The Federal Court has found that a ‘pre-existing condition’ term in certain HCF Life Insurance Company Pty Ltd (HCF Life) policies was liable to mislead the public.

The term was used in three contracts issued under HCF Life’s ‘Recover’ range of products. ASIC alleged that the term could mislead the public because:

• it purported to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract, and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract, even if a diagnosis had not been made
• it suggested that HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the ‘insurance contract and a reasonable person in the circumstances would not have been aware of the condition, and
• section 47 of the Insurance Contacts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

Justice Jackman said that the ‘ordinary and reasonable reader would be ignorant of the potential effect of s47 of the ICA, and nothing in the Recover Cover PDSs adverts to the possibility that it may preclude HCF Life from relying upon the Pre-Existing Condition Terms in particular circumstances’.

ASIC Deputy Chair Sarah Court said, ‘Consumers rightly expect that insurers will provide accurate information to them about their rights. Consumers rely on this information to make insurance claims, often in trying personal circumstances. By including a term that was liable to mislead consumers and that purported to give HCF a broader right to deny coverage than was the case, HCF Life misled consumers about their rights.’

ASIC also alleged that the term was an unfair contract term under the Australian Securities and Investments Commission Act 2001, with Justice Jackman dismissing that part of ASIC’s case.

ASIC will consider the Court’s decision.

ASIC will seek penalties for misleading conduct. The matter will return to Court for case management on 8 November 2024.

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Judgment

Background

The relevant ‘pre-existing condition’ term appeared in product disclosure statements (in substantially identical terms) for the following insurance products issued by HCF Life under HCF Life’s ‘Recover’ range of insurance products: 

• Cash Back
• Smart Term
• Income Assist (replaced by Income Protect from October 2021).

HCF Life replaced that ‘pre-existing condition’ term in its life insurance products on 9 November 2023.

In April 2021, the unfair contract terms regime was expanded to include insurance contracts, arising from a recommendation of the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry (Recommendation 4.7 in the Final Report).

Extending the unfair contract term protections to these kinds of insurance contracts was aimed at:

• ensuring that consumers and small businesses receive the same protections from unfair terms in insurance contracts as they do for other financial services, and
• encouraging insurers to improve the level of clarity and transparency in their contracts and remove potentially unfair terms.

On 9 November 2023, civil penalties for breaches of the unfair contract term prohibition came into effect following assent of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022.

ASIC commenced proceedings in April 2023 against Auto & General Insurance Company Limited (Auto & General) over alleged unfair contract terms (23-088MR). In March 2024, the Federal Court found that the relevant term was not unfair (24-057MR). ASIC appealed the judgment, and a decision of the Full Federal Court is awaited (24-079MR).