HCF Life facing penalties after court finds it misled customers on life insurance policies

The corporate regulator is seeking penalties against HCF Life Insurance Company after the Federal Court today found that some of its life policies were liable to mislead the public in relation to pre-existing medical conditions that could exclude them from receiving insurance benefits.

While the court failed to find the terms of the insurance policies were unfair as the corporate regulator had alleged, it did agree that HCF Life had contravened a section of the Australian Securities and Investments Commission Act 2001 in terms of misleading customers to their detriment.

The legal action brought by the Australian Securities and Investments Commission (ASIC) had alleged that three contracts issued under HCF Life’s “Recover” range of products were misleading on several grounds, including that coverage could be denied even if the client was unaware of a medical condition or even if a diagnosis had yet to be made on the condition.

ASIC says that, under the terms of these contracts, HCF Life was purported to be allowed to deny coverage if a customer did not disclose a pre-existing condition before entering the contract and a medical practitioner later formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract.

ASIC notes that this practice is misleading because Section 47 of the Insurance Contacts Act (ICA) prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance. It also covers situations where a reasonable person in the circumstances could not be expected to have been aware of the condition.

The pre-existing condition term appeared in product disclosure statements for HCF Life’s “Recover” range of insurance products which included Cash Back, Smart Term and Income Assist, which was replaced by Income Protect from October 2021.

While Federal Court Justice Ian Jackman accepted HCF Life’s submission that the pre-existing conditions terms were “reasonably necessary in order to protect its legitimate interests”, he added that the “ordinary and reasonable reader would be ignorant of the potential effect of s47 of the ICA”.

Jackman also said that that nothing in the Recover Cover product disclosure statements brought attention to the possibility that it may preclude HCF Life from relying upon the pre-existing condition terms in particular circumstances.

“Consumers rightly expect that insurers will provide accurate information to them about their rights,” says ASIC’s deputy chair Sarah Court following today’s decision.

“Consumers rely on this information to make insurance claims, often in trying personal circumstances.

“By including a term that was liable to mislead consumers and that purported to give HCF a broader right to deny coverage than was the case, HCF Life misled consumers about their rights.”

ASIC says it will consider the Federal Court’s decision and is seeking penalties for the misleading conduct.

The matter will return to court for case management on 8 November 2024.