The language in the policy documents misrepresented when benefits would not be payable: court
The Federal Court has ruled that an insurer misled consumers by not disclosing a key statutory provision limiting its exclusions for pre-existing conditions, violating consumer protection laws.
HCF Life Insurance, a subsidiary of The Hospitals Contribution Fund of Australia Limited (HCF), offers insurance policies, including "Smart Term Insurance," "Cash Back Cover," and "Income Protect Insurance," under its Recover Cover product line. Between 2019 and 2023, HCF Life revised the definition of “pre-existing condition” in its policy documents, omitting references to s. 47 of the Insurance Contracts Act 1984 (ICA). Section 47 restricts insurers from denying coverage based on pre-existing conditions if the insured was not aware, and could not reasonably have been aware, of the condition at the time of policy inception.
ASIC alleged that HCF Life’s policies misled the public by not explaining the implications of s. 47. ASIC argued that by distributing product disclosure statements without this critical information, HCF Life violated s. 12DF of the Australian Securities and Investments Commission Act 2001, which prohibits conduct that could mislead consumers about the characteristics and suitability of financial services.
The Federal Court found that the language in HCF Life’s policy documents misrepresented when benefits would not be payable. The policies defined “pre-existing conditions” based on whether a medical practitioner believed that symptoms existed prior to the policy’s commencement. However, the documents did not indicate that under s. 47 of the ICA, the insurer could not rely on these exclusions if the insured was unaware of the condition at the time of contracting.
The court emphasised that the statutory provision and HCF Life’s contractual terms lead to different inquiries. While HCF Life’s exclusions depend on a medical practitioner’s subjective opinion, s. 47 involves assessing the insured’s knowledge of their condition, taking into account what a reasonable person could have been expected to know.
The court concluded that HCF Life’s failure to reference s. 47 in its product disclosures misled consumers, violating s. 12DF of the ASIC Act. Although the court did not find the policy terms “unfair” under s. 12BF, it recognized that the exclusions were misleading because they presented an incomplete picture of the coverage limits.
