High Court slaps Cigna with $3.5 million penalty after it made false and misleading insurance claims

Cigna self-reported the issue to the Financial Markets Authority.
Cigna self-reported the issue to the Financial Markets Authority. Photo credit: Newshub.

The High Court has slapped New Zealand insurance company Cigna with a $3.5 million penalty after the firm made false and misleading claims to customers.

In a statement, the Financial Markets Authority (FMA) said Cigna had earlier admitted to breaching the fair dealing provisions of the Financial Conducts Act for the way it communicated and charged customers for indexed inflation benefits between 2013 and 2019.

The High Court found decisions made by Cigna's senior management resulted in the company increasing customers' premiums and cover under indexation benefits using flat rates that significantly exceeded the consumer price index. 

FMA head of enforcement Margot Gatland said the penalty was the largest the authority had secured in an enforcement case.

"Cigna's conduct affected many of its customers, who trusted the firm to be transparent and look after their interests. This judgment sends a strong message to the industry that firms need to give due regard to customers' interests, including when making pricing changes and communicating them."

The FMA said Cigna charged about $13.5 million in additional premiums for the increased cover it provided.

In her High Court ruling, Justice Jillian Mallon said Cigna's conduct "was not the result of a systems error. It was the result of decisions made by senior management".

"Cigna acknowledges that providers of financial services, including insurers, have a special relationship of trust with their customers," Justice Mallon said in her judgment. "It also acknowledges that customers are entitled to trust that Cigna will be clear and transparent in its communications with its customers.

"While customers obtained increased cover from Cigna's conduct, it is not for Cigna to decide this for customers without being clear and transparent about the basis for the increase."

Having originally agreed $5.5 million was an appropriate penalty, Justice Mallon applied a 35 percent discount - taking into account Cigna self-reported the issue.

Cigna had repaid more than $10.7 million to customers through a remediation programme, the FMA said.