Insurance and Reinsurance

by Penny Holloway

A recent Federal Court decision has provided some guidance for insurers on the interpretation of the exemption for insurance found in section 46 of the Disability Discrimination Act. Partner Dean Carrigan and Lawyer Penny Holloway report.

The case

On 7 April 2004, the Federal Court1 upheld the decision of the Federal Magistrates Court that an insurer had contravened sections 5 and 24 of the Disability Discrimination Act 1992 (Cth) (DDA), and that the insurer had not demonstrated that its conduct was such as to enable it to benefit from the exemption for insurance in s46 of the DDA.

Background

The appeal originated from the first instance decision of Federal Magistrate Kenneth Raphael, given on 26 September 2003, that the insurer had unlawfully discriminated against Ms Bassanelli by declining to issue her a travel insurance policy because of her pre-existing condition as a sufferer of metastatic breast cancer.

The insurer relied on s46 of the DDA, which provides that it is not unlawful for a person to discriminate against another person, on the ground of the other person's disability, by refusing to offer the other person (among other things) an insurance policy or in respect of the terms or conditions on which an insurance policy is offered.

Insurers can benefit from the s46 exemption if the following requirements are satisfied:

  • if the discrimination is:

    • based upon actuarial or statistical data on which it is reasonable for the first-mentioned person to rely; and

    • reasonable having regard to the matter of the data and other relevant factors; or

  • in a case where no such actuarial or statistical data is available and cannot reasonably be obtained, the discrimination is reasonable having regard to 'any other relevant factors'.


In its submissions, the insurer agreed that:

  • refusal of the policy of insurance could, in the circumstances, be considered to be discriminatory; and

  • there was no actuarial or statistical data relied upon or available when it came to the decision not to issue a policy of insurance to Ms Bassanelli,


but submitted that the discrimination was reasonable having regard to 'any other relevant factors'.

Ms Bassanelli stated in her evidence that she did not expect to obtain insurance for any cancer-related claim but she did seek cover for potential losses in the course of travel that were not related to her pre-existing condition, such as theft, lost luggage and other accidental injury etc.

The insurer submitted that it did not offer such a policy because it was not economically viable to do so. The justification for this position was that the insurer had been subject to a number of high-cost claims in the past where it had been very difficult to differentiate between the claimants' pre-existing medical conditions and the medical conditions suffered by them while travelling. For that reason, the insurer was very cautious about simply offering a policy whereby any pre-existing condition was excluded.

Ms Bassanelli led evidence that other insurers offered policies that would have extended coverage to her situation (including the policy she accepted from Mercantile Mutual), and that the insurer now issues a policy that would have extended to her situation.

Federal Magistrate Raphael concluded in the first instance that the discrimination was not reasonable.

The decision

The grounds of appeal focused on the concept of 'reasonableness'; that is, whether the discrimination was 'reasonable' having regard to 'other relevant factors'.

Justice Mansfield found that, in this context, 'reasonable' is to be given its ordinary meaning and, in applying the ordinary meaning, he agreed with Federal Magistrate Raphael that the discrimination was not 'reasonable', having regard to 'any other relevant factors'.

His Honour noted that, while the insurer had led anecdotal evidence that it had experienced difficulties with regard to travel policies issued to insureds with pre-existing medical conditions, it had not explained whether those difficulties had arisen in respect of insureds with breast cancer.

Justice Mansfield considered that the insurer should have sought further medical information from Ms Bassanelli or her medical advisers. While the insurer had, in correspondence, invited Ms Bassanelli to contact the insurer if she had any questions regarding the insurer's decision not to offer her coverage, Justice Mansfield found that the insurer should have gone further in that its correspondence did not convey any prospect of the insurer altering its decision in the light of further information or discussion.

Justice Mansfield concluded that the insurer ought to have investigated further into Ms Bassanelli's circumstances and not assessed her situation based solely on general experience regarding pre-existing medical conditions.

His Honour made the following concluding comment on s46 of the DDA: [at 85]

    Section 46 of the DD Act recognises that there are circumstances in which discrimination by reason of disability may be justified (or, at least, not be unlawful). It requires that the particular circumstances of an individual who is discriminated against be addressed, but not in a formulaic way. Even if the exemption pathway provided by s 46(1)(f) is utilised, the reference to 'any other relevant factors' confirms that legislative intention.


Comment for insurers

This decision highlights the difficulty insurers face in demonstrating that the 'other relevant factors' exemption in s46 of the DDA should apply. The decision causes concern for insurers offering standard cover, as it suggests that those insurers should investigate the individual circumstances of a prospective insured and, where reasonable, offer cover based on that individual's situation. This will be of particular concern for insurers offering less expensive types of cover, as individual investigations will no doubt be significantly more expensive to the insurer than using generic information.

For further discussion on the interpretation of s46 of the Disability Discrimination Act 1992, visit our website http://www.aar.com.au/sem/list.htm

Footnote

1. QBE Travel Insurance v Bassanelli [2004] FCA 396 (7 April 2004)


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