The High Court has confirmed that insurers will not be limited to the initial reasons listed for declinature, and may rely on misrepresentations subsequently made by an insured.

In the recent case of Houlihan v Friends First Life Assurance Company Limited, the High Court has confirmed that an insurer was entitled to rely on additional reasons for declining liability under a policy, which were not included in the original declinature letter and were only raised in the context of the coverage proceedings. 

The policy at the centre of the dispute was an income protection plan which provided cover for disability if the insured was totally unable to carry out his normal occupation due to a recognised illness or accident and was not involved in carrying out any other occupation for profit, reward or remuneration.  The plaintiff ceased work in April 2009 due to medical difficulties after approximately 19 years of continuous employment and submitted a claim in September 2009.  In December 2010, the insurer declined cover on the basis that on the evidence presented, the insured was not totally disabled by reason of sickness or accident from his occupation as insurance broker as required by the scheme conditions.  This decision was challenged by the insured who brought High Court proceedings in 2012. 

The High Court accepted that the insured must prove he was totally unable to carry out his normal occupation due to a recognised illness. There was broad agreement on the legal principles and the factual evidence between the parties with some exceptions. 

Counsel for the insured had submitted that the insurer was not entitled to rely on an allegation of misrepresentation arguing that it was not open to the insurer having declined liability under a policy for a particular reason to rely on one or more reasons which, even if they could have been relied on as a ground for declining payment, were not relied on in making that decision.  The Court disagreed and found that a misrepresentation by an insured person can be taken into consideration by the Court, even if it arises subsequent to the initial claim being made and its initial refusal.  The Court considered that if, during the course of a review of the claim, a misrepresentation is made which the Court finds to be consciously or recklessly made to mislead the insurer, it should be taken into account. 

However, on the basis of the factual evidence and the expert evidence produced in the case, the Court concluded on the balance of probabilities that the insured had not misled the insurer and was entitled to cover.

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