Insurance Governance l Mercer Australia

Cutting the ‘Gordian knot’ of insurance claim pursuits

Super fund trustees trying to cut through the complexity of how to ‘reasonably’ pursue an insurance claim should not feel that expensive litigation is the only pathway. Mercer Governance & Legal Consulting specialist Lynda Purcell considers what every super fund trustee needs to know to minimise reputational risk and avoid potentially expensive legal costs.

Alexander the Great used a sword to unravel the proverbial Gordian knot, but a single pen stroke could be enough to completely cut through the complexity that has grown out of a 26-word paragraph of a subsection of superannuation legislation concerning insurance claims. 

Super fund trustees[1] have a duty “to do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary, if the claim has a reasonable prospect of success.” These 26 words quoted here form an insurance covenant inserted into superannuation legislation[2] following the Stronger Super reforms; taking effect from 1 July 2013. 

Inserted to both tighten and heighten the duty of a trustee in processing an insurance claim, these words have unfortunately led to confusion and needless complexity.  Trustees have been exposed to further reputational risk from guilt by association with peers who have been cast as malfeasant by claimants and the media.  They may also face potentially expensive litigation in a court of law if they do not “do everything that is reasonable to pursue an insurance claim for the benefit of a beneficiary.”

Mercer Governance & Legal Consulting specialist Lynda Purcell said “it is unfortunate that the phrase “reasonable prospect of success” was added to the covenant because it leads most people to think of legal proceedings. These come with substantial costs that create inherent tension between a trustee’s apparent duty to pursue a claim via the court system yet not spend an unreasonable amount to pursue an individual claim.” 

Lynda’s in-depth analysis, published in the May 2016 Superannuation Law Bulletin, explains how the initial intent of the Cooper Review was not to push trustees down the litigation path, but rather to ensure trustees take reasonable and cost effective steps in pursuit of a claim. Only once all these steps have been exhausted should legal proceedings become an option, if warranted, according to Lynda.

“Ultimately…it would only require a single ‘pen stroke’, for the Federal Government to cut completely through the final tangled thread of the Gordian knot created by the insurance claims covenant,” Lynda concludes, explaining how this could be achieved by broadening the jurisdiction of the Superannuation Claims Tribunal (SCT) “to encompass complaints from trustees against decisions of insurers to remove any perception that a trustee must resort to expensive litigation in a court of law in its pursuit of disability claims.”

Read the full article, provided courtesy of the Superannuation Law Bulletin. If any of the issues raised in the article are relevant to your fund and challenges, contact Mercer’s dedicated team of legal, governance, insurance, claims advisory and actuarial specialists who are ready to assist in reviewing any aspect of ‎your insurance governance - whether you're just seeking assurance or need to make improvements. 

[1] Trustees of registrable superannuation entities (RSEs).
[2] Paragraph (d) of subsection 52(7) of the Superannuation Industry (Supervision) Act 1993 (Cth).

IMPORTANT: Please note that any information in this material regarding legal, accounting or tax outcomes does not constitute legal advice or an accounting or tax opinion and prior to relying and acting on this information it is important that you seek independent advice from a qualified lawyer or accountant regarding this information.

The material contained in this document is based on information received in good faith from sources within the market and on our understanding of legislation and government press releases at the date of publication which we believe to be reliable and accurate. Neither Mercer nor any of its related parties accepts any responsibility for any inaccuracy

This article has been prepared by Mercer (Australia) Pty Ltd, ABN 32 005 315 917.

Copyright 2016 Mercer (Australia) Pty Ltd.  All rights reserved. 

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