The Federal Court ruled on Monday that a “pre-existing condition” term used by HCF Life Insurance Company Pty Ltd in its life insurance policies could mislead customers about their rights. This decision follows a case presented by the Australian Securities and Investments Commission (ASIC), which alleged that the terms under HCF Life’s “Recover” insurance product line failed to align with consumer protections stipulated in the Insurance Contracts Act 1984 (ICA).
A news release said that the contested “pre-existing condition” clause allowed HCF Life to deny coverage if it was later established that symptoms of a condition existed before the contract date, even if the customer was unaware of the condition or it had not been formally diagnosed.
Justice Jackman noted that the contract phrasing would likely mislead an “ordinary and reasonable reader” due to its failure to clarify that section 47 of the ICA prohibits insurers from denying coverage if a customer was unaware of a pre-existing condition when purchasing a policy. Under section 47, denial of coverage is only permitted if a reasonable person in the customer’s position should have been aware of the condition at the time of contract commencement, the news release emphasised.
ASIC argued that the clause created a misleading impression of HCF Life’s rights, effectively widening its grounds to deny coverage beyond what the law allows. This alleged discrepancy, ASIC said, could cause policyholders to forgo making legitimate claims or to misunderstand their coverage terms.
ASIC deputy chair Sarah Court said that customers often rely on policy information when making claims in challenging personal circumstances, underscoring the need for clear contract language.
While the court agreed that the pre-existing condition term was misleading, it dismissed ASIC’s allegation that the clause was an “unfair contract term” under the ASIC Act 2001. Justice Ian McNeil Jackman’s judgment in this aspect did not grant ASIC’s request to classify the term as unfair, instead focusing on the misleading nature of the language used in HCF’s policies.
Following the decision, ASIC announced plans to seek penalties against HCF Life for misleading conduct. A case management hearing is scheduled for Nov. 8 to determine subsequent actions.
In recent years, the federal government has expanded protections against unfair contract terms, a move that followed recommendations from the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry. The adjustments in April 2021 brought insurance contracts under the unfair terms regime to align with consumer protections in other financial services areas. Civil penalties for breaches of these rules became enforceable as of November 2023.
With the outcome of this case, ASIC aims to reinforce the standards expected across the insurance sector, ensuring that all consumers receive accurate information to make informed decisions about their coverage.
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