The Federal Court has found that Zurich Australia Limited (Zurich) did not breach its duty of utmost good faith when OnePath Life Limited (OnePath), the previous owner of Zurich’s life insurance business, avoided an income protection policy because the insured failed to disclose a prior history of hospitalisation for serious mental health issues.

ASIC Deputy Chair Sarah Court said, ‘ASIC took on this case to clarify the steps that an insurer must reasonably take before avoiding an insurance policy on the basis of 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.’

In 2018, OnePath rejected the income protection claim of a customer who had injured her shoulder while working as a nurse. OnePath formed the view that the customer’s failure to disclose her hospital admissions for serious unrelated mental health issues between 1999 and 2005 was fraudulent, and that OnePath would not have issued the policy had they been disclosed. ASIC had argued that Zurich, who replaced OnePath as the respondent in the proceedings, breached its duty of utmost good faith when avoiding the policy because:

OnePath avoided the policy without first making enquiries with the financial adviser who had assisted the customer in applying for the policy regarding the explanation for the non-disclosure;
OnePath decided to avoid the policy without adequately notifying the customer of its intention to avoid the policy on the basis of fraud; and
OnePath failed to inform the customer of her right to dispute or appeal OnePath’s decision to avoid the policy
In his judgment given on 21 December 2023, Federal Court Justice Jackman found against ASIC on all counts.

ASIC is reviewing the decision.