ASIC launches appeal over HCF Life Federal Court decision

The Australian Securities and Investments Commission (ASIC) has appealed the Federal Court’s decision to dismiss part of ASIC’s proceedings against HCF Life Insurance Company in respect of a “pre-existing condition” term used in HCF Life’s “Recover” range of products.

In October, the Court found that the term used was liable to mislead the public, with Justice Jackman saying the “ordinary and reasonable reader would be ignorant of the potential effect of s47 of the ICA, and nothing in the Recover Cover PDSs adverts to the possibility that it may preclude HCF Life from relying upon the Pre-Existing Condition Terms in particular circumstances”.

However, ASIC had also alleged that the term was an unfair contract term under the Australian Securities and Investments Commission Act 2001.

Justice Jackman dismissed that part of ASIC’s case.

It is this part of the ruling that the regulator has appealed, saying it “remains concerned” that the Court “took into account the ameliorating effect of s 47 of the Insurance Contracts Act in assessing whether the term was unfair and that this effectively allows potentially unfair contractual terms to be cured by legislation that the ordinary and reasonable consumer would be ignorant of”.

It added that it is also concerned that “terms that are found liable to mislead the public can also be found not to be unfair”.

In May, the Federal Court ordered HCF Life make corrective disclosures on its website in addition to a $750,000 pecuniary fine.

“ASIC brought this case to ensure consumers were not misled about their rights and the extent of their cover by HCF Life’s pre-existing condition term,” said ASIC deputy chair Sarah Court at the time.

“The court’s findings and penalty handed down should serve as a message to insurers of their responsibility to ensure the information distributed to consumers is accurate and consistent with the law.”

Justice Jackman found that while HCF Life had no intention to engage in misleading conduct, “the contravening conduct should be regarded as objectively serious”.

“It is also common ground that the conduct involved misrepresentation of the operation of an important exclusion in life insurance policies, and that the misrepresentations were made in [product disclosure statements] which consumers were entitled to regard as reliable documents, containing accurate and sufficient information as to the circumstances in which benefits would be payable,” Justice Jackman said.

He added: “Insurers are now squarely on notice that contractual terms may mislead consumers if the operation of those terms is modified by, or inconsistent with, provisions of the [Insurance Contracts Act 1984 (Cth)]”.

ASIC launched the action in May 2023, with deputy chair Sarah Court noting at the time that taking enforcement action with respect to unfair contract terms, including in insurance products, is one of ASIC’s enforcement priorities.

“Given the expansion of the unfair contract terms regime in April 2021 to include insurance contracts, ASIC’s current focus on enforcement action concerning unfair contract terms should not come as a surprise,” she said.

“Rather, it should serve as a reminder to providers of financial services, whose contracts are subject to the regime, that potentially unfair terms should be removed from their standard form consumer contracts.”