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Flint Forensics Pty Ltd - Newsletter
Welcome to the ninth edition of the Flint Forensics Pty Ltd semi-annual newsletter. This newsletter is to help keep you informed of the latest developments relevant to Life Policies and personal and commercial litigation support. It is a free service provided by Flint Forensics Pty Ltd.
Index
Public Policy
Over the last couple of months I have had the opportunity to be involved in several cases from a number of clients where Public Policy is being applied. I thought it prudent to talk about this further given my understanding that Public Policy is not widely known or understood in the industry. So when you came across similar circumstances you can address this issue immediately. However, once you have identified it, further investigations will be required and the obvious, legal advice obtained.
It is a long-standing principle of the common law that a person “may not stand to gain an advantage arising from the consequences of his own iniquity” (See Note 1). Public policy requires a Court not to enforce a contract when to do so will result in a benefit accruing to a person as a result of his or her crime.
The latest two cases I have been involved with are where the insured has allegedly stolen money from clients and business associates and then allegedly as a result of the action, subsequently claimed disability benefits for depression. The police have completed brief’s of evidence and it is likely that these persons will be charged under the Crimes Act in the respective state.
An example of the application of Public Policy was in the case Massachusetts Mutual Life Insurance Company v Woodall and considered by the United States District Court. In that case, the insured alleged he suffered depression as a result of allegations of misconduct being made against him and his subsequent disbarment. The Court deemed payment of disability benefits to be contrary to public policy, holding that:
“one should not be able to contractually benefit from depression cause by being confronted over one’s own wrongdoing, where the consequences of such wrongdoing predominately drive the disabling depression itself.” Massachusetts Mutual Life Insurance Company v Woodall 304 F. Supp. 2d 1364 at 1378
There will be some extra investigations required, however, this is an important consideration in any risk management strategy.
Note 1 - Gardner v Moore (1984) AC 548 at 558f (Lord Hailsham of St Marylebone LD); see also Troja v Troja (1994) 33 NSWLR 269 at 294-298; Gray v Barr (1971) 2 QB 554; Euro-Diam Ltd v Bathurst (1987) 2 All ER 113 at 123; Beresford v Royal Insurance Co Ltd (1938) AC 586; Fire and All Risks Insurance Co Ltd v Powell (1966) VR 513
How can a liquidator help?
I have some recent successes with going to liquidators that I would like to share with you and believe the reviewing source documents which the liquidator have in their possession is a valuable resource to the risk management strategy. To date I have only gone to liquidators when it is going to affect the assessment of earnings at risk commencement or through the pre disability earnings year.
I have a couple of successes to talk about:
Case One: The insured liquidated her chiropractic company because of they didn’t pay their taxes to the ATO. The policy was taken out and financials provided, however, not the one which covered the twelve months immediately prior to risk commencement date. One would assume that the financial aspect was fully underwritten. By going to the liquidator I was able to establish obtain further financials, documentation to show that at the time of signing the application and up to and including policy acceptance the insured was aware of the financial deterioration of her business and penalties, interest the ATO charged and the fact that the financials provided to underwriting were incorrect. I had to adjust the previous financial years income details as a result of new information obtained from the liquidator, reviewed source documents at the clients workplace and two detailed profit and statements for the time immediately prior to risk commencement.
I was able to establish that the insured knew about the financial deterioration of her business and had no earnings at risk commencement date and therefore not entitled to a policy at that particular time.
The income protection policy was subsequently avoided.
Case Two: The insured was a builder and my review of the business structure indicated a serial liquidator of failed companies. The insured had provided incomplete financials at underwriting but they were relied upon. A private investigator was sent to the insured and his advisor and the insured made certain statements.
The review of the source documents at the liquidators office revealed a different set of financials provided which decreased income by about $500,000 and inconsistent with what the insured had advised the private investigator.
The result was that the insured had no earnings at risk commencement date and therefore the policy was avoided.
So what is the common theme? The common theme was that I obtained financial information that was inconsistent to what was provided to the insurance company which has led to the avoidance of a policy.
Instruction Forms
I have available a series of instruction forms which also have guidelines as to what information may be required for specific tasks. This is a valuable resource and I can only stress the importance of requesting the right information the first time to make the financial assessment the most efficient and effective as possible. Please feel free to review these at our leisure.
You can either print them out or simply unprotect the document by using the password "FLINTFORENSICS" and save the document to your desktop.
In the next edition, look forward to more.
Talk to you soon,
Bruce Flint
Managing Director
FLINT FORENSICS PTY LIMITED - Assessment of Economic Loss, Expert Witness, Financial and Other Investigations, Income Protection Risk Management, Regulatory Investigation and Assessment, Training and Valuations
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