HCF Life hit with $750k fine for misleading contract terms

Following the Australian Securities and Investments Commission (ASIC) launching action against HCF Life Insurance Company in May 2023, the Federal Court on Thursday ordered a $750,000 fine and, “as agreed by the parties”, make corrective disclosures on its website.

The court had found in October 2024 that a pre-existing condition term in certain HCF Life Insurance policies was liable to mislead the public.

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The term was used in four policies issued under HCF Life’s “Recover” range of products, and HCF Life sent corrective notices to affected consumers prior to the penalty hearing.

“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.

“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 had also alleged that the term was an unfair contract term under the Australian Securities and Investments Commission Act 2001; however, Justice Jackman dismissed that part of ASIC’s case.

ASIC had alleged that the “pre-existing condition” term could mislead the public because:

• It purported to allow HCF Life to deny coverage if a customer did not disclose a pre-existing condition before entering the contract, and a medical practitioner subsequently formed an opinion that signs or symptoms of the condition existed prior to the customer entering into the contract, even if a diagnosis had not been made.
• It suggested that HCF Life could deny coverage even if the customer was not aware of the pre-existing condition when entering into the insurance contract and a reasonable person in the circumstances would not have been aware of the condition.
• Section 47 of the Insurance Contracts Act prevents insurers from excluding coverage for non-disclosure of a pre-existing condition where the customer was unaware of the condition when taking out the insurance, and a reasonable person in the circumstances could not be expected to have been aware of the condition.

In making the judgment in October, Justice Jackman said 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”.