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Catriona Smith v OnePath Life Limited  NSWSC 1185
The proceeding relates to the plaintiff’s claim for a death benefit on the life of Mr Larcombe (the Deceased) under a policy of insurance issued by OnePath Life (OnePath) (the Policy).
On 30 October 2014, the Deceased applied for the Policy, and represented that he did not smoke (at least in the last 12 months) and had never used drugs. In response to the following questions contained in the application form, the Deceased answered ‘no’:
In reliance upon these representations, OnePath issued cover with a substantial Death Benefit.
The Deceased died on 19 August 2016. The plaintiff made a claim for payment of the Death Benefit (the Claim).
Evidence emerged that the Deceased used illicit drugs prior to Policy inception, and OnePath thus avoided the Policy.
After proceedings were commenced, OnePath obtained an order that the plaintiff answer interrogatories. As a result, the plaintiff, who was the Deceased’s partner, was required to admit that prior to Policy inception on 21 November 2014:
These answers to interrogatories then formed the basis of the underwriting evidence, that had this drug use been known, death cover would not have been issued on any terms, and had there been no drug use and had the Deceased disclosed that he had smoked 12 months prior to the Application, “smoker rates” would have been charged.
At hearing, the court determined all issues in OnePath’s favour including that the Deceased fraudulently failed to comply with the duty of disclosure imposed by s21(1) of the ICA; and that OnePath’s avoidance under s29(2) of the ICA should be upheld.
The only witnesses who gave evidence were the plaintiff and a treating doctor. The plaintiff conceded in cross examination that:
OnePath called evidence that the Deceased had a significant and long-standing history of taking a range of illicit drugs, usually cocaine, but also base amphetamine, ecstasy and crystal methamphetamine. OnePath drew attention, in particular, to:
The thrust of the plaintiff’s argument was that the Deceased used cocaine in social settings, on special occasions or celebrations when a number of people used it in the same way as others may drink alcohol together, and that it was a normal social activity within his social circle, even though it involved illicit drugs. The plaintiff characterised the Deceased’s drug use as recreational, occasional, irregular and sporadic. The plaintiff argued that the evidence did not establish any significant use of cocaine beyond that which she gives evidence of having observed.
The plaintiff submitted that the Deceased did not know and that a reasonable person in his position would not have known that ‘occasional social use of cocaine was relevant to the decision of OnePath to insure his life, in circumstances where he was relatively young, of good health, self-employed in the finance business, earning a good income, and in a de-facto relationship, with one young child.’
OnePath called evidence from the original underwriter (that was not challenged) that:
In finding in favour of OnePath, the court found that the Deceased’s failure to disclose drug use was fraudulent. The court also found that the Deceased was a smoker, and his answers to the questions regarding smoking in the application were false.
In particular, the court made the following findings:
The court also rejected that the fact that the Deceased had made some disclosures in the application, including the correct name of a GP established his lack of fraud. Rather, the court found his disclosures were consistent with a finding of fraud, as nothing in the Application would have alerted OnePath to any problem. It was significant that the Deceased gave an inaccurate answer that his most health check was due to age (in fact he attended as he binged on cocaine) and he made no disclosure that he was a smoker.
The life insurance industry is well aware that fraudulent breach of the duty of disclosure is difficult to prove, especially when the insured is dead. The insurer needs to rely on inferences to establish fraudulent intent. This judgment establishes that fraud can be established despite the death of the insured.
The admissions made by the plaintiff regarding the Deceased’s drug use, as a result of administering interrogatories, was critical to OnePath’s success. Interrogatories are a useful tool in obtaining admissions prior to a hearing, which assists an insurer determine the strength of its case, prior to proceeding to hearing.
Note: the authors of this article appeared for OnePath in the proceedings.
Further information / assistance regarding the issues raised in this article is available from the authors Catherine McAdam – Partner and Ellen Ryan – Lawyer or your usual contact at Moray & Agnew.