Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd

The case of Schaffer v Royal & Sun Alliance Life Assurance Australia Ltd involved the appellant, Schaffer, who sought to avoid a life insurance contract due to alleged misrepresentations made by the respondent, Royal & Sun Alliance. The primary dispute centred on whether the misrepresentations were material and if the insurer had a right to avoid the contract under the statutory provisions of the Insurance Contracts Act 1984 (Cth). The matter was heard in the Supreme Court of Queensland.

The court was tasked with determining whether the statements made by Schaffer in her insurance proposal were misrepresentations within the meaning of the Act. Specifically, the court examined whether these statements were such that a reasonable person would expect them to be relevant to the insurer's decision, thereby excluding them from being classified as misrepresentations under s 26(2) of the Act. Additionally, the court considered the statutory right of avoidance under s 29(3) of the Act, which allows an insurer to avoid a contract if "the insurer would not have been prepared to enter into a contract…on any terms" had the truth been known. The court also needed to resolve whether the onus of proof regarding the insurer's right to avoid the contract lay with the insurer or the insured.

The court found that the statements made by Schaffer were not such that a reasonable person would consider them material to the insurer's decision, and thus they were not misrepresentations under the Act. The court relied on the reasoning in McNeill v O'Kane, which held that the determination of what a reasonable person would consider relevant is fact-specific. Furthermore, the court held that the insurer had not discharged its onus of proving that it would not have entered into the contract had it known the truth, as Schaffer would have merely deferred the decision rather than rejecting the contract outright. Consequently, the insurer's right to avoid the contract under s 29(3) was not established.

The court dismissed the appeal and ordered that the appellant pay the respondent's costs. This decision underscored the importance of the insurer proving the condition precedent for avoidance and highlighted the nuanced application of statutory provisions in insurance law.