The Full Federal Court’s dismissal of ASIC’s appeal against HCF Life has left intact a distinction that matters for insurers reviewing policy wording: a contract term may be liable to mislead consumers without necessarily being an unfair contract term.
The appeal concerned a ‘pre-existing condition’ term used in several products issued by HCF Life under its ‘Recover’ range. The Full Federal Court dismissed ASIC’s challenge to an earlier Federal Court finding that the term was not unfair, while leaving undisturbed the finding that the term was liable to mislead the public.
ASIC brought the appeal to clarify how the unfair contract terms regime applies to insurance contracts where policy wording may also be affected by other statutory protections. It was also concerned that the same term had been found liable to mislead the public but not unfair.
The case is relevant for insurers because it examines how exclusion wording interacts with section 47 of the Insurance Contracts Act. That provision limits an insurer’s ability to rely on a pre-existing condition exclusion where, at the time the contract was entered into, the insured was not aware of the sickness or disability and a reasonable person in the circumstances could not be expected to have been aware of it.
The term appeared in product disclosure statements, in substantially identical terms, for Cash Back, Smart Term, and Income Assist. Income Assist was replaced by Income Protect from October 2021.
According to the judgment, HCF Life had adopted a definition of ‘pre-existing condition’ that excluded cover where a medical practitioner was of the opinion that signs or symptoms of the relevant condition existed before the policy began. The product disclosure statements and standard-form welcome communications did not explain the existence or effect of section 47.
ASIC began civil proceedings in May 2023, alleging that three types of HCF Life insurance policies contained an unfair contract term and could mislead the public.
The Federal Court later found that the pre-existing condition term was partially unenforceable because of section 47. It also found that HCF Life had presented the exclusion as an accurate, complete and unqualified statement of when benefits would not be payable due to a pre-existing condition, when that was not the case.
However, the court found that the term was not unfair. In dismissing ASIC’s appeal, the Full Federal Court found no error in that conclusion.
The Full Federal Court accepted that a misleading term can, in theory, affect the balance of rights and obligations between parties. However, it found that ASIC had not established that the term caused a significant imbalance in this case. The court said the possibility that some consumers may have been dissuaded from making or pursuing claims did not rise beyond a theoretical possibility on the evidence.
The court also upheld the earlier finding that the term was reasonably necessary to protect HCF Life’s legitimate interests. The judgment referred to the insurer’s interest in offering guaranteed acceptance products and managing the risk of anti-selection behaviour by prospective insureds.
HCF Life replaced the ‘pre-existing condition’ term in its life insurance products on November 9, 2023. ASIC said it does not consider the replacement term to be liable to mislead or unfair.
In April 2025, after the liability decision and in consultation with ASIC, HCF Life wrote to affected current and former policyholders and published a corrective notice on its website. The notice informed consumers of the liability judgment and directed them to contact HCF Life if they thought they were affected. ASIC said the corrective notice remains on HCF Life’s website.
On May 8, 2025, the Federal Court penalised HCF Life $750,000 for including the pre-existing condition term in the policies, after finding that the term was liable to mislead the public.
ASIC said it is considering the Full Federal Court’s decision.
The decision comes as unfair contract term protections continue to develop in insurance. Those protections were expanded to consumer and small business insurance contracts from April 5, 2021, following a recommendation from the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry.
Civil penalties for breaches of the unfair contract term prohibition came into effect on November 9, 2023, following assent of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022.
