The Australian Securities and Investments Commission (ASIC) has launched civil proceedings in the Federal Court against HCF Life Insurance Company Pty Ltd (HCF Life), alleging the firm issued three types of insurance policies that contain unfair contract terms and could mislead consumers.
The corporate watchdog alleges that HCF Life’s definition of the term ‘pre-existing conditions’ in its insurance products – Smart Term, Cash Back and Income Assist – is unfair as it could deny a customer coverage if they do not disclose a condition, even if they were unaware of a sickness or disability at the time they signed the contract.
Collectively, the three HCF Life insurance policies are branded as a form of ‘Recover Cover’.
In any of the Recover Cover contracts entered into between 1 April 2021 and 24 March 2023, HCF Life defined a pre-existing condition as one whereby the signs or symptoms would have, in the opinion of a registered medical practitioner, existed at any time before the cover commencement date even if a diagnosis had not been made.
Section 47 of the Insurance Contacts Act 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, and a reasonable person in the circumstances could not be expected to have been aware of the condition.
“None of the Recover Cover Contracts advert to or explain the existence or effect of S47 of the ICA or the extent to which each Pre-Existing Condition Term is unenforceable,” ASIC’s civil filing said.
HCF Life is the wholly-owned subsidiary of the Hospitals Contribution Fund of Australia (HCF) – a Sydney-based firm that has been in operation since 1932 and has grown to become one of the nation’s largest not-for-profit health funds.
From 5 April 2021 to 27 April 2023, HCF Life entered into approximately 12,265 Recover Cover Contracts.
“Insurers need to ensure that all terms in their contracts, including important pre-existing condition terms, accurately communicate the rights of customers,” ASIC deputy chair Sarah Court said.
“The inclusion of allegedly unfair and misleading terms can deter customers from making a claim, which is not a good consumer outcome.”
Court added that one of the watchdog’s enforcement priorities was taking action with respect to unfair contract terms, including insurance products.
“Given the expansion of the unfair contract terms regime in April 2021 to include insurance contracts, ASIC’s current focus on enforcement action concerning unfair contract terms should not come as a surprise,” Court said.
“Rather, it should serve as a reminder to providers of financial services, whose contracts are subject to the regime, that potentially unfair terms should be removed from their standard form consumer contracts.”
In a statement, HCF Life said its products complied with the new laws and that it would contest the case to the fullest extent.
“HCF Life has been notified today by ASIC that four of its products will be tested in the courts following the introduction of new unfair contract term laws in 2021," the company said.
"Prior to this notification, HCF Life has been participating in ASIC’s investigation into these products in good faith for over 12 months.
"The case relates to the pre-existing condition term which is commonplace across guaranteed acceptance insurance products to provide the seller some level of protection from people falsely claiming when they have a known medical issue. With the growing underinsurance challenges in Australia, HCF Life feels it is in the best interests of consumers to have direct access to affordable life insurance products such as those in question."
ASIC is seeking declarations that the term is void, as well as injunctions and corrective orders.
The watchdog will also seek a penalty regarding the allegation that HCF Life’s contracts are liable to mislead the public.
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