‘Court cases you should
know about’
A series of court cases:
Protecting yourself and your clients
Zurich Financial Services Australia Limited
Important information
This information is current at its date of publication. It does not constitute legal
advice and should not be relied upon. Advice should be sought on particular
matters. Zurich does not accept responsibility for any errors in or omissions from
this publication. This presentation may not be reproduced without prior written
consent of Zurich Australia Limited. The summary information contained in the
following presentation is general in nature and is only intended for use of
professional advisers. It does not take into account the objectives, financial situation
or needs of any person. These factors should be considered before acting on this
information. The information in this presentation may not be applied by Zurich in
every matter, as claims are assessed on an individual case by case basis.
Agenda
 How insurance claims affect you
 What the law says about disclosure and its
implications for advisers
 Case studies: learning from the past
 Summary and conclusions
Key considerations in insurance claims
The one key issue that continues to arise at claim is
non-disclosure and misrepresentation:
Source: Financial Ombudsman Service (FOS) 2008-2009 Annual Review
Key considerations in insurance claims
The one key issue that continues to arise at claim is
non-disclosure and misrepresentation:
 How can this impact you and what can be done about it?
 How can you better protect yourself and your clients?
 What are the rights of an insurer, insured and adviser?
 What issues define past cases of non-disclosure and
misrepresentation and how can you learn from them?
Summary of Disclosure:
What is it and what does the law say?
Insurance Contracts Act 1984.
Section 21
A policyholder has a
duty to disclose
any known
relevant information
that:
Could affect the
insurer’s decision
on whether to
accept the
application for
insurance
Could affect the
insurer’s decision
on what terms to
accept the
application
A misrepresentation
is a statement made
by a person in
connection with a
prepared contract of
insurance that was in
fact untrue
Section 26 excludes
− reasonable belief
that it was true
− reasonably known
not to be relevant
Remedies for Non-Disclosure:
What is it and what does the law say?
Insurance Contracts Act 1984; Section 29: KEY CLAUSES
Section 29(3): The insurer can avoid the
policy - “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”
Section 29(1): Fraud
no 3 year period
Section 29(4): a misrepresentation or
non-disclosure could, alternatively
mean that the insurer may, within 3
years, reduce the sum insured in
accordance with a specified formula
based on the insurers hypothetical
premium.
How does the law apply to you?
 The insurer’s, the client’s and your obligations
 Your role in explaining the duty of disclosure to the client (insured)
 The consequences of client (insured) failure to fulfil duty of
disclosure
 Your role in outlining the ‘risks’ for the client (insured)
 Is the non-disclosure risk for replacement policies or increases of a
lesser concern?
− Consider the recommencement of 3-year non-disclosure
period
Frazer v NMLA 2010 NSW SC45
April 2010
NSW Supreme Court
“..the authority to charge the account is but part
of the proposal put forward by the assured and
unless and until the proposal is accepted and
the insurer issues a policy, there is no
concluded contract”
Frazer v NMLA: Key considerations
 Policy commencement / period (time) of underwriting
 Non-disclosure (of depression diagnosis)
 Misrepresentation (of bowel condition)
 Longevity of the insured (client’s) ‘duty of disclosure’
 The role of the adviser
Frazer v NMLA: Background
 Mr Frazer (a mining industry worker) applied for income
protection insurance from the National Mutual Life Association
of Australasia on December 11, 2007
 The insurer responded with a policy that contained an
explosives exclusion
 The exclusion was outlined to Mr Frazer’s adviser in an
‘Acceptance of Revised Terms’ form
 Mr Frazer signed this new form on December 21, 2007
Frazer v NMLA: Background
 The form was received by the insurer on Jan 8, 2008 and the
policy was issued on Jan 11, 2008
 But on January 4, 2008, Mr Frazer was diagnosed with
depression and claimed on the insurance
 The claim was refused and the insurer sought to avoid the
policy under Section 29(3) of the Insurance Contracts Act
(1984)
Frazer v NMLA: Timeline
10 /11 Dec 2007
21 Dec 2007
8 Jan 2008
11 Jan 2008
Mr Frazer made the
initial application /
signed for initial
credit card charge
Mr Frazer signed
‘Acceptance of
revised terms’
Revised terms
received by insurer
Policy issued to Mr
Frazer
11 Dec 2007
4 Jan 2008
Mr Frazer consulted
over bowel concerns
Mr Frazer diagnosed
with depression.
Submits claim
Frazer v NMLA: Arguments
Insurer argued:
Mr Frazer claimed
before the policy
commencement date
of Jan 8, 2008
Consultations
with medical
practitioners
prior to Dec
11, 2007
Mr Frazer did not
disclose and/or
misrepresented:
Diagnosis
of depression
and cessation
of work prior
to January
2008
A referral to
a colorectal
specialist
prior to Dec
11, 2007
This knowledge would have prevented the insurer from entering the policy
Frazer v NMLA: Arguments
Insured (Frazer) argued:
The depression
diagnosis did not
occur until after
the contract’s
formation on Dec
21, 2007
The Jan 4,
2008 diagnosis
of depression
occurred once
he had signed
the ‘Revised
Terms Form’
The answers he
gave in
application he
believed to be
true:
He did not
seek medical
consultation for
depression
prior to Dec 11,
2007
Mr Frazer did
not consider
the referral to
the colorectal
specialist an
issue worth
mentioning
Frazer v NMLA: Outcome
The court found…
 The policy was not ‘entered into’ or formalised until Jan 11,
2008
 Mr Frazer was obliged to disclose his diagnoses of depression
on Jan 4, 2008
 Mr Frazer was in breach of his duty to the Insurer under
Section 21 of the ICA
 Mr Frazer was found to have misrepresented the nature of his
bowel disorder
 The insurer would have deferred or rejected the initial
application if it were aware of his bowel condition and
depression
Frazer v NMLA: Issues for advisers
 Policy commencement dates
 The terms of the pre-contractual documents (ie: PDS and the
‘Acceptance of Revised Terms Form’)
 “..the authority to charge the account is but part of the
proposal put forward by the assured and unless and until the
proposal is accepted and the insurer issues a policy, there is
no concluded contract”
Frazer v NMLA: Risk Mitigation
10 /11 Dec 2007
21 Dec 2007
8 Jan 2008
11 Jan 2008
Mr Frazer made the
initial application /
signed for initial credit
card charge
Mr Frazer signed
‘Acceptance of
revised terms’
Revised terms
received by insurer
Policy issued to Mr
Frazer
11 Dec 2007
Mr Frazer consulted
over bowel concerns
Gather health
info prior to
application
(fact find)
+ check past
applications
4 Jan 2008
Mr Frazer diagnosed
with depression.
Submits claim
Ensure ‘duty of
disclosure’
clearly outlined
at application
Use of
electronic
submission
(eApp + forms)
Copy of
application to
client before
policy issue
(reminder on
Duty)
Phillips v ING Life Limited
2009; FCA
“Section 29(4) permits an insurer, in circumstances
where an insured has failed in the duty of disclosure
under s 21 of the Act or made misrepresentations, to
vary the sum insured in accordance with a prescribed
formula. In a nutshell, the formula results in a reduced
sum insured when a higher premium would have been
charged for the same cover had the true facts been
known”
Phillips v ING Life Limited:
Key issues
 Duty of disclosure
 Misrepresentation
 Use of a paramedical provider
 Issue of waiver and insurer’s obligations
 Terminology in insured’s medical condition
 S29 (4): Sum payout variance
Phillips v ING Life Limited:
Background
 Mr Phillips applied for a life insurance policy with ING in October 2002
and underwent a medical examination as requested
 In 2003 Mr Phillips developed & died of esophageal cancer
 Mr Phillip’s wife made a claim for $700k under the policy
 The insurer claimed the Mr Phillips had failed to disclose his condition
(diagnosed in 1997)
 As such the insurer reduced the payout to $466,667 (as a loading would
have applied)
 The applicant commenced an application to the Federal Court claiming
the difference between the reduced payout and the full amount payable
Phillips v ING Life Limited:
Timeline
1997
Mr Phillips
diagnosed with
Barrett’s
oesophagus
October 2002
2003
2004
Mr Phillips applied for
life insurance with ING
Mr Phillips developed
a malignant
esophageal ulcer
Mrs Phillips claimed
on policy
2001
Mr Phillips had the
last of three
gastroscopies – no
cancer
Phillips v ING Life Limited: Arguments
Insurer argued:
Mr Phillips failed to
disclose and
misrepresented
information
ING would have
changed the terms of
the application:
Reduced sum
payout based on
misrepresentation:
Increased the
premium on the
contract by 50%
Under Section 29(4):
“Failure to disclose or
misrepresentation allows
a varied sum in
accordance with
prescribed formula”
Phillips v ING Life Limited: Arguments
Claimant (Mrs Phillips) argued:
Mr Phillips could
not ascertain, and
therefore outline to
the insurer, the
specific term of his
medical condition
No
misrepresentation
– ‘condition’ vs.
‘illness’ or ‘injury’
ING waived
compliance with
the Duty of
Disclosure as the
insurer accepted:
‘crossed out’
sections of the
application
Failure of Notice
under S29(4)
absence of
specific questions
about Barrett’s
condition
Phillips v ING Life Limited:
Outcome
 Non-Disclosure: The court found that the insured had not
complied with their Duty of Disclosure, because:
- He knew/had awareness of his ‘condition’
- Undertaking medication and surveillance
 Misrepresentation: The court found that the insured gave
incomplete answers on his personal statement and with the
paramedical provider
- Vague terminology: ‘In the near future’
 Waiver of compliance: The court found no waiver of compliance
with the duty of disclosure
 S29(4) Reducing the amount payable: The court dismissed the
application for the payout difference and failure of Notice
Phillips v ING Life Limited:
Risk Mitigation
1997
Mr Phillips
diagnosed with
Barrett’s
Adviser
conducts
oesophagus
own
thorough
October 2002
2003
2004
Mr Phillips
applied for life
insurance with
ING
Mr Phillips
Mrs Phillips
claimed on
policy
developed a
malignant
esophageal ulcer
2001
Mr Phillips had the
last of three
gastroscopies – no
cancer
investigation
Gather health info
prior to application
(fact find)
+ check past
applications
Ensure ‘duty of
disclosure’
described in plain
language
** Use this case
as an example
(choice at uw)
Phillips v ING Life Limited:
Learning points
 S29(4) is an effective tool for insurers and notice need not be
provided to the insured
 Full-disclosure of all medical history and knowledge of any
potential conditions
- Misrepresentation also arises from 'incomplete' answers
 Duty of disclosure is not restricted to matters related to specific
questions
Additional cases advisers
should be aware of
Financial Ombudsman
Case 18995
Questionable advice and replacement policies
Financial Ombudsman (18995):
Case details
 The complainant claimed the adviser failed in his duty of care
 The complainant claimed the adviser had misrepresented the
policy
 The complainant demanded compensation of $235k+ from the
insurer and adviser when he underwent heart surgery
 The claim against the adviser failed because:
- The complainant did not suffer any loss
- The complainant had necessary details and understanding of
policy under question
Financial Ombudsman (18995):
Implications for advisers
 Replacement policy and ‘trauma’ definition:
- Adviser’s questions and recommendation process
- Adviser’s research
 Duty of care:
- The probability of being found negligent of ‘duty of care’ to
a client
- The case highlights the importance of file notes and the link
between client needs and recommendations
 Documentation:
- Lack of signatures on documentation
Profile client for
risk (quality Vs
price)
* Data collection signed
* Comms - retrievable
Ensure advice
(SoA) reflects
client objectives
Replacement
policy implications
– made clear
Larwint Pty Ltd vs Norwich
Union Life Australia Ltd
Vic Supreme Court, 2007
Medical Terminology
“The purpose of the policy is to give
indemnity not where a person suffers a
heart attack in lay or medical parlance, but
where a person suffers a heart attack as
defined”
Larwint Pty Ltd vs Norwich Union Life
Australia Ltd
Case details
 Claim for heart attack declined on the basis that the plaintiff had not
suffered a heart attack as defined under the policy
 “The purpose of the policy is to give indemnity not where a person
suffers a heart attack in lay or medical parlance, but where a person
suffers a heart attack as defined”
 The claim was dismissed by both the Lower Court and Court of
Appeal
Implications for advisers
 Be aware of the gap in medical terms as defined under policies
versus general medical usage
 Ensure clients understand it’s about the definitions, not about the
‘headings’
Davis v Westpac Life
Insurance Services Ltd
NSWCA 175, 2007
Period of deferral
“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”
Davis v Westpac Life Insurance
Services Ltd
Davis
diagnosed
with potential
Sleep Apnoea
9 days later
Davis
applied for
policy
(Nov 2001)
Davis
confirmed
with Sleep
Apnoea
(Jan 2002)
Davis
claims under
policy
(June 2003)
Westpac
avoids
policy
(Jan 2004)
Case details
 Westpac avoided the policy on the basis it would not have issued cover if
known about initial referral
 Davis challenged the avoidance under S29(3)
 The submission was rejected
 David applied to Court of Appeal, which was dismissed
 Critical issue: whether s29(3) imposed a time limit decision (is a deferral
good enough?)
Implications for advisers
 S29(3) does not impose a time limit decision on policy avoidance
 An insurer can prove no cover offer (or avoid cover) based on deferral
Conclusion
Your role: Mitigating risk for yourself, your business
and your client
 Articulating the basis of advice and ‘quality’ recommendations
 Managing replacement policies
− Recommencement of non-disclosure period
− Communicating pros and cons
 More effective (life) risk-profiling
− Budget / Value / Quality
 Role of electronic applications and communication
 The importance of speed in underwriting process
zurich.com.au