Court Verdict Sends Warning to Advisers on Disclosure


A court decision in which an adviser and client were found jointly responsible for insurance non-disclosure has led the adviser to warn his peers that they can never be too careful when it comes to compliance records.

In the case of Richard Swansson (plaintiff) vs Russell Harrison (adviser) & Ors (others), the client sued the adviser and his licensee (Synchron) for damages of nearly $1.5 million, because an act of non-disclosure left him uninsured.

Mr Swansson was a client of Mr Harrison’s when the situation leading to the court case arose. In 2004, Mr Swansson took out a life insurance policy with AXA, with the help of Mr Harrison. In 2012, after receiving his renewal notice which indicated his premium would rise by around $800, Mr Swansson approached Mr Harrison to look for an alternative, less expensive option.

The biggest challenge we have out there as advisers is that clients do not take their duty of disclosure seriously

Mr Swansson met with his adviser, Mr Harrison, on 7 March 2012, where it was decided a replacement life insurance policy would be sought from AIA Australia. During the application process, Mr Swansson noted he had seen his GP two days prior for a stomach complaint, for which he was prescribed treatment for giardia. The application form reflected that this issue was ‘resolved’.

Mr Swansson’s application was submitted to AIA Australia shortly thereafter, but the policy was not issued until 23 March. During the intervening period, Mr Swansson sought additional medical attention for his stomach complaint, undergoing an ultrasound and MRCP scan. Mr Swansson was also in contact with Mr Harrison during this period, providing additional information requested by the insurer about his alcohol consumption. Mr Swansson did not advise Mr Harrison of the additional medical inquiries into his stomach condition. On 28 March, five days after the new policy was issued by AIA Australia, Mr Harrison forwarded a letter which had been pre-signed by the client to AXA, expressing the client’s decision to cancel the old policy.

On 3 May 2012, Mr Swansson was diagnosed with pancreatic cancer. He underwent treatment, however, a routine CT scan in mid-2013 revealed the cancer had metastasised into the liver and lungs. On 17 July 2013 Mr Swansson was provided with a terminal illness diagnosis, and on 30 July 2013 Mr Harrison lodged a claim with AIA Australia on Mr Swansson’s behalf.

The claim was denied by AIA Australia on the grounds that Mr Swansson had failed to comply with his ongoing duty of disclosure by not advising AIA of his ongoing symptoms, consultations and investigations before the policy commenced. Mr Swansson attempted to make a claim with his previous insurer, AXA, which was declined on the basis he had cancelled his cover with them prior to diagnosis.

Mr Swansson brought the case against Mr Harrison on the grounds that he negligently failed to exercise the skill and care reasonably to be expected of an insurance adviser (or broker) professing skill in that field, by failing to inform Mr Swansson of his duty of disclosure.

Judge Macaulay, who presided over the case in Victoria’s Supreme Court, found that:

“…Mr Harrison gave Mr Swansson advice, on one if not more occasions while completing the application, about his ongoing duty to disclose material facts to the insurer. He also explained the consequences of not doing so, including that within the first three years the insurer could avoid the policy for non-disclosure or misrepresentation that was not fraudulent. I accept that he gave advice, in substance, in conformity with his habitual practice as he explained in evidence.”

However, Judge Macaulay determined that both the client and the adviser were jointly negligent in their duties when it came to the cancellation of the AXA policy, for failing to ask (in the case of the adviser) or disclose (in the case of the client) anything further about the previously identified stomach condition and the additional medical treatment. Judge Macaulay therefore awarded the plaintiff damages in the sum of $738,727.35 (half of the claim benefit Mr Swansson would have received if his insurance was in place).

Mr Harrison spoke to riskinfo about the case, and expressed his sympathy for the client and his family, especially as they had to deal with the proceedings while the client was extremely ill.

He highlighted that the case had led to further changes within his own practice:

“We have actually included the duty of disclosure in full in our Statement of Advice (SoA) and that page requires separate signatures from the clients. So our SoAs now require two signatures – once against the duty of disclosure, to confirm that the client has read it, understood it and that we’ve discussed it – and the other one is the normal Authority to Proceed,” Mr Harrison explained.

This court case has highlighted that the demands on practice have evolved

In addition, his practice now sends an email to the client prior to the cancellation of an existing policy, telling the client they’re covered with another policy and warning that if there are any changes or anything they want to let the advice practice (and insurer) know, they have 48 hours to do so before the policy is cancelled.

“We have always been (and remain) confident in our processes. This court case has highlighted that the demands on practice have evolved and, naturally, we will continue to evolve to meet these demands.”

Mr Harrison had the following advice for other advisers:

“Meticulously keep notes. Ensure that all discussions and comments to clients and prospective clients are documented. Ensure that everything is signed off and there is a paper trail for everything.”

Don Trapnell
Don Trapnell

Synchron Director, Don Trapnell, described Mr Harrison as an adviser who has great regard for process, is meticulous in his paperwork, and his clients are always foremost in his mind.

However, he told riskinfo that the judgement had prompted the licensee to look again at its compliance processes to “try and find more ways to protect clients from themselves”.

“The biggest challenge we have out there as advisers is that clients do not take their duty of disclosure seriously or understand the reality of disclosing everything that an underwriter may rely on when making their decision. Synchron has always had a very strong compliance regime in this area,” Mr Trapnell said.

“Part of Synchron’s standard processes – and every Synchron adviser does this – is that after the application form has been completed the adviser must send a copy of the application form back to the client, with a letter. The letter says, in part, please read the answers to your questions again, to ensure you have disclosed everything that an underwriter may rely on when assessing your application for insurance. That letter also reminds them of their duty of disclosure, which says they must let us know of anything that occurs up until the date the policy is issued.

“These are things that are part of our standard procedures. But this court case said to us that even with those things in place, we still have to try hard to protect our clients against themselves.”

As a direct result of the case, Synchron recently developed a video for advisers to use with their clients to explain the risks of insurance non-disclosure (see: Synchron Tackles Insurance Non-Disclosure).

To read a full copy of the Judge’s findings, click here.

Riskinfo thanks Mr Harrison and Mr Trapnell for sharing the details of this case with their peers.


  1. Shame for everyone involved. In my view Applicants should be contacted by the life office when cover is ready to issue, they should at that time be reminded of their duty of disclosure and answer a brief question as to whether their health has changed or they have sought medical advice since lodging the application, if the client says ‘no’ The insurer should issue cover immediately and the client should be ‘on risk’. If the client has non disclosed it would be their problem. Another issue is where cover is ready to issue but rollovers are required from a fund which contains insurance already before the new policies issue… Any risk adviser and life office needs to be aware that circumstances can change quickly and the client could be caught with no cover if something happens in the interim period while rollovers are being arranged.

  2. Frightening outcome. Russell Harrison treated this client in exactly the same way nearly all advisers would have done. How can he be held responsible (even partially) for a client’s non-disclosure? Have to feel for Russell whose name and reputation have now been very unfairly tarnished. And angry at a judicial system that could find him to be at fault.

  3. I have been using tele-underwriting exclusively for about 12 months now and – in light of this article – I would suggest it be the norm for all risk advisers going forward.

    The onus on Duty of Disclosure and any omission of material facts that may lead to a claim being rejected rests with the client alone. There is a recording of what information has both been asked by the insurer and provided by the client.

    Might I suggest had tele-underwriting been used in this instance, the client would have found it near on impossible to lay the blame at the feet of the adviser if his non-disclosure to the insurer could have been played to the court?

    Let’s face it, the legislation over-bearing the financial planning industry places us at fault unless we can prove otherwise. If there is a grey area, as in this case, it seems we are held responsible.

  4. Sad situation but I can’t see any fault from the adviser. All too often the client moves responsibility from themselves when they’re the only ones who know about their medical situation. It’s concerning that even when the best advice is given, an adviser can still be at fault.

    Why would the adviser ask if the problem continued when the client had already said it had resolved (and the DoD had been explained)?

    It’s this kind of court decision that pushes insurers and advisers to go to massive lengths with over wordy documents or processes, to self-protect from the failure of a small proportion of customers who don’t follow the advice or rules that were explained.

  5. Folks, before getting too worked up over this I suggest you read the judge’s findings linked to at the top. There is a lot more grey area and unusual circumstances than suggested by the news report.

  6. I challenge anyone to fine a Licensee whom makes it mandatory to include the 3 year Non-Disclosure clause in the “Replacement of Product” section of the Licensee’s templated SOA. Why isn’t it mandatory? Well Licensee’s would see a mass exodus of advisers and if the insured really understood the potential ramifications of replacing business, then they wouldn’t ever replace what they had. This would mean that Licensee’s wouldn’t be increasing their book and advisers wouldn’t be making enough money to justify their obligations as the Adviser. In-other-words…it is all about the mighty dollar.

  7. A perfect and timely wake up call for advisers….business gets replaced every day for a whole raft of reasons…some appropriate and others self serving. Either way replacement business is nothing to be scared of if done methodically and correctly….do your job well and to the end and you won’t have a case to answer! You can stop people suing you but you can put yourself in the best position to defend it or deter it. I feel for the client in this case and of course under the circumstances who wouldn’t take legal action…
    The disclosure issue wasn’t managed plain and simple nor was the final step in the cancellation of existing cover process….the later being the clincher in this case on top of the disclosure on the new cover. The final step of cancelling and capturing that process is key as there is no going back!
    Our business for years gets customers to read and initial the disclosure section, it then gets sent to them again with a copy of the app asking them to recheck the app info and reminds them of the ongoing disclosure. This is dealt with again at the time of policy issue, and if replacement is happening it is acknowledged again as part of the final cancellation as a separate end process….not a pre signed “she’ll be right” form to cancel as a forgone conclusion.
    This adviser just found out the hard way but I bet a whole lot more tighten up their practices and processes now given how much business is moved around….and there are lots mismanaging it every day but just haven’t had the stars align with these circumstances like this adviser did.
    If advisers are or have been taking any other approach they have simply been lucky to date…it’s that simple.
    Don’t be scared, be prepared….have a process that you can replicate consistently and therefore defend.
    Don’t blame the client, and don’t expect the life office to do your job for you because you aren’t managing the client and any risks close enough.

    • Cam, on the face of it the adviser appears to have done all the right things. The stomach condition was advised as 100% resolved as part of the original application and the adviser had made the client aware (on more than one occasion) of the duty of disclosure requirement. Why should an adviser be held liable for a client telling porkies?

  8. Did the PI insurers appeal the decision? It appears the adviser has done all the right things. How can an adviser be held responsible for a client telling porkies? It appears he made sure the client was fully aware of the disclosure requirements both during and throughout the application process. I cannot see the relevance in ensuring the adviser re-ask the client for an update on the stomach condition, when as part of the original application, the client has advised it was 100% resolved (which was clearly non-disclosure of the part of the client!).

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