By Rishav Chatterjee

(Reuters) -Australia's Federal Court has ordered superannuation fund Cbus to pay an A$23.5 million ($15.17 million) penalty for serious failures in processing death and disability insurance claims, the country's corporate regulator said on Tuesday.

The penalty was imposed against United Super, the trustee of Construction and Building Unions Superannuation Fund (Cbus), after the fund admitted systemic faults caused delays, which affected more than 7,000 claimants, in handling death benefits and total and permanent disability claims, said the Australian Securities and Investments Commission (ASIC).

Cbus said it had provisioned for the penalty in its accounts and will not raise member administration fees to cover it. The fund apologised "without reservation" and said compensation has now been paid to almost all affected members.

Cbus has resolved a dispute with MUFG Retirement Solutions, its administrator, over delays linked to the claims backlog, it added.

The penalty lands on top of about A$32 million in compensation already paid to the estimated 7,402 affected claimants and members under the fund's remediation programme, and exceeded United Super's A$18.5 million revenue in fiscal 2024, underscoring the seriousness of the breaches.

"Not only was Cbus aware of increased insurance claim volumes, but it was also put on notice by its own customers who were complaining about the long delays they were enduring," ASIC Deputy Chair Sarah Court said.

KCM Trade Chief Market Analyst Tim Waterer said the message from the Federal Court is unmistakable, timely claims handling is non-negotiable.

"Outsourcing claims administration doesn't outsource responsibility, and today's ruling is a stark reality check for every trustee relying on third parties."

In one case, a widow told ABC radio in June 2023 that she had been waiting 15 months for her late husband's death benefit. Cbus only opened an investigation and lodged a breach report with ASIC after she went public about the delays and poor communication.

($1 = 1.5494 Australian dollars)

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Mrigank Dhaniwala and Rashmi Aich)