On 10 October 2018, Judge Murphy of the County Court of Victoria upheld Westpac’s avoidance of Ms Finadri’s Life, TPD and Income Protection (IP) cover pursuant to s29(2) of the Insurance Contracts Act 1984 (Cth) (ICA). The case is instructive regarding the factors that a court will consider in determining whether a fraudulent breach of the duty of disclosure has occurred. Background The plaintiff and her brothers worked for her family company, Finadri Windows Pty Ltd. Since 2006, the company held with Westpac Life Insurance Services Limited (Westpac) ‘Key Person Insurance’ (KPI) policies in the names of the plaintiff and her two brothers. Since 2006, the plaintiff also held (in her own name) Life, TPD and IP cover with Westpac. In 2009, an advisor, Mr Campbell (the Advisor) attended the company at the invitation of one of the brothers to review the suitability of all the policies. The plaintiff met with the Advisor on 17 June 2009 and completed a number of documents relating to changes to the KPI policies, including a Personal Information Statement that contained disclosures regarding her state of health. The disclosures made in this document formed the basis of the policy avoidance and were critical at trial. The plaintiff met the Advisor again about one month later (August 2009) in relation to the policies held in her name. Changes were proposed to those and the plaintiff completed further proposal documents. However the Advisor did not require her to complete the parts that required disclosure regarding her health. When the Advisor sent the August 2009 documents to underwriters, he requested they also refer to her recent KPI cover for her full Personal Statement. In 2010, the plaintiff suffered a major health breakdown and has not worked since. She made a claim on these policies and Westpac paid IP benefits for a period, but later avoided all covers pursuant to s29(2) ICA and filed a counter-claim to recover the IP benefits paid. At the hearing, Westpac called three witnesses – the Advisor and two underwriters, including the original underwriter. Both underwriters gave evidence that no contract of life insurance would have been offered had proper disclosure been made. Non-disclosures and plaintiff’s explanations Many medical conditions were not disclosed, despite that the plaintiff had received treatment for each condition in the six months before completing the Personal Statement: Smoking and nicotine replacement. The plaintiff disclosed that she was a non-smoker and denied using nicotine replacement in the previous three months. In fact, she had been a smoker for many years prior to 2009. Leading into 2009, she had attempted to quit in conjunction with the use of Champix, which she was still taking in late May 2009. There was evidence that she had smoked two cigarettes in the two months prior to 12 June 2009, and by November 2009 was smoking two cigarettes per day. In cross examination, the plaintiff conceded that her answer regarding whether she was a smoker was, to her knowledge, not true and that she knew that Champix was a nicotine replacement. Back and neck. The plaintiff disclosed that she had not had any spine, neck or back injury, pain, strain or disorder. In fact, in February and March 2009 the plaintiff had been prescribed Valium and Panadeine Forte for severe back pain. She reported suffering neck and back problems from January 2009 and admitted in cross- examination to knowing when completed the Personal Statement that her ‘no’ answer was not true. Skin lesion. The plaintiff disclosed that she did not suffer any skin lesions. In fact, in the months before June 2009 she complained to a number of doctors of skin issues and problems affecting her lower legs. She described these as ‘itchy’, ‘lumpy’ and ‘swollen’ patches on her lower legs and was prescribed Cortisol. Joint problems. The plaintiff disclosed that she had no joint problems. In cross examination, she conceded that she had joint problems in her feet, ankles, knees, hips and hands in the 12 months before June 2009 and that she knew that her ‘no’ answer was not true. Operations, investigations or consultations. The plaintiff failed to disclose that she suffered a knee arthroscopy on 28 May 2009, a ‘tummy tuck’ in 2006, numerous MRIs and x-rays and had seen a neurosurgeon for her back. ‘Catch all’ question and medications. Related to the above, the plaintiff did not make any disclosures in answer to the ‘catch all’ question and disclosed no relevant use of medications. Both answers were untrue. The plaintiff offered four explanations for her non-disclosures: That Westpac could not rely on the disclosures made in the Personal Statement completed June 2009 to avoid the covers which she owned (as opposed to the KPI policies). This argument was rejected. As Westpac had not required her to complete the questions that related to her health in the August 2009 proposal, Westpac had waived its rights under s21 ICA to require proper disclosure and that Westpac was not entitled to rely on any breach of the duty of disclosure in the June proposal, as that was made in the context of KPI cover being sought in the name of the company. That the Advisor rushed her to complete the medical questions in the June 2009 Personal Statement. The plaintiff, however, conceded that despite being rushed (which was not accepted), she had skimmed the statement enough to know whether to answer the questions ‘yes’ or ‘no’. That she did not breach her duty of disclosure, because in June 2009 she believed that her health was excellent. She had recovered well from the left knee arthroscopy, had no further problems with her back and knees, had had minimal time off work and was planning to fall pregnant. She said the June proposal enquired after ‘conditions’, whereas she did not consider she had any ‘conditions’. She argued that a reasonable person would not have regarded her symptoms as being relevant to the insurer’s risk. Court’s decision and reasons The court upheld Westpac’s avoidance of the policies pursuant to s29(2) ICA on the following bases: A finding of fraudulent non-disclosure by the plaintiff. The court found fraud on the basis that the plaintiff was at least consciously indifferent to the truth of her answers. Three factors were important to the court’s finding: The significant amount of medical evidence showing the existence of the medical conditions before the risk commencement date Her concessions in cross-examination that some of her answers were false also supported that her answers to other questions were not true The court attached significance to the fact that the explanations provided by the plaintiff for her non-disclosures in evidence differed from the explanation that she provided in response to a ‘show cause’ letter before the policies were avoided. Where there were contradictions, the court preferred the evidence of the Advisor. This finding was made despite the Advisor having no recollection of the meetings, relying instead on his usual practice. In rejecting the plaintiff’s argument that her breaches could be explained on the basis that the Advisor rushed her during the June 2009 meeting, the court found that the Advisor had no interest in rushing her, since he was responsible for the company’s insurances and in light of the continuing relationship between Westpac and the company. It would not be in his personal interest to alienate the company by rushing a key employee in relation to details of her personal insurance arrangements. The court also took into account that the plaintiff had been prepared to lie to doctors to obtain scripts. That Westpac was entitled to rely on the June 2009 disclosures to determine whether to issue the policies which the plaintiff owned. The court held that in August 2009 (when it issued the personal covers), Westpac was entitled to rely on the continuing representations as to the relevant state of affairs by the plaintiff in the June proposal. Additionally, Westpac could rely on the June disclosures despite that those were made in relation to a policy to be owned by a different insured (the company, as opposed to the plaintiff). No waiver. For the same reasons as discussed in the preceding point, the court found that Westpac had not waived its right to require proper disclosure by reason of not requiring the plaintiff to complete the health questions in the August 2009 proposal. The court also found that as the policy avoidance had been upheld, Westpac was entitled to recover the IP benefits paid. Implications for insurers assessing non-disclosure cases The most important factor in establishing fraud is to convince the court not to accept the plaintiff as a witness of truth. It is also important to disprove the explanation the plaintiff proffers for the breach. This was established in Finadri by a combination of calling the Advisor whose usual practice contradicted the plaintiff’s account, tendering medical evidence to establish non-disclosures, proving the plaintiff was prepared to lie on other issues, and obtaining concessions from the plaintiff in cross-examination. If the explanations provided by a plaintiff for non-disclosure changes over time, that can weigh against any explanation being accepted. Fraud for s29(2) ICA can be established by proving conscious indifference to the truth. Witnesses. It is important to call the original underwriter as well as witnesses such as advisors who can give evidence regarding the circumstances in which the proposal documents were completed. The importance of contemporaneous documents. Where the plaintiff’s evidence on issues such as her medical history and her dealings with the advisor were contradicted by contemporaneous documents, the court preferred the version consistent with contemporaneous documents The court considered significant probative weight should be given to contemporaneous records as the lapse of time from the matters recorded in the documents makes the matters recorded in the documents inherently more plausible than inconsistent oral evidence from the plaintiff based on her recollection many years later.
