Federal Court rules in favour of Zurich in policy avoidance case

Federal Court rules in favour of Zurich in policy avoidance case | Insurance Business Australia

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Federal Court rules in favour of Zurich in policy avoidance case

Corporate watchdog highlights steps insurers must take before avoiding insurance policy

Insurance News

By
Roxanne Libatique

The Federal Court of Australia has ruled that Zurich Australia Limited (Zurich) did not breach its duty of utmost good faith in a case involving the avoidance of an income protection policy by OnePath Life Limited (OnePath), the former owner of Zurich’s life insurance business.

According to the Australian Securities & Investments Commission (ASIC), the avoidance was based on the insured’s failure to disclose a history of hospitalisation for serious mental health issues.

“We believe this was an important case to bring, given our view that it was appropriate for procedural fairness to be provided before avoiding a customer’s insurance policy. ASIC enforcement action plays an essential role in testing legislation to ensure it affords consumers with appropriate protection,” Court said.

Background

The incident dates back to 2018 when OnePath rejected an income protection claim from a customer who had sustained a shoulder injury while working as a nurse.

According to OnePath, the customer’s failure to disclose prior hospital admissions for unrelated mental health issues between 1999 and 2005 constituted fraud.

According to ASIC, Zurich – which replaced OnePath as the respondent in the proceedings – breached its duty of utmost good faith by avoiding the policy for the following reasons:

OnePath avoided the policy without first consulting the financial adviser who assisted the customer in applying for the policy regarding the non-disclosure.
OnePath decided to avoid the policy without adequately notifying the customer of its intention to do so based on fraud.
OnePath failed to inform the customer of her right to dispute or appeal the decision to avoid the policy.

However, in a judgment delivered on December 21, 2023, Federal Court Justice Jackman ruled against ASIC on all counts. ASIC is currently reviewing the decision.