Insurer wins court appeal in heart attack disclosure dispute

The Federal Full Court has ruled a life insurer is entitled to decline cover due to a doctor’s non-disclosure of his heart problems, despite the false information being given to an earlier provider before a group policy changed hands.

The dispute went to the courts after the Australian Financial Complaints Authority (AFCA) found in favour of the insurer. The Federal Court then ruled AFCA had erred and sent the matter back for redetermination.

The Full Court on appeal found CommInsure could rely on the Insurance Contracts Act section dealing with misrepresentation to refuse cover, even though the falsely filled out form was given to previous provider OnePath.

“There is no identifiable error by AFCA on a question of law in making the factual findings that underpin the conclusion that [the doctor] made continuing misrepresentations to CommInsure that CommInsure was entitled to rely on in avoiding cover,” Justices Angus Stewart, John Halley and Catherine Button say.

The doctor answered “no” when asked about previous heart troubles when applying in March 2011 for extra cover above the default amount. But the courts heard he had surgery in 1999 when stents were placed into his coronary arteries after he suffered a heart attack.

A terminal illness claim was lodged in March 2017, and the doctor died from heart failure the next month. The default cover claim was accepted, but the additional cover was declined by CommInsure Life, now part of AIA.

AFCA initially found the Insurance Contracts Act misrepresentations section didn’t apply, because the false statement was made to OnePath and not CommInsure, but other “common law and equity” rights could apply and the refusal was fair and reasonable.

In the Full Court appeal, AIA argued it could rely on section 29 of the Act to avoid the extra cover as misrepresentations were not corrected when members were advised of the change of insurer, and the doctor “made a further misrepresentation to CommInsure by silence when he failed to correct his fraudulent misrepresentation” before December 2011.

The justices found AFCA’s factual findings, although made in the context of a discussion of common law and equity remediates in order to underpin a finding of “fair and reasonable”, supported the appeal being upheld.

“CommInsure was a member of a class of persons who could be expected to act (again) on the misrepresentations,” the judgment says.

“That was presumably on the basis of the common practice of trustees to change group insurers from time to time and that new group insurers in such a scenario typically do not re-underwrite or reassess the risk.”

The court decision also points to AFCA’s finding that CommInsure would not have entered into the contract regarding the doctor’s additional cover had he not misrepresented his cardiac history.

Berrill and Watson Lawyers Principal John Berrill says parts of the judgment’s findings are deeply troubling and potential impacts could more widely affect life policyholders beyond the group sector.

“The finding they have made about the continuing duty of disclosure after the policy commences has implications generally for life insurance policies,” he tells insuranceNEWS.com.au.

The decision is available here.