Summary
In a recent decision of Supreme Court of Queensland in Syddall v National Mutual Life Association of Australasia Ltd [2011] QSC 389, the Court examined the provisions of the Insurance Contracts Act 1984 (Cth) and the circumstances in which the right of an insurer to avoid paying a claim under an income protection insurance policy, due to the misrepresentation and fraudulent conduct of an insured, will be enlivened.
Background
Eric Albert Syddall, the plaintiff, held an income protection policy with Australian Casualty & Life (ACL), whose life insurance business was assumed by the defendant in November 2002.
At the time of taking out his income protection policies in 1993 and 1995 Mr Syddall stated that he was employed as a computer programmer and insurance agent.
Mr Syddall made a claim on his income protection policy on 16 January 2011 in respect of a back and shoulder injury that occurred on 27 November 2000 during the course of his employment as a plumber. ACL made interim disability payments to Mr Syddall's whilst his claim was being determined.
On 9 April 2011, ACL advised Mr Syddall that his claim for income protection was denied on the basis that the plaintiff's treating doctor and ACL's medical assessors considered Mr Syddall was fit to perform the duties of a computer programmer/database administrator.
Mr Syddall commenced proceedings against ACL for breach of contract on the basis that he was at liberty to change his means of earning income at any point in time without any adverse effect on his income protection policy. ACL argued that Mr Syddall was not entitled to cover under his income protection policy on the basis that he was not totally disabled within the meaning of the insurance policy. Coverage was also denied on the basis that Mr Syddall made misrepresentations to ACL prior to taking out his income protection policy with ACL in 1993 and 1995 which entitled ACL to avoid the insurance policy pursuant to s29(2) of the Insurance Contracts Act 1984 (Cth) (ICA).
Decision
The Court firstly considered whether Mr Syddall's representations on his 1993 and 1995 income protection application forms (the application forms) constituted misrepresentations for the purposes of s29 of the ICA. The Court found the plaintiff was evasive and his evidence lacked credibility and considered that the plaintiff made misrepresentations on the application forms with respect to his past income, his primary and second occupation, and his psychiatric history.
At the request of ACL, the Court then considered whether Mr Syddall's misrepresentations fell within s26 of the ICA. Given the significant discrepancy between the information provided by Mr Syddall on his application form and the information contained in contemporaneous tax records, hospital records and the oral evidence provided by various witnesses at trial, the Court held that Mr Syddall was not protected by s26(1) of the ICA, as a reasonable person in the circumstances of Mr Syddall at the time of making the insurance application would have seen his responses as positively untrue.
With respect to s26(2) the Court held that given the purpose of the income protection policy was to provide financial protection to an insured in the event of the insured being unable to work, a reasonable person in the circumstances of Mr Syddall would certainly be expected to know that ACL's decision to take on the risks associated with an income protection policy would be affected by statements as to his earnings, occupation and medical history.
The Court then turned to consider whether, under s29(1)(c) of the ICA, ACL would have issued the income protection policy even if Mr Syddall had not failed to comply with the duty of disclosure or had not made any misrepresentations. ACL gave evidence that if the plaintiff had declared his second occupation was as a "plumber", he would not have been offered the income protection policy he applied for as that policy was designed for white collar workers. ACL gave further evidence that if the plaintiff had been truthful with respect to the disclosure of his earnings or the fact that he was in receipt of social security payments, he would not have been offered the income protection policy as his income level was below ACL's minimum annual income requirement. Finally, had Mr Syddall declared the true extent of his pre-existing psychiatric history, his application would have been rejected. Accordingly, the Court held that if ACL had been provided with the correct information on Mr Syddall's application form, ACL would have rejected the plaintiff's application.
The Court further considered that Mr Syddall's representations on his application form were "demonstrably and completely untrue" and were made purely for the purpose of obtaining the benefit of the income protection policy. The Court held that the nature of Mr Syddall's conduct and misrepresentations was such as to be considered fraudulent for the purposes of the ICA.
Given the Court's findings regarding Mr Syddall's fraudulent misrepresentations, the Court held that it followed that ACL was entitled to avoid the contract of income protection insurance under s29 of the ICA as a result of the plaintiff's fraudulent failure to comply with the duty of disclosure and his fraudulent misrepresentations.
The Court then considered whether, even if ACL did have a right to avoid the policy, it could use its discretion under s31 of the ICA to disregard the avoidance. The Court considered not only should the discretion only be exercised "if it would be harsh and unfair not to do so," but that the discretion may only be exercised if the defendant has not been prejudiced by the failure or misrepresentation, or if such prejudice was minimal or insignificant. The Court held that ACL suffered clear prejudice as a result of Mr Syddall's misrepresentations, on the basis that the policies of insurance would never have been entered into had Mr Syddall told the truth, and accordingly ACL was entitled to avoid the policy pursuant to s29 of the ICA.
Finally the Court turned to consider whether Mr Syddall was entitled to the indemnity he sought under the income protection policy in the event that the Court erred in holding that ACL was entitled to avoid the policy of insurance. The Court considered that on the basis of the medical evidence and the surveillance videos obtained by ACL, Mr Syddall was not suffering from a 'total disability' as required under the policy. Given Mr Syddall had not satisfied all of the necessary elements required for payment under the policy, Mr Syddall was not entitled to make a claim under the policy. Additionally , the Court considered that as Mr Syddall's claim was dishonest and fraudulent, ACL was entitled to refuse to pay Mr Syddall's claim for lost income.
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