AIA Australia Ltd v Sharma

Case [2023] FCAFC 42

FEDERAL COURT OF AUSTRALIA

AIA Australia Ltd v Sharma [2023] FCAFC 42

Appeal from: Sharma v H.E.S.T. Australia Ltd [2022] FCA 536
File number: VID 319 of 2022
Judgment of: STEWART, HALLEY AND BUTTON JJ
Date of judgment: 17 March 2023
Catchwords: INSURANCE – life insurance – where life insured made fraudulent misrepresentations to group life insurer regarding his cardiac history in application for additional death and income protection cover pursuant to group life insurance policy – where insurer entered into additional cover – where trustee of superannuation fund subsequently changed group life insurer – where second insurer issued new insurance policy without reassessing risk of insured members – where life insured died from heart failure – where second insurer denied payment of additional death and income protection benefits by avoiding the policy in respect of the life insured pursuant to s 29(2) of the Insurance Contracts Act 1984 (Cth) (the ICA) on the basis of the fraudulent misrepresentations – where trustee and Australian Financial Complaints Authority (AFCA) upheld second insurer’s decision on the basis that it was fair and reasonable – where primary judge set aside AFCA’s determination and remitted matter for reconsideration – whether continuing misrepresentations were made to second insurer – whether misrepresentations were “spent” when relied on by first insurer – whether second insurer could rely on misrepresentations – whether primary judge erred in holding that s 29 of the ICA was not available to the second insurer because misrepresentations were made to the first insurer – appeal allowed
Legislation:

Corporations Act 2001 (Cth) ss 1053, 1055, 1057

Insurance Contracts Act 1984 (Cth) ss 7, 25, 26(2), 27A, 29, 32, 33

Handley KR, Spencer Bower & Handley Actionable Misrepresentation (5th ed, 2014, LexisNexis)
Cases cited:

Briess v Woolley [1954] AC 333

Commercial Banking Co of Sydney Ltd v RH Brown & Co [1972] HCA 24; 126 CLR 337

Cramaso LLP v Ogilvie-Grant [2014] UKSC 9; [2014] AC 1093

Dalgety and Co Ltd v Australian Mutual Provident Society [1908] VLR 481

Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; 188 CLR 241

Jones v Dumbrell [1981] VR 199

Macquarie Generation v Peabody Resources [2000] NSWCA 361

Meluish v Milton (1876) 3 Ch D 27

Smith v Kay (1859) 7 HL Cas 750

Swift v Winterbotham (1873) LR 8 QB 244
Division: General Division
Registry: Victoria
National Practice Area: Commercial and Corporations
Sub-area: Commercial Contracts, Banking, Finance and Insurance
Number of paragraphs: 64
Date of hearing: 2 March 2023
Counsel for the Appellant: D A Lloyd SC and A Avery-Williams
Solicitor for the Appellant: Turks Legal
Counsel for the First Respondent: P B Murdoch KC and D Kelsey-Sugg
Solicitor for the First Respondent: Maurice Blackburn Lawyers
Counsel for the Second Respondent: S J Walsh
Solicitor for the Second Respondent: Moray & Agnew
Counsel for the Third Respondent The Third Respondent filed a submitting notice save as to costs

ORDERS

VID 319 of 2022
BETWEEN:

AIA AUSTRALIA LTD

Appellant
AND:

PRAGYA SHARMA

First…

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AGLC
AIA Australia Ltd v Sharma [2023] FCAFC 42
Case
[2023] FCAFC 42
Decision Date

CaseChat Overview and Summary

In the case of AIA Australia Ltd v Sharma, the High Court considered the circumstances in which an insurer can avoid a life insurance policy due to fraudulent misrepresentations made by the life insured. The dispute arose from the death of Dr Sharma, who had obtained additional death and income protection cover under a group life insurance policy by making fraudulent misrepresentations about his cardiac history. The policy was subsequently transferred to a new insurer, CommInsure, which denied payment of benefits due to the misrepresentations. The Australian Financial Complaints Authority (AFCA) upheld CommInsure's decision, finding it fair and reasonable, but the primary judge set aside AFCA's determination and remitted the matter for reconsideration.

The legal issues before the court were whether continuing misrepresentations were made to CommInsure, whether the misrepresentations were "spent" when relied on by the first insurer (OnePath), and whether CommInsure could rely on the misrepresentations to avoid the policy under section 29 of the Insurance Contracts Act 1984 (Cth) (ICA). The primary judge held that section 29 was not available to CommInsure because the misrepresentations were made to OnePath, not CommInsure. The court had to determine if the primary judge's interpretation of section 29 was correct and whether the misrepresentations could be considered as made to CommInsure.

The court found that the primary judge had erred in holding that section 29 of the ICA was not available to CommInsure because the misrepresentations were made to OnePath. The court held that it was possible for Dr Sharma's misrepresentations made initially to HESTA and OnePath to be regarded as also being made to CommInsure, as the misrepresentations were made with the intention that they would be acted upon by the insurer. The court also noted that the ICA does not adequately contemplate a situation where a group life insurer assumes cover from a previous insurer to whom any representations prior to the insurance contract being entered into were made. However, the court held that the ICA does not bar the second insurer from exercising rights under the general law in this situation, and CommInsure could potentially have rights in common law and equity to recover any losses incurred from paying out additional insurance benefits obtained by Dr Sharma’s fraudulent misrepresentations.

The appeal was allowed, and the orders of the primary judge were set aside. The proceeding was dismissed with costs.

Orders

Orders of the court

1. The appeal be allowed with costs.

2. The orders of the primary judge on 13 May 2022 and 30 May 2022 be set aside and, in their place, order that the proceeding be dismissed with costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Thirdly, there is s 32. Although it was also amended by the Amendment Act, that amendment applies only to a contract of life insurance that was originally entered into after the commencement of the relevant item: Amendment Act, Sch 6, Item 40(2). Section 32 as it applied at the relevant times provided that Div 3 extends to the case where there was a failure to comply with the duty of disclosure, or a misrepresentation was made, to the insurer under a blanket superannuation contract in respect of a proposed member of the relevant superannuation or retirement scheme as though:(a) the insurance cover provided by that contract in respect of that member were provided by an individual superannuation contract between the insurer as insurer and the trustee for the purposes of the scheme as the insured; and(b) that contract had been entered into at the time when the proposed member became a member of the scheme.AFCA’s decision AFCA found that Dr Sharma fraudulently misrepresented his medical history in obtaining the additional insurance cover. AFCA found that CommInsure cannot rely on s 29 of the ICA to avoid the policy in relation to Dr Sharma. Its reasoning on CommInsure’s ability to avoid the policy under the ICA was as follows:(1)An insurer can only rely on the remedy in s 29(2) if the misrepresentation in question was made to the insurer that is seeking to exercise the remedy.(2)There is no clear evidence that there was a misrepresentation by the life insured (Dr Sharma) to the insurer seeking to exercise the remedy, namely CommInsure.(3)AFCA went on to consider whether, even if the misrepresentation to OnePath could be considered as a misrepresentation to CommInsure (against its finding), s 29(1)(c) nevertheless excluded the operation of s 29(2). After considering evidence from OnePath on what it would have done had Dr Sharma disclosed the truth to it, AFCA “could not be satisfied” that s 29(1)(c) did not apply, with the consequence that it could not be satisfied that CommInsure was able to exercise the remedy in s 29(2). Notwithstanding the finding that CommInsure could not rely on s 29(2) to avoid the additional cover in respect of Dr Sharma, AFCA found that the decision by CommInsure was fair and reasonable in its operation in relation to Mrs Sharma. That is because there is no unfairness or unreasonableness in refusing to pay insurance benefits in respect of Dr Sharma or his beneficiaries (who include Mrs Sharma) where the ICA does not contemplate a change in group insurer and the common law or equity would allow CommInsure to recover those benefits due to Dr Sharma’s fraudulent misrepresentation. AFCA’s “fair and reasonable” finding was made on the following further reasoning:(1)The ICA does not adequately contemplate a situation where a group life insurer assumes cover from a previous insurer to whom any representations prior to the insurance contract being entered into were made. It is nevertheless common, and to be encouraged, for a superannuation trustee to change group insurers from time to time, and it would be rare to find a new group insurer re-underwriting or reassessing the risk on the insured’s members who were given cover under the former insurance arrangements.(2)Section 33 of the ICA does not bar the second insurer (here, CommInsure) from exercising rights under the general law in this situation. Noting s 7 which provides that the ICA is not intended to affect the operation of any principle or rule of the common law or equity unless by express or necessary intendment, AFCA could not conclude that s 33 operated to exclude an insurer’s rights under the general law in circumstances where the insurer has assumed cover, for an already insured member, from another insurer in the superannuation group context.(3)Although CommInsure was not able to avoid cover under the general law as there was no contract of insurance between the deceased and the insurer, other remedies are available at common law and equity. These include that a party who suffers a loss as a result of fraudulent misrepresentation can take action for damages under the tort of deceit at common law, which may have been available to CommInsure. Also, equity may have been available to CommInsure to protect it from Dr Sharma’s fraud where the statute offers no protection.(4)It was unlikely that Dr Sharma cared whether it was OnePath or CommInsure, or another insurer altogether, that relied on his false answers to provide additional cover; instead, his focus in making the misrepresentations was to obtain additional cover through his superannuation arrangements. It would therefore have been within his contemplation that the trustee’s insurer (and subsequent insurers) would have relied on his statements in his application for the purpose of deciding whether to accept the risk of providing additional cover and whether to pay a claim based on the additional cover. (5)Having scrutinised CommInsure’s underwriting guidelines, AFCA was satisfied that had CommInsure known Dr Sharma’s cardiac history at the time that it took over the cover from OnePath, it would have declined cover to Dr Sharma. On that basis, the misrepresentation made by Dr Sharma to OnePath had continuing effect because CommInsure was within the class of persons who might reasonably be contemplated as relying, and did in fact rely, on that misrepresentation to its detriment.(6)There is no unfairness or unreasonableness in refusing to pay insurance benefits in respect of Dr Sharma or his beneficiaries where the ICA does not contemplate a change of group insurers, in a superannuation context, and the common law or equity would allow CommInsure to recover those benefits due to Dr Sharma’s fraudulent misrepresentation. CommInsure may have rights in common law and equity to recover any losses that it incurs from paying out additional insurance benefits obtained by Dr Sharma’s fraudulent misrepresentations, due to its detrimental reliance on those misrepresentations in continuing his additional cover when it would not have provided cover if his cardiac history had been correctly represented.

Ratio Decidendi

Legal Principle Established

By appeal ground 3, AIA contends that the primary judge erred in failing to uphold AFCA’s determination that the decisions of HESTA and CommInsure did not operate unfairly or unreasonably in the circumstances.Appeal ground 1: consideration AIA’s submissions on this part of the case accept that the relevant contract of insurance is that between HESTA and CommInsure and that the operative misrepresentation must be a misrepresentation to CommInsure. AIA submits that there were two such misrepresentations. First, there was a continuing misrepresentation by Dr Sharma by not correcting the false representations that he made to HESTA and OnePath in March 2011. The misrepresentations were also not corrected when members were advised of the change of insurer in (about) December 2011. Secondly, it is said that Dr Sharma made a further misrepresentation to CommInsure by silence when he failed to correct his fraudulent misrepresentation prior to 1 December 2011. It is submitted on behalf of Mrs Sharma that any relevant misrepresentation made by Dr Sharma to OnePath was “spent” when the contract of insurance was made between the trustee and OnePath such that it could not be “revivified” by the making of a new contract of insurance between the trustee and CommInsure. It is well established that for a fraudulent misrepresentation to be actionable it is not necessary that it should be made to a particular person; it can be made to a group to which the plaintiff belongs so that the plaintiff is one of those intended to be deceived: Commercial Banking Co of Sydney Ltd v RH Brown & Co [1972] HCA 24; 126 CLR 337 at 343 per Menzies J, Barwick CJ agreeing. See also at 346 per Gibbs J, McTiernan J agreeing, where Swift v Winterbotham (1873) LR 8 QB 244 at 253 is quoted with approval: “[I]t is sufficient if the representation is made to a third person to be communicated to the plaintiff, or to be communicated to a class of persons of whom the plaintiff is one, or even if it is made to the public generally with a view to its being acted on, and the plaintiff as one of the public acts on it and suffers damage thereby.” See also Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; 188 CLR 241 at 252 per Brennan CJ. In Commercial Banking Co, the fraudulent misrepresentation was made by a manager of one bank to a manager of another on the latter’s enquiry as to the credit of a customer of the former. It was held that in answering the enquiry, notwithstanding that the answer was expressly qualified as being “confidential” and for the “private use” of the person to whom it was given and “without responsibility”, the answer was supplied to be passed on to a customer or customers of the enquiring bank (at 344 per Menzies J and 350 per Gibbs J). On that basis, the customer who relied on it had a good cause of action against the reporting bank. We will return to the facts of the present case, but for now it can be said that as a matter of law it is possible that Dr Sharma’s misrepresentations made initially to HESTA and OnePath could be regarded as also being made to CommInsure. Mrs Sharma’s answer to that would be that once acted on by OnePath, the misrepresentations could have no continuing effect to later be relied on by CommInsure. It is to that issue that we now turn.