continue investigating his complaint for the following reasons:

Unfair contract term?

Matthew said the false statements and fraud clause was an unfair contract term under the Fair Trading Act 1986 (the FTA). Specifically, Matthew referred to section 46M of the FTA:

“…the following are examples of the kind of terms that, if in a consumer contract, may be unfair contract terms:

a)           a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract

b)           a term that permits, or has the effect of permitting, one party (but not the other party) to terminate the contract.”

Matthew said the insurer was relying on a contract term giving it the unilateral and unfettered discretion to either avoid performance of or terminate the contract, making it an unfair contract term.

The insurer referred to section 46L(4)(f) of the FTA which states:

“…in relation to contracts of insurance only, the following terms must be taken to be terms that are reasonably necessary in order to protect the legitimate interests of the insurer:

(f)           a term relating to the duty of utmost good faith that applies to parties to a contract of insurance.”

The insurer said the false statements and fraud clause in its policy was not an unfair contract term because it was in relation to the duty of utmost good faith.

No actuarial data

Matthew said the insurer provided no actuarial data to justify the general mental health exclusion clause. Matthew said the clause was discriminatory and, because of this, he was forced into not referring to his mental health condition as a reason why he returned early from his trip. Matthew felt the insurer had put him in this position and then relied on the false statement and fraud clause to decline his claim, which he considered unfair.

In addition, Matthew said the insurer had not established that what he wrote on his 2012 claim form was untrue, because it was true that he had an urgent business matter to attend to. By omitting to disclose his mental illness as part of the reason for returning home to New Zealand, Matthew considered he had not exposed the insurer to improper risk because his mental health condition had been disclosed when he took out the cover.

Other matters

Matthew considered the insurer had not conducted a proper investigation of his complaint, rushed to void his policy, and called him a fraudster in the HRRT court documents. Matthew said this was causing him additional stress and humiliation.

Matthew also referred to the UK Insurance Act 2015 to support his argument that even if some of the information provided on his claim form was fraudulent (which he did not accept), it did not mean the insurer could not assess his claim on the basis the reason for the curtailment was the business matter and his mental health condition.

Our view

Ultimately, we remained of the view the central issue in Matthew’s complaint was discrimination, and the HRRT was the appropriate forum to review the complaint

We said the false statements and fraud clause was not an unfair contract term. This was because the unfair contract term sections of the FTA only apply to consumer contracts entered into on or after 17 March 2015 (Matthew had purchased his insurance policy in 2012). In addition, the unfair contract term legislation does not apply to insurance contracts even if they are entered into, varied, or renewed, on or after 17 March 2015.

Matthew had argued that the fact that part of the reason for his curtailment was the business matter, meant the statement on his claim form was not untrue. We did not agree. Matthew had made an incorrect statement by omission. If the business exclusion clause had not been in the policy, there was a high chance Matthew’s claim would have been paid leading to him being unjustly enriched. This is why it is important all reasons leading to a claim are stated when making a claim.

In the same vein, even if Matthew did not expose the insurer to any additional risk by omitting reference to his mental health condition on his claim form, the false statements and fraud clause specifically said statements on claim forms needed to be true and correct. Matthew breached that clause and the insurer was entitled to decline the claim and void the policy.

The UK Insurance Act

The policy said it was governed by the laws of New Zealand. It followed that we could not base our decision on a piece of UK legislation.

Key insight

As in Matthew’s case, if the substantive complaint issue is better investigated by another organisation, we will suggest the complainant contacts the other organisation. This might be in the situation where the substantive issue is about a breach of privacy, (referral to the Privacy Commissioner), or a problem with the standard of a vehicle (Motor Vehicle Disputes Tribunal).