Australian Securities and Investments Commission v H C F Life Insurance Company Pty Limited [2024] FCA 1240 (Jackman J)
Date of Judgment: 28 October 2024
Key Learning
Insurers are required to provide accurate and complete information about the rights and obligations of the contracting parties in product disclosure statements. Terms which may mislead consumers about their, and the insurer’s, rights and obligations in claims may constitute misleading conduct.
Background / Facts
During the period between 2019 and 2023, HCF Life Insurance Company Pty Ltd (HCF) issued product disclosure statements for certain Life, Terminal Illness, and Income Protection insurance products (- referred to as Recover Cover PDSs) which included the following definition of ‘pre-existing condition‘:
‘… any condition, illness or ailment where the signs or symptoms of which in the opinion of a registered medical practitioner, existed at any time before the Cover Commencement Date, even if a diagnosis had not been made‘ (the PEC Clause).
The Court recorded at [22] and [23] that:
‘None of the Recover Cover PDSs … make any mention of the existence or effect of s 47 of the [Insurance Contracts Act 1984 (Cth) (ICA)], or the possibility that the exclusion in respect of the Pre-Existing Conditions may not take effect in accordance with its terms. … The Recover Cover PDSs are not silent about the implications of statutory provision for consumers‘.
ASIC commenced proceedings in the Federal Court alleging that:
- The PEC Clause was partially unenforceable given section 47 of the ICA, and so ‘HCF engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability of financial services in contravention of s 12DF of the [Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)]’; and/or
- The PEC Clause was an unfair contract term under section 12BF of the ASIC Act.
Decision
Jackman J held that section 47 of the ICA (section 47) rendered the PEC Clause partially unenforceable because:
- Section 47 provides that an insurer is prohibited from denying liability for a claim arising from a sickness or disability ‘[w]here, at the time when the contract was entered into, the insured was not aware of, and a reasonable person in the circumstances could not be expected to have been aware of, [that] sickness or disability‘; and
- The enquiry under section 47 materially differed from the enquiry under the PEC Clause as:
- While section 47 focuses on the insured’s awareness of an underlying medical condition, the PEC Clause focussed on the existence of signs and symptoms. The Court accepted that ‘[n]ot all signs or symptoms will, upon first manifestation, cause a reasonable person to become aware of the underlying sickness to which they relate, even if arising in combination‘: at [97]; and
- While section 47 turns on the Court’s determination of what a reasonable person could have been aware of, the PEC Clause ‘gives determinative effect to the subjective opinion of a registered medical practitioner‘: at [98]. The Court considered there to be the ‘… possibility of conflict between the reasonable opinion of a medical practitioner and the opinion of the Court‘: at [98].
The Court then proceeded to determine that the PEC Clause was misleading and in contravention of section 12DF(1) of the ASIC Act for the following reasons:
- There was no dispute that HCF published the Recover Cover PDSs to members of the public in trade or commerce, and included the PEC Clause but did not identify or explain the existence or effect of section 47;
- The Court determined that the PEC Clause ‘purported to provide an accurate and complete statement of when benefits would and would not be payable under the policy‘: at [118]. The Court relevantly rejected the argument that HCF was ‘willing to treat with members of the public’ on the terms set out in the Recover Cover PDSs (- including the PEC Clause);
- The Court accepted that the meaning conveyed by the PEC Clause was liable to mislead. In reaching this conclusion, the Court relevantly rejected the argument that the differences between the PEC Clause and section 47 were ‘anything more than speculative‘ (- and so insufficient to establish this element of section 12DF). In the view of the Court: (1) there was no need to establish detriment for a term to be ‘liable to mislead’; and (2) there was a real risk of section 47 limiting the operation of the PEC Clause; and
- The Court held that the PEC Clause was misleading ‘as to the nature, characteristics, suitability for their purpose or the quantity of any financial services‘. HCF argued that this element of section 12DF was not established because section 47 only limited the operation of the PEC Clause and did not vary the PEC Clause itself. The Court rejected HCF’s argument, holding that the element focussed on ‘financial services’ (- and so extended beyond the ‘contract for financial services’). As the PEC Clause did impact the administration of claims lodged under the Recover Cover PDSs, the Court held that this element of section 12DF was established.
The Court also considered whether the PEC Clause was unfair under section 12BF of the ASIC Act. Noting that the PEC Clause must be construed with reference to section 47, the Court held that all three elements of unfairness were not established as:
- The PEC Clause, read in conjunction with section 47, did not cause a significant imbalance in the parties’ rights and obligations. In particular, the Court held that ‘[t]he fact that a consumer is left confused about his or her rights and obligations does not mean those rights and obligations are imbalanced‘: at [146];
- The PEC Clause, read in conjunction with section 47, was reasonably necessary to protect HCF’s legitimate interest in controlling for the risk of an insured seeking insurance knowing that he/she is ill; and
- It was accepted that the PEC Clause caused detriment to an insured.
This article was written by Nicholas Matkovich, Partner, Vignesh Iyer, Senior Associate and Andrew Huynh, Law Graduate.
