The corporate regulator has been rebuked by the Full Federal Court after losing an appeal over pre-existing condition wording used by HCF Life, in a ruling that gives insurers a clearer line between misleading policy terms and unfair contract terms.
The court on Friday dismissed ASIC’s appeal against an earlier finding that a pre-existing condition term used across HCF Life’s Recover insurance products was not unfair, even though the same wording had been found to mislead the public.
HCF Life was also awarded its appeal costs.
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The original October 2024 case centred on product disclosure statements for three HCF Life products, which ASIC alleged overstated the insurer’s right to reject claims linked to pre-existing conditions.
ASIC said the term gave customers the impression the insurer could refuse a claim if a medical practitioner later decided signs or symptoms of an illness existed before the policy began, even where the customer had not been diagnosed.
“By including a term that was liable to mislead consumers and that purported to give HCF a broader right to deny coverage than was the case, HCF Life misled consumers about their rights,” ASIC deputy chair Sarah Court said at the time.
The Federal Court agreed the wording was liable to mislead the public, and HCF Life was fined $750,000 in May.
But the court rejected ASIC’s separate argument that the clause was also unfair, a finding with higher stakes after 2023 reforms exposed companies to substantial penalties for each unfair contract term.
Had ASIC succeeded, insurers could have faced a tougher precedent that made misleading or overstated exclusions vulnerable to being struck out as unfair contract terms.
ASIC appealed the decision, saying it wanted to clarify how unfair contract term laws apply to insurance contracts where other statutory protections may also limit an insurer’s rights.
The regulator said it was “concerned” the same term could be found liable to mislead the public but not be unfair and that the wording created a “significant imbalance” between HCF Life and policyholders.
The Full Court rejected that argument, finding the regulator had agai not shown the term caused the kind of practical disadvantage needed to make it unfair.
The judges said ASIC’s evidence “rose no higher than a theoretical possibility”.
In a pointed judgment, Justice Derrington said it was “a matter of great concern” that a trend appeared to be developing in regulatory enforcement appeals where parties felt “unconstrained” by the way a case was run at first instance.
“Appeals by way of rehearing are not de novo [new] proceedings,” he said.
“Rather, they are for the correction of error.”
