Moray & Agnew Lawyers has drawn attention to a recent Federal Court decision in which HCF Life Insurance Company Pty Ltd (HCF Life) was found to have misled consumers through the use of an overly broad pre-existing condition exclusion clause.
In the case, the court determined that HCF Life’s clause went beyond what is enforceable under Australian law, marking a significant moment for compliance under the Australian Securities and Investments Commission Act 1989 (Cth) (ASIC Act) and the Insurance Contracts Act 1984 (Cth) (ICA).
Pre-existing condition (PEC) clauses are used by insurers to limit coverage for health issues that began before the start date of the insurance policy.
However, Section 47 of the ICA restricts insurers from applying such clauses if the insured was unaware, and could not reasonably have been expected to know, of the condition at the time of policy commencement.
In this case, the court found that HCF Life’s PEC clause exceeded the enforceable scope allowed by the ICA. The clause allowed exclusions based on a doctor’s retrospective opinion about symptoms, rather than on the insured’s own knowledge of their condition.
The court determined that this wording could mislead consumers by suggesting that their coverage was more limited than the law actually permits, thus constituting a breach of section 12DF of the ASIC Act.
Moray & Agnew said this finding suggests that the clause gave an impression of reduced coverage, which the law does not support.
ASIC also claimed that the PEC clause was an unfair contract term, but the court ultimately rejected this argument.
The court reasoned that HCF Life’s policies were “guaranteed acceptance” products that did not require individual underwriting, making it reasonable for the insurer to exclude some pre-existing conditions to manage its risk exposure.
Additionally, the court observed that the clause was clearly presented in HCF’s Product Disclosure Statement (PDS), meaning it did not create an undue imbalance in policyholder rights.
Moray & Agnew noted that this ruling indicates that the court assesses fairness in the context of the product’s overall structure and transparency. Here, it was found reasonable for HCF Life to have risk management provisions for guaranteed acceptance policies, so long as the terms were clear and did not place unfair burdens on policyholders.
The law firm said the decision serves as a reminder for life and general insurers across Australia to ensure that policy terms, particularly exclusions, are fully compliant with ICA requirements.
Insurers are advised to review PEC clauses and other exclusions in their policy documents to avoid terms that may mislead consumers about the scope of their coverage. Failure to comply with ICA standards, especially under sections 45, 46, 47, and 54, could expose insurers to regulatory action for misleading conduct.
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The case also clarifies the interpretation of “awareness” in Section 47, specifying that an insured’s awareness of a condition should be based on their actual knowledge at the time of entering the contract, rather than simply on the existence of symptoms that might be observed by a medical practitioner.
In light of this ruling, Moray & Agnew advised insurers to carefully review and, where necessary, revise their PDS and policy terms to ensure they align with the ICA.
Adjusting terms to meet regulatory standards helps insurers avoid potential legal disputes and builds consumer trust through transparent and enforceable policy conditions.
By making these adjustments, insurers can better protect themselves from claims of misleading conduct while clearly communicating the extent of coverage provided under Australian law.
