A paraplegic REST super member had her total disability payout cancelled without her knowledge, after the fund's administrator tipped off the insurer that she may not be eligible for coverage, the Hayne royal commission has heard.
REST's service delivery manager for insurance, Lachlan Ross, was grilled on Friday over the fund's treatment of communications to members, especially those whose insurance had lapsed without their knowledge because it fell below a minimum required amount after they left their jobs.
The royal commission, which on Friday began examining life insurance sold through superannuation, heard the story of a young former McDonald's worker who became paraplegic after falling from the fifth floor of a building in May 2012, less than two years after she left work at the fast food giant. Her new employer had failed to pay her super and later went into liquidation.
Her 2012 REST statement for her REST super account, into which McDonald's had paid her contributions, suggested she still had insurance, and she was still paying premiums.
In 2014, after she lodged a claim for total and permanent disability (TPD) under her REST super account's insurance policy, REST's insurance provider AIA decided to grant her a $108,000 lump sum and paid the money to REST to pass to its member.
But REST's administrator flagged to AIA that it may have made an "administration mistake" in paying the money, and returned it to the insurer without telling the member, the royal commission heard.
The REST trustee later notified the young woman's lawyers that her claim had been refused, and said it would review the insurer's decision - a position counsel assisting, Mark Costello, suggested was "contradictory".
"The insurer had made the decision and had paid the claim, the trustee then drew the insurer's attention to facts and to a particular clause... and refunded the money?" Mr Costello said. But Mr Ross said he did not believe it was contradictory.
The woman's claim was eventually paid after litigation had commenced, the royal commission heard.
Mr Ross was questioned over clauses in REST's former insurance contract with AIA meant people with accounts below set thresholds lost their coverage 71 days after leaving their jobs. The insurance policies had since been changed for "clarity" and "simplicity", Mr Ross said.
In another case, a former REST member who had suffered multiple stab wounds and was then diagnosed with post traumatic stress disorder was knocked back for a payout because the 71 day period had ended just four days before their diagnosis.
The member had also still been paying premiums despite not being covered, the royal commission heard.
"It's unlikely that a member with a low balance who ceases employment sets their stop clock for 71 days to know the period they retained continued cover?" Mr Costello asked. "I would agree with that proposition, yes," Mr Ross replied.
Mr Costello asked Mr Ross what he considered the role of the trustee to be. "Are you there to fight for the member, or are you there to defend the policy on behalf of the insurer?" he asked. Mr Ross replied that "REST's view is that insurance is very valuable to its membership."
REST has about 2 million members, about 1.5 million of which have insurance, the royal commission heard.
Mr Ross will return to the stand on Monday.
By Ruth Williams
Sydney Morning Herald
14 September 2018