Sharma v H.E.S.T. Australia Ltd

Case [2022] FCA 536

FEDERAL COURT OF AUSTRALIA

Sharma v H.E.S.T. Australia Ltd [2022] FCA 536  

File number(s): VID 549 of 2021
Judgment of: MCELWAINE J
Date of judgment: 13 May 2022
Catchwords:  INSURANCE – appeal against Australian Financial Complaints Authority Limited (AFCA) determination affirming decision of Trustee and insurer to deny payment of additional death and income protection benefits of deceased policy holder on the basis of fraudulent misrepresentation – whether AFCA erred in interpreting ss 29 and 33 of Insurance Contracts Act 1984 (Cth) – whether AFCA erred in concluding that common law or equitable principles may operate in cases of fraudulent misrepresentation in group life policies where there is a change of insurer despite s 33 – whether conclusion that decision of insurer to avoid individual group life policy and of trustee to affirm avoidance were each fair and reasonable in operation was reached on a correct understanding of the law – AFCA materially erred in law – appeal allowed – matter remitted for redetermination
Legislation:

Acts Interpretation Act 1901 (Cth) s 15A

Corporations Act 2001 (Cth) ss 1050, 1051, 1053, 1054, 1055,1057

Insurance Contracts Act 1984 (Cth) ss 7, 12, 13, 21, 22, 25, 26, 29, 32, 33

Insurance Contracts Amendment Act 2013 (Cth) ss 3, 25, 29

Life Insurance Act 1995 (Cth) ss 190, 194, 195

Retirement Savings Accounts Act 1997 (Cth)

Superannuation (Resolution of Complaints) Act 1993 (Cth).

Superannuation Supervision Act 1999 (Cth)   

Explanatory Memorandum, Insurance Contracts Amendment Bill 2013    
Cases cited:

Advance (NSW) Insurance Agencies Pty Ltd v Matthews (1989) 166 CLR 606

ASIC v National Exchange Pty Ltd (2005) 148 FCR 132

Babatiskos v Car Owner’s Mutual Insurance Co Ltd [1970] VR 297

Britton v Royal Insurance Co (1866) 4 F & F 905

C E Heath Casualty & General Insurance Ltd v Grey (1993) 32 NSWLR 25

Carr v Western Australia (2007) 232 CLR 138; [2007] HCA 47

Carter v Boehm (1766) 3 Burr 1905: 97 ER 1162

CGU Insurance Ltd v AMP Financial Planning (2007) 235 CLR 1

CIC Insurance Ltd v Barwon Regional Water Authority [1999] 1 VR 683: [1998] VSCA 77

Commercial Banking Company of Sydney Ltd v R H Brown & Co (1971) 126 CLR 337

Craig v South Australia (1995) 184 CLR 163

Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241

Graham v Colonial Mutual Assurance Society Ltd (No 2) [2014] FCA 717

Hanover Life Re of Australasia Ltd v Sayseng (2005) 13 ANZ Insurance Cases 90-123

Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315; [2015] FCAFC 92

In The Matter of the Colonial Mutual Life Assurance Society Limited [2021] FCA 394

Ipstar Australia Pty Ltd v APS Satellite Pty Ltd (2018) 356 ALR 440

Jones v Dumbrell [1981] VR 199

Macquarie Underwriting Pty Ltd v Permanent Custodians Ltd (2007) 240 ALR 519; [2007] FCAFC 60

Manifest Shipping Co Ltd v Uni Polaris Insurance Co Ltd [2003] 1 AC 469

May v Platt [1900] 1…

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AGLC
Sharma v H.E.S.T. Australia Ltd [2022] FCA 536
Case
[2022] FCA 536
Decision Date

CaseChat Overview and Summary

Sharma v H.E.S.T. Australia Ltd concerned an appeal against the Australian Financial Complaints Authority’s (AFCA) decision to affirm the insurer's and trustee's denial of additional death and income protection benefits of a deceased policyholder due to alleged fraudulent misrepresentation. The deceased, Dr Sharma, had become a member of the Health Employees Superannuation Trust Australia, which had established a group life insurance policy with ING Life Limited, later known as OnePath. Dr Sharma had applied for additional insurance cover, which was granted by OnePath based on misrepresentations in his application. Upon discovering the misrepresentations, CommInsure, the subsequent insurer, and the Trustee decided to avoid the additional insurance cover, leading to the dispute.

The central legal issues were whether AFCA correctly interpreted sections 29 and 33 of the Insurance Contracts Act 1984 (Cth) and whether it was lawful and reasonable for AFCA to allow the insurer to avoid the policy due to the deceased's fraudulent misrepresentation despite the provisions of section 33. Specifically, the court had to determine if AFCA erred in concluding that common law or equitable principles could apply in cases of fraudulent misrepresentation in group life policies where there was a change of insurer.

The court found that AFCA had materially misdirected itself in law. It concluded that AFCA did not correctly understand the operation of section 33 of the Insurance Contracts Act, which restricts the insurer's ability to seek damages for deceit under common law or equity. The court held that AFCA's decision to allow the insurer to avoid the policy based on common law or equitable principles was erroneous. Furthermore, the court determined that the conclusion that the insurer's and trustee's decisions to avoid the policy were fair and reasonable was not based on a correct understanding of the law. Consequently, the appeal was allowed, and the matter was remitted to AFCA for redetermination in accordance with the court's reasons.

The final orders included allowing the appeal, setting aside AFCA’s determination, remitting the complaint to AFCA, and directing the parties to submit costs submissions within seven days of the publication of the reasons. If costs were not agreed upon, the court would determine them on the papers.

Orders

Orders of the court

1. The appeal is allowed.

2. The determination of Australian Financial Complaints Limited in case numbers 693811 and 711994 is set aside.

3. The complaint made by the appellant is remitted to Australian Financial Complaints Limited to be determined again in accordance with these reasons.

4. The parties are to file submissions as to costs, not exceeding two pages, within seven days of the publication of these reasons, in the event that the question of costs is not agreed.

5. If there is no agreement, the costs of the appeal will be determined on the papers.

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

Background

Background to the litigation

For the reasons that follow, I have concluded that AFCA materially misdirected itself in law, the appeal is allowed and the complaint is remitted to AFCA for determination according to law.BACKGROUND The deed of trust which established the Fund is a simple document. Pursuant to it there was established the Health Employees Superannuation Trust Australia, and clause (I) relevantly states the Fund object as:solely for the purpose of the provision of superannuation benefits for such persons who being eligible make application for membership of the Plan and become members thereof in manner more particularly hereinafter provided in the event of their permanent retirement from gainful employment or leaving the industry or in the circumstances of incapacity from work attributable to illness or accident…(sic). The consolidated rules of the Fund, which appear as a schedule to the trust deed as at 29 January 2009, provide for the Trustee to effect insurance at clause 7, which relevantly provides (without correcting grammatical infelicities):7.1 The Trustee may arrange with an Insurance Company for all or part of some or all of the Death or Disablement Benefits payable under these Rules to be secured by means of a Policy or Policies.7.2 A Policy arranged pursuant to Rule 7.1 may be on such terms and conditions as the Trustee approves and the Trustee shall pay all premiums and receive from the Insurance Company all payments refunds and other moneys and shall distribute all moneys received pursuant to that Policy in accordance with these Rules.7.3 If at any time:(a) the Trustee is of the opinion that it is not reasonably practicable to obtain or maintain a Policy in respect of a Member on terms acceptable to it; or(b) an Insurance Company declines to provide or increase or otherwise reduces terminates or withholds Group Life Insurance under a Policy in respect of a Member or declines to admit a claim for the whole or part of the Group Life Insurance effected in respect of that Member;any Death or Disablement Benefit payable to or in respect of that Member shall be reduced to the extent that Group Life Insurance is not obtained, provided, increased or maintained or a claim is not admitted in respect of that Member. On 10 November 2009, the Trustee entered into a group life insurance policy with ING Life Limited. In broad summary, that policy provided for the payment of death benefits, terminal illness benefits and total and permanent disability benefits in respect of an insured member of the Fund. The Trustee accepted the obligation to pay the premiums. It defined a member as a person who was accepted as a member of the Fund from time to time. ING Life Limited later changed its name to OnePath, but remained the insurer of the group life policy and for the benefit of the members of the Fund until 30 November 2011. On 26 July 2010, Dr Sharma became a member of the Fund. In that capacity he became entitled to receive the benefit of the base cover as provided for in the group life policy. Like each member of the Fund, he was not required to submit to any form of medical examination and nor was he required to make any form of declaration as to the state of his health to the Trustee or the insurer. That beneficial aspect of group life insurance policies was described by the Law Commission (Consultation Paper 182) and The Scottish Law Commission (Discussion paper 134) in the Joint Consultation Paper (2007): Insurance Contract Law: Misrepresentation, Non-Disclosure and Breach of Warranty by the Insured, at paragraph 6.13 as:Group insurances are underwritten on a different basis to individual contracts. In particular there is less concern about the risk presented by individuals, since this is less significant when viewed within a pool of employees. Typically, an insurer will grant a level of “free cover”. This is cover granted to each member without individual underwriting - that is, without collecting any information from the member or from other sources such as the employer or the member’s doctor. Certain basic requirements must still be satisfied. These basic requirements might include the fact that the member is within a given age range or not on sick leave on the day the policy commences.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

I return to consider how this provision operates in this case in detail in the balance of these reasons.The Decisions, the Complaint and other Preliminary Matters On 6 July 2017, CommInsure corresponded with the executors of the Estate. In substance the insurer summarised the extent of the investigations that it had undertaken into the medical history of Dr Sharma and stated that OnePath, in reliance upon the answers given by Dr Sharma in his application of 22 March 2011, had agreed to provide additional cover to him as a member of the Fund. The correspondence also recorded advice from OnePath to the effect that if Dr Sharma had fully disclosed his previous medical history, then the underwriters would have declined the application for additional death, total and permanent disablement and income protection insurance. The letter invited further representations before the making of a final decision as to whether the insurer would seek to avoid the contract of life insurance. It is not apparent that further information was provided by the Estate. In further correspondence of 16 August 2017, CommInsure advised the Estate that it had concluded its assessment of the claim and had decided to “avoid the late Mr Sharma’s increased Life/Terminal illness, IP and additional TPD covers pursuant to s 29(2) of the Insurance Contracts Act, on the basis that if he had complied with the duty of disclosure increased Life/terminal Illness, IP and additional TPD cover would not have been offered to him on any terms.” In an earlier paragraph, the decision is expressed as avoidance or cancellation from inception, but nothing in my view turns on any difference in apparent meaning. What is clear is that CommInsure made that decision pursuant to s 29(2) of the ICA which provides that an insurer “may avoid” the contract for fraudulent non-disclosure or misrepresentation. Separately, the Trustee resolved on 30 August 2017 that: “as per the terms and conditions of the policy, all additional cover above the default amount should be declined as per section 21 of the ICA due to the misrepresentations made on the late member’s application” (sic). I infer the reference to s 21 was intended to be to s 29. Various forms of internal review and assessment were then engaged in, which need not be essayed in these reasons save to observe that the claim was not resolved to the satisfaction of the Estate. On 21 March 2019, the Trustee corresponded with the Estate, advised that it had reviewed the decision of the insurer “so that every member gets a fair result” but had concluded that “as per the terms and conditions of the policy, we regret to advise all cover above the default amount has been avoided from inception on the basis of non-disclosure of the relevant medical history when applying for additional insurance cover.” On 14 January 2020, the legal practitioners for Mrs Sharma lodged a complaint with AFCA and named her as the complainant. It was framed as a complaint about the decision of the Trustee, although in the complaint summary one sees various references to OnePath and CommInsure and the decision of the latter to avoid the policy. Mrs Sharma sought compensation in the amount of $1,673,225.00.The Insurers

Ratio Decidendi

Legal Principle Established

The appellant frames the following as the questions of law that arise in this appeal:a.Whether, AFCA having found that it was not satisfied that s. 29(i)(c) of the Insurance Contracts Act 1985 (“ICA”) applied, s. 26(2) of the ICA prevented a conclusion that the deceased made a misrepresentation to the Second Respondent (“AIA”) in December 2011?b.Whether there was any evidence that, alternatively whether the findings do not provide a sufficient basis for the conclusion that the deceased made a fraudulent misrepresentation to AIA in December 2011 or that conclusion was irrational?c.Whether there was any evidence that, alternatively whether the findings do not provide a sufficient basis for the finding that AIA relied upon a misrepresentation by the deceased in providing cover to the deceased in December 2011 under a group insurance contract with the First Respondent (“the policy”).d.Whether s. 33 of the ICA would prevent AIA from taking an action for damages for deceit at common law or in equity against the estate of the deceased?e.Whether there was any evidence that a court approved transfer scheme transferred to AIA a cause of action for damages for deceit at common law or in equity against the estate of the deceased in respect of misrepresentation by the deceased in December 2011?f.Whether:1.there was any evidence that, alternatively whether the findings do not provide a sufficient basis for the determination that it was fair and reasonable for AIA;2.it was contrary to law and to the terms of the policy and in breach of s. 1055(7) of the Corporations Act 2001 for AFCA to determine that it was fair and reasonable for AIA not to pay benefits under the policy to the First Respondent because the common law or equity would allow AIA to recover those benefits from the estate of the deceased due to the deceased’s fraudulent misrepresentation?(The emphasised words were inserted by way of amendment during argument). Building upon these questions, the appellant’s grounds of appeal are:1.AFCA found that it was not satisfied that s. 29(i)(c) of the ICA applied. It determined that the deceased made a misrepresentation to AIA in December 2011. It should have determined that s. 26(2) of the ICA prevented a finding that the deceased made a misrepresentation to AIA in December 2011.2.AFCA concluded that the deceased made a fraudulent misrepresentation to AIA in December 2011. There was no evidence that, alternatively the findings do not provide a sufficient basis for the conclusion that, the deceased made a fraudulent misrepresentation to AIA in December 2011.3.AFCA concluded that AIA relied upon a misrepresentation by the deceased in providing cover to him under the policy in December 2011. There was no evidence that, alternatively the findings do not provide a sufficient basis for the conclusion that, AIA relied upon a misrepresentation by the deceased in providing cover to the deceased in December 2011 under the policy.4.AFCA found that AIA was entitled to and would have recovered damages for deceit at common law or in equity against the estate of the deceased. S. 33 of the ICA would have deprived AIA of any such entitlement and/or prevented AIA from taking any such action.5.AFCA found that a court approved transfer scheme transferred to AIA a cause of action for damages for deceit at common law or in equity against the estate of the deceased in respect of a misrepresentation by the deceased in December 2011. There was no evidence that any court approved transfer scheme effected any such transfer.6.AFCA determined that it was reasonable for AIA not to pay the benefits payable under the policy to the First Respondent because the common law or equity would allow AIA to recover those benefits from the estate of the deceased due to the deceased’s fraudulent misrepresentation. But there was no evidence for, alternatively the findings do not provide a sufficient basis for that determination. Further, that determination was contrary to law and contrary to the terms of the policy and in breach of s. 1055(7) of the Corporations Act 2001.