Non-Disclosure and Misrepresentation in Life Insurance

Authored by Philip Nolan, Barrister

Introduction

1. Part IV of the Insurance Contracts Act 1984 (Cth) (ICA) regulates when an insurer can avoid policies for non-disclosure and misrepresentation. The Part was intended to be a code, and effectively replaces the existing common law position on non-disclosure, rather than to supplement it.¹

2. Given the time permitted, I intend to address only some of the more common and important issues that arise in life insurance. There are many more issues that arise in this space that is not canvassed in this paper. Importantly, Part IV of the ICA has been through a number of changes over the years. This paper will also address these amendments, and the effect of them.

Non-disclosure

3. Section 21 deals with non-disclosure. Sub-section 21(1) is as follows:

21 The insured’s duty of disclosure

(1) Subject to this Act, an insured has a duty to disclose to the insurer, before the relevant contract of insurance is entered into, every matter that is known to the insured, being a matter that:

(a) the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could be expected to know to be a matter so relevant, having regard to factors including, but not limited to:

(i) the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and

(ii) the class of persons who would ordinarily be expected to apply for insurance cover of that kind.

4. The parts I have highlighted were inserted in 2013, and those amendments apply to contracts entered into, or varied by agreement on or after 28 December 2015. These amendments do not materially alter the test to apply. More on this is consider later in the paper.

The duty extends to the “insured”

5. The duty to disclose is limited to the “insured”. The Courts have confirmed that the “insured” is the actual party to the insurance, not a person who is not a party but is who entitled to the benefit under the Policy.²

6. In normal retail policies, this rarely becomes an issue. It gets interesting in life insurance products held within Superannuation Funds. In these circumstances, the Trustee of the Fund is the “insured”, not the beneficiary of the policy. Accordingly, the person to whom cover is provided does not have a duty of disclosure to the Insurer.

7. That was the conclusion reached by Greenwood J in Sharma v LSS Pty Ltd [2018] FCA 167. In that case, Mr Sharma was a member of the Local Government Superannuation Scheme, which provided him with automatic TPD cover. About two years later, he applied for additional TPD and IP cover within the Fund. That required him to fill out an additional application form.

8. Based on that form, the Insurer agreed to the increased cover. Upon that acceptance, the Trustee of the Fund remained the Policy owner, and Mr Sharma became the “life insured”. In the intervening period, the Fund changed insurers, which is not relevant for present purposes. When Mr Sharma was struck down by psychological illness, he claimed the increased benefits, however the Insurer avoided the increased cover on the basis that Mr Sharma failed to disclose previous episodes of depression.

9. The matter went to Superannuation Complaints Tribunal, and it was presumed that the duty of disclosure applied to Mr Sharma. Mr Sharma appealed, and the Federal Court held that the duty of disclosure did not extend to Mr Sharma, as he was a third-party beneficiary.³The matter was remitted back to the Tribunal on that basis.

10. The ICA has sought to remedy this anomaly by the insertion of section 31A. That section states:

31A Non-disclosure by life insured

(1) This section applies in relation to a contract of life insurance under which a person (other than the insured) would become a life insured.

(2) If, during the negotiations for the contract but before it was entered into, the person (the life insured) failed to disclose to the insurer a matter that was known to the life insured, being a matter that:

(a) the life insured knew to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

(b) a reasonable person in the circumstances could have been expected to know to be a matter so relevant, having regard to factors including, but not limited to:

(i) the nature and extent of the insurance cover to be provided under the relevant contract of insurance; and

(ii) the class of persons who would ordinarily be expected to apply for insurance cover of that kind;

this Act has effect as if the failure to disclose the matter had been a failure by the insured to comply with the duty of disclosure in relation to the matter.

(3) Subsection (2) does not apply in relation to a failure by the life insured to disclose a matter:

(a) that diminishes the risk; or

(b) that is of common knowledge; or

(d) as to which compliance with the duty of disclosure is waived by the insurer.

11. The section effectively sheets any non-disclosures of the life insured back to the insured. However, the section only came into effect on 25 December 2015, and only applies to contracts entered into, or varied by agreement on or after that date. There are still many life insurance contracts that commenced before that date. It is important to look at the commencement date of the contract, when considering whether the duty is owed to the life insured.

The duty only arises “before the relevant contract of insurance was entered into”

12. The duty of disclosure only extends before the contract was entered into. The insured owes no such duty after the contract is in place. This limitation also applies to alleged misrepresentations.⁴

13. This is important in group superannuation policies, where members of funds obtain cover under policies that are already in existence between the insurer and the fund. Therefore, any non-disclosures and misrepresentations made by the member of the fund, when applying for cover under the policy, would not engage the ICA, as the post date the commencement of the contract.

14. The other issue with group policies is that the insurer’s only remedy is to avoid the contract, not cover under the contract.⁵ This would mean that the entire policy would have to be avoided, which provides cover for a large cohort of members of the Fund.

15. Section 32 of the ICA was an attempt to remedy these problems. That section, in its original form is as follows:

32 Non-disclosure or misrepresentation by member of scheme

This Division extends to the case where there was a failure to comply with the duty of disclosure, or a misrepresentation was made, to the insurer under a blanket superannuation contract in respect of a proposed member of the relevant superannuation or retirement scheme as though:

(a) the insurance cover provided by that contract in respect of that member were provided by an individual superannuation contract between the insurer as insurer and the trustee for the purposes of the scheme as the insured; and

(b) that contract had been entered into at the time when the proposed member became a member of the scheme.

16. The section applies to a “proposed member of the relevant superannuation or retirement scheme”. It is very common for people to become members of the super fund, entitling them to automatic cover, and subsequently seek an increase in the level of cover under that group policy. Medical disclosure is usually required in these circumstances. The problem here is that, at the time the person applies for the increased cover, they are not a proposed member, but rather an existing member of the fund.

17. This is precisely the situation that happened in Virag v United Super Fund & Anor [2009] VCC 852. When confronted with the above scenario, Wischusen J found that section 32 did apply to that situation:⁶

I have reached the conclusion that the “proposed member” of which s.32 speaks should, as Mr McCredie submitted, be read as meaning a member proposing himself for insurance cover under the scheme. This interpretation is consistent with the context and the legislative intent. In my view, s.32 operates in this way: It operates when there was a relevant failure to disclose (or misrepresentation, within the meaning of the ICA) in respect of a scheme member’s insurance cover. It uses fictions to expose that member’s individual insurance cover to the remedies found in Division 3. It does so by isolating “the cover” in respect of which the non disclosure was made by treating “the cover” as if provided by an individual superannuation contract between insurer and trustee. Next, it places the making of that fictional contract at the only place in time where the failure to disclose can be of relevance for the purpose of remedy39 – that is, when the member’s proposal for the particular insurance cover is being made and he becomes a member of the scheme for “that cover”. In this way, the section puts the insurer and member in the same positions (regarding non disclosure and misrepresentation) in respect of that cover as they would occupy under the ICA had the non-disclosure or misrepresentation been made in respect of an individual contract of life insurance which provided that cover.

18. With complete respect to His Honour, there is difficulty in accepting that approach. Section 32 is clear in that it applies to “proposed members of the relevant superannuation or retirement scheme”. That phrase is clear enough. It is difficult to rationalise the extension of that phrase to existing members of the fund who is proposing to take out insurance under the scheme. It simply does not say that.

19. Parliament seems to have acknowledged that section 32, in its original form, does not capture the situation in Virag. It repealed the section and replaced it with the following:

32 Non-disclosure or misrepresentation by life insured covered under group life contract

(1) This Division extends to the case where there was a failure to comply with the duty of disclosure, or a misrepresentation was made to the insurer, in respect of a proposed life insured under a group life contract, as if:

(a) the insurance cover provided by the group life contract in respect of the life insured were provided by an individual contract of life insurance between the insurer and the insured; and

(b) the group life contract had been entered into at the time when the proposed life insured became a life insured under the group life contract.

(2) For the purposes of this Division, if the failure to comply with the duty of disclosure, or the misrepresentation, occurred after the proposed life insured became a member of the relevant superannuation, retirement or other group life scheme but before the insurance cover was provided by the group life contract in respect of the life insured, then the failure or misrepresentation is taken to have occurred before the proposed life insured became a life insured under the group life contract.

20. The explanatory memorandum to the Amending Act effectively concedes that the old section 32 does not capture existing members of the fund:

1.157 In some circumstances, individuals will join a superannuation scheme but there will be some delay before life insurance cover they acquire as part of joining that scheme is commenced. For example, a new employee may join a superannuation scheme and superannuation contributions may be made on their behalf, but before the insurer provides life insurance cover, that employee must undergo a medical examination and/or answer questions about their health.

1.158 In those circumstances, the existing section 32 would still deny the insurer a remedy if non-disclosure or misrepresentation occurred during the interim period, because under current paragraph 32(b), the contract is taken to be entered into when the member joined the scheme.

1.159 New section 32 addresses this difficulty by providing that, where there is a delay from the time of joining the scheme until the time that cover is actually effected, the relevant contract of life insurance is taken to have commenced (that is, to be `entered into’) at the time the proposed life insured became a life insured under the scheme, in other words, at the time the life insurance cover under the scheme took effect in relation to the member concerned.

21. The new section 32 removes the controversy discussed in Virag. However, the new section only applies to applies to contracts entered into, or varied by agreement, on or after 28 June 2014. There are still many blanket superannuation policies that are subject to the old section.

Relevant to the “risk”

22. Another important qualification to section 21 is the duty to only disclose matters “relevant to the decision of the insurer whether to accept the risk”, not matters at large. That phrase was considered by the High Court in Permanent Trustee Australia Ltd v FAI General Insurance Co Ltd (in liq) (2003) 214 CLR 514. In that case, Permanent Trustees had professional indemnity cover with FAI. When it came time to renew the contract, Permanent Trustees requested a one month extension from FAI, to obtain more information. That is all that FAI knew, and agreed to the extension. They did not know that Permanent Trustees were, in fact, considering other insurers, and FAI’s case was that, had they known Permanent Trustees were considering other insurers, they would never have offered the extension.

23. The High Court held that Permanent Trustees did not have an obligation to disclose that they were considering other insurers, because that was not a matter that was relevant to the risk of cover. It held that matters of a commercial nature are not matters that are required to be disclosed.

24. This can have relevance for life insurance products offered. For example, it is common for insurers to engage in commercial arrangements with Super Funds, whereby generous TPD insurance packages are offered to attract membership. The Permanent Trustees principle could be applied if the insurer is relying on the non-disclosure of a matter that is relevant to that commercial arrangement, as opposed to matters that affect the risk of a person becoming TPD.

Knowledge – the reasonable person test

25. The insured person needs to “know” that the matter is relevant, or a reasonable person in the circumstances could be expected to know it being relevant. In Twenty-First Maylux Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd [1990] VR 919, it was held⁷ that “intrinsic factors”, such as a person’s imperfect understanding of English, cultural backgrounds and unfamiliarity with business or insurance practice are not matters that are to be taken into account, but rather “extrinsic factors” are, such as the informality attendant upon negotiations where interim cover is arranged over the telephone, or the type of policy in issue, or the exposure to advertising and promotional material. Such an approach has been endorsed by the High Court, where it was held⁸ that the provision looks at a reasonable person’s state of mind, not the insured actual state of mind.

26. That principle is also in accord with the amendments made to section 21(1)(b), which clarifies the need to look at “extrinsic factors” such as the nature and extent of the insurance cover provided, and the class of persons who would ordinarily be expected to apply for insurance cover of that kind.

27. Sometimes the application form itself is a good guide to assess what a reasonable person would consider relevant. For example, if a particular space for further elaboration is given under one question, and not under another, that can lead to the inference that the further elaboration is only required for the question that provided the space to do it.⁹

28. There are limits on what a reasonable person ought to know. In NRG Victory Australia Ltd v Hudson [2003] WASCA 291, Mr Hudson ticked “no” when asked he had ever suffered from a “neck, back or shoulder disease”. Following his disablement, it became apparent that Mr Hudson had previously suffered a rash an some swelling to the neck, which he did not disclose. Mr Hudson claimed that he did not believe that this was a “disease” to which the question contemplated. He was never advised by any doctor that he had a “disease”. The Court held¹⁰: “It must be remembered that the person did not have the knowledge and understanding of a doctor of the scope of the concept of a disease but only the appreciation of an ordinary worker”.

29. Finally, it is rare these days for an insurer to accept cover, without first compelling the insured to complete an application form. Some of these forms, particularly in relation to life insurance, are extremely comprehensive. In these circumstances, it would be difficult to accept that a reasonable person in the circumstances would not consider a matter being relevant if specifically asked about it in the application form.¹¹Conversely, if there were no such questions in the application, a reasonable person in the circumstances might be justified in believing that the matter is not relevant.¹²

Insurer must inform the duty of disclosure

30. Finally, it should be mentioned that the insurer must, under section 22 of the ICA, inform the insured, in writing, the effect of the duty of disclosure. If is does not, then it cannot rely on the non-disclosure to avoid the policy. For contracts entered into, or varied by agreement, on or after 28 December 2015, the insurer must also notify the life insured.

Misrepresentations

31. As stated above, it is now rare for insurers to agree to cover (apart from automatic cover under group policies) with the life insured first completing an application form. If an incorrect answer to a question is given, then the Insurer may have remedies of avoidance for that misrepresentation. Section 26 deals with misrepresentations:

26 Certain statements not misrepresentation

(1) Where a statement that was made by a person in connection with a proposed contract of insurance was in fact untrue but was made on the basis of a belief that the person held, being a belief that a reasonable person in the circumstances would have held, the statement shall not be taken to be a misrepresentation.

(2) A statement that was made by a person in connection with a proposed contract of insurance shall not be taken to be a misrepresentation unless the person who made the statement knew, or a reasonable person in the circumstances could be expected to have known, that the statement would have been relevant to the decision of the insurer whether to accept the risk and, if so, on what terms.

(3) This section extends to the provision of insurance cover in respect of:

(a) a person who is seeking to become a member of a superannuation, retirement or other group life scheme; or

(b) a person who is a holder, or is applying to become a holder, of an RSA.

32. Unlike non-disclosure, section 25 has been in force since the commencement of the ICA, and that section sheets home any misrepresentations made by the life insured, to the insured:

25 Misrepresentation by life insured

Where, during the negotiations for a contract of life insurance but before it was entered into, a misrepresentation was made to the insurer by a person who, under the contract, became the life insured or one of the life insureds, this Act has effect as though the misrepresentation had been so made by the insured.

33. Many of the principles canvased above, in relation to non-disclosure, are equally relevant to misrepresentations. For example, a statement made by an insured (or life insured) will only be a misrepresentation if she or she believes (or a reasonable person in the circumstances would so believe) that the statement was relevant to the risk. However, as stated above, the fact that a specific question is asked in an application provides a strong inference that the insured was aware that the matter was relevant.

Misunderstanding or misapplying the question

34. Most of the complications in determining whether a misrepresentation has been made arises where an insured misunderstood the effect of the question, or the effect of it. Section 23 of the ICA deals with ambiguous questions:

23 Ambiguous questions

Where:

(a) a statement is made in answer to a question asked in relation to a proposed contract of insurance or the provision of insurance cover in respect of a person who is seeking to become a member of a superannuation, retirement or other group life scheme; and

(b) a reasonable person in the circumstances would have understood the question to have the meaning that the person answering the question apparently understood it to have;

that meaning shall, in relation to the person who made the statement, be deemed to be the meaning of the question.

35. Even if the questions are not ambiguous, section 26 confirms that a statement or answer to a question will not amount to a misrepresentation if the person made the statement with the honest belief that it was true, or a reasonable person in the circumstances would have believed it to be true.

36. Most applications for life insurance cover asks question about whether the life insured has previously suffered from “injuries” or “diseases”. It gets complicated when a person, answering that question, has had sprains and strains over the years, usually due to a lifetime of hard and laborious manual work.

37. This is what happened in Virag. In that case, Mr Virag worked in various labouring jobs overs the years, and that work caused him aches and pains from time to time, and he occasionally went to the doctor for it, which included getting an x-ray. On each occasion, the doctor put it down to general aches and strains. He also experienced some mental stress.

38. When he completed his application form for increased insurance cover, he was asked whether he had suffered from any “mental or nervous disorder”. He ticked no, because he did not believe that the going to the doctor for some mental stress was a “disorder”. He was also asked whether her had suffered from an injury or disease of the back or neck. He also answered no to that question.

39. In finding that these instances of stress were not required to be disclosed, His Honour held: ¹³

On the evidence, I am not persuaded that the plaintiff in fact suffered from, or had any reason to believe he suffered from, any mental or nervous disorder. In my view, these attendances were normal responses to the difficulties and stresses his busy working life imposed upon him and their conflict with his sensible desire to give up smoking and his home life. How this man could be expected to know that these minor complaints would be of relevance to an insurer’s decision to insure him for total and permanent disablement was not explained. Seen in context, the plaintiff’s explanation of his feelings at that time, and why they did not to him seem to be of any interest to an insurer so as to require a positive disclosure, or a positive answer to the question on the health statement, seems to me to be perfectly reasonable. I am not satisfied that the plaintiff knew that his attendance regarding the lump at the back of his head where it joins the neck, or that the stress of work and his associated difficulty ceasing smoking, were matters “of interest” to the insurer. Accordingly, I am not persuaded that the plaintiff, at the time of completing the form, would have suspected, much less have known, that those matters would be relevant, or material, to the insurer’s decision to accept the risk of death or total and permanent disablement.

40. As to the back pain, His Honour found that a reasonable person in the circumstances would not have considered the aches and pains in the back were not injuries that needed to be disclosed because:¹⁴

As for the condition of the plaintiff’s lumbar spine and the failure to refer to the fact of the two consultations in February or the symptoms which led to them, the evidence discloses that the plaintiff’s initial concern, recorded in the notes, was that he had injured his back. This concern was, to a very large degree, dispelled by Dr de la Porte, and by his rapid and apparently complete recovery. By the time the plaintiff came to fill in the form he had had but two days off work (the second of which was an RDO), had been reassured after xrays were taken, and had explained to himself that his back pain had occurred because he had just “gone a bit hard” after his summer holiday break. His back pain resolved without taking the medication he had been prescribed. Lastly, he had returned to his remarkably heavy and arduous work for four or five months without incident. The plaintiff’s circumstances also include the fact “aches and pains” were so common from the effort involved in that work that “Tiger Balm” or a like substance was made available at his place of work.

I think it more likely that the plaintiff believed that he had not suffered from a back injury for the simple reason that his doctor had not been able to find anything wrong with his back, beyond suggesting he’d probably had a sprain.

Similar factual findings have been made by the Courts over the years. For example, in Dew v Suncorp Life and Superannuation Ltd [2001] QCA 459, Ms Dew was asked whether she had ever suffered from a “nervous breakdown” or “mental disorder”. The Court of Appeal upheld the Trial Judge’s findings that the plaintiff’s attendances to her GP for stress were not matters which warranted disclosure. The Court found that it was open to His Honour to find that a reasonable person would not have considered the following to be relevant to the insurer’s risk:¹⁵

The evidence paints a picture of episodic difficulties often associated with stressful situations which the respondent had had to face. Overall, the impression is of somebody who has encountered somewhat more of the knocks and bumps of life than an average person and who has suffered, as a consequence, psychological and emotional difficulties. This, at any rate, is the effect of His Honour’s findings on the evidence before him. There was, on the evidence His Honour accepted, no ongoing condition from which the respondent suffered.

42. Finally, in Graham v Colonial Mutual Life Assurance Society Limited (no 2) [2014] FCA 717, the life insured was asked whether he had “ever had or sought advice or treatment, experienced symptoms or suffered from any of the following:…Depression or mental disorder (Including but not limited to stress anxiety, panic attacks, behavioural or nervous disorder)”. He answered no, despite previously consulting a doctor, and receiving counselling for what was described in the clinical notes as anxiety and stress. His Honour, McKerracher J, held that the life insured was fraudulent in not disclosing a series of fainting fits, but not in relation to the stress:¹⁶

I consider that the Comminsure case significantly overstates health problems being experienced by Mr Elwaly at the time of completing the Application and the Declaration of Continued Good Health. He was overweight and had addressed this issue apparently with considerable success. He disclosed the surgery and the weight loss as a result of it. He was suffering from time to time from feelings of stress, anxiety and depression as a result of challenging events in his life including the fact that he had difficulty gaining employment, had serious problems with his first marriage and access to his children, had language difficulties and various other forms of stress. He did not, however, in my appreciation of the evidence, suffer from any mental health condition which required disclosure.

43. The takeaway from these cases is that the ordinary stresses and strains of everyday living are matters that may not need to be disclosed, however, these are all maters of fact and degree. The more serious the medical issue, the more likely it is to be considered relevant. It is also significant if the health issue was shortly before applying for cover.¹⁷ The specific nature of the question asked is also important. For example, if the insurer asks for disclosure of previous instances of back pain, as opposed to back injuries, then the threshold for disclosure is probably higher.

Remedies

44. The final part to the paper is a brief analysis on the remedies that are available to the insurer in circumstances where non-disclosure or misrepresentation is made out. Section 29 governs that issue, and stated, in its original form, as follows:

29 Life insurance

(1) This section applies where the person who became the insured under a contract of life insurance upon the contract being entered into:

(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where:

(c) the insurer would have entered into the contract even if the insured had not failed to comply with the duty of disclosure or had not made the misrepresentation before the contract was entered into; or

(d) the failure or misrepresentation was in respect of the date of birth of one or more of the life insureds.

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the insurer would not have been prepared to enter into a contract of life insurance with the insured on any terms if the duty of disclosure had been complied with or the misrepresentation had not been made, the insurer may, within 3 years after the contract was entered into, avoid the contract.

45. Section 29 was amended, and the amendment applies to contracts entered into, or varied by agreement, on or after 28 June 2014:

29 Life insurance

Scope

(1) This section applies where the person who became the insured under a contract of life insurance upon the contract being entered into:

(a) failed to comply with the duty of disclosure; or

(b) made a misrepresentation to the insurer before the contract was entered into;

but does not apply where:

(d) the failure or misrepresentation was in respect of the date of birth of one or more of the life insureds.

Note: If subsection 27A(1), (3) or (4) applies to the contract of life insurance, different remedies may be available to the insurer in respect of each separate contract of life insurance that is taken to exist by virtue of the relevant subsection.

Insurer may avoid contract

(2) If the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract.

(3) If the failure was not fraudulent or the misrepresentation was not made fraudulently, the insurer may, within 3 years after the contract was entered into, avoid the contract.

46. Effectively, if the misrepresentation or non-disclosure was fraudulent, the insurer can avoid the policy at any time, so long as the Insurer can prove that it would not have offered the relevant insurance on the same terms and conditions. If, for example, the Insurer would still have offered cover, but would have applied an additional loading, it can avoid the policy.

47. For contracts on or after 28 June 2014, if the misrepresentation or non-disclosure was innocent, the Insurer can only avoid the policy within three years of cover commencing. The insurer will also need to show that it would not have offered the relevant insurance on the same terms and conditions.

48. For contracts prior to that date, the insurer will only be able to avoid the policy for innocent misrepresentations or non-disclosures within three years, if it can show that it would not have offered “a contract of life insurance with the insured on any terms”, as opposed to “the contract”.

49. It is important to consider this further, because the Royal Commission recommended that the old section 29 be restored. The Government has announced that it intends to make good on that recommendation by June 2020.

50. The Court of Appeal in Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd [2003] QCA 182 considered this phrase. In that case, the evidence established that, had the insurer known about the non-disclosure, it would have undergone more investigations before deciding whether the accept cover. The issue was whether that was sufficient to avoid the policy. The Court held:¹⁸

What that means is this: for a right of avoidance under s 29(3) to arise it must be shown that, on the insured’s offer on the assumption that it had stated the true facts, the insurer would not have been prepared to enter into a contract on any terms; in other words, the insurer would have declined the risk.

Once that is accepted, it can be seen that if, absent the misrepresentation, on 3 September 1998 the appellant would still have been undecided on the question whether it would be prepared to enter into a contract on some terms or other with the respondent, perhaps because it needed to conduct future investigation, the appellant did not establish its right to avoid the contract under subsection (3). That it would probably have deferred its decision on 3 September would not be sufficient. It must be shown that, at some point, the offer would probably have been declined.

51. Accordingly, if the insurer was confronted with this situation, it would need to complete the investigations that it would have undertaken, and confirm, based on those investigations, that cover would not have been offered on any terms. Sometimes those further investigations are no longer possible. For example, the relevant insurance benefit was a life policy, and the life insured has since passed. In these circumstances, the Insurer would be without a remedy, because it bears the onus.

52. The aforementioned case of Virag also addressed an interesting submission on the old section 29(3). In that case, Mr Virag was claiming for TPD, but also had death cover with the insurer. The Insurer’s underwiring evidence was that, had they known about the non-disclosures, they would have avoided TPD but not the death cover. It was submitted that, the fact that death cover would have still been provided, it cannot be shown that “a contract of life insurance” would not have been offered. His Honour accepted that submission,¹⁹ finding that the “wide and non-specific words” of “a contract of life insurance” should not be “read down to the particular risk in respect of which the non-disclosure was relevant”.²⁰

53. As a final point to raise with section 29(3), it is common for insurance underwriters to conclude that, had they been made aware of a particular pre-existing medical condition, it would have applied an exclusion of that condition into the policy. If the insured then becomes disabled by the same condition that would have been excluded, then can the insured still claim under the policy? Whilst I cannot locate any case law on this issuer, I think that the answer is yes.

54. This is because of section 28 of the ICA, which relates to contracts of general insurance. That section states that, in the event of an innocent non-disclosure “the liability of the insurer in respect of a claim is reduced to the amount that would place the insurer in a position in which the insurer would have been if the failure had not occurred or the misrepresentation had not been made.”

55. However, section 29 applies to life insurance contracts. That section is worded differently, and intentionally so. Section 29(3) of the ICA is clear in its terms, in that the Insurer may only avoid the contract if the insurer would not have been prepared to enter into a contract of life insurance on any terms. If an exclusion was going to be applied, then a contract of insurance on some terms would have been offered.

Conclusions

56. As stated above, this paper represents only a proportion of the issues that arise in non-disclosure and misrepresentation cases.

57. The one important takeaway from this presentation is to know the dates of the commencement of the insurance contract, and the date of avoidance as this will have important consequences with respect to the legislation to apply, and the remedies that are available to the Insurer.

¹Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606; [1989] HCA 22 at [22]

²CE Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25 at 45- 46; ABN AMRO Bank IV v Bathurst Regional Council [2014] FCAFC 65 at [1634] – [1636].

³at [47] – [48].

⁴Section 29(1)(b) od the ICA confirms that the remedies available to the insurer under section 29 is only available for misrepresentations made to the insurer before the contract was entered into.

⁵See section 29.

⁶At [114]

⁷At 86

⁸CGU Insurance Ltd v Porthouse (2008) 238 CLR 103, at [52]

⁹Cf Southern Cross Assurance Company Limited v Australian Provincial Assurance Association Limited (1935) 53 CLR 618, at 628 – 629.

¹⁰At [52].

¹¹Cf Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606

¹²Stealth Enterprises v Calliden Insurance Ltd [2017] NSWCA [71] at [53].

¹³At [145]

¹⁴At [149] – [150].

¹⁵At [33].

¹⁶At [124].

¹⁷Cf Finadri v Westpac Life Insurance Services Ltd [2018] VCC 1636.

¹⁸At [43] – [44].

¹⁹At [156].

²⁰Para [155].