Comminsure used an outdated medical definition that doctors wanted scrapped to deny a woman’s claim for a breast cancer payout, the financial services royal commission has heard.

The commission heard on Tuesday that the woman lodged a claim with the insurer after having cancer removed from her breast as part of “restorative therapy”. It was followed by radio therapy.

The customer made her claim in August 2016. It was rejected because Comminsure said her surgery was not severe enough to meet its requirements.

Under questioning on Tuesday, Comminsure executive Helen Troup agreed that the definition the company relied on was 18 years old, out of date and no longer covered best medical practice.

By 2016, cancers that had once been treated by a radical mastectomy were being treated with restorative surgery and radio therapy – what the claimant had.

Ms Troup agreed there were no references to the need for “radical” surgery in Comminsure’s policy information or advertising, which meant women who bought policies were in the dark about the true nature of their cover. She conceded the company’s behaviour fell short of community standards and it had “breached its duty to act in good faith”.

The woman submitted reports from her GP and surgeon to support her claim that she had had “radical” treatment in the modern understanding of the term, but Comminsure continued to hold out.

“The definition of ‘radical’ is unclear and it seems to be defined as ‘mastectomy’,” one of the doctors said in a letter.

Comminsure executive Helen Troup admitted the company had breached its duty to act in good faith. Photo: Royal Commission

The company changed its definition in 2017 but did not backdate it to cover the woman’s claim, despite having recently backdated payouts on similar changes in its definition of heart attacks.

Following the rejection, the customer took her claim to the Financial Ombudsman Service. Comminsure went to mediation on the dispute, with a top settlement offer of $84,650 – half of the $169,305 the woman’s policy would have paid.

The settlement was rejected. The FOS eventually determined in the customer’s favour, demanding full payment plus $5000 interest.

Earlier on Tuesday, the royal commission heard that Comminsure had struck a deal with ASIC to pay $300,000 into a community fund as compensation for misleading advertisements about how its trauma cover dealt with heart attack victims.

That news raised the interest of Commissioner Kenneth Hayne, who observed that penalties for the breaches could have amounted to at least $8 million.

“At the end of the day, did Comminsure come out of this process thinking that it had been punished?” he said.

“Yes” Ms Troup replied.

The commission heard that Comminsure had negotiated the wording of ASIC’s media releases on the issue. The regulator called for the use of the term “misleading and deceptive” but Comminsure objected, offering instead that it was comfortable saying “ASIC’s concerns could be reasonably held”.