A decision by Westpac Life Insurance Services to avoid an income protection (IP) policy held by a customer who did not disclose his medical history of alcohol abuse and depression has been upheld by the Australian Financial Complaints Authority (AFCA).

AFCA ruled the avoidance was in accordance with the law as the customer breached his duty of disclosure by answering “no” to questions asking if he had been advised to stop or reduce alcohol consumption due to medical reasons and mental health conditions when he applied for the policy in 2016.

The external dispute resolution body says these matters were known to the customer and relevant to the insurer, which has provided proof that its underwriting guidelines would not have approved the application for the IP policy had the customer answered yes to the questions.

AFCA says a person applying for insurance has a duty to disclose only what they know and what a reasonable person in the circumstances could be expected to know is relevant to the insurer’s decision to offer insurance.

“The insurer lawfully avoided the policy,” AFCA says in its ruling, adding: “A reasonable person in the complainant’s circumstances would know that a history of excessive drinking would be relevant to an insurer’s decision about whether to offer insurance.

“He would not have had IP insurance at all if he had disclosed his alcohol abuse and dependence.”

The customer says the adviser who arranged the policy for him did not explain the disclosure obligations and had made several errors in the application form.

But AFCA says the application form provided an explanation about the disclosure duty and the customer did “check” the box to indicate he had read and understood the term.

The customer lodged an IP claim in November 2018 after he suffered heart failure caused by cardiomyopathy.

The insurer at first accepted the claim and paid monthly benefits from November 27 2018 to April 26 2019. The customer received $27,965.93 in total benefits from the IP policy during the period.

In June 2019 the insurer avoided the policy and denied the claim on the grounds of non-disclosure of the complainant’s medical history. The customer disagreed he had breached his disclosure duty and filed a complaint against Westpac.

Information provided to AFCA showed the customer received medical advice about his alcohol intake in 2011, 2012, 2013 and 2014. He also received treatment to manage depression in 2011 and 2014.

AFCA says there is a connection between one of the conditions the complainant failed to disclose: alcohol abuse and dependence and his disabling condition.

As a result, the complainant has been paid benefits he was not entitled to, AFCA says.

Because the policy was lawfully avoided, the insurer is not liable to pay any benefits. It also says the insurer is not required to refund premiums because it paid more in benefits that the complainant had paid in premium.

However, it dismissed Westpac’s position that it reserves the right to recover the difference between premiums and benefits paid.

“If the insurer wanted to recover benefits it could have argued and justified its position in the course of this dispute,” it said.

“It is not fair for it to leave the threat of future recovery hanging over the complainant’s head. The insurer may not recover any benefits from the complainant.”

Click here for the ruling.