A private investigator ordered by insurer TAL to dig up dirt on a customer spent months following the woman and secretly recording her every move.
The life insurance company spent years fighting the woman's claim under her income protection policy after depression and anxiety meant she could no longer work as a nurse.
TAL's bullying and treatment of the woman, including demanding that she repay $69,000, caused her considerable distress, the banking royal commission heard.
An ombudsman forced TAL to overturn its initial move to cancel the policy in 2012, after it wrongly accused her of having a history of work-related stress and failing to disclose it when she applied for the insurance.
All up it took three years, until 2013, for the woman to start receiving her $2750 monthly benefit.
But then a TAL staffer, one of multiple case managers making what the company admitted were multiple inappropriate decisions, did a Google search and found the woman had written a book.
Another case manager instructed the private investigator to get "results" and suggested he "complete a pretext at the hospital", although the inquiry heard it was not clear if that meant posing as a family member or friend.
The case manager wanted the private investigator to find information so TAL could avoid paying an estimated $792,000 if the woman continued receiving benefits until she was 65.
The detailed and sustained surveillance campaign conducted over four months involved extensive searches of social media sites such as Facebook.
The woman had no idea she was being followed, photographed and videoed by a private investigator who was recording her every move, the inquiry heard on Thursday.
The investigator's report included details and footage of the woman having breakfast, kissing her partner and taking her clothes off to reveal her bathers at a swimming pool.
Senior TAL executive Loraine van Eeden agreed the surveillance was deeply inappropriate.
Senior counsel assisting the commission Rowena Orr QC said it was not how an insurance company should treat a person who had qualified for benefits under an income protection policy on the basis of a mental health condition.
Ms van Eeden said: "It's not how to treat any claimant."
TAL then forced the woman to fill out a daily activity diary so she could continue receiving her benefits, despite medical evidence that it exacerbated her condition and she was suffering severe anxiety attacks.
Ms van Eeden said the threat to stop the woman's benefits if she did not submit the daily diary was "absolutely bullying".
TAL told the woman in 2014 it was cancelling her cover, accused her of fraud and demanded she repay the $68,890 she had received in benefits.
They were not the only shocks in the letter, which was also the first time TAL revealed its surveillance to the woman.
Ms van Eeden agreed the letter would have caused considerable distress to the woman.
"I was shocked when I saw this," TAL's general manager of claims said.
Lifeline 13 11 14
beyondblue 1300 22 4636
