Insurer wins court battle over policy avoidance
The Federal Court has dismissed Australian Securities and Investments Commission proceedings against Zurich over the insurer’s decision to “avoid” an income protection policy after an insured failed to disclose her history of hospital admissions for mental illness.
The hospital admissions were discovered after the insured claimed in November 2018 for income protection benefit under her One Path Life policy following an injury to her right shoulder.
OnePath – then owned by ANZ, before Zurich acquired the business in 2019 – accepted the claim for specified benefit periods, subject to ongoing assessment. It sought more information from the insured about a previous right shoulder injury before the policy was incepted in 2016.
The previous shoulder injury was disclosed in an initial treating doctors’ statement lodged with her income protection claim. The insured’s doctor declined to provide OnePath with the information it wanted and the insurer went to her previous health fund, HCF, which provided details of claims including admissions to a hospital between January 19 1996 and November 27 2019.
OnePath requested medical records from the hospital, and it was disclosed the insured was admitted on six occasions between 2001 and 2005 over her mental health, including suicidal ideation and suicide attempts.
The insurer subsequently decided, after correspondence with the insured and her representative, to avoid the income protection policy from inception. The insured was told on October 7 2020.
ASIC alleged the insurer breached its duty of utmost good faith in avoiding the claim on grounds of fraudulent non-disclosure, and that it had failed to make reasonable enquiries, particularly of the adviser who assisted the insured with the policy application.
The regulator also alleged the insurer failed to act with utmost good faith by failing to inform the insured of her rights and the availability of processes to dispute or appeal the decision.
Justice Ian Jackman, who made his ruling in December, rejected all the contraventions alleged by ASIC in proceedings launched in 2022.
He did not agree with ASIC’s argument that the insurer failed to act with utmost good faith by avoiding the claim without notifying the insured of concerns it had about fraudulent non-disclosures or misrepresentations in the policy application form.
The duty of utmost good faith “did not require that OnePath expressly state that it was concerned that the insured may have been dishonest”, he said. “In my view, it was sufficient for OnePath to have expressly provided the insured with ‘the opportunity to provide an explanation as to why you failed to disclose and/or misrepresented your mental health medical history in your application form and before we accepted your application’.”
He dismissed the ASIC proceedings with costs. The regulator says it is reviewing the court decision.
Click here for the court ruling.