AIA Australia Ltd v Sharma

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.