AFCA Rules Against Insurer in $1.4m TPD Dispute

AFCA has overturned a decision by AIA Australia to refuse paying a $1.4m additional TPD benefit to a claimant who failed to declare his diabetes when applying for cover.

In a determination issued on 26 March, AFCA set aside decisions of AIA and super fund Hostplus relating to additional TPD cover obtained through a superannuation insurance transfer process.

The complainant consolidated his superannuation accounts in 2020 and applied to transfer their existing insurance cover into the Hostplus group policy underwritten by AIA.

As part of the application process, the complainant completed a health declaration and answered ‘no’ to a question asking whether he had any disease, illness, or injury that was “currently causing you symptoms or requiring treatment”.

Medical records later showed the complainant had been diagnosed with diabetes in 2018 and was taking medication, including weekly injections, at the time of the application.

AFCA found the complainant should have answered the medical question affirmatively and concluded a misrepresentation had occurred. However, the panel found the insurer had not established the complainant deliberately misrepresented his health or was recklessly indifferent to the truth, as required to prove fraudulent misrepresentation under section 29(2) of the Insurance Contracts Act.

…He was receiving treatment for his diabetes at the time of his health declaration….

The determination stated the complainant thought the question related to active treatment for a worsening condition and considered his diabetes to be stable and controlled.

AFCA said: “The complainant’s diabetes was well controlled because he was under the ongoing care of a doctor and taking oral and injectable medications….A reasonable person in the circumstances would not have held the belief that his diabetes was not currently requiring treatment.”

AFCA said the wording of the health question could have been clearer, although it concluded the question was not ambiguous.

…required to establish fraudulent misrepresentation in order to avoid the contract…

AFCA said the insurer sought to avoid the cover more than three years after the application and therefore was required to establish fraudulent misrepresentation in order to avoid the contract.

The panel found the insurer had not established fraudulent misrepresentation and so should pay the additional cover, stating: “The panel is satisfied that the complainant has given a reasonable and credible explanation for his misrepresentation.”

AFCA ordered the insurer to pay the benefit amount of $1.466m together with interest from 5 February 2025 until the date of payment.

The determination also ordered the insurer to pay further interest on the default TPD benefit of $119,000 after finding payment had been unreasonably withheld.

Click here for the full ruling.