The Federal Court has sent a fraudulent misrepresentation decision back to the Australian Financial Complaints Authority (AFCA) to be redetermined in a point-of-law ruling that has implications for disclosure disputes and utmost good faith.
The decision related to a group life cover claim dispute and disclosure over pre-existing health conditions, but Radford Lawyers Principal Solicitor Mark Radford says it has wider implications for general insurance.
“The reasoning in this case supports the view that an insurer can argue that whilst s29 (for life insurance) or s28 (for general insurance) might not be available to the insurer as a remedy, where for example the relevant misrepresentation was not made to it (or in other circumstances), s13 duty of utmost good faith obligations might still be applicable where it could be concluded that maintenance of a claim involving an original fraudulent misrepresentation to another insurer amounts to having unclean hands,” Mr Radford says.
The dispute involved a group life insurance fund member, who was a medical general practitioner, who applied for additional death, total and permanent disablement and income protection cover above the default amount.
In applying in 2011 for the extra cover, the doctor answered “no” when asked about previous heart trouble, murmurs, chest pain and palpitations.
A terminal illness claim was lodged in March 2017 and he died from heart failure the next month. The claim under the default cover was accepted but the additional cover declined due to the answers, which AFCA found were not only false but fraudulent.
The policyholder had undergone a surgical procedure in 1999 when three stents were placed into two different sections of his coronary arteries after he suffered a myocardial infarction.
AFCA says it “was beyond reasonable belief” that the deceased may have forgotten about the heart issues or the stents and as a general practitioner should have known it was a serious condition.
The Insurance Contracts Act section which deals with misrepresentations in life policies didn’t apply in this case as the insurer deciding the claim was different to the original insurer that had received the answers.
But AFCA found it was still “fair and reasonable” in the circumstances not to pay the additional benefits, as the Insurance Contracts Act (ICA) didn’t contemplate a change of insurers in a superannuation group life context, and other “common law and equity” rights could apply.
The Federal Court found AFCA was wrong and the alternative route it suggested wasn’t available, while it pointed to the potential for the duty of utmost good faith to come into play instead.
“AFCA erred in not confining its attention to other remedies that may be open under the [Insurance Contracts Act] for breach of the statutory implied term of utmost good faith,” Justice Shaun McElwaine says in the decision.
The court sent the matter back to AFCA “to be determined again” in accordance with its reasons.
Mr Radford says the dispute considered provisions that have changed under recent reforms, but the principles in the case remain relevant for future disputes, such as in scenarios where a claimant may have “unclean hands” but an insurer can’t succeed technically by reason of the disclosure or misrepresentation provisions.
“What the court has said is, you still may be able to argue a breach of the duty of utmost good faith in your defence despite that,” he told insuranceNEWS.com.au. “Much will depend on the circumstances.”
The court decision is available here.
