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.
Commenting on the case, ASIC Deputy Chair Sarah Court said the regulator took on the case to clarify the steps insurers must take before avoiding an insurance policy due to fraudulent non-disclosure.
“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.
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:
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.
In other news, ASIC “permanently banned” a former insurance broker from providing any financial services.
