HCF Life pre-existing condition terms ‘liable to mislead the public’: Federal Court

The Federal Court has found that that a ‘pre-existing condition’ term in certain HCF Life Insurance Company Pty Ltd policies was liable to mislead the public.

Specifically, the term was used in three contracts issued under HCF Life’s ‘Recover’ range of products.

The Australian Securities and Investments Commission (ASIC) had alleged that the term could mislead the public because:

• it purported to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract, and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract, even if a diagnosis had not been made
• it suggested that HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the ‘insurance contract and a reasonable person in the circumstances would not have been aware of the condition, and
• section 47 of the Insurance Contacts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

In making the judgment, Justice Jackman said the “ordinary and reasonable reader would be ignorant of the potential effect of s47 of the ICA, and nothing in the Recover Cover PDSs adverts to the possibility that it may preclude HCF Life from relying upon the Pre-Existing Condition Terms in particular circumstances”.

According to ASIC deputy chair Sarah Court, it is important that insurers provide accurate information about consumers’ rights.

“Consumers rely on this information to make insurance claims, often in trying personal circumstances,” Court said.

“By including a term that was liable to mislead consumers and that purported to give HCF a broader right to deny coverage than was the case, HCF Life misled consumers about their rights.”

ASIC had also alleged that the term was an unfair contract term under the Australian Securities and Investments Commission Act 2001, however Justice Jackman dismissed that part of ASIC’s case.

The regulator said it would “consider the Court’s decision”, and that it will seek penalties for misleading conduct.

The matter will return to Court for case management on 8 November 2024.

ASIC launched the action in May last year, with Court noting at the time that taking enforcement action with respect to unfair contract terms, including in insurance products, is one of ASIC’s enforcement priorities.

“Given the expansion of the unfair contract terms regime in April 2021 to include insurance contracts, ASIC’s current focus on enforcement action concerning unfair contract terms should not come as a surprise,” she said.

“Rather, it should serve as a reminder to providers of financial services, whose contracts are subject to the regime, that potentially unfair terms should be removed from their standard form consumer contracts.”