The Federal Court has found that Zurich Australia did not breach its duty of utmost good faith when OnePath Life, prior to its acquisition by Zurich, 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 says in a statement that 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.”
She says ASIC believes “…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.”
The commission says that in 2018, OnePath rejected the income protection claim of a customer who had injured her shoulder while working as a nurse.
It says 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, which 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
- 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 notes it is reviewing the decision.
As background the commission says that 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.
ASIC adds that under the Insurances Contract Act 1984 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. 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.”
Wouldn’t they have just placed a mental health exclusion on the disclosure, I find it a bit rich to decline the claim on a unrelated health matter of the claimant. I understand the non disclosure however to say they wouldn’t have issued the policy if disclosed is misleading one would argue it would have been issued with a mental illness exclusion, don’t most policies also have a 3 year non disclosure clause.
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