In the recent decision of Westpac Life Insurance Services Limited v Thereze Guirgis,11the Supreme Court of Victoria, Court of Appeal, refused the applicant insurer's application for leave to appeal a decision of the County Court requiring the insurer to indemnify the insured under a 'Westpac Income Protection Plus' insurance contract.
This decision demonstrates difficulties faced by insurers seeking to rely on section 29(2) of the Insurance Contracts Act 1984 (the Act) to avoid an insurance contract on the ground of fraudulent non-disclosure or misrepresentation.
In September 2007, the respondent insured took out a life insurance policy with the applicant insurer. Relevantly, the policy provided for payment of a monthly total disability benefit in the event that the insured suffered a total disability (or a partial disability benefit, as the case may be) within the meaning of the policy.
The insured made a claim under the policy in October 2011. In her claim form she claimed that she had reduced her working hours because she was suffering from fibromyalgia.
The insurer proceeded to make monthly payments to the insured under the policy between October 2011 and June 2012. However, on 20 June 2012, the insurer wrote to the insured asserting that the insured had failed to comply with her duty of disclosure under section 21 of the Act by failing to disclose her fibromyalgia when the policy was entered into.
The insurer purported to avoid the policy under section 29(2) of the Act. Section 29(2) provides that, if an insured's failure to comply with his/her duty of disclosure or an insured's misrepresentation was done fraudulently, the insurer may avoid the life insurance contract.
The insured issued proceedings in the County Court on 14 February 2013. In addition to denying liability, the insurer counterclaimed the monthly payments it had previously made under the policy. On December 2014, the trial judge dismissed the counterclaim and made an order that the insurer indemnify the insured in accordance with the terms of the policy.
The decision on appeal
The insurer sought leave to appeal against the orders of the trial judge. The insurer submitted that the judge erred in finding:
- that there was no fraudulent non-disclosure or misrepresentation and erred in his application of Briginshaw v Briginshaw when dealing with the standard of proof; and
- that the insurer would have entered into the contract even if the insured had not failed to comply with her duty of disclosure or had not made misrepresentations before the policy was entered into.
On the question of fraud, the Court considered a 'personal statement' completed by the insured before the policy was issued. The insured maintained that she had completed her personal statement honestly and completely. The insured gave evidence that, prior to completing the personal statement, none of her medical practitioners had mentioned fibromyalgia to her. The Court of Appeal concluded that the trial judge had the benefit of seeing and hearing the relevant witnesses and was not prepared to disturb the trial judge's conclusion that there was no fraudulent non-disclosure or fraudulent misrepresentation by the insured.
The trial judge was not persuaded by the underwriter's evidence that, if the insured had disclosed her fibromyalgia, a policy would not have been issued on any terms. The Court of Appeal noted that there was a gap in the insurer's proof, in that no written guideline was ever produced to support the insurer's position that no policy would have been issued had the fibromyalgia been disclosed. The Court considered the failure to produce the written guidelines to be 'more than sufficient reason' for the trial judge to find against the insurer on this issue.
The Court of Appeal also noted that the insured's general practitioner, in filling out the insurer's standard 'personal medical attendance's report' form, did not make reference to fibromyalgia. The Court of Appeal said that, if this condition was so serious to mandate no policy being written, a specific question should have been included in the form about the condition.
Accordingly, the Court of Appeal found that the appeal did not have a real prospect of success and refused the insurer leave to appeal.
Why this decision is relevant to life insurers
Before a life insurer seeks to avoid a policy under section 29(2) of the Act the following questions should be considered.
- Is there evidence to demonstrate that the insured knew or should have known of the relevant medical condition at the time of his/her proposal for insurance?
The Court of Appeal was satisfied with the trial judge's conclusion that the insured was not aware of fibromyalgia when she filled out her personal statement. The insured's oral evidence in this regard was accepted in spite of the fact that she had not disclosed that she had irritable bowel syndrome, she had undergone various diagnostic procedures and had attended a number of medical practitioners.
In determining this issue, the Court considered the insured's evidence coupled with the evidence of the insured's treating practitioners.
The insured's general medical practitioner did not consider that the insured had fibromyalgia and did not discuss the condition with the insured.
The insured's other treating medical practitioners could not recall whether or not they had specifically discussed fibromyalgia with the insured. However, the practitioners confirmed that they would have raised fibromyalgia with the insured if it was a possibility.
On the evidence put before it, the Court found that the insurer had not proven the insured appreciated that she had fibromyalgia at the time of completing her application for insurance.
- Is the medical condition so serious as to warrant avoidance of the policy? If so, consider including a specific question about the condition in the proposal form or the form completed by the insured's medical practitioner. Alternatively, the way in which underwriters are to view the medical condition ought to be documented in the underwriters' practice guidelines.
The Court of Appeal considered that the absence of any question about fibromyalgia (coupled with the insurer's failure to produce the relevant underwriting guidelines) "almost mandated a finding unfavourable to the applicant on the issue of whether it had established that it would not have entered into the policy had fibromyalgia been disclosed...12
- If a life insurer relies on underwriting practices to support avoidance of a policy, the practice guidelines ought to be produced to the Court.
The Court was disapproving of the insurer's failure to produce the underwriting guidelines in circumstances where the relevant underwriter sought to rely on those guidelines as evidence of the fact that a policy would not have been issued on any terms if the insured had disclosed her fibromyalgia.
On this issue the Court of Appeal stated as follows:
This was a gap in the applicant's proof. Generously, so far as the applicant was concerned, the judge dealt with it only as a Jones v Dunkel issue. However, in our view, it was more than that: it was in truth, a failure by the applicant to prove the very thing the applicant sought to prove – namely, that its written guidelines would have prevented the writing of the policy.13
This case highlights the hurdles faced by life insurers in satisfying the requirements of section 29(2) of the Act. The clear onus is on the insurer to produce evidence to prove fraud and then to prove that, if disclosure had been made, underwriters would not have issued a policy on any terms. Further, this case demonstrates that, where findings of fact are made by a trial judge in respect of these issues, the Court of Appeal is unlikely to disturb those findings.