Case note: insurer’s duty to act with utmost good faith

In Australian Securities and Investments Commission v TAL Life Limited (No 2) [2021] FCA 193 the Federal Court of Australia found that TAL Life Limited (TAL) breached its duty to act with utmost good faith under the Insurance Contracts Act when handling a claim made under an income protection policy.

The case related to a 39 year old self-employed healthcare worker (whose identity was the subject of a non-publication order during the Financial Services Royal Commission, referred to in the judgment as ‘Second Insured’) who made a claim under her income protection policy in January 2014 after she was diagnosed with cancer. The policy was for cover of $5,000 per month.

In answering the insurer’s questions the trial judge said she was precise and apparently careful. The questioning was extensive, covering a very wide range of conditions.

By letter dated 9 October 2013, TAL sent the Second Insured her policy schedule and the policy document. These two documents were expressed to set out the terms of the contract of insurance. There was a guarantee of renewal (to 65 years of age).

In her claim form she provided medical, hospital and pathology reports concerning her condition of cervical cancer.

The judge observed that from the circumstances of the disclosures that were made and from the content of TAL’s file there was not the slightest evidence of dishonesty or sharp practice in the conduct of the Second Insured.

After obtaining the consumer’s medical history from Medicare, TAL avoided her policy on the basis that she had failed to disclose an unrelated prior medical history. TAL asserted that the consumer had breached her duty of good faith under section 13 of the Insurance Contracts Act.

ASIC alleged that TAL avoided the policy without first giving notice to the consumer of a retrospective investigation into her medical history or offering her an opportunity to address the concerns raised before rejecting her claim.

In his judgment, Chief Justice Allsop found that TAL breached its duty to act in good faith by telling the consumer that she herself had acted without good faith and by threatening to recover $24,000 in payments that had been made to her after the commencement of TAL’s investigation.

He concluded

” It is, however, perhaps important to recognise that the assessment of the propriety of how TAL conducted itself is to be undertaken recognising that the Second Insured was not just a contracting party (viewed in a disembodied way) with rights and obligations in law, but a person to whom, and to whose financial security, the policy was important. Such considerations do not, of themselves, create separate legal rights, but they inform the context and circumstances by reference to which standards of behaviour, set by Parliament, expected of participants in commerce, in particular here, insurance, are to be judged.”

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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