The Federal Court has found a “pre-existing condition” term in certain HCF Life policies was liable to mislead but did not breach unfair contract term laws, which were extended to insurance after the Hayne royal commission.

The Australian Securities and Investments Commission said the term used in three contracts in the Recover product range suggested HCF Life could deny cover even if the customer was not aware of their condition and a reasonable person would not have been aware, which is not allowed under the Insurance Contracts Act.

The regulator said the term also suggested HCF Life could deny cover if a customer did not disclose a pre-existing condition before entering a contract but a medical practitioner later believed signs or symptoms had existed, even if a diagnosis had not been made.

Justice Ian Jackman found the “ordinary and reasonable reader” would not know of the potential effect of the act, and nothing in the product disclosure statement indicated HCF Life would not be able to rely upon the pre-existing condition terms in particular circumstances.

In fact, the act “renders the pre-existing condition terms partially unenforceable”, he said.

ASIC deputy chair Sarah Court says consumers expect insurers to provide accurate information about their rights. 

“Consumers rely on this information to make insurance claims, often in trying personal circumstances,” she said today. “By including a term that was liable to mislead consumers and that purported to give HCF a broader right to deny coverage than was the case, HCF Life misled consumers about their rights.”

The regulator also alleged HCF Life broke unfair contract term laws, but Justice Jackman said only one of three necessary criteria for a breach had been met and that part of the case was dismissed.

ASIC says it will consider the court’s decision, and will seek penalties for misleading conduct. The matter will return to court for case management on November 8.

In general insurance, ASIC has also taken action against general insurer Auto & General over alleged unfair contract terms. The Federal Court ruled in favour of the insurer earlier this year, with the parties now awaiting the outcome of an appeal.