The Federal Court has found that Zurich Australia Limited (Zurich) did not breach its duty of utmost good faith when OnePath Life Limited (OnePath), the previous owner of Zurich’s life insurance business, avoided an income protection policy because the insured failed to disclose a prior history of hospitalisation for serious mental health issues.
ASIC Deputy Chair Sarah Court said, ‘ASIC took on this case to clarify the steps that an insurer must reasonably take before avoiding an insurance policy on the basis of fraudulent non-disclosure. We believe this was an important case to bring given our view that it was appropriate for procedural fairness to be provided before avoiding a customer’s insurance policy. ASIC enforcement action plays an essential role in testing legislation to ensure it affords consumers with appropriate protection.’
In 2018, OnePath rejected the income protection claim of a customer who had injured her shoulder while working as a nurse. OnePath formed the view that the customer’s failure to disclose her hospital admissions for serious unrelated mental health issues between 1999 and 2005 was fraudulent, and that OnePath would not have issued the policy had they been disclosed. ASIC had argued that Zurich, who replaced OnePath as the respondent in the proceedings, breached its duty of utmost good faith when avoiding the policy because:
- OnePath avoided the policy without first making enquiries with the financial adviser who had assisted the customer in applying for the policy regarding the explanation for the non-disclosure;
- OnePath decided to avoid the policy without adequately notifying the customer of its intention to avoid the policy on the basis of fraud; and
- OnePath failed to inform the customer of her right to dispute or appeal OnePath’s decision to avoid the policy
In his judgment given on 21 December 2023, Federal Court Justice Jackman found against ASIC on all counts.
ASIC is reviewing the decision.
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Background
Zurich provides life insurance products such as life cover, income protection and trauma cover. OnePath was a subsidiary of ANZ Limited until 31 May 2019, when it was acquired by Zurich. Under a Scheme of Arrangement, OnePath’s life insurance business was transferred to Zurich on 1 August, 2022.
On 28 June 2023, by order of the Federal Court, Zurich replaced OnePath as the respondent to these proceedings.
Under s13 of the Insurances Contract Act 1984 (Cth), insurers have a duty to act with utmost good faith. This was the first action taken by ASIC seeking the imposition of a civil penalty for a breach of s13 of the Insurance Contracts Act.
ASIC has previously taken action against Youi Pty Ltd for breaches of its duty of utmost good faith in handling a building and contents insurance claim made by a policyholder (20-091MR). Additionally, ASIC took action against TAL Life Limited for a breach of its duty of utmost good faith arising from conduct in the handling of a customer’s claim (21-042MR).